Process: 499/2015-T

Date: February 16, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Process 499/2015-T addresses the controversial application of Verba 28.1 of the General Stamp Tax Table (TGIS) to vertical property ownership. Four heirs challenged 2014 Stamp Tax assessments totaling €10,190.04 on an urban property comprising four independent storeys, each with a tax property value of €254,751.02. The central dispute concerns whether vertical property divisions should be taxed separately like horizontal ownership fractions or as a single unit. The claimants argued the assessments violated constitutional principles of tax legality and typicality, lacked proper reasoning, and that Article 4(2) CIMI should permit extensive interpretation treating independent use units as separate properties for tax purposes. They contended differential treatment between vertical and horizontal ownership regimes was unconstitutional. The Tax Authority defended the computerized assessment process, asserting the property remained under full ownership regime without autonomous fractions qualifying as independent properties under tax law. The Respondent maintained that Verba 28.1 applies to total tax property value, not individual units, and that applying horizontal ownership principles by analogy would violate the literal interpretation of TGIS and constitutional legality requirements. This arbitral decision clarifies critical distinctions between vertical and horizontal property ownership for Stamp Tax incidence, establishes parameters for challenging automated tax assessments, and addresses procedural aspects of cumulative claims involving multiple co-heirs. The case demonstrates how property registration structure and ownership regime classification directly impact Stamp Tax liability under Portuguese law, with significant implications for estate planning and real property taxation.

Full Decision

ARBITRAL DECISION

1. REPORT

1.1. A…, taxpayer no. …, B…, taxpayer no. …, C…, taxpayer no. … and D…, taxpayer no. …, heirs without determination of share or right of the estate opened by the death of E…, taxpayer no. … (hereinafter referred to as the Claimant), submitted on 28/07/2015 a request for arbitral pronouncement, in which they request the annulment of the acts of assessment of Stamp Tax relating to the year 2014.

1.2. His Excellency the President of the Deontological Council of the Administrative Arbitration Centre (CAAD) designated on 05/10/2015 as arbitrator, Francisco Nicolau Domingos.

1.3. On 20/10/2015 the arbitral tribunal was constituted.

1.4. In compliance with the provision of art. 17, no. 1 of Decree-Law no. 10/2011, of 20 January (RJAT), the Respondent was notified on 21/10/2015 to, if it so wished, submit a reply and request additional evidence production.

1.5. On 24/11/2015 the Respondent submitted its reply in which it contends that the assessments in dispute did not violate any legal or constitutional provision.

1.6. The Claimant on 27/11/2015 submitted a motion requesting the attachment of the payment proof of the 3rd instalment of the total collection.

1.7. On 11/01/2016 the tribunal, by order, admitted the attachment of such documents and invited the parties to state whether they intended the holding of the meeting referred to in art. 18, no. 1 of the RJAT, since no request for witness examination had been made and there was no exception that would prevent immediate consideration of the claim.

1.8. The parties did not respond to such invitation.

1.9. The tribunal, on 29/01/2016, decided to dispense with the holding of the meeting referred to in art. 18, no. 1 of the RJAT, on the basis of the principle of autonomy of the arbitral tribunal in the conduct of proceedings and in determining the rules to be observed with a view to obtaining, within a reasonable timeframe, a pronouncement on the merits of the claims formulated, cfr. art. 16, para. c) of the RJAT and scheduled for 16/02/2016 the delivery of the final decision.

1.10. The Claimant submitted its final written submissions on 11/02/2016, arguing for the annulment of the acts in dispute.

2. PRELIMINARY MATTERS

The accumulation of claims underlying the present proceedings is admissible, inasmuch as it has for its object acts of assessment of the same tax, Stamp Tax. As there is also identity between the factual matter and the admissibility of the claim depends on the interpretation of the same principles and rules of law, cfr. art. 3, no. 1 of the RJAT.

The proceedings are not affected by nullities, no questions have been raised that would prevent consideration of the merits of the case, the arbitral tribunal is regularly constituted and is materially competent to hear and decide the claim, and consequently the conditions for the delivery of the final decision are met.

3. SUBJECT MATTER OF THE DISPUTE

The Claimant contends that the assessments of Stamp Tax – item 28.1 of the General Table of Stamp Tax (TGIS) and relating to the year 2014 are illegal.

From the outset, it states that such tax acts omit the necessary reasoning, not only of fact, but also of law. In particular, they do not explicitly set out, namely, the nature and use of the real property identified in the assessments and the reason for its subsumption to item 28.1 of the General Table annexed to the Stamp Tax Code (CIS). Thus, it invokes, from the outset, a defect of form, that is, lack of reasoning. It contends that such conclusion cannot be opposed by reasoning made by way of reference, especially since there is no explicit reference to any document.

The Claimant further considers that the acts which are the object of these proceedings are illegal, contending that art. 4, no. 2 of the Urban Real Property Tax Code (CIMI), applicable by virtue of art. 67, no. 2 of the CIS, can only permit an extensive interpretation of art. 2, no. 1 of the CIMI, so as to include in the concept of property the units (fractions, storeys or divisions) for independent use. Especially since such units are considered separately in the property registration entry, which also indicates the respective tax property value – art. 12, no. 3 of the CIMI and units of use of properties registered in vertical ownership are subject to independent valuation on the basis of the criteria provided for in art. 38 of the CIMI.

Thus, it states that if legal judgment imposes the issuance of separate assessments for the autonomous parts of properties in vertical ownership, in the same manner as it establishes for properties in horizontal ownership, it has clearly established the criterion for the rule of incidence of this tax.

It concludes by saying that it is not defensible to apply different treatment with respect to the application of item 28.1 of the TGIS, under penalty of violation of the constitutional principle of tax legality. The requirement of typicality arising from such principle of tax legality requires that the norms of tax incidence be endowed with a clear factual delimitation regarding the empirical substratum to be taxed.

For its part, the Respondent contends that the reasoning of the tax acts cannot depart from the computerized nature of Stamp Tax assessment. A nature that is reflected in the establishment of standardized reasoning, while nonetheless observing what is set out in art. 77 of the General Tax Law (LGT). In this context, it adds that it is not possible for the Claimant to argue that the acts are not reasoned, when the contextual motivation allowed its recipient to know the factual reasons that led the Respondent to make the decision in question, with that meaning and content.

As to the alleged illegality of the tax acts in question, the Respondent begins by contending that, inasmuch as the property which is the object of these proceedings was, as at the date of the tax event, in a regime of full ownership, it does not possess autonomous fractions, to which the tax law attributes the qualification of property. Consequently, the Claimant would not be the owner of 4 autonomous fractions, but of a single property.

It further adds in its reply that the Claimant wishes there to be an analogy between the regime of vertical ownership and that of horizontal ownership, when there is no lacuna. In this way, it contends that the determining fact for the application of item 28.1 of the TGIS is the total tax property value of the property and not that of each of the units (fractions, storeys and divisions).

It concludes that a different interpretation would violate the letter and spirit of item 28.1 of the TGIS and the principle of legality of the essential elements of the tax, provided for in art. 103, no. 2 of the CRP.

4. FACTUAL MATTER

4.1. FACTS CONSIDERED PROVEN

4.1.1. The estate included on 31 December 2014 the real property corresponding to property registration no. …, urban, parish of …, Lisbon.

4.1.2. Such property comprises, in particular, 4 storeys or divisions for independent use, registered as follows:

a) 1, with a TPV of € 254,751.02, residential;

b) 2, with a TPV of € 254,751.02, residential;

c) 3, with a TPV of € 254,751.02, residential;

d) 4, with a TPV of € 254,751.02, residential.

4.1.3. The Claimant was notified of the Stamp Tax assessments relating to the year 2014, in relation to each of such storeys or divisions with residential use, in the total amount of € 10,190.04 and which break down as follows:

a) 1, in the amount of € 2,547.51;

b) 2, in the amount of € 2,547.51;

c) 3, in the amount of € 2,547.51;

d) 4, in the amount of € 2,547.51.

4.1.4. The Claimant made payment of the total amount of the assessments which are the object of these proceedings in the amount of € 10,190.04.

4.1.5. The property identified in 4.1.1. was not constituted under the regime of horizontal ownership on 31 December 2014.

4.2. FACTS NOT CONSIDERED PROVEN

There are no facts with relevance to the arbitral decision that have not been given as proven.

4.3. GROUNDS FOR THE FACTUAL MATTER CONSIDERED PROVEN

The factual matter given as proven originates in the documents used for each of the facts alleged and whose authenticity has not been called into question.

5. THE LAW

In the first place, there are three questions that the tribunal must decide: i) to verify whether the assessments which are the object of these proceedings suffer from the defect of lack of reasoning; ii) to determine whether the subjection to the rule of incidence of item 28.1 of the TGIS should be concretized by the tax property value (TPV) corresponding to each of the parts capable of independent use, or whether, on the contrary, by the sum of the TPV of each of such parts and iii) to determine whether the interpretation which concludes that Stamp Tax incidence occurs only when the TPV of each of the parts capable of independent use is greater than € 1,000,000 violates the principle of legality of the essential elements of the tax, provided for in art. 103, no. 2 of the CRP.

Indeed, the Claimant imputes to the assessments in dispute the defect of lack of reasoning, since, in its judgment, the acts contain no factual or legal motivation whatsoever.

Knowledge of the question requires, from the outset, a reference to art. 77, no. 1 of the LGT which provides: "The decision of procedure is always reasoned by means of a brief exposition of the reasons of fact and law that motivated it, and the reasoning may consist in mere declaration of agreement with the grounds of previous opinions, information, or proposals, including those that form part of the tax audit report". No. 2 of such provision adds that: "The reasoning of tax acts may be effected in summary form, and must always contain the legal provisions applicable, the qualification and quantification of tax facts and the operations for determining the taxable matter and the tax".

In annotation to such article and regarding acts of assessment, the doctrine states that these: "… may contain summary reasoning, which, however, cannot fail to contain the legal provisions applicable, the qualification and quantification of tax facts and the operations for determining the taxable matter and the tax"[1].

On the other hand, case law likewise maintains as regards the reasoning of assessment acts that: "The act shall be sufficiently reasoned when the taxpayer, placed in the position of a normal recipient – the bonus pater familiae referred to in art. 487, no. 2 of the Civil Code – may come to know the factual and legal reasons that are at its genesis, so as to permit him to opt, in an informed manner, between acceptance of the act or the activation of legal means of challenge, and so that, in this latter circumstance, the court may also exercise effective control of the legality of the act, assessing its legal correctness in light of its contextual reasoning"[2]. Or, put another way, the reasoning must incorporate elements of fact and of law that permit the recipient of the act to understand the decision-making process of the Tax Administration (AT).

In the present case, it is possible to discern in the assessments/collection documents, the reference to the identification of the property registered, to its TPV, to the tax year, to the date of assessment, to the nature of the tax, to the item of the TGIS, to the rate used to determine its amount and, lastly, to the value of the collection. For which reason, the tribunal considers that the acts are sufficiently reasoned, inasmuch as they contain the minimum references to the factual and legal matter used by the Respondent for their practice. Especially since the lack of reasoning imputed to them did not constitute any obstacle for the Claimant to request their annulment in a pleading in which it imputes to the assessments a list of defects. In sum, the acts do not suffer from the defect of lack of reasoning that the Claimant imputes to them.

In this way, it is necessary to proceed to the second question, that is, to verify whether the subjection to item 28.1 of the TGIS should be determined by the TPV of each of the divisions or storeys capable of independent use or by the sum of each of such parts.

To accomplish such task it is necessary, from the outset, to search for the provision whose parts disagree in its interpretation.

Thus, art. 1, no. 1 of the Stamp Tax Code (CIS) and item 28 of the General Table of Stamp Tax (TGIS), provide that the following are subject to taxation: "Ownership, usufruct or right of superficies of urban properties whose tax property value shown in the register, in accordance with the Urban Real Property Tax Code (CIMI), is equal to or greater than € 1,000,000 – on the tax property value used for the purpose of IMI:

28.1 - For residential property (…) - 1%...".

In this way, it is necessary to examine the concept of "residential property" referred to in the provision under interpretation and that of "tax property value used for the purpose of IMI". Now, as it is not possible to resolve the question using the CIS, by virtue of the provision of art. 67, no. 2 of such diploma it is necessary to apply the norms of the CIMI.

Consequently, art. 2 of the CIMI provides on the concept of property:

"1 - For the purposes of this Code, property is any portion of territory, comprising water, plantations, buildings and constructions of any nature incorporated in or situated on it, with the character of permanence, provided that it forms part of the patrimony of a natural or legal person and, in normal circumstances, has economic value, as well as water, plantations, buildings or constructions, in the circumstances above, endowed with economic autonomy in relation to the land on which they are situated, although situated in a portion of territory that constitutes an integral part of a different patrimony or does not have patrimonial nature.

2 - Buildings or constructions, although movable by nature, are deemed to have the character of permanence when devoted to non-transitory purposes.

3 - The character of permanence is presumed when buildings or constructions are situated in the same location for a period of more than one year.

4 - For the purposes of this tax, each autonomous fraction, in the regime of horizontal ownership, is deemed to constitute a property".

The concept of property in the context of IMI is, as we know, endowed with greater amplitude in relation to that set out in art. 204, no. 2 of the Civil Code (CC) and encompasses three elements, more specifically, one of a physical nature, the second of a legal character and the last of an economic nature, J. SILVÉRIO MATEUS/L. CORVELO DE FREITAS, Taxes on immovable property. Stamp Tax, Engisco, 2005, p. 101 to 103 and JOSÉ MARTINS ALFARO, Urban Real Property Tax Code – Commented and Annotated, Áreas Editora, 2004, p. 118 to 123. The first requires reference to a portion of territory, comprising in particular buildings and constructions incorporated in it with the character of permanence. The element of a legal character requires that the thing, movable or immovable, belong to the patrimony of a natural or legal person. Thirdly, the element of an economic nature requires that the thing have economic value.

With regard to the concept of urban property, art. 6 of the CIMI describes its various categories, and it is fundamental for subsumption in each of them the nature of the use, that is, the purpose to which it is destined. And nothing in the economy of art. 6, no. 1, para. a) of the CIMI prevents the classification of the parts of a property in vertical ownership, with divisions or storeys capable of independent use, with residential use, as "residential property".

What is relevant is, it is repeated, its use. And a different conclusion is not possible to reach by interpretation of art. 2, no. 4 of the CIMI which elevates each autonomous fraction, in the regime of horizontal ownership to the category of property. In truth, in this latter provision either one cannot discern any basis for discrimination between properties in vertical ownership and those constituted in horizontal ownership, with regard to their subsumption as urban and residential properties, in accordance with the entire economy of item 28 of the TGIS. In other words, if the legislator did not treat differently properties in vertical ownership in relation to those constituted in horizontal ownership, the interpreter should not do so[3].

To the contrary, the property registration and the determination of the TPV clearly demonstrate the similarity of legislative treatment. Indeed, the parts endowed with economic independence must, each of them, be the subject of a separate property registration and, consequently, the respective TPV should likewise appear separately, cfr. art. 2, no. 4, art. 7, no. 2, para. b) and art. 12, no. 3 all of the CIMI. This has a bearing in the context of assessment, inasmuch as there will be one for each division or storey subject to separate use.

Reverting such interpretation to the present proceedings, there are 4 storeys of the property with independent residential use which, as at the date of the tax event, that is, 31 December 2014, had not yet been constituted in horizontal ownership and, consequently, from the outset, there is no doubt that these should be classified as residential properties of urban nature.

It is further important to clarify the other textual segment of the item of the CIS under interpretation, that is, the "tax property value used for the purpose of IMI".

In this respect, as already described, the CIMI provides for the autonomization of the parts of urban property capable of independent use as regards property registration and the specification of the respective TPV. Such observation is equally valid regarding the consequent assessment, as provided for in art. 113, no. 1 and art. 119, no. 1, both of the latter mentioned diploma. Indeed, if the tax is assessed "…on the basis of the tax property values of the properties (our emphasis) and in relation to the taxpayers who appear in the registers (our emphasis) …" and the collection document must contain the "…breakdown of the properties, their parts capable of independent use, respective tax property value and the collection…", this means that, not only is the TPV for the purposes of application of item 28.1 of the TGIS to be considered that which is the subject of a separate property registration, but also nothing prevents the qualification as "residential property" of storeys or divisions for independent use.

Now, if none of the Claimant's storeys with residential use exceeded the TPV of € 1,000,000, the rule of incidence in dispute cannot be applicable to the present case, under penalty of illegality. It is repeated that, what is relevant for delimiting the scope of such rule, on which the parties disagree in its interpretation: i) that the storey capable of independent use has a TPV greater than € 1,000,000 and ii) that such storey has residential use.

This is also the conclusion of case law regarding the delimitation of the incidence of item 28.1 of the TGIS when it observes that: "Where it is a property constituted in vertical ownership, the incidence of Stamp Tax should be determined, not by the TPV resulting from the sum of the TPV of all divisions or storeys capable of independent use (individualized in the property registration), but by the TPV attributed to each of such storeys or divisions intended for residence", as per the Judgment of the Supreme Administrative Court of 9/9/2015, delivered in the context of case no. 047/15 and in which Councilor FRANCISCO ROTHES was the Rapporteur.

The Respondent further contends that it would be unconstitutional, by violation of the principle of legality of the essential elements of the tax, the interpretation of item 28.1 of the TGIS different from that which concludes that the TPV relevant for such rule of incidence must be the global tax property value of the property and not that of each of its independent parts. If this were the case, the express reference to "tax property value used for the purpose of IMI" would not be understood. And that, there is no doubt, is the subject of autonomization in relation to each of the parts capable of independent use. Equally, neither would we find an argument for the issuance of separate assessment notes. It is further added that, in light of the express reference in art. 67, no. 2 of the CIS to the CIMI, regarding matters not regulated, the parts with autonomy can be included in the properties classified as urban and residential, cfr. articles 2, 3 and 6, all of the CIMI. In this way, it is considered that the said interpretation does not suffer from unconstitutionality.

Finally, the Claimant petitions for the payment of compensatory interest by the Respondent as a function of error attributable to its services.

In truth, art. 43, no. 1 of the LGT provides that: "Compensatory interest is due when it is determined, in a gracious objection or judicial challenge, that there was error attributable to the services resulting in payment of the tax debt in an amount greater than legally due". In other words, there are three requirements for the right to such interest: i) the existence of an error in an act of tax assessment attributable to the services; ii) determination of such error in a process of gracious objection or judicial challenge and iii) payment of a tax debt in an amount greater than legally due.

In this way, it is immediately possible to formulate a question: is it admissible to determine the payment of compensatory interest in a tax arbitral process? The answer to the question is affirmative. Indeed, art. 24, no. 5 of the RJAT provides that: "Payment of interest, regardless of its nature, is due in accordance with the terms provided for in the General Tax Law and in the Code of Tax Procedure and Process".

Deciding on the question, the illegality of the acts in dispute is attributable to the Respondent, given the lack of normative support when they were practiced. Consequently, the request for compensatory interest is warranted, calculated at the legal rate, in accordance with what is provided for in art. 43, no. 4 of the LGT, between the date on which the improper payment was made and until full reimbursement.

6. DECISION

In these terms and with the reasoning described above, it is decided to judge the arbitral claim admissible, with the consequent annulment of the acts which are the object of the pronouncement, with all legal consequences, including, in particular, the reimbursement of the sums improperly paid.

7. VALUE OF THE CASE

The value of the case is fixed at € 10,190.04 (corresponding to the sum of the assessments which are the object of the pronouncement), in accordance with art. 97-A of the CPPT, applicable by virtue of the provision of art. 29, no. 1, para. a) of the RJAT and of art. 3, no. 2 of the Regulations for Costs in Tax Arbitration Proceedings (RCPAT).

8. COSTS

Costs to be borne by the Respondent, in the amount of € 918, cfr. art. 22, no. 4 of the RJAT and Table I annexed to the RCPAT, insofar as the claim was entirely successful.

Notify.

Lisbon, 16 February 2016

The Arbitrator,

Francisco Nicolau Domingos

[1] DIOGO LEITE CAMPOS/BENJAMIM SILVA RODRIGUES/JORGE LOPES DE SOUSA, General Tax Law – Annotated and Commented, 4th edition, Encontro da Escrita Editora, 2012, p. 677.

[2] Judgment of the Supreme Administrative Court delivered in the context of case no. 01690/13, of 23/04/2014 and in which Councilor ASCENSÃO LOPES was the Rapporteur.

[3] See in this sense the arbitral decision delivered in case no. 50/2013 – T, of 29/10/2013, in which Dr. MARIA DO ROSÁRIO ANJOS performed the functions of arbitrator.

Frequently Asked Questions

Automatically Created

How does Verba 28.1 of the Tabela Geral do Imposto do Selo apply to vertical property (propriedade vertical)?
Verba 28.1 of the TGIS applies to vertical property based on the total tax property value of the entire property unit, not individual storeys or divisions. The Tax Authority maintains that where property is not constituted under horizontal ownership regime, it constitutes a single taxable unit regardless of internal divisions for independent use. The determining factor is the legal ownership structure, not the physical or functional separation of spaces. This contrasts with horizontal ownership where autonomous fractions are taxed separately as independent properties under Article 2(1) CIMI.
Can heirs of an estate challenge Stamp Tax (Imposto do Selo) assessments through CAAD arbitration?
Yes, heirs of an estate can challenge Stamp Tax assessments through CAAD arbitration under RJAT (Decree-Law 10/2011). In Process 499/2015-T, four heirs without determination of share collectively submitted an arbitration request as co-claimants. The tribunal admitted cumulative claims under Article 3(1) RJAT where assessments involve the same tax type, identical factual matters, and interpretation of the same legal principles. Heirs must pay the disputed amount and can submit evidence of installment payments during proceedings.
What are the grounds for annulment of Stamp Tax liquidations on real estate under Portuguese tax law?
Grounds for annulment of Stamp Tax liquidations include: (1) formal defects such as lack of reasoning violating Article 77 LGT, though computerized assessments may use standardized reasoning; (2) incorrect legal subsumption to TGIS provisions, particularly misapplication of Verba 28.1; (3) violation of constitutional principles including tax legality (Article 103(2) CRP) and typicality requirements; (4) incorrect property classification or valuation under CIMI provisions; (5) improper interpretation of ownership regime affecting tax incidence. Claimants must demonstrate specific illegality affecting assessment validity.
How does the CAAD arbitral tribunal process cumulative claims involving multiple Stamp Tax assessments?
CAAD processes cumulative claims under Article 3(1) RJAT when they involve: (1) the same tax type; (2) identity of factual matter; and (3) claims dependent on interpretation of the same legal principles and rules. The tribunal admits joint claims by multiple co-heirs, follows standard procedural steps including reply submission (Article 17 RJAT), can dispense with hearings under Article 18(1) based on tribunal autonomy (Article 16(c) RJAT), and issues single decisions addressing all accumulated assessments. This efficiency principle allows consolidated resolution of related tax disputes.
What is the legal distinction between vertical and horizontal property for Stamp Tax purposes under Verba 28.1?
The legal distinction centers on ownership regime constitution under CIMI. Horizontal property (propriedade horizontal) creates autonomous fractions qualifying as independent properties under Article 2(1) CIMI, each subject to separate Stamp Tax assessment under Verba 28.1. Vertical property without horizontal ownership constitution remains a single property unit despite internal divisions for independent use. Article 4(2) CIMI does not extend horizontal property treatment to vertical structures. The Tax Authority argues no legal lacuna exists justifying analogical application, and total tax property value determines Verba 28.1 incidence for non-horizontalized properties.