Process: 508/2015-T

Date: February 29, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Arbitral Decision 508/2015-T addresses a critical Stamp Tax dispute concerning Verba 28.1 of the General Table, which applies to properties with tax values (VPT) exceeding €1,000,000. The claimants owned a seven-unit residential building NOT constituted under horizontal property regime (propriedade horizontal). The Tax Authority assessed Stamp Tax by aggregating the VPT of all seven independent units. The claimants challenged this, arguing that since no individual unit exceeded €1,000,000, Verba 28.1 did not apply. They contended that the criterion should mirror IMI treatment, where independent units are separately evaluated under CIMI Article 12. The Tax Authority defended by arguing: (1) jurisdictional exceptions regarding challengeability of installment payments; and (2) substantively, that properties under vertical/total ownership constitute a single property for Stamp Tax purposes, despite having independent units. The Authority distinguished horizontal property regime (where autonomous units are separate properties under CIMI Article 2.4) from vertical ownership, asserting that different legal institutions may receive different tax treatment without violating constitutional principles. This case raises fundamental questions about whether material economic reality (independent units) should prevail over formal legal structure (absence of horizontal property regime) in determining Stamp Tax liability under Verba 28.1, and whether aggregation of unit values respects the legality and equality principles enshrined in Portuguese tax law.

Full Decision

ARBITRAL DECISION

I – Report

1. On 29.07.2015, A..., widow, taxpayer number ..., resident at street ..., no. ..., ..., ..., Oeiras, on her own behalf and in the capacity of head of the undivided estate opened by the death of C... (hereinafter designated as "first Claimant") and B..., married, taxpayer number ..., resident at street ..., no. ..., in Oeiras, on her own behalf and in the capacity of head of the undivided estate opened by the death of D... (hereinafter designated as "second Claimant"), requested from CAAD the constitution of an arbitral tribunal, in accordance with article 10 of Decree-Law no. 10/2011, of 20 January (Legal Regime for Tax Arbitration, hereinafter only designated as "LRTA"), in which the Tax and Customs Authority is respondent, with a view to the annulment of the Stamp Tax assessments (item no. 28.1 of the General Stamp Tax Table) relating to the year 2014, as per documents attached to the request for arbitral decision under numbers 1 to 28 and relating to the urban property situated at street ..., no. ... (formerly...), ..., in Cascais, not constituted under a horizontal property regime, described in the Registry Office of Real Property in Cascais under no. ..., registered in the respective urban property register of the Union of Parishes of ... and ..., municipality of Cascais, under article ... .

The Claimants further request the condemnation of the Respondent to pay them the taxes paid relating to the assessments in question, which they consider undue, as well as the respective interest.

2. The request for constitution of the arbitral tribunal was accepted by His Excellency the President of CAAD and notified to the Tax and Customs Authority.

In accordance with the terms and for the purposes of article 6, no. 1 of the LRTA, by decision of the President of the Ethics Council, duly communicated to the parties within the legally applicable deadlines, the undersigned was appointed arbitrator, who communicated to the Ethics Council and to the Centre for Administrative Arbitration his acceptance of the charge within the regularly applicable deadline.

The Arbitral Tribunal was constituted on 28.10.2015.

3. The grounds presented by the Claimant in support of her claim were, briefly, as follows:

- The property to which all the Stamp Tax assessments refer is a building containing seven floors or units with independent use, all allocated to housing, not constituted under a horizontal property regime.

- Since none of the floors or units has a TFV greater than €1,000,000, the legal assumption for tax incidence provided in item 28.1 of the General Stamp Tax Table is not met, since taxation is determined not by the total property tax value of the property, but by the tax value attributed to each of its floors or units.

- The criterion used by the Respondent of considering the value resulting from the sum of the property tax values attributed to the parts, floors or units with independent use, on the ground that the property is not subject to the horizontal property regime, finds no legal basis and is contrary to the criterion applicable in the IMI context and, by reference, in the Stamp Tax context.

- The adoption of the criterion defended by the Respondent violates the principles of legality and fiscal equality, as well as the prevalence of material truth over formal legal reality.

- The tax acts should be annulled and the Respondent condemned to pay the Claimants the taxes unduly paid as well as interest calculated on the value of the tax that has been paid, in accordance with article 43, no. 1 of the LGT.

4. The Tax and Customs Administration, called to state its position, contested the Claimant's claim, defending itself by exception and by objection, in brief, with the following grounds:

By exception,

- The Claimants do not contest the tax assessment act, but rather the payment of two installments of the assessment act recorded in collection notes, a matter that is not included in the set of provisions defining the jurisdiction of tax arbitral tribunals, contained in article 2 of the LRTA, whereby the Tribunal is incompetent to hear the claim filed.

- The incompetence of the tribunal is a dilatory exception to be raised ex officio in accordance with articles 576 and paragraph a) of article 577, applicable by virtue of article 29, no. 1, paragraphs a) and e) of the LRTA, whereby it should be declared.

- The payment of each assessment is made in installments, which does not allow for the challenge of a single installment or collection document in that partial amount, the exception of non-challengeability of the acts subject to the request for arbitral decision also being verified, and this exception should also be judged as well-founded.

By objection,

d. The situation of the claimants' property falls, linearly, that is to say, literally, within the provision of item 28.1 of the General Stamp Tax Table.

e. The current claimants are co-owners of a property under a regime of total or vertical ownership and, from the notion of property in article 2 of the CIMI, only autonomous units of property under a horizontal property regime are deemed to be properties - no. 4 of the aforementioned article 2 of the CIMI.

f. Thus, the current claimants, for the purposes of IMI and also of stamp tax, by virtue of the wording of the aforementioned item, are not owners of autonomous units, but rather of a single property.

g. Having established this fact, what the claimants seek is that the AT consider, for the purposes of assessment of the present tax, that there is analogy between the regime of total ownership and that of horizontal ownership.

h. To contend that the interpreter and applicant of tax law should apply, by analogy, to the regime of total ownership, the regime of horizontal ownership is abusive and illegal.

i. The interpreter of tax law cannot equate these regimes, in accordance with the rule according to which the concepts of other branches of law have the meaning in tax law that is given to them in those branches of law, or in the words of article 11, no. 2 of the LGT, on the interpretation of tax law: "Whenever terms specific to other branches of law are used in tax provisions, they should be interpreted in the same sense as that which they have therein, unless another meaning directly results from the law."

j. When the property is subject to the regime of total ownership, but is physically constituted by parts capable of independent use, tax law attributed relevance to this materiality, evaluating these parts individually, in accordance with article 12 and consequently, in accordance with article 12, no. 3, of the CIMI, each floor or part of a property capable of independent use is considered separately in the property record, but in the same register, proceeding to assess the IMI taking into account the property tax value of each part.

- The unity of the urban property in vertical ownership composed of several floors or units is not, however, affected by the fact that all or some of those floors or units are capable of independent economic use and does not equally affect the application of item 28, no. 1, of the General Table.

- Any other interpretation would violate the letter and spirit of item 28.1 of the General Table and the principle of legality of the essential elements of the tax provided in article 103, no. 2, of the Constitution of the Portuguese Republic (CRP).

- In truth, horizontal ownership and vertical ownership are differentiated legal institutions.

- The legislator may, however, subject to a different, and therefore discriminatory, tax legal framework, properties under horizontal and vertical ownership regimes, especially by benefiting the more legally evolved institution of horizontal ownership, without such discrimination needing to be considered necessarily arbitrary.

- Such discrimination may also be imposed by the need to impose coherence on the tax system.

p. The tax acts challenged do not violate any legal or constitutional provision and should be maintained in the legal order.

q. The Claimants are also wrong in their request for payment of interest, since, as has been shown, there is no situation that the law configures as being "error attributable to the services".

r. Moreover, the law did not provide for objective liability, but rather liability linked to the fault of the services, which must be alleged and proven and does not result immediately from the annulment of the challenged assessments, whereby the request for interest is unfounded and must be dismissed.

5. The Claimants replied in writing to the exception raised by the Respondent, in brief, as follows:

- What results from the request for arbitral decision is that the claimants requested the declaration of illegality of the stamp tax assessment act relating to the year 2014, relating to the identified urban property, in the total amount of €9,215.83 (€5,864.62 + €3,351.21) and its consequent annulment.

- The assessment is only one and it alone constitutes an injurious act, capable of being challenged, as occurred in the present case.

- Only and solely for the purposes of restitution and reimbursement of the tax unduly paid by them, the payment of which must be demonstrated in the present arbitral process, were the collection notes issued for the payment of the tax installments indicated.

- Consequently, the exceptions invoked by the Respondent should be wholly dismissed.

6. Since there was no situation provided for in article 18, no. 1, of the LRTA that would make necessary the arbitral meeting provided for therein, the same was dispensed with, on the ground of the prohibition of performance of useless acts and also on the principles of celerity, simplification and procedural informality.

The holding of arguments was also dispensed with, in accordance with article 18, no. 2, of the LRTA, "a contrario".

7. The tribunal is materially competent and is regularly constituted in accordance with the LRTA.

The parties have legal personality and capacity, are legitimate and are legally represented.

The process does not suffer from vices that would invalidate it.

8. The following issues must be resolved:

a) Whether the exceptions of incompetence of the arbitral tribunal and non-challengeability of the acts subject to the present process occur.

b) Whether the assessments subject to the present process are illegal and should consequently be annulled.

II. Preliminary Hearing

9. Exceptions of incompetence of the arbitral tribunal and non-challengeability of the acts subject to the request for arbitral decision.

Given the manifest connection between the two exceptions raised, they will be appreciated together.

Let us see.

In the initial petition, the Claimants expressly and repeatedly indicate as the subject of the request for arbitral decision the stamp tax assessments which they expressly identify by mention of their respective number and date. Furthermore, they indicate the sum of the value of the challenged assessments, relating to each of the Claimants, (€5,864.62 and €3,351.21, respectively), which is found to correspond effectively to the value of the assessments made by the Respondent. On the other hand, the sum of those values corresponds to the value of the case indicated by the Claimants.

Thus, there is no doubt that the acts subject to the present process (the stamp tax assessments) are challengeable and are included in the jurisdiction of the Arbitral Tribunal, in accordance with article 2, no. 1, paragraph a) of the LRTA.

Consequently, the exceptions raised by the Respondent are dismissed.

II – Factual Matters of Relevance

10. The following facts are deemed proven:

a) The Respondent made and notified the first Claimant of the Stamp Tax assessments (item no. 28.1 of the General Stamp Tax Table), relating to the year 2014, dated 20.03.2015, in the total amount of €5,864.62 (five thousand eight hundred and sixty-four euros and sixty-two cents), in the capacity of co-owner of the urban property situated at street ..., no. ... (formerly...), ..., in Cascais, not constituted under a horizontal property regime, described in the Registry Office of Real Property in Cascais under no. ..., registered in the respective urban property register of the Union of Parishes of ... and ..., municipality of Cascais, under article ... and also in the capacity of head of the liquid and undivided estate opened by the death of C..., as per documents numbers 1 to 14, attached to the request for arbitral decision, which are deemed to be fully reproduced, and in accordance with the respective notifications, the 1st installment should be paid in the month of April 2015.

b) The Respondent made and notified the second Claimant of the Stamp Tax assessments (item no. 28.1 of the General Stamp Tax Table), relating to the year 2014, dated 20.03.2015, relating to the same property in the total amount of €3,351.21 (three thousand three hundred and fifty-one euros and twenty-one cents), in the capacity of co-owner of the property identified in the previous paragraph and also in the capacity of head of the liquid and undivided estate opened by the death of D..., as per documents numbers 15 to 28, attached to the request for arbitral decision, which are deemed to be fully reproduced, and in accordance with the respective notifications, the 1st installment should be paid in the month of April 2015.

c) The aforementioned property is composed of seven floors or units capable of independent use, two on the ground floor and the remainder on the first, second, third, fourth and fifth floors, appearing in the register as owners of the property in co-ownership the first Claimant in the proportion of fourteen forty-eighths, the undivided estate opened by the death of C... in the proportion of fourteen forty-eighths, the second Claimant in the proportion of two twenty-fourths, the undivided estate opened by the death of D... in the proportion of six twenty-fourths and the remaining proportion in favor of a third party.

d) The property is not constituted in horizontal ownership.

e) The assessments subject to the request for arbitral decision relate to each of the parts capable of independent use of the property in question.

f) Each of the aforementioned units with independent use was subject to autonomous valuation by the Tax Authority, which fixed their respective property tax values, as shown in the property record, between €34,980.00 (thirty-four thousand nine hundred and eighty euros) and €178,360.00 (one hundred and seventy-eight thousand three hundred and sixty euros).

g) The first Claimant paid the first installment relating to the tax assessments, in the amount of €2,343.84, on 9.04.2015, the second installment, in the amount of €1,381.16, on 10.07.2015 and the third installment, in the amount of €2,139.62, on 9.11.2015.

h) The second Claimant paid the first installment relating to the tax assessments, in the amount of €2,138.24, on 24.04.2015, the date on which she paid the amount of €837.80 and on 27.04.2015, the date on which she paid the amount of €1,300.44 and the second installment in the amount of €1,212.97, on 12.01.2016.

With interest for the decision of the case there are no unproven facts.

11. The Tribunal's conviction regarding the decision on the factual matter was based on the documents contained in the file, as well as on the pleadings presented, it being noted that there is total agreement between the parties regarding the factual matter, the disagreement being confined to the matter of law.

III – Applicable Law

12. Item 28 of the General Stamp Tax Table provides that the ownership of properties with housing allocation with a property tax value equal to or greater than €1,000,000 is subject to stamp tax, as follows:

"Ownership, usufruct or right of superficies of urban properties whose property tax value contained in the register, in accordance with the Real Estate Tax Code (CIMI), is equal to or greater than €1,000,000 - on the property tax value used for the purposes of IMI:

28.1 Per residential property or per land for construction whose construction, authorized or provided, is for housing, in accordance with the provisions of the Real Estate Tax Code: 1%.

28.2 Per property, when the passive subjects that are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by order of the Minister of Finance: 7.5%".

13. Article 67, no. 2 of the CIS provides that "Matters not regulated in the present Code relating to item no. 28 of the General Table are subject, subsidiarily, to the provisions of the CIMI".

Article 2, no. 4 of the Real Estate Tax Code (hereinafter CIMI) provides that "For the purposes of this tax, each autonomous unit under the horizontal property regime is deemed to constitute a property".

Article 92 of the same code further establishes:

"1 - Each building under a horizontal property regime has only one entry in the register.

2 - In the generic description of the building, the fact that it is under a horizontal property regime should be mentioned.

3 - Each of the autonomous units is described in detail and individualized by the capital letter corresponding to it according to alphabetical order."

Furthermore, article 12, no. 3 of this Code provides that "Each floor or part of a property capable of independent use is considered separately in the property record, which also discriminates its respective property tax value".[1]

Writing about this rule, J. Silvério Mateus and L. Corvelo de Freitas tell us: "An example that may illustrate this situation is the case of an urban property, not constituted in horizontal ownership and composed of several floors. Legally this property constitutes a single unit (...).

However, since each of these units may be subject to lease or some other use by its respective owner, the register must show these units and a property tax value must be attributed to each of them".[2]

It appears, therefore, that article 12, no. 3 of the CIMI is applicable to situations of properties in conditions to satisfy the objective requirements for submission to the horizontal property regime, provided for in article 1415 of the Civil Code, but in which the existence of a constitutive instrument does not occur.

14. Regarding urban properties in conditions to satisfy the objective requirements for submission to the horizontal property regime, in substance, the economic reality subject to taxation is not altered by the fact that the constitutive act of horizontal property ownership has, or has not, been carried out. From the perspective of taxation of these realities, there is no substantive difference in the CIMI regarding the treatment of a property as a function of the constitution of horizontal ownership.

In fact, in the regime of articles 38 and following of the CIMI that regulate the determination of the property tax value of properties, no substantive differentiation is detected between properties constituted in horizontal ownership and properties with objective conditions for such, but in which submission to such regime did not occur[3], in particular, such circumstances are not included in the elements for increase or reduction provided for in the tables of article 43, no. 2 of the code.

15. The essential question to be resolved in the present process concerns whether, in properties with parts capable of independent use, but not subject to the horizontal property regime, the property will be considered as a unit for the purposes of applying item 28 of the TGIS or whether its independent parts will be considered individually.

In the first case, the value relevant for the purposes of subsuming to item 28 will be the result of considering the totality of its parts and, in coherence, a single assessment should be made, only relating to the property, and not as many assessments as there are parts or floors capable of independent use.

In the second case, the value to be considered for that purpose will be that of each of the parts capable of independent use, similar to what occurs with the autonomous units of properties subject to the horizontal property regime, and as many assessments should be made as there are parts capable of independent use but, only and solely, for parts capable of independent use whose value is equal to or greater than €1,000,000.

The AT made as many assessments as there are parts capable of independent use, a procedure which in our view does not harmonize with its own thesis that, in these cases, the reality targeted by Item 28 of the TGIS is the property as a whole and not each of its autonomous parts.

16. The matter has already been appreciated in several arbitral decisions[4], which were to the effect of considering that the value to be considered for that purpose will be that of each of the parts capable of independent use, similar to what occurs with the autonomous units of properties subject to the horizontal property regime, a solution which we deem correct.

In a first interpretative moment of item 28 of the TGIS, the expression "urban properties", in combination with article 2, no. 4 of the CIMI, which attributes the status of urban property to autonomous units under the horizontal property regime and apparently does not attribute it to parts capable of independent use, could point to consideration of the property as a whole.

But, still within the ambit of the literal element, the item points in a different direction by referring to "residential property", insofar as, in cases of properties capable of independent use, the allocation can only be determined unit by unit [5] and not globally, insofar as it may happen, and does happen frequently with this type of property, that some parts are allocated to housing and others to other purposes.

Thus, when the legislator refers to "residential property", with respect to properties with floors or parts of a property capable of independent use, it could only have had in mind each of these units and not the property as a whole.

17. This reading of the literal element is in complete harmony with the aforementioned provisions of the CIMI, as well as with the other interpretative elements, as demonstrated in the various CAAD decisions on this matter and to whose jurisprudence we adhere without reservation.

As was written in the decision rendered in case 50/2013-T:

"the ratio legis underlying the rule of item 28 of the TGIS, introduced by Law no. 55-A/2012 of 29 October, and in obedience to the provision of article 9 of the Civil Code, according to which the interpretation of the legal provision should not be confined to the letter of the law, but should reconstruct from the texts and other interpretative elements the legislative intent, taking into account the unity of the legal system, the circumstances in which it was drafted and the specific conditions of the time in which it is applied.

The legislator, in introducing this legislative innovation, considered as a determining element of contributory capacity urban properties with housing allocation of high value (luxury), more precisely, of value equal to or greater than €1,000,000, on which it proceeded to impose a special rate of stamp tax, intending to introduce a principle of taxation on wealth externalized in the ownership, usufruct or right of superficies of urban properties of luxury with housing allocation. For this reason, the criterion was one of application of the new rate to urban properties with housing allocation, whose TFV is equal to or greater than €1,000,000.

This is precisely what follows from the analysis of the discussion of bill no. 96/XII in the Assembly of the Republic, available for consultation in the Diary of the Assembly of the Republic, I series, no. 9/XII/2, of 11 October 2012.

The justification for the measure designated "special rate on urban residential properties of higher value" is based on the invocation of the principles of social equity and fiscal justice, calling upon the holders of properties of high value intended for housing to contribute in a more intense manner, imposing the new special rate on "houses of value equal to or greater than 1 million euros."

Clearly the legislator understood that this value, when attributed to a dwelling (house, autonomous unit or floor with independent use) denotes a contributory capacity above the average and, as such, capable of determining a special contribution to ensure fair distribution of the tax burden."

18. The respondent further contends that it violates the principle of tax legality, the interpretation of item 28.1 of the General Table, to the effect that the property tax value on which its incidence depends is calculated floor by floor or unit by unit and not globally.

It seems to us that it is not right, for the reasons stated above and also because we do not see how the principle of legality could interfere with the application of the interpretative criteria provided for in article 9 of the Civil Code.

On the other hand, it is understood that the interpretation sustained here, in line with the settled arbitral jurisprudence mentioned above, is the one that harmonizes with the constitutional principles of fiscal equality and contributory capacity, insofar as it would not be acceptable, in light of these principles, the clearly unequal taxation of substantially identical realities merely for the formal reason that in some cases the constitution of horizontal ownership occurred and in others it did not.

Along the same line is the consideration of the principle of systematic coherence, which would also be affected by the consideration of these realities in the context of IMI in a substantially identical manner to that of units of properties formally constituted under horizontal ownership, contrary to what would occur in the context of stamp tax, in accordance with the solution sustained by the Respondent.

19. For the above reasons, it is considered that in the case of urban properties with parts or floors capable of independent use, the value to be considered for the purposes of applying item 28 of the TGIS is the property tax value of each of those independent parts, only those parts capable of independent use whose own property tax value is greater than €1,000,000 being subject to this tax.

20. In the case at hand, since the property tax value of each of the parts capable of independent use is less than that value, they do not come within the tax incidence provision, whereby the assessments in question suffer from the vice of violation of law and cannot fail to be annulled.

21. The Claimant further requested the condemnation of the Respondent to reimburse the amounts paid corresponding to the assessment subject to the present process, as well as the respective interest.

Let us see.

In accordance with the provision of paragraph b) of article 24 of the LRTA, the arbitral decision on the merit of the claim that is not subject to appeal or challenge binds the tax administration from the end of the deadline provided for appeal or challenge, and this, in the exact terms of the proceedings of the arbitral decision in favor of the taxpayer and until the end of the deadline provided for voluntary execution of the judgments of the judicial tax courts, must "restore the situation that would exist if the tax act subject to the arbitral decision had not been performed, adopting the necessary acts and operations for that purpose", which is in harmony with the provision of article 100 of the LGT [applicable by virtue of the provision of paragraph a) of no. 1 of article 29 of the LRTA] which provides that "the Tax Administration is obliged, in case of total or partial success of a claim, judicial challenge or appeal in favor of the taxpayer, to immediately and fully restore the legality of the act or situation subject to the dispute, including the payment of interest, if applicable, from the end of the deadline for execution of the decision".

Although article 2, no. 1, paragraphs a) and b), of the LRTA uses the expression "declaration of illegality" to define the jurisdiction of arbitral tribunals operating in CAAD, not referring to condemnatory decisions, it should be understood that the powers conferred to tax courts in judicial challenge proceedings are comprised in their jurisdiction, and this is the interpretation that is in harmony with the sense of the legislative authorization on which the Government based itself to approve the LRTA, in which it proclaims, as a first directive, that "the tax arbitral process must constitute an alternative procedural means to the judicial challenge process and to the action for recognition of a right or legitimate interest in tax matters".[6]

The judicial challenge process, although it is essentially an annulment process for tax acts, admits the condemnation of the Tax Administration to payment of interest, as is clear from article 43, no. 1 of the LGT, which provides that "interest is due when it is determined, in a complaint or judicial challenge, that there was error attributable to the services as a result of which the tax debt was paid in an amount greater than that legally due" and article 61, no. 4 of the CPPT (as amended by Law no. 55-A/2010, of 31 December, corresponding to no. 2 in the original wording), which provides that "if the decision recognizing the right to interest was a judicial one, the deadline for payment is calculated from the beginning of the deadline for its voluntary execution".

Thus, no. 5 of article 24 of the LRTA, by saying that "payment of interest, regardless of its nature, is due in accordance with the terms provided in the general tax law and the Tax Procedure and Process Code" should be understood as permitting the recognition of the right to interest in the arbitral process.

In the case at hand, it is manifest that, following the illegality of the assessment acts, there is grounds for reimbursement of the tax, by virtue of the aforementioned articles 24, no. 1, paragraph b), of the LRTA and 100 of the LGT, since this is essential to "restore the situation that would exist if the tax act subject to the arbitral decision had not been performed".

With respect to interest, the claim must still be appreciated in light of article 43 of the General Tax Law.

No. 1 of that article provides that "Interest is due when it is determined, in a complaint or judicial challenge, that there was error attributable to the services as a result of which the tax debt was paid in an amount greater than that legally due".

We uphold the understanding of Diogo Leite de Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa who contend that "Error attributable to the services that carried out the assessment is demonstrated when they proceed with a complaint or judicial challenge of that same assessment and the error is not attributable to the taxpayer" (GENERAL TAX LAW, Annotated and Commented, escritos encontros, 4th Edition, 2012, page 342).

In the case "sub judice", since the error giving rise to the assessments subject to the present process is not attributable to the Claimants, the request for condemnation of the Respondent regarding interest cannot fail to proceed.

Whereby, the Tax and Customs Authority must proceed with the execution of this decision, in accordance with article 24, no. 1, of the LRTA, reimbursing the amounts paid by the Claimants relating to the annulled assessments, with interest at the legal rate.

Interest is due from the date of payment to the date of processing of the credit note, in which it is included (article 61, no. 5 of the CPPT).

IV – Decision

Accordingly, the arbitral tribunal decides, holding the claim for arbitral decision to be wholly successful:

a) To decree the annulment of the assessments subject to the present process.

b) To condemn the Respondent to reimburse the Claimants the amounts paid with interest at the legal rate, calculated from the date of payment to the date of processing of the credit notes.

Value of the case: €9,215.83 (nine thousand two hundred and fifteen euros and eighty-three cents) in accordance with the provision of article 306, no. 2, of the CPC and 97-A, no. 1, paragraph a), of the CPPT and 3, no. 2, of the Regulation of Costs in Arbitration Proceedings.

Costs against the Respondent in the amount of €918.00 (nine hundred and eighteen euros) in accordance with no. 4 of article 22 of the LRTA.

Notify.

Lisbon, CAAD, 29.02.2016

The Arbitrator

Marcolino Pisão Pedreiro

[1] Also in the sense of individual consideration of these parts capable of independent use, article 119, no. 1 of the CIMI provides that the tax collection document shall contain the "discrimination of the properties, their parts capable of independent use, their respective property tax value".

Also pointing in the same direction, article 15-O of Decree-Law no. 287/2003, of 20 November, added by Law 60-A/2011 of 30/11, referring to the collection of IMI for the purposes of the safeguard regime, mentions "property or part of an urban property subject to general valuation".

[2] TAXES ON REAL ESTATE PROPERTY, STAMP TAX, Annotated and Commented, Engifisco, 1st Edition, 2005, pages 159-160.

[3] This was also the case under the Code of Real Property Tax and the Tax on Agriculture Industry and the Code of Municipal Contribution.

The circular offices nos. 40012, of 23.12.1999 and 40.025, of 11.08.2000 (which can be consulted in CODE OF REAL ESTATE TAX, Commented and annotated, by Martins Alfaro, Áreas Editora, 2004, 589-592 and in the cited work of Silvério Mateus and Corvelo de Freitas, pages 294-295 and 259-261, and the second can still be consulted on the website http://info.portaldasfinancas.gov.pt/pt/informacao_fiscal/legislacao/instrucoes_administrativas/oficios_circulados_contribuicao_autarquica.htm) even clarified the understanding that except in cases of reconstruction, modification or improvement of the property that implies some variation of the taxable value, the transition to the horizontal property regime does not give rise to a new valuation.

[4] Among others, those rendered in cases 50/2013-T, 132-2013-T, 181/2013-T, 183/2013-T, 185/2013-T, 248/13, 177/2014-T, 396/2014-T, 461/2015-T and 474/2015-T, which can be consulted at https://caad.org.pt/.

[5] We use the expression here in the sense of part or floor capable of independent use.

[6] On this question, see Jorge Lopes de Sousa, Commentary to the Legal Regime for Tax Arbitration, in GUIDE TO TAX ARBITRATION, Coord. Nuno Villa-Lobos and Mónica Brito Vieira, 2013, Almedina, pages 110-116).

Frequently Asked Questions

Automatically Created

How is Stamp Tax (Imposto de Selo) applied under Verba 28.1 to properties with independent units not constituted in horizontal property regime?
Under Verba 28.1 of the Stamp Tax General Table, the application to properties with independent units not constituted under horizontal property regime is disputed. The Tax Authority's position is that such properties constitute a single taxable unit for Stamp Tax purposes, even when composed of multiple floors or parts capable of independent use. Therefore, the aggregate property tax value (VPT) of the entire building determines whether the €1,000,000 threshold is met. This contrasts with horizontal property regime, where each autonomous fraction constitutes a separate property under CIMI Article 2.4. The controversy centers on whether properties under vertical/total ownership should be treated identically to horizontal property for Stamp Tax purposes, particularly given that CIMI Article 12 requires separate evaluation of independent parts for IMI assessment purposes.
Must each independent unit's VPT individually exceed €1,000,000 to trigger Verba 28.1 of the Stamp Tax General Table?
According to the claimants' interpretation, each independent unit's VPT must individually exceed €1,000,000 to trigger Verba 28.1 taxation, regardless of whether the property is constituted under horizontal property regime. They argue this interpretation aligns with IMI treatment under CIMI Article 12.3, where each independent part is separately considered in property records and assessments. However, the Tax Authority maintains the opposite view: for properties NOT under horizontal property regime, the €1,000,000 threshold applies to the aggregate VPT of the entire property as a single unit. The Authority argues that only autonomous fractions under horizontal property regime qualify as separate 'properties' under CIMI Article 2.4, and that vertical ownership properties retain their unity despite having independent parts. This fundamental disagreement reflects different interpretations of how tax law concepts should apply when legal form (vertical ownership) diverges from economic substance (independent units).
Can the Tax Authority aggregate the VPT of independent parts of a building to meet the €1,000,000 Stamp Tax threshold?
The Tax Authority's position is that it can and must aggregate the VPT of independent parts when the building is NOT constituted under horizontal property regime. Their reasoning relies on CIMI Article 2.4, which defines only horizontal property autonomous units as separate properties. For vertical/total ownership, despite CIMI Article 12 requiring separate evaluation of independent parts for IMI purposes, the property remains a single unit for Stamp Tax application under Verba 28.1. The Authority argues this aggregation respects the principle of legality (Article 103.2 CRP) and that different treatment of horizontal versus vertical ownership does not constitute arbitrary discrimination. Claimants counter that this aggregation lacks legal basis, violates fiscal equality principles, and contradicts the material reality that independent units function as separate economic entities. They argue the prevalence of material truth over formal legal classification should prevent such aggregation.
What is the CAAD arbitration procedure for challenging Stamp Tax assessments on multi-unit properties in Portugal?
The CAAD (Centro de Arbitragem Administrativa) arbitration procedure for challenging Stamp Tax assessments on multi-unit properties follows the Legal Regime for Tax Arbitration (LRTA - Decree-Law 10/2011). The process includes: (1) filing a request for arbitral tribunal constitution under LRTA Article 10, identifying challenged tax acts and legal grounds; (2) acceptance by CAAD President and notification to Tax Authority; (3) appointment of arbitrator(s) by the Ethics Council President under LRTA Article 6.1; (4) arbitrator acceptance and tribunal constitution; (5) Tax Authority response, which may raise preliminary exceptions (e.g., jurisdiction, non-challengeability) and substantive defenses; (6) evidentiary phase if needed; and (7) final arbitral decision. Procedural issues may include questions of tribunal competence (LRTA Article 2 scope), challengeability of partial installment payments versus complete assessment acts, and compliance with applicable deadlines. The procedure is governed by LRTA with subsidiary application of Civil Procedure Code provisions (LRTA Article 29.1).
Are taxpayers entitled to refund and compensatory interest when Stamp Tax liquidations under Verba 28.1 are annulled?
Yes, under Article 43.1 of the General Tax Law (LGT), taxpayers are entitled to refund of taxes unduly paid plus compensatory interest when Stamp Tax liquidations are annulled. The claimants specifically requested condemnation of the Tax Authority to pay: (1) the taxes paid relating to the contested assessments, considered undue; and (2) compensatory interest calculated on the tax value paid. Compensatory interest serves to compensate taxpayers for the time value of money and opportunity cost of funds improperly collected by the State. The interest rate and calculation method are established by law. This right to restitution with interest is a fundamental guarantee in Portuguese tax law, ensuring taxpayers are made whole when administrative or judicial proceedings determine that tax assessments were unlawful. The refund obligation arises automatically from annulment of the underlying tax acts, without requiring separate proceedings, though execution procedures may be necessary if the Tax Authority does not voluntarily comply.