Process: 489/2015-T

Date: December 22, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitration case addresses the controversial application of Stamp Tax under Item 28.1 of the General Stamp Tax Table (TGIS) to an unfinished residential property without an occupancy permit in Portimão. The claimant challenged 2014 Stamp Tax assessments totaling €5,172.88, arguing the Tax Authority unlawfully aggregated the property tax values (VPT) of eight independent units to exceed the €1,000,000 threshold triggering taxation. Each unit individually had VPT between €177,790 and €229,610, well below the threshold. The core legal issue concerns whether independent units in vertical ownership (full ownership with divisible parts) should be treated like autonomous fractions under horizontal property (condominium) regime for Stamp Tax purposes. The claimant invoked established arbitral case law holding that independent units must be assessed individually, not collectively, citing a previous favorable decision for the same property regarding 2013 taxes. The arguments emphasized that the Real Property Tax Code (CIMI) treats independent units as having separate VPT for property tax purposes, and this same treatment should apply subsidiarily to Stamp Tax under Article 67(2) of the Stamp Tax Code. Constitutional principles were central to the challenge: the principles of tax equality (Article 13), ability to pay, and substance over form. The claimant argued that aggregating VPT values creates unequal treatment between functionally identical situations—owning multiple independent units versus multiple condominium fractions—violating constitutional guarantees. The ownership of divisible units reveals no greater ability to pay than owning separate condominium units with equivalent aggregate value. The claimant sought annulment of the assessments, reimbursement of taxes paid, and default interest from payment date until full reimbursement, consistent with established taxpayer protection principles under Portuguese tax law.

Full Decision

ARBITRAL DECISION

1. REPORT

A…, S. A., with registered office at Rua…, no. … –…, in Lisbon and with Tax Identification Number …, which had the previous business designation of …, S. A., (hereinafter referred to as Claimant), hereby, under the combined provisions of articles 2, no. 1, subsection a) and 10, no. 1, subsection a), of the Legal Regime for Arbitration in Tax Matters (LRATM), approved by Decree-Law no. 10/2011, of 20 January, requests the constitution of an Arbitral Tribunal, in which the Tax and Customs Authority (hereinafter TA) is the Respondent, with a view to the declaration of illegality and consequent annulment of the first instalment of each of the Stamp Duty assessments (Item 28.1, of the GIST), relating to the year 2014 and to the urban property registered under article … of the Parish of …, municipality of Portimão, of which it is the owner.

Cumulatively, the Claimant requests the condemnation of the Respondent to reimburse the amounts unduly paid, by reference to those assessments, plus default interest at the legal rate, from the date of payment of the undue tax until the date of its effective reimbursement.

The following are the grounds for the request to annul the Stamp Duty of the year 2014, relating to the property identified:

a. The property on which the contested assessments were levied is an incomplete property that does not yet have an occupancy permit, awaiting authorization from the Municipal Council so that it can be completed and constituted under the horizontal property regime;

b. As has been long settled in case law, in particular in that of the arbitral tribunals functioning at the CAAC, "the stamp duty provided for in item 28.1 of the GIST is not applicable to situations of vertical ownership in which the sum of the PTV of all units is equal to or greater than € 1,000,000.00";

c. (…) "The Tax and Customs Authority, in a manner we deem illegal, proceeded to assess Stamp Duty under item 28.1 of the GIST, with reference to the 8 parts of the property susceptible to independent use, with residential allocation, because, although the individual PTV is between € 177,790.00 and € 229,610.00, the sum of the PTVs exceeds the amount of € 1,000,000.00"

d. "Thus, the question arises of knowing, in the case of properties in full ownership with storeys or divisions susceptible to independent use, which PTV to consider for the purposes of applying item 28.1 of the GIST: The individual PTV of each division susceptible to independent use (?) Or, The sum of the PTVs corresponding to each independent division with residential allocation (?)";

e. "In accordance with the provisions of Item 28.1 of the GIST, the relevant PTV in the assessment of stamp duty corresponds to that resulting from the rules provided in the RPTC; [O]n the other hand, article 67, no. 2, of the Stamp Duty Code, expressly provides that 'to matters not regulated in this Code relating to item no. 28 of the General Table applies, subsidiarily, the provisions of the RPTC'";

f. Having regard to the wording of subsection b) of no. 2 of article 7 and no. 3 of article 12, both of the Real Property Tax Code, the Claimant considers that "There is no doubt that the RPTC enshrines the principle of autonomization of independent parts of an urban property, verifying that each independent part of a property has its own PTV, which is considered for the purposes of Real Property Tax, and should also be that value relevant for the purposes of Stamp Duty, namely for the purposes of applying item 28.1 of the GIST";

g. "(…) Units of Independent Use are, for the purposes of Real Property Tax, treated as true autonomous fractions of property subject to the horizontal property regime: They have their own PTV; They have autonomous Real Property Tax assessments; They are assessed autonomously";

h. "The Tax Authority, by proceeding differently, issued stamp duty assessments that suffer from the vice of violation of law due to error in the legal presumptions, wherefore such assessments should be annulled";

i. "In fact, for the purposes of applying Item 28.1 of the GIST, the units of autonomous or independent use are in the same conditions as property constituted in horizontal property, and are not revealing of any alleged demonstration of wealth or ownership of 'luxury properties'";

j. "Thus, the assessments made by the Tax Authority, taxing the units susceptible to independent use that in economic terms correspond to the situation of horizontal property, translates into a manifest violation of the principles of justice, proportionality and tax equality arising from articles 13, 103 and 104, no. 3, of the Constitution of the Portuguese Republic, as well as the violation of the right to private property provided for in article 62 of the Constitution";

k. (…) "The principle of equality, enshrined in article 13 of the Constitution postulates that equal treatment be given to what is essentially equal and that different treatment be given to what is essentially different" (Constitutional Court Decision no. 437/2006) ";

l. (…) "The principle of ability to pay prevents persons with the same ability to pay from having different tax treatment and persons with different ability to pay from having the same tax treatment";

m. (…) "As stated in the learned arbitral decision rendered in case no. …/2014-T (decision that annulled the stamp duty assessments relating to the property here in question, relating to the year 2013):

"(…) the ownership of a residential property in full ownership, composed of parts susceptible to independent use and considered separately in the land registry registration, with a property tax value equal to or greater than 1,000,000 euros, does not reveal any special ability to pay that the ownership of several autonomous residential fractions, in which the sum of the property tax values is equal to or greater than 1,000,000 euros, does not also reveal.

(...)

Any other understanding that seeks to disregard the economic substantive identity between situations of horizontal property properties and full ownership properties composed of parts susceptible to independent use and considered separately in the land registry registration, and to consider only the formal difference between both situations, would result in a violation of the substance over form principle, which would have as a consequence a violation of the constitutional principle of ability to pay".

(…) also in the present case it must be concluded, given the foregoing, that the request for annulment of the contested assessment is well-founded on the ground of violation of the constitutional principle of tax equality by the rule of incidence contained in item 28.1 of the General Table of Stamp Duty, when interpreted in the sense that it includes urban residential properties in full ownership composed of parts susceptible to independent use and considered separately in the land registry registration.";

n. "The interpretation advocated by the Claimant is the only one that is consistent with the principles of tax legality, equality, justice and proportionality in tax matters".

Given the grounds of fact and law set forth, the Claimant concludes by formulating the requests to (1) annul the assessment acts titled by the collection documents nos. 2014…, 2014…, 2014..., 2014…, 2014…, 2014…, 2014 … and 2014…, in the global amount of € 5,172.88, to whose payment it proceeded on 30 April 2015, (2) condemn the TA to reimburse the tax paid, and (3) condemn the TA to pay default interest calculated at the legal rate, under articles 43 of the LGT and 61 of the CTPP, from 30 April 2015 until effective reimbursement of the amount paid.

Notified in accordance with the terms and purposes provided for in article 17 of the LRATM, the TA did not contest, merely forwarding the administrative proceedings relating to "stamp duty item 28.1, year 2014 – 1st instalment", in which the Chief of the Lisbon Tax Service, issued an opinion on 4 November 2015, to the effect that "the tax assessment acts for Stamp Duty identified above should be maintained, given their enforceability and the regularity of the procedure".

The request for constitution of the Arbitral Tribunal was filed with the CAAC on 27 July 2015, and was accepted by the Excellency the President of the CAAC and automatically notified to the TA on 13 August 2015.

The Claimant informed that it did not intend to use the faculty of designating an arbitrator, wherefore, under the provisions of no. 1 of article 6 of the LRATM, the undersigned was appointed arbitrator by His Excellency the President of the Deontological Council of the CAAC, a position which he accepted within the legally prescribed period, without opposition from the Parties.

The Single Arbitral Tribunal was regularly constituted on 13 October 2015, to appreciate and decide the dispute that is the subject of these proceedings.

The Parties have legal capacity and standing, are entitled to participate and are duly represented (articles 4 and 10, no. 2, of the LRATM and article 1 of Ordinance no. 112-A/2011, of 22 March).

The proceedings do not suffer from defects and no exceptions were raised.

By arbitral order of 23 November 2015 and, as the proceedings dealt exclusively with a matter of law, the holding of the meeting referred to in article 18 of the LRATM was dispensed with, as well as the submission of statements of defence, should the Claimant not object thereto within 10 days. In the same order, 22 December was set as the date for rendering the arbitral decision, with notice to the Claimant that, by that date, it should pay the subsequent arbitral fee.

The Claimant did not comment on the content of the documents in the administrative proceedings forwarded to the file by the Respondent.

2. STATEMENT OF FACTS

2.1. Facts considered proven:

2.1.1. On 31 December 2014, the date the taxable event occurred, the registered holder in the urban property registry of the parish of …, municipality of Portimão, of the property corresponding to article …, was …, S. A., the former designation of the present Claimant;

2.1.2. The said urban property, located in the Urbanization …, Site of …, Plot …, in …, consists of five storeys and eight divisions susceptible to independent use, all intended for residential purposes;

2.1.3. The global PTV of the identified property is the sum of € 1,551,840.00, this being the value indicated in each of the collection notes of the 1st instalment of Stamp Duty of the year 2014 as "Property Tax Value of the property – total subject to tax";

2.1.4. The PTV attributed to each storey or division susceptible to separate lease and residential allocation, as shown in the collection notes issued by the TA and in the property record, varies between € 177,790.00 and € 229,610.00;

2.1.5. In the name of the Claimant, under its former business designation, were issued on 20 March 2015, for voluntary payment in three annual instalments, the Stamp Duty assessments of the year 2014, whose first instalments appear in the collection notes identified in the table below, based on the PTV of each of the divisions susceptible to independent use and the rate of 1%:

Document Identification Property Identification PTV Collection
2014 … …- U - … RC D € 229,610.00 € 2,296.10
2014 … …- U - … RC E € 195,970.00 € 1,959.70
2014 … …- U - … 1st D € 177,790.00 € 1,777.90
2014 … …- U - …1st E € 197,630.00 € 1,976.30
2014 … …- U - … 2nd D € 177,790.00 € 1,777.90
2014 … …- U - …2nd E € 197,630.00 € 1,976.30
2014… …- U - … 3rd D € 177,790.00 € 1,777.90
2014 … …- U - …3rd E € 197,630.00 € 1,976.30

2.1.6. All collection notes identified in the above table, relating to the 1st instalment of the Stamp Duty assessments of the year 2014, were paid by the Claimant on 30 April 2015.

2.2. Grounds for the statement of facts proven:

The Tribunal's conviction as to the statement of facts proven resulted from the analysis of the documentary evidence attached to the request for arbitral pronouncement (copies of the property record of the identified property, proof of payment of the collection notes issued in the name of the Claimant, as well as the administrative proceedings submitted by the TA).

2.3. Facts not proven

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

3. MATTER OF LAW – GROUNDS

3.1. Delimitation of the issue to be decided:

Although the request for arbitral pronouncement refers to the declaration of illegality and annulment of the acts assessing Stamp Duty of the year 2014, issued under item 28.1 of the GIST, the truth is that such request has as its object only the annulment of the first instalment of each of the assessments under analysis, as follows from the value attributed to the case, corresponding to the sum of the instalments titled by the collection notes above identified, whose period for voluntary payment expired in April 2015.

Considering the jurisdiction conferred on tax arbitral tribunals by no. 1 of article 2 of the LRATM, to appreciate the claims for "(a) The declaration of illegality of acts assessing taxes, self-assessment, withholding at source and payments on account" and "(b) The declaration of illegality of acts fixing the taxable matter when not giving rise to the assessment of any tax, of acts determining the taxable matter and of acts fixing property tax values", it is necessary, first and foremost, to ascertain whether the request for annulment of one of the instalments into which a Stamp Duty assessment is subdivided, issued under item 28.1 of the GIST, falls within the jurisdiction of the arbitral tribunal.

3.2. On the (im)impugnability of an instalment of a Stamp Duty assessment (Item 28.1, of the GIST):

In the judgment, the judge must pronounce on all questions that he must appreciate, refraining from pronouncing on questions of which he has no jurisdiction (final part of no. 1 of article 125 of the Code of Tax Procedure and Process – CTPP, applicable subsidiarily to tax arbitral proceedings, by virtue of the provisions of article 29, no. 1, subsection a), of the LRATM).

The powers of cognition of the tribunal are, in accordance with no. 2 of article 608 of the Code of Civil Procedure (CCP), applicable subsidiarily to tax arbitral proceedings, by referral of article 29, no. 1, subsection e), of the LRATM, concerning "the questions that the parties have submitted to it for appreciation, except those whose decision is precluded by the solution given to others; it may not deal with anything but the questions raised by the parties, save if the law permits or requires it to have ex officio knowledge of others.".

Among the questions of ex officio knowledge are "the procedural questions that may determine the dismissal of the action", of which the judgment must know as a priority (article 608, no. 1, of the CCP).

Such procedural questions that may determine the dismissal of the action are, in tax proceedings, those set forth in no. 1 of article 98 of the CTPP, which "may be ex officio known or raised at any time, until the judgment becomes final", in accordance with no. 2 of the same article, in addition to those contained in article 89 of the Code of Administrative Court Procedure (CACP), as subsidiary applicable law to tax judicial proceedings, by virtue of subsection c) of article 29 of the LRATM.

To determine the jurisdiction of the arbitral tribunal to decide on the claim that is the subject of these proceedings will necessarily require ascertaining whether the request for declaration of illegality and consequent annulment of one of the instalments of a Stamp Duty assessment, made under item 28 of the GIST, is equivalent to a request for annulment total or partial of the same assessment or, not being equivalent, whether one of those instalments could constitute an act susceptible to independent challenge.

As to the first issue, it may be stated that an instalment is not equivalent to a tax assessment, since, under no. 7 of article 23 of the Stamp Duty Code, as amended by article 3 of Law no. 55-A/2012, of 29 October, "7 - In the case of taxes due by the situations provided for in item no. 28 of the General Table, the tax is assessed annually, for each urban property, by the central services of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in the RPTC".

Now, the expression "the tax is assessed annually" indicates the existence of a single annual assessment, although the same may be divided, for purposes of payment, into instalments, and not as many assessments as the instalments into which the debt should be satisfied – the division of an assessment into instalments will thus be nothing more than a mere technique of revenue collection.

For its part, the question of whether an instalment can be regarded as an independently challengeable part of the assessment, refers us to that of the divisibility of the tax act of assessment and the consequent possibility of its partial annulment.

In this regard, case law has held that assessment is a divisible act, both by nature, since it concerns an obligation of a pecuniary nature, and by legal definition, since article 100 of the General Tax Law (LGT) admits "total or partial approval of complaints or administrative appeals, or judicial proceedings in favour of the taxpayer".

However, for there to be partial annulment of the tax act, it is necessary that the illegality affects it only in part (see, in this sense, the Judgment of the Plenary of the Tax Litigation Section of the Supreme Administrative Court, rendered on 10 April 2013, in appeal no. 0298/12, available at http://www.dgsi.pt, in whose summary it reads: "Summary: I - The tax act, as a divisible act, both by nature and by legal definition, is susceptible to partial annulment. II - The criterion for determining whether the act should be totally or partially annulled is to determine whether the illegality affects the tax act in its entirety, in which case the act should be wholly annulled or only in part, in which case partial annulment is justified.".

Thus, in cases where the tax act is divisible, "if the partial annulment of a tax act is requested, the tribunal may not, in principle, annul it entirely"[1]; if its total annulment is requested and the act is only partially annullable, the request will be partially dismissed.

The payment instalments of a Stamp Duty assessment, under Item 28 of the GIST, are not independently challengeable, as they originate in a single annual obligation, in accordance with the teaching of Braz Teixeira: "It is necessary not to confuse periodic instalments, which, although effected by successive acts, at different moments, originate from the same obligation and constitute the several portions of the same instalment that was divided, with the instalments that must be effected periodically, not due to a division of the overall instalment, but rather to the birth, also periodic, of new obligations, due to the permanence of the factual presumptions of taxation."[2].

The instalments into which a Stamp Duty assessment issued under item 28.1 of the GIST is subdivided do not correspond to independently challengeable acts, under the CTPP or the LGT.

The conclusion that the instalments of a Stamp Duty assessment (item 28.1 of the GIST) are not independently challengeable determines the lack of jurisdiction of the arbitral tribunal for the appreciation and declaration of their illegality and consequent annulment.

4. DECISION

For the reasons foregoing, this arbitral tribunal decides to find the claim unsubstantiated and to dismiss the Tax and Customs Authority from the action.

CASE VALUE: In accordance with the provisions of article 306, nos. 1 and 2, of the CCP, 97-A, no. 1, subsection a), of the CTPP and 3, no. 2, of the Rules of Costs in Tax Arbitration Proceedings, the case is valued at € 5,172.88 (five thousand, one hundred and seventy-two euros and eighty-eight cents).

COSTS: Calculated in accordance with article 4 of the Rules of Costs in Tax Arbitration Proceedings and Table I attached thereto, in the amount of € 612.00 (six hundred and twelve euros), to be borne by the Claimant.

Lisbon, 22 December 2015.

The Arbitrator,

/Mariana Vargas/

Text prepared by computer, in accordance with no. 5 of article 131 of the CCP, applicable by referral of subsection e) of no. 1 of article 29 of Decree-Law 10/2011, of 20 January.

The drafting of this decision is governed by the 1990 spelling agreement.

[1] SOUSA, Jorge Lopes de, "Code of Tax Procedure and Process – annotated and commented", Volume I, Áreas Publishing, 2006, page 875

[2] TEIXEIRA, António Braz, "Principles of Tax Law", Vol. I, 3rd Edition, Almedina, Coimbra, 1995, pages 243 and 244.

Frequently Asked Questions

Automatically Created

Is Stamp Tax under Verba 28.1 TGIS applicable to unfinished properties without a usage license?
According to the arbitral case law cited in this decision, Stamp Tax under Item 28.1 TGIS should not be applicable to unfinished properties without occupancy licenses when they consist of independent units not yet constituted under horizontal property regime. The tribunal reasoning emphasizes that each independent unit must be assessed separately based on its individual property tax value (VPT). Since the property in question consisted of eight units each valued below €1,000,000 (ranging from €177,790 to €229,610), none individually meets the threshold for Stamp Tax application. The incomplete status and absence of formal horizontal property constitution does not justify aggregating values to artificially exceed the €1,000,000 threshold.
How is the taxable value (VPT) determined for properties in vertical ownership under Verba 28.1 TGIS?
For properties in vertical ownership (full ownership with divisions susceptible to independent use), the taxable value under Item 28.1 TGIS must be determined individually for each independent unit, not by aggregating all units together. This interpretation derives from Article 67(2) of the Stamp Tax Code, which provides for subsidiary application of the Real Property Tax Code (CIMI) rules. Under CIMI Articles 7(2)(b) and 12(3), independent units have their own separate property tax values (VPT) and are assessed autonomously for real property tax purposes. This same individualized valuation methodology applies to Stamp Tax assessments. Each independent unit is treated as having its own VPT, and only units individually exceeding €1,000,000 would be subject to Item 28.1 taxation.
Can the Tax Authority aggregate individual VPT values of independent units to exceed the €1,000,000 threshold for Stamp Tax?
No, the Tax Authority cannot lawfully aggregate individual VPT values of independent units to exceed the €1,000,000 threshold for Stamp Tax purposes. This position is firmly established in arbitral case law from the Centre for Administrative Arbitration (CAAD). The tribunals have consistently held that independent units in vertical ownership must be treated identically to autonomous fractions under horizontal property regime. Aggregating VPT values violates the substance over form principle and creates unconstitutional discrimination between economically identical situations. Property owners with multiple independent units would face taxation while condominium owners with equivalent aggregate values would not, despite having identical ability to pay. Such aggregation constitutes a violation of constitutional principles of tax equality (Article 13), proportionality, and ability to pay.
What is the CAAD arbitral tribunal's position on Stamp Tax for properties not yet under horizontal ownership?
The CAAD arbitral tribunals have established a consistent position that properties not yet formally constituted under horizontal property regime, but consisting of independent units susceptible to autonomous use, must be treated equivalently to condominium properties for Stamp Tax purposes. The tribunals reject formalistic interpretations that would tax based solely on legal property structure rather than economic substance. They recognize that independent units in vertical ownership reveal no greater ability to pay than multiple condominium fractions with equivalent values. Consequently, each independent unit must be assessed individually against the €1,000,000 threshold. This interpretation upholds the substance over form principle and prevents unconstitutional tax discrimination. The cited precedent involving the same property for 2013 taxes established that assessing Stamp Tax by aggregating independent unit values violates constitutional principles.
Are taxpayers entitled to a refund with compensatory interest when Stamp Tax is unlawfully levied on unfinished buildings?
Yes, taxpayers are entitled to full reimbursement plus compensatory default interest when Stamp Tax is unlawfully levied on unfinished buildings with independent units. Under Articles 43 of the General Tax Law (LGT) and 61 of the Tax Procedure Code (CPPT), when tax assessments are annulled due to illegality, the Tax Authority must reimburse amounts unduly paid. Additionally, default interest at the legal rate must be calculated from the date of the undue payment until the date of effective reimbursement. This ensures taxpayers are fully compensated for being deprived of funds due to unlawful tax collection. In this case, the claimant specifically requested reimbursement of €5,172.88 paid on April 30, 2015, plus default interest from that date until full reimbursement, consistent with established Portuguese tax law principles protecting taxpayer rights.