Process: 478/2015-T

Date: December 19, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitration case concerns the application of Stamp Tax (Imposto do Selo) under item 28.1 of the General Stamp Tax Table (TGIS) on high-value urban properties in Portugal. The claimant, a Portuguese company, challenged Stamp Tax assessments totaling €13,845.90 on a vertically-owned urban property in Lisbon, arguing the Tax Authority incorrectly calculated the tax base. The central dispute revolves around whether Stamp Tax should be levied on the total patrimonial value of the entire property or on the individual values of each independent unit capable of autonomous use. The claimant contended that since item 28.1 refers to the Municipal Property Tax (IMI) rules for determining the tax base, and vertically-owned properties comprise independent units registered and valued separately, each unit should be taxed individually rather than applying the tax to the aggregate property value. The claimant further argued that the Tax Authority's interpretation violates constitutional principles of equality, proportionality, and contributive capacity under Articles 13, 18, and 104(3) of the Portuguese Constitution. Additionally, the claimant sought compensation for undue guarantee provision under Article 53 of the General Tax Law (LGT), claiming the erroneous assessments were attributable to the Tax Authority. The Respondent raised a preliminary objection regarding the CAAD tribunal's material competence to hear claims concerning collection notices rather than assessment acts, and substantively defended that vertically-owned properties must be treated as single taxable units with their value corresponding to the sum of all independent units. This case illustrates important procedural and substantive issues in Portuguese tax arbitration, including the scope of CAAD jurisdiction, the interpretation of Stamp Tax provisions on real estate, and taxpayers' rights to compensation for guarantees provided during allegedly unlawful tax collection procedures.

Full Decision

ARBITRAL DECISION

I. REPORT

A…, S.A., Tax Identification Number…, with registered address at Av…, n.º …–…, in Lisbon (hereinafter referred to only as the Claimant), filed, on 24-07-2015, a request for establishment of a singular arbitral tribunal, in accordance with articles 2 and 10 of Decree-Law n.º 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as LFATM), in conjunction with paragraph a) of article 99 of the Tax Procedural Code, in which the Tax and Customs Authority is the Respondent (hereinafter referred to only as the Respondent).

The Claimant requests the declaration of illegality of the acts of assessment of Stamp Duty ("SD") of item 28.1 of the General Table of Stamp Duty ("GTSD"), due by reference to the urban property registered under article … in the urban property register of the parish of …, municipality of Lisbon, in the total amount of € 13,845.90. Finally, the Claimant also requests the condemnation of the Tax and Customs Authority to pay compensation for undue guarantee provision, in accordance with article 53 of the General Tax Law ("GTL").

The request for establishment of the arbitral tribunal was accepted by the Honorable President of CAAD on 27-07-2015 and notified to the Tax and Customs Authority on that same date.

In accordance with the provisions of paragraph a) of section 2 of article 6 and paragraph b) of section 1 of article 11 of the LFATM, the Ethics Council appointed as arbitrator of the singular arbitral tribunal the undersigned, who communicated acceptance of the appointment within the applicable time period.

On 21-09-2015, the Parties were duly notified of this appointment, and neither manifested the intention to refuse the appointment of the arbitrators, in accordance with the combined provisions of article 11, section 1, paragraphs a) and b) of the LFATM and articles 6 and 7 of the Ethics Code.

In compliance with the provisions of paragraph c) of section 1 of article 11 of the LFATM, the singular arbitral tribunal was established on 07-10-2015.

In the response presented, the Respondent raised the exception of material incompetence of this tribunal to hear the claim filed.

Notified for this purpose, the Claimant presented a written response to the exception invoked by the Respondent, concluding for the groundlessness of the same.

By order of 17-11-2015, the meeting provided for in article 18 of the LFATM was dispensed with, as well as the presentation of oral or written arguments.

The Arbitral Tribunal was regularly established and is competent.

The parties have tax and judicial capacity and standing (articles 4 and 10, section 2, of the same diploma and article 1 of Ordinance n.º 112-A/2011, of 22 March).

The proceedings do not suffer from any nullities.

II. THE CLAIMANT'S CLAIM

The Claimant alleges, succinctly, the illegality of the assessments that gave rise to the collection notices for the first and second installments of SD of item 28.1 of the GTSD with reference to the property in vertical ownership located at Av…, n.º…, of the parish…, in Lisbon, registered in the urban property register of said parish under article…, inasmuch as they took as the basis for the occurrence of the tax the total patrimonial value of the property and not the individual values of each of the independent parts allocated to housing. By express legal referral, the basis for the occurrence of Stamp Duty of item 28.1 of the GTSD should be the same as that of the Municipal Tax on Real Estate ("MTRE"). To that extent, given that a property in vertical ownership is composed of units capable of independent use "(…) the value to be considered for purposes of applying item n.º 28 of the GTSD will always have to be that which appears in the register of each of the independent units that make up the property and not the global value thereof, resulting from the sum of those values taken as individual" (cf. article 33 of the petition). This same would result from the fact that, in the context of MTRE, there is no distinction between properties in horizontal ownership and those in vertical ownership, all being subject to the same rules for registration in the register, valuation, and assessment.

The Claimant further understands that the norms which form the basis for the assessment of the tax now contested, in the interpretation given by the Respondent, would be unconstitutional by violation of the principles of equality, proportionality, and contributive capacity, in accordance with articles 13, 18, and 104, section 3, of the Constitution of the Portuguese Republic ("CPR").

The Claimant concludes, then, summarily that:

"a) the Stamp Duty assessments now impugned – brought to the knowledge of the Claimant through the 33 notifications of Stamp Duty assessment supra identified in paragraphs 6 and 7 of this petition – are illegal, by violation of the norm of occurrence provided in item n.º 28 of the GTSD, combined with articles 2, 4, 6, section 1, paragraph a), 6, section 2, and 12, section 3, all of the MTRE Code (applicable by force of section 2 of article 67 of the Stamp Duty Code);

b) item n.º 28 of the GTSD is unconstitutional, by violation of the principles of equality and contributive capacity, inherent in articles 13 and 104, section 3 of the CPR;

c) the interpretation of the TA in the sense that the assessments of the Stamp Duty provided for in item n.º 28 of the respective General Table, relating to the year 2014, may be made without regard to the patrimonial value of each division with independent use is also unconstitutional, by offense of the principles of equality and contributive capacity, inherent in articles 13 and 104, section 3 of the CPR;

d) The declaration of illegality of said norm of occurrence and the consequent annulment of the acts of assessment of Stamp Duty now impugned is required, by virtue of the authority of the res judicata of the arbitral decision rendered in case n.º 480/2014-T of this CAAD."

Finally, the Claimant also requests the condemnation of the Respondent to pay compensation for undue guarantee provision, in accordance with article 53 of the GTL, by considering that the SD assessments now contested result from error attributable to the Respondent.

III. THE RESPONDENT'S RESPONSE

In the response filed, the Respondent invokes, in the first instance, the exception of material incompetence of this tribunal by considering that the claim filed by the Claimant has as its object the collection notices for the first and second installments of SD of item 28.1 of the GTSD, and not a true tax act. To that extent, under the rules of competence of arbitral tribunals, set forth in articles 2 and 10 of the LFATM, one would have to conclude that this tribunal is incompetent to hear the claim filed by the Claimant.

Without conceding, the Respondent considers that the Claimant's claim does not merit approval inasmuch as in properties not subject to horizontal ownership, the units capable of independent use have no autonomy; the autonomization for purposes of property register registration and valuation does not conflict with their legal-tax nature, the law determining that the value of the property will necessarily correspond to the sum of the value of the various independent units. Units of independent use cannot be considered as "properties" in accordance with the legal definition, wherefore they cannot be relevant for purposes of the occurrence of item 28.1 of the GTSD. For purposes of this norm, one must therefore take into account the patrimonial value of the property in vertical ownership which corresponds, in accordance with the law, to the sum of the values of each unit capable of independent use. The Respondent further alleges that the interpretation defended by the Claimant will imply the unconstitutionality of item 28 of the GTSD by violation of the principle of legality imposed by article 103 of the CPR insofar as it would result in the analogical application of the rules provided for properties in horizontal ownership to properties in full ownership without, furthermore, considering the existence of a true gap in the law (although the wording of article 41 of the response concludes exactly the opposite, this tribunal considers it to have been a mere writing error, having regard to everything that has been alleged in the response presented).

Advocating for the dismissal of the Claimant's claim, the Respondent thus concludes that:

"A) Item 28.1 of the General Table of Stamp Duty applies to urban properties with housing allocation.

B) The patrimonial tax value equal to or greater than € 1,000,000.00 upon which the application of this legal norm depends is, as clearly results from its wording, the patrimonial value of each property and not of its distinct parts, even though capable of independent use.

C) The unit of the urban property in vertical ownership composed of various floors or divisions is not, however, affected by the fact that all or part of those floors or divisions are capable of independent economic use.

D) Any other interpretation violates the principle of legality inscribed in article 103, section 2, of the Constitution of the Portuguese Republic.

E) The principles of tax equality and contributive capacity only prohibit arbitrary or unjustified discriminations, but not discriminations possibly justified by the more evolved character of the institutes or by the coherence of the tax system.

F) Law n.º 55-A/2012, of 29 October, does not represent any violation of the prohibition of retroactive taxation.

G) Thus, the tax act in question violated no legal or constitutional provision, and should, therefore, be maintained in the legal order."

IV. RESPONSE TO THE EXCEPTION

Notified to pronounce itself on the exception raised by the Respondent, the Claimant advocated for the groundlessness of the same inasmuch as the Claimant's claim is directed to the acts of assessment of SD of item 28.1 of the GTSD of the year 2014 that gave rise to the collection notices identified in the proceedings and not to the collection notices issued, as the Respondent concludes.

The Claimant further states that, since the TA does not notify taxpayers of the acts of assessment of SD, but only of the collection documents, "(…) the said "Collection Notices" were identified and attached to the Initial Petition only with the purpose of identifying all the factual elements underlying the acts of assessment that – those themselves – constitute the object of the petition for arbitral pronouncement and, also, to document the only and sparse notification of which the Claimant, as a taxable person, had been the recipient."

The interpretation that the Respondent makes of the petition for arbitral pronouncement results from an unfounded interpretation of the initial petition and is sustained in the arbitral decision rendered in case n.º 726/2014-T which has nothing to do with the question at issue in the present proceedings, insofar as in that case the legality of the acts of assessment relating to the second installments of Stamp Duty of the year 2013 was discussed.

Therefore, the exception invoked by the Respondent should be dismissed.

V. MATTERS OF FACT

A. Facts Proven

The following facts are considered proven:

  1. The Claimant is a commercial company whose purpose is the realization of real estate investments.

  2. On 31 December 2014, the Claimant was the owner of the urban property located at Av…., n.º…, in Lisbon, registered in the urban property register of the parish…, under article…, described in the Real Estate Registry of … under n.º … of the parish of….

  3. The property referred to in the previous point has 19 units capable of independent use.

  4. Of the units capable of independent use, 17 are allocated to housing.

  5. None of the units capable of independent use has a patrimonial value greater than € 1,000,000.00.

  6. In April and June 2015, the Claimant was notified to proceed with the payment of the first and second installments of SD of item 28.1 of the GTSD, of the year 2014, in a total of € 9,230.60.

  7. From the collection documents issued, it appears that the tax assessments were made on 20 March 2015, with the Respondent calculating the following collection amounts:

a) U-…-RCD – Patrimonial Value € 66,820.00 – Collection: € 668.20;

b) U-…-RCE – Patrimonial Value € 66,820.00 – Collection: € 668.20;

c) U-…-1D – Patrimonial Value € 68,770.00 – Collection: € 687.70;

d) U-…-1E – Patrimonial Value € 68,770.00 – Collection: € 687.70;

e) U-…-2D – Patrimonial Value € 68,770.00 – Collection: € 687.70;

f) U-…-2E – Patrimonial Value € 68,770.00 – Collection: € 687.70;

g) U-…-3D – Patrimonial Value € 69,460.00 – Collection: € 694.60;

h) U-…-3E – Patrimonial Value € 69,460.00 – Collection: € 694.60;

i) U-…-4D – Patrimonial Value € 69,460.00 – Collection: € 694.60;

j) U-…-4E – Patrimonial Value € 69,460.00 – Collection: € 694.60;

k) U-…-5D – Patrimonial Value € 112,190.00 – Collection: € 1,121.90;

l) U-…-5E – Patrimonial Value € 112,190.00 – Collection: € 1,121.90;

m) U-…-6D – Patrimonial Value € 112,190.00 – Collection: € 1,121.90;

n) U-…-6E – Patrimonial Value € 112,190.00 – Collection: € 1,121.90;

o) U-…-7D – Patrimonial Value € 99,920.00 – Collection: € 999.20;

p) U-…-7E – Patrimonial Value € 99,920.00 – Collection: € 999.20;

q) U-…-8E – Patrimonial Value € 49,430.00 – Collection: € 494.30.

  1. The total Stamp Duty of the year 2014 assessed with reference to the property identified in point 2 supra amounts, thus, to a total of € 13,845.90.

B. Facts Not Proven

No other facts with relevance for the arbitral decision were proven, namely the institution of any enforcement proceedings and the provision of bank guarantee or similar for its suspension.

C. Grounds for the Matters of Fact

The matters of fact given as proven are based on documentary evidence presented and not contested.

VI. MATTERS OF LAW

A. On Material Incompetence of the Arbitral Tribunal

For proper consideration of the exception raised, it is first necessary to determine and delimit concretely the object of the petition for arbitral pronouncement.

Thus, in accordance with the claim presented, it is concluded that the Claimant seeks the annulment of the acts of assessment of SD of item 28 of the GTSD that gave rise to the payment documents identified.

This same results from the text of the initial petition presented in which, summarily, the Claimant declares that it seeks "(…) the declaration of illegality and unconstitutionality of said norm of occurrence and provision of the consequent annulment of the tax acts of assessment of Stamp Duty on the property of the real estate supra referred, relating to the year 2014, in the total amount of € 13,845.90 (thirteen thousand eight hundred and forty-five euros and ninety cents), with the consequent annulment of the respective collection documents/payment notices relating to the first and second installments, already issued, as well as those relating to the third installments, if they come to be issued" (cf. article 64 of the petition).

It also results, unequivocally, from the final claim filed in which the Claimant expressly declares to seek "(...) pronouncement on the illegality of the acts of assessment of Stamp Duty object of the present impugnation and their consequent annulment, with all legal consequences".

Contrary to what the Respondent seems to conclude, the Claimant did not request the annulment of the collection notices identified in the proceedings – although such annulment be a consequence of the acceptance of the declaration of illegality of the assessment acts impugned – but rather the annulment of the tax assessments that are at their origin. To the extent that this tribunal can conclude from the Claimant's claim, what is at issue is the illegality of the assessment underlying the collection notices for the SD installments identified and not the illegality of the collection documents properly speaking.

In the view of this tribunal, the interpretation that the Respondent makes of the claim filed by the Claimant has no sustenance – even literal – in the procedural documents produced, wherefore it cannot stand.

The object of the present action is, in the view of this tribunal, the set of assessment acts that were at the origin of the collection notices attached to the proceedings. And as assessment acts which they are, they can be subject to judicial impugnation under paragraph a) of section 2 of article 95 of the GTL and paragraph a) of section 1 of article 97 of the Tax Procedural Code, or to petition for arbitral pronouncement under paragraph a) of section 1 of article 2 of the LFATM, with a view to the appreciation of their legality.

In light of the foregoing, by considering that the object of the present petition for arbitral pronouncement are actual assessment acts, it is concluded for the groundlessness of the exception of incompetence raised by the Respondent.

B. On the Illegality of Stamp Duty Assessments

The essential question to be decided in the present dispute concerns the determination of the basis for the occurrence of Stamp Duty, item 28.1 of the GTSD, when what is at issue is a property not constituted in horizontal ownership and whose units capable of independent use are intended for housing.

Specifically, it is necessary to decide whether the patrimonial value relevant as a criterion for the occurrence of tax corresponds to (i) the sum of the value of each of the units capable of independent use, as the Respondent claims, or (ii) the individual patrimonial value of each of those units capable of independent use, considered autonomously and in themselves, as the Claimant defends.

The doubt results from the interpretation of items 28 and 28.1 of the GTSD, whose wording in force on 31 December 2014 was as follows:

"28. Ownership, usufruct or right of superficies of urban properties whose patrimonial tax value appearing in the register, in accordance with the Code of the Municipal Tax on Real Estate (MTRE), is equal to or greater than € 1,000,000 - on the patrimonial tax value used for purposes of MTRE:

28.1 For residential property or for land for construction whose authorized or planned construction is for housing, in accordance with the provisions of the Code of MTRE – 1%"

The legislator did not care to establish the legal concept of "residential property," having expressly provided that to all matters not regulated in the Stamp Duty Code with reference to said item 28 of the GTSD would be subsidiarily applicable the provisions of the MTRE (cf. section 2 of article 67 of the Stamp Duty Code). It is therefore necessary to seek in the MTRE such concept so that, therefrom, it can be concluded regarding the basis for the occurrence of item 28.1 of the GTSD.

The legal definition of "property" is contained in article 2 of the MTRE, it being clarified in section 4 that "For purposes of this tax, each autonomous unit, in the horizontal ownership regime, is deemed to constitute a property".

From the reading of this article, and especially the mentioned section 4, we would be led to conclude that, for purposes of MTRE, an autonomous unit of property in horizontal ownership assumes the nature of "property" whereas a unit capable of independent use of property in vertical or full ownership would not assume such nature, having no legal-tax autonomy.

As a result of this difference in framework, it would be defensible that, for purposes of item 28.1 of the GTSD, each autonomous unit should be considered as a "property," wherefore there would only be a place for payment of such tax if, being intended for housing, it had a patrimonial tax value greater than that indicated. In the case of property in full ownership, the patrimonial value to be considered for purposes of determination of the occurrence would result from the sum of the patrimonial values of each independent unit allocated to housing – cf. paragraph b) of section 2 of article 7 of the MTRE. This is the position of the Respondent.

However, it happens that in a comparative analysis of the MTRE regime applicable to autonomous units of property in horizontal ownership and to units capable of independent use of property in vertical ownership, one concludes there is no difference whatsoever. Indeed, notwithstanding the formal legal nature being distinct, the tax regime of these figures is exactly the same. Materially, the law establishes no difference, to wit:

(i) properties in horizontal ownership and in full ownership are subject to the same rules for registration in the register, it being expressly provided in section 3 of article 12 of the MTRE that the parts capable of independent use are considered separately in the property register entry which will discriminate the respective patrimonial value;

(ii) properties in horizontal ownership and in full ownership are subject to the same rules and procedures for valuation, it being expressly determined in paragraph b) of section 2 of article 7 of the MTRE that, if the parts making up the property in full ownership are economically independent, each part is valued by application of the corresponding rules.

This identity of regime extends even further, having relevant repercussions at the level of the very assessment of the tax inasmuch as the legislator determined that the assessment of MTRE should be made with discrimination of the properties, their parts capable of independent use, and respective patrimonial tax value – cf. section 1 of article 119 of the MTRE. It is, therefore, the legislator determining that the tax assessment should be made individually, considering each economic reality (units capable of independent use) and not each legal reality (property or autonomous unit of property in horizontal ownership).

From this it is concluded that, for purposes of MTRE, the autonomous units of property in horizontal ownership and the parts capable of independent use that make up a property in full ownership have exactly the same tax treatment. But more relevant than that: for purposes of MTRE, the basis for the occurrence of the tax is determined exactly in the same way, corresponding to the own and individual value of each autonomous unit or independent part, fixed at the time of valuation and appearing in the register; the assessment is made individually and autonomously in relation to each of the independent parts of the property, whether or not autonomous units.

In the case of properties in full ownership, MTRE is not assessed on the basis of the total patrimonial value of the property, but on the basis of the individual patrimonial value of each autonomous unit that comprises it; the total collection due corresponds to the sum of the individual collections for each autonomous unit, determined on the basis of their respective individual patrimonial values. Everything proceeds in exactly the same way as that applied to autonomous units of property in horizontal ownership.

Furthermore, in accordance with item 28.1 of the GTSD, only "residential properties" are subject to taxation. Now, in properties composed of independent units with different purposes and uses – as occurs in the present proceedings (commerce and housing, as results from document n.º 2 of the petition) – the determination of the allocation can only be made on the basis of each of these units and not on the basis of the property as a whole. This same results from paragraph b) of section 2 of article 7 of the MTRE. On this aspect, it is necessary to refer to J. Silvério Mateus and L. Corvelo de Freitas, Real Estate Taxes – Stamp Duty, Annotated and Commented, Engifisco, 1st Edition, 2005, p. 121, note 5, who understand that "The rules provided in this section 2, relating to the determination of the patrimonial value of urban properties with more than one allocation, concern the diversity of some of the valuation elements provided in articles 38 and following of the MTRE, namely (….). On the other hand, this provision is in consonance with the principle of autonomization of the independent parts of an urban property, even if not constituted in horizontal ownership, provided for in section 3 of article 12." (emphasis added)

In a situation such as this, how could one conclude that the property would be residential, with parts of it allocated to other purposes?

In truth, in accordance with the valuation rules provided in the MTRE, what has an allocation is not the property as a building in its entirety but the autonomous units that comprise it, whether they are autonomous units or not. It is on the basis of the actual and material use that the allocation of each independent unit or autonomous unit is determined, the law not providing for a specific allocation for the property as a building. Each independent unit – whether or not an autonomous unit – has, therefore, its own allocation which does not "contaminate" the allocation of the property as a whole.

Therefore, it cannot be argued that "residential property" corresponds to the strict and specific concept of article 2 of the MTRE (encompassing only, for the effect we intend, buildings and autonomous units of properties in horizontal ownership) inasmuch as, as demonstrated, it would have no concrete practical applicability (as mentioned, a property in vertical ownership can have more than one allocation or purpose). In our view, in using this expression the legislator wished to refer to the property as a reality capable of allocation, hence to the independent parts that make up each property, whether or not they have the legal nature of autonomous units.

It is concluded, therefore, that, for purposes of application of item 28.1 of the GTSD, the units capable of independent use that integrate a property under full ownership regime and autonomous units are, in substance, identical realities and that, therefore, are subject to the same regime of occurrence.

To that extent, the final part of item 28 of the GTSD, in determining that the tax will apply "(…) on the patrimonial tax value used for purposes of MTRE:" expressly refers to the individual value of each independent part that comprises the property in full ownership and not to the total value of the property (corresponding to the sum of the individual patrimonial values), since it is this individual value that is considered in MTRE, for all purposes.

Furthermore, in accordance with the aforementioned section 7 of article 23 of the Stamp Duty Code, the assessment of the tax due in accordance with item 28 of the GTSD is assessed annually in accordance with the rules provided in the MTRE. And it was exactly these rules that led the Respondent to assess the tax individually for each autonomous unit and considering the respective individual patrimonial value. Hence several collection notices were issued.

Were the Respondent's understanding to apply here, there would be only one Stamp Duty assessment per property and not as many assessments as there are units capable of independent use.

Finally, it is necessary to mention that this matter has been the object of various decisions by CAAD, all in this same sense, transcribing here, by way of example, the arbitral decision rendered in case 50/2013-T, in the part to which we adhere:

"Well, being thus, considering that the registration in the real estate register of properties in vertical ownership, composed of different parts, floors or divisions with independent use, in accordance with the MTRE, follows the same registration rules as properties constituted in horizontal ownership, with the respective MTRE, as well as the new SD, assessed individually in relation to each of the parts, it offers no doubt that the legal criterion to define the occurrence of the new tax has to be the same.

Moreover, the TA admits that this is the criterion, which is why the very assessment issued is very clear in its essential elements, from which results that the value of occurrence is that corresponding to the TPV of the 2nd floor and the individualized assessment on the part of the property corresponding to that same floor.

Therefore, if the legal criterion imposes the issuance of individualized assessments for the autonomous parts of properties in vertical ownership, in the same way that it establishes it for properties in horizontal ownership, it clearly established the criterion, which must be unique and unequivocal, to define the rule of occurrence of the new tax.

Thus, there would only be a place for occurrence of the new stamp tax if one of the parts, floors or divisions with independent use presented a TPV greater than € 1,000,000.00.

The TA cannot, therefore, consider as the value of reference for the occurrence of the new tax the total value of the property, when the legislator itself established a different rule in the context of MTRE, and this is the code applicable to matters not regulated as regards item 28 of the GTSD.

The criterion intended by the TA, of considering the value of the sum of the TPVs attributed to the parts, floors or divisions with independent use, on the grounds that the property is not constituted in horizontal ownership regime, finds no legal sustenance and is contrary to the criterion that results from being applicable in the context of MTRE and, by referral, in the context of SD.

In addition to the fact that the law itself expressly establishes, in the final part of item 28 of the GTSD, that the SD to apply to urban properties of value equal to or greater than €1,000,000.00 – "on the patrimonial tax value used for purposes of MTRE."

Thus, the adoption of the criterion intended by the TA violates the principles of legality and tax equality, as well as the prevalence of material truth over legal-formal reality."

In the same sense, mention should be made of the decision rendered in case 132/2013-T, from which we transcribe the part to which we subscribe entirely:

"Indeed, it makes no sense to distinguish in the law what the law itself does not distinguish (ubi lex non distinguit nec nos distinguere debemus). Furthermore, to distinguish, in this context, between properties constituted in horizontal ownership and in full ownership would be an "innovation" without associated legal support, especially since, as has been stated here, nothing indicates, neither in item n.º 28, nor in the provisions of the MTRE, a justification for that particular differentiation. Note, exemplarily, what article 12, section 3, of the MTRE says: "each floor or part of a property capable of independent use is considered separately in the property register entry, which also discriminates the respective patrimonial tax value."

The uniform criterion that is required is, therefore, that which determines that the occurrence of the rule in question only takes place when one of the parts, floors or divisions with independent use of property in horizontal or full ownership with housing allocation possesses a TPV greater than €1,000,000.00. Setting as the value of reference for the occurrence of the new tax the total TPV of the property in question, as the then respondent intended, finds no basis in the applicable legislation, which is the MTRE, given the referral made by said article 67, section 2, of the Stamp Duty Code.

Finally, as already recalled in several Arbitral Decisions (see AD n.º 48/2013-T and AD n.º 50/2013-T), there is no evidence, in the works relating to the discussion of bill n.º 96/XII in the National Assembly, of the invocation of an interpretative ratio different from that presented here. Indeed, such measure, called a "special tax on residential urban properties of higher value," was justified by the need to comply with the principles of social equity and tax justice, imposing more significantly on the holders of properties of high value intended for housing, and, to that extent, making the new "special tax" apply to "houses of value equal to or greater than 1 million euros."

Now, if such logic appears to make sense when applied to "housing" - be it "house," "autonomous unit" or "part of property with independent use" / "autonomous unit" - because an above-average contributive capacity is presumed and, to that extent, the need for an additional contributive effort is justified, it would make little sense to begin to disregard the individual "unit by unit" calculations when only through the sum of the TPVs of the same (because held by the same individual) would the million euros be exceeded.

Furthermore, admitting the differentiation of treatment could produce incomprehensible results from the point of view of law and contrary to the objectives that the legislator said it had for adding item n.º 28. By way of example, suppose the following hypothesis, which appears plausible in light of the interpretation made by the then respondent: a citizen who is the owner of a property constituted in full ownership intended for housing, with the global value of the autonomous units equal to or greater than €1,000,000.00 and the TPV of each one less than €1,000,000.00, is subject to an annual taxation of 1% of that value (as occurred in the situation under analysis); already another citizen who holds a property with exactly the same characteristics as the previous one but that has been constituted in horizontal ownership, with the global value of the autonomous units equally equal to or greater than €1,000,000.00 and the TPV of each one less than €1,000,000.00, will not be subject to taxation in accordance with the mentioned item n.º 28.

On the other hand, one could ask: if such units have the same owner, why does it not make sense to aggregate, for purposes of taxation, the respective TPVs? The answer may be illustrated through another hypothesis: a citizen who is the owner of a property in horizontal ownership, in which each of its 20 units has a TPV less than €1,000,000.00, would be subject to taxation if – if such aggregation were admitted – the total TPV exceeded that value; already another citizen with identical 20 units distributed by 5, 10 or 20 properties would not be subject to any taxation in accordance with said item n.º 28.

If this line of reasoning makes sense – thus justifying the non-aggregation of the TPVs of the units of properties in horizontal ownership – there is no plausible reason why the same should not be applied to the autonomous units of properties in full ownership.

Observing now the case under analysis, it appears that the TPVs of the floors (autonomous units) of the property with housing allocation vary between €104,140.00 and €113,780.00, whereby any one of them is less than €1,000,000.00. From this it is concluded, as a result of what has been stated, that the stamp tax referred to in item n.º 28 of the GTSD cannot apply to them, being, therefore, illegal the assessment acts impugned by the requester."

More recently, the Supreme Administrative Court, when called upon to pronounce on the matter, came to confirm what had been the understanding of the arbitrators of the Center for Tax Arbitration, through the judgment of 09-09-2015, rendered in case n.º 047/15 (available at www.dgsi.pt), in which it concludes that: "I. With respect to properties in vertical ownership, for purposes of the occurrence of Stamp Duty (Item 28.1 of the GTSD, as redrafted by Law n.º 55-A/2012, of 29 October), the subjection is determined by the combination of two factors: housing allocation and the TPV appearing in the register equal to or greater than € 1,000,000. II. Where it is a property constituted in vertical ownership, the occurrence of SD should be determined, not by the TPV resulting from the sum of the TPV of all divisions or floors capable of independent use (individualized in the property article), but by the TPV attributed to each of those floors or divisions intended for housing."

In light of everything set forth, this tribunal concludes that the interpretation of the law now proposed is in accordance with the Constitution in that it assures equal treatment in tax matters between identical realities, giving prevalence to substance over form – an interpretative imperative imposed by section 3 of article 11 of the GTL, without need for any analogical application.

In truth, where it is a tax on real estate, the contributive capacity of each taxable person should be measured on the basis of the value of the respective real estate property intended for housing, regardless of its legal regime. Admitting as valid the interpretation of the Respondent would lead to situations in which for the same total value of real estate property, for example, € 1,200,000.00 composed of 6 apartments of € 200,000.00, there would be or would not be tax depending on whether the property was or was not under vertical ownership regime. In this hypothesis, how does the contributive capacity of a taxable person who has 6 apartments of € 200,000.00 each in a property not subject to horizontal ownership differ from that of a taxable person who has 6 apartments of € 200,000.00 each in a property in horizontal ownership. Globally, is the property not worth exactly the same?

As José Casalta Nabais refers, The Fundamental Duty to Pay Taxes, 2004, Almedina, p. 436, the constitutional principle of equality obliges the legislator to "(…) not make arbitrary or unjustified discriminations or equalizations or lacking material or rational justification or foundation, not to make discriminations based on subjective criteria or on objective criteria, but applied in subjective terms and to respect the subjective rights of equality (that is, to treat equally what is constitutionally equal and unequally what is constitutionally unequal)". Continues, furthermore, this Author (cf. p. 442) defending that "(…) we can say that the principle of tax equality requires that what is (essentially) equal be taxed equally, and what is (essentially) unequal be taxed unequally in the measure of that inequality. But the comparison of what is equal or unequal implies a criterion or a term of comparison (tertium comparationis). And this is identified with the idea of contributive capacity."

Accordingly, it is not admitted that the mere legal-formal organization of real estate property – constituted or not in horizontal ownership – can be justification constitutionally valid for differentiated treatment of taxpayers.

In light of the foregoing, there is no doubt that the interpretation defended by the Claimant and here accepted by this tribunal is the one that assures the constitutional conformity of items 28 and 28.1 of the GTSD, faced with articles 13 and section 3 of article 103 of the CPR, in that it allows "treating equally what is constitutionally equal and unequally what is constitutionally unequal," as referred to by the Author supra identified.

It is therefore groundless the Respondent's request for the rendition of a judgment of unconstitutionality of said legal norms, by violation of the constitutional principles of equality and legality.

In light of all that has been set forth above, the tribunal concludes that for purposes of application of item 28 of the GTSD to properties in full ownership, the same rules of the MTRE that apply to properties in horizontal ownership are applied, wherefore the patrimonial tax value to be considered for purposes of occurrence will be the individual proper value of each unit capable of independent use.

The material substance is what is required as the determining criterion of contributive capacity and not the mere legal-formal reality of the property, wherefore, materially, the tax regime applicable to properties in full ownership is exactly the same as that applied to properties under horizontal ownership.

None of the independent units that make up the property identified and owned by the Claimant presents a value greater than € 1,000,000, wherefore the minimum quantitative assumption for purposes of occurrence of item 28.1 of the GTSD is not verified.

For all these reasons, this tribunal considers the Claimant's claim to be well-founded, concluding that the acts of assessment of Stamp Duty due in accordance with item 28.1 of the GTSD, with reference to the year 2014, contained in the documents attached to the proceedings suffer from the vice of violation of law, due to error regarding the factual and legal assumptions, which justifies their annulment [article 135 of the Code of Administrative Procedure, applicable by force of the provision in article 2, paragraph c), of the GTL].

Furthermore, the allegation of unconstitutionality of item 28.1 of the GTSD is considered groundless, by violation of the principles of equality and legality provided for in articles 13 and section 3 of article 103 of the CPR, respectively, made by the Respondent, in the manner described above.

C. On the Claim for Compensation for Undue Guarantee

The Claimant finally formulates the request for condemnation of the Respondent to pay compensation for the costs incurred with the provision of guarantee, in accordance with article 53 of the GTL, by considering that there was error attributable to the TA.

However, it results from the list of facts proven that it was not proven that enforcement proceedings had been instituted for collection of the assessed tax, nor that the Claimant had provided any guarantee.

Thus, not having been alleged and proven that guarantee was provided, the request for recognition of the right to compensation must be judged groundless, without prejudice to that right being able to be recognized including in execution of judgment, if such provision occurs.

VI. DECISION

In accordance with the foregoing, this Arbitral Tribunal decides:

A) To judge the petition for arbitral pronouncement well-founded, as to the request for annulment of the assessments of Stamp Duty relating to the year 2014 impugned by the Claimant;

B) To annul said assessments, in a total of € 13,845.90;

C) To judge the petition for arbitral pronouncement groundless insofar as compensation for guarantee is requested, absolving the Tax and Customs Authority of the request in this part.

Process value: In accordance with the provisions of article 306, section 2, of the Civil Procedure Code and 97-A, section 1, paragraph a), of the Tax Procedural Code and section 3, paragraph 2, of the Regulations on Costs in Tax Arbitration Proceedings, the process value is corrected to € 13,845.90, corresponding to the total of the acts of assessment of Stamp Duty of the year 2014 with reference to the property identified in the proceedings.

Costs: In accordance with section 4 of article 22 of the LFATM, the amount of costs is set at € 918.00, in accordance with Table I attached to the Regulations on Costs in Tax Arbitration Proceedings, at the charge of the Tax and Customs Authority.

Let this arbitral decision be registered and notified to the parties.

Lisbon, 19-12-2015

The Singular Arbitrator

(Maria Forte Vaz)

Frequently Asked Questions

Automatically Created

What is Stamp Tax under Verba 28.1 of the Portuguese General Stamp Tax Table (TGIS) on high-value urban properties?
Stamp Tax under item 28.1 of the Portuguese General Stamp Tax Table (TGIS) is an annual tax levied on urban properties located in Portugal with a taxable patrimonial value exceeding certain thresholds. Introduced as an additional tax on high-value real estate, it applies to urban properties whose value, as determined for Municipal Property Tax (IMI) purposes, meets the statutory minimum. The tax rate and calculation method reference IMI valuation rules established in the Municipal Property Tax Code (CIMI). The key interpretative issue in this case concerns whether, for vertically-owned properties (not subject to horizontal property regime), the tax should apply to the total property value or to each independent unit separately. The law states that the taxable base follows IMI rules, where independent units capable of autonomous use are registered and valued individually in the property registry, creating ambiguity about whether such units should be treated as separate properties for Stamp Tax purposes or aggregated as a single taxable property.
Can a taxpayer claim compensation for an undue guarantee under Article 53 of the General Tax Law (LGT) in CAAD arbitration?
Yes, taxpayers can claim compensation for undue guarantee provision under Article 53 of the General Tax Law (LGT) in CAAD tax arbitration proceedings. Article 53 LGT establishes the right to compensation when taxpayers provide guarantees to suspend tax collection during administrative or judicial proceedings, and those guarantees prove to have been unduly required due to errors attributable to the Tax Authority. In this case, the claimant specifically requested such compensation alongside the main claim for annulment of the Stamp Tax assessments. However, the Tax Authority raised a preliminary objection regarding the tribunal's material competence to decide compensation claims, arguing they fall outside CAAD's jurisdiction. The CAAD arbitration framework under Decree-Law 10/2011 primarily grants jurisdiction over the legality of tax acts, and whether ancillary compensation claims for undue guarantees can be decided within the same arbitration proceedings remains a contested procedural issue that tribunals must address on a case-by-case basis.
Does the CAAD tax arbitral tribunal have material competence to decide claims for compensation for undue guarantees?
The material competence of CAAD tax arbitral tribunals to decide claims for compensation for undue guarantees is a contested procedural issue in Portuguese tax arbitration. Under Articles 2 and 10 of the Legal Framework for Arbitration in Tax Matters (RJAT - Decree-Law 10/2011), CAAD tribunals have jurisdiction to review the legality of tax acts, including assessments, as specified in Article 99 of the Tax Procedure Code. In this case, the Tax Authority (Respondent) raised an exception of material incompetence, arguing that claims for compensation under Article 53 LGT fall outside the tribunal's statutory jurisdiction, which is limited to reviewing administrative acts rather than awarding damages. The Respondent contended that the proceedings concerned collection notices rather than true assessment acts, further questioning competence. However, the claimant opposed this exception, arguing the tribunal has competence to decide both the legality of the assessments and the consequential compensation claim. The resolution of this competence question depends on whether compensation claims are considered accessory to the main legality review or constitute independent civil claims requiring separate proceedings in administrative or civil courts.
How does the CAAD arbitration process work for challenging Stamp Tax assessments on urban properties in Portugal?
The CAAD (Centro de Arbitragem Administrativa) arbitration process for challenging Stamp Tax assessments on urban properties in Portugal follows a structured procedure under Decree-Law 10/2011. First, the taxpayer files a request for establishment of an arbitral tribunal with CAAD, identifying the contested tax acts and legal grounds. The CAAD President reviews and accepts the request, then notifies the Tax Authority. An arbitrator is appointed by the Ethics Council (for singular tribunals) or selected by the parties (for collective tribunals), and parties may refuse the appointment within the statutory period. Once the tribunal is formally established (typically within specified timeframes), the Tax Authority files a response, which may include preliminary objections or substantive defenses. The claimant may respond to any exceptions raised. The tribunal may hold hearings or dispense with them if parties agree or oral arguments are unnecessary. Unlike ordinary courts, arbitration provides faster resolution—typically within six months. Parties must have legal representation by lawyers or solicitors. The tribunal examines both procedural competence and substantive legality, issuing a binding arbitral decision that can be appealed to administrative courts only on limited grounds. CAAD arbitration is particularly useful for Stamp Tax disputes on real estate as it offers specialized expertise and efficiency compared to traditional judicial litigation.
What are the legal grounds for contesting Stamp Tax (Imposto do Selo) assessments on vertically-owned urban properties under Portuguese tax law?
Legal grounds for contesting Stamp Tax (Imposto do Selo) assessments on vertically-owned urban properties under Portuguese tax law include both substantive and constitutional arguments. Substantively, taxpayers may argue incorrect application of item 28.1 of the General Stamp Tax Table, particularly regarding the determination of the taxable base. Since item 28.1 incorporates by reference the Municipal Property Tax (IMI) rules under Article 67(2) of the Stamp Tax Code, taxpayers can contend that properties comprising independent units capable of autonomous use should be taxed on each unit's individual value rather than the aggregate property value. This argument relies on Articles 2, 4, 6, and 12 of the Municipal Property Tax Code (CIMI), which establish that independent units are separately registered and valued. Constitutionally, taxpayers may invoke violation of the equality principle (Article 13 Portuguese Constitution), arguing that vertically-owned properties are treated differently from horizontally-owned properties without justification. Additionally, challenges may invoke the contributive capacity principle (Article 104(3) Constitution), arguing that taxation based on aggregate values violates ability-to-pay principles, and the proportionality principle (Article 18 Constitution), contending the tax burden is excessive. Taxpayers may also rely on res judicata from prior favorable arbitral decisions on identical issues. Finally, procedural grounds include challenging the Tax Authority's competence to assess or alleging calculation errors in determining patrimonial values.