Process: 512/2014-T

Date: January 30, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitral decision (Process 512/2014-T) addresses the application of Stamp Tax under item 28.1 of the General Stamp Tax Table (TGIS) to an urban property in Lisbon containing 16 independent housing units not constituted as horizontal property ownership. The undivided estate, represented by heirs resident in Brazil, challenged Stamp Tax assessments totaling €10,927.40 for 2013, arguing that the Tax Authority (AT) improperly issued separate assessments for each independently valued unit. The central legal question concerns whether Stamp Tax liability under item 28.1 should be determined by the Patrimonial Taxable Value (VPT) of each economically independent housing unit separately, or by aggregating the global VPT of all housing units in the property (€1,029,739.53). The claimant argued that Article 67(2) of the Tax Code (CIS) provides for subsidiary application of the Municipal Property Tax Code (CIMI), and Article 12(3) of CIMI mandates that each floor or independent part be considered separately for tax purposes. The claimant cited abundant arbitral jurisprudence supporting separate assessment of independently valued units under Article 7(2)(b) of CIMI, even when horizontal property ownership has not been formally constituted. The AT defended aggregation of values to determine the applicable Stamp Tax threshold. Constitutional issues were raised regarding potential violations of the principles of legality and tax equality. The claimant also sought compensatory interest on amounts paid due to alleged error by the tax services. This case reflects important interpretative questions about the intersection of property valuation rules under CIMI and Stamp Tax application under TGIS, particularly for properties with multiple independent units lacking formal horizontal property division.

Full Decision

ARBITRAL DECISION

CAAD – Tax Arbitration

ARBITRAL PROCEEDINGS NO. 512/2014-T

Subject: Stamp Tax. Item 28.1 of the General Stamp Tax Table (TGIS).

ARBITRAL DECISION

I – REPORT

a) Subject Matter of the Dispute:

  1. The Undivided Estate opened by the death of A, taxable person with NIF ..., represented by his daughters and universal heirs, B and C, both natural persons and resident in Brazil, filed with the Administrative Arbitration Center (CAAD) a request for constitution of a singular arbitral tribunal, pursuant to the combined provisions of articles 2 and 10 of the Legal Framework for Arbitration in Tax Matters (RJAT), wherein the Tax and Customs Authority (AT) is the respondent, seeking a declaration of illegality and unconstitutionality, as well as the consequent annulment of the Stamp Tax assessments – item 28.1 of the TGIS, with a total amount of € 10,927.40, relating to the year 2013 and to sixteen independent units intended for housing purposes, of the urban property located at Avenue ..., nos. ... and ..., in Lisbon, registered in the real property register under article ... of the parish of ... (corresponding to article ... of the extinct parish of ...), in the area of the Finance Service of Lisbon 4;

  2. Cumulatively, it is requested that the assessment be made of the taxable person's right to compensatory interest on the amounts effectively paid, due to error on the part of the services;

  3. The request for arbitral decision was submitted to CAAD on 23 July 2014, having been accepted on 25 July 2014 and automatically notified to the AT on 28 July 2014;

  4. The claimant opted not to designate an arbitrator, and therefore, pursuant to the provisions of article 6, para. 1 and article 11, para. 1, subparagraph a) of the RJAT, the undersigned was designated by the President of the Deontological Board of CAAD to serve on this arbitral tribunal, a position which she accepted in accordance with the legal provisions.

b) Factual Matters:

In summary, the claimant bases its claim on the following facts:

a) The urban property located at Avenue ..., nos. ... and ..., in Lisbon, registered in the real property register under article ... of the parish of ..., comprises part of the Undivided Estate opened by the death of A, taxable person with NIF ...;

b) The said property consists of twenty-one floors or independent units, sixteen of which are intended for housing purposes, and is not constituted as horizontal property ownership;

c) The patrimonial taxable value (VPT) of the various independent units was determined separately, in accordance with article 7, para. 2, subparagraph b) of the Municipal Property Tax Code (hereinafter, CIMI), totalling € 1,083,139.68, with the sum of the VPT of the floors with housing purposes being € 1,029,739.53;

d) The Stamp Tax assessments referred to in the case were issued on 17 March 2014, for payment in three instalments, during the months of April, July and November of the same year, respectively, containing the following identification elements, as per the documents attached to the initial petition:

Property Description Item of TGIS Patrimonial Value (€) Ownership Share Exempt Value Rate (%) Assessment (€)
...SC-1 28.1 53,524.63 1/1 0.00 1.00 535.25
...5D 28.1 75,924.25 1/1 0.00 1.00 759.24
...1E 28.1 63,692.13 1/1 0.00 1.00 636.92
...CV D 28.1 53,524.63 1/1 0.00 1.00 535.25
...RC D 28.1 62,312.25 1/1 0.00 1.00 623.12
...2 E 28.1 62,997.00 1/1 0.00 1.00 629.97
...3D 28.1 75,924.25 1/1 0.00 1.00 759.24
...5E 28.1 62,997.00 1/1 0.00 1.00 629.97
...RC E 28.1 53,524.63 1/1 0.00 1.00 535.25
...CV E 28.1 57,342.63 1/1 0.00 1.00 573.43
...4D 28.1 75,924.25 1/1 0.00 1.00 759.24
...SC-2 28.1 53,524.63 1/1 0.00 1.00 535.25
...2D 28.1 75,924.25 1/1 0.00 1.00 759.24
...1D 28.1 76,609.00 1/1 0.00 1.00 766.09
...4E 28.1 62,997.00 1/1 0.00 1.00 629.97
...3E 28.1 62,997.00 1/1 0.00 1.00 629.97

e) The first instalment of each of the assessments identified was paid on 24 April 2014 and the second instalment on 15 July 2014; as for the third instalment, with payment deadline until 30 November 2014, copies of the respective collection notes were attached to the case by request of 18 December 2014, without indication of payment date.

Facts Proven: The tribunal's conviction regarding the facts stated above, which are considered proven, derives from the critical analysis of the arbitral request and the documents attached thereto (deed of heirship certificate, real property register certificate, property records and collection notes), which are hereby reproduced, as well as from their express acceptance by the AT.

Facts Not Proven: There are no facts of interest for the resolution of the case that should be considered as not proven.

II – PRELIMINARY MATTERS:

The parties enjoy legal personality and capacity, are legitimate and are duly represented (articles 4 and 10, para. 2 of the RJAT and article 1 of Ordinance No. 112-A/2011, of 22 March).

The Singular Arbitral Tribunal was regularly constituted at CAAD on 21 October 2014 and is materially competent to assess and decide the dispute which is the subject of these proceedings.

By arbitral order of the same date, the highest-ranking official of the AT was notified in accordance with the terms and for the purposes set out in article 17 of the RJAT. Having no response been submitted within the legally prescribed period, the request of 4 December 2014 was admitted, in which the AT requested dispensation from filing the administrative record, accepted as proper the documentary evidence offered by the claimant, requested dispensation from the meeting referred to in article 18 of the RJAT and from oral evidence, as well as notification for submission of written arguments.

To ensure the right of reply, the parties were notified to submit written arguments. The claimant waived argument, and the arguments of the respondent were received on 26 December 2014 and duly notified to the opposing party.

No objections were raised and the request is timely.

III – REASONING:

In the judgment, the judge must rule on all matters that must be assessed, refraining from ruling on matters of which he should not have knowledge (final segment of para. 1 of article 125 of the Code of Tax Procedure and Process – CPPT, applicable subsidiarily to the arbitral tax proceeding, pursuant to article 29, para. 1, subparagraph a) of the RJAT).

The issues brought before the tribunal, both by the claimant and by the respondent AT, are whether, in an urban property not subject to the horizontal property ownership regime, the subjection to stamp tax, under item no. 28.1 of the TGIS, is determined by the Patrimonial Taxable Value (VPT) corresponding to each of the economically independent parts of the property with housing purpose, as the claimant contends, or whether, on the contrary, it is determined by the global VPT of the property, which would correspond to the sum of all VPT of the floors or independent units with housing purpose that comprise it, as the AT maintains, and whether either of the interpretations at issue is unconstitutional, due to violation of the principles of legality and tax equality.

The claimant's understanding, citing abundant arbitral jurisprudence, is, in summary, as follows:

· "Article 67, para. 2 of the Tax Code (CIS) provides that 'to matters not regulated in this Code relating to item no. 28 of the General Table, the provisions of the CIMI shall apply, subsidiarily'" (article 25 of the petition);

· "(…) following the referral ordered by the legislature, one must take into account what article 12, para. 3 of the CIMI stipulates, which establishes that: 'each floor or part capable of independent use shall be considered separately in the matrix entry, which also distinguishes the respective patrimonial taxable value'" (article 26 of the petition);

· "(…) each floor or independent unit is capable of having its own VPT, in accordance with the CIMI", and therefore, "In the context of IMI (the regime governing the Stamp Tax (…) each floor/unit capable of independent use is individualized, receiving its own annual IMI assessment (…)" (articles 27 and 28 of the petition);

· "By adopting the thesis that the VPT of properties with housing purpose should be calculated by adding the VPT of each of the independent floors, for purposes of application of item 28 of the TGIS, the AT contravenes the legal regime established regarding VPT calculation" (article 29 of the petition);

· "Evidence that the CIMI intended to individualize floors capable of independent use is, in addition to the aforementioned, article 15, subparagraph o) of Decree-Law 287/2003, when it refers to 'property or part of urban property'" (article 30 of the petition);

· "The subjection to stamp tax of properties with housing purpose results from the amendment of item 28 of the TGIS, made by article 4 of Law 55-A/2012, of 29 October, which typified the following taxable facts: '28 – Ownership, usufruct or surface right of urban properties whose patrimonial taxable value appearing in the register, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than € 1,000,000.00 – on the patrimonial taxable value for purposes of IMI:

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

28.2 – For property, when the taxable persons who are not natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime, listed in the ordinance approved by the Finance Minister – 7.5%'" (bold in original – article 34 of the petition);

· "It is important to note that, by stating that the VPT to be considered under this item of Stamp Tax is the VPT appearing in the register, in accordance with the CIMI, the legislature intended to expressly establish the uniqueness of this value for both these taxes" (article 35 of the petition);

· "(…) it has been the AT's understanding (…) that the provisions of article 7, para. 2, subparagraph b) of the CIMI should be taken into account, which establishes that 'b) If the different parts are economically independent, each part is valued by applying the corresponding rules, and the value of the property is the sum of the values of its parts' (…) 'in the case of the present proceedings, there is no sense whatsoever in resorting to this aforementioned legal provision since all the units taken into consideration for the purpose of calculating the VPT of the property have only housing purpose' (article 38 of the petition);

· "Now, if article 7, para. 2 establishes that 'the patrimonial taxable value of urban properties with parts that can be classified in more than one of the classifications of para. 1 of the previous article …' is determinable by adding the various units, and if in this case all units considered fall within the same classification, housing, this rule does not apply to the case sub judice" (article 39 of the petition – bold in original);

· "The taxation of the property identified in 1, for Stamp Tax purposes, in particular through the application of item 28 of the TGIS, constitutes a flagrant violation of the principle of equality, as enshrined in article 13, para. 2 and, more specifically, with regard to taxes, in article 104, para. 3, both of the Constitutional Law of the Portuguese Republic (CRP)" (article 44 of the petition);

· "(…) note that if the same property, exactly as it is currently physically constituted, were legally constituted as horizontal property ownership, and even if the patrimonial values of each autonomous unit were equal to the current values, it could not be taxed for Stamp Tax purposes under this item, or any other" (article 45 of the petition);

· "Objectively, the interpretation advocated by the AT (…) contributes to inequality among citizens, and is therefore materially unconstitutional (…)", "In support of the unconstitutionality of such interpretation, see the learned arbitral decision rendered by this same CAAD in proceedings no. 132/2013-T, to whose learned reasoning we adhere as current and pertinent" (articles 48 and 49 of the petition);

· "It is important to consider the legislature's purpose in creating item 28 of the TGIS, which underlies (…) the idea that capacity to contribute well above average should correspond to a contribution effort that is also superior" (article 50 of the petition);

· "As the learned arbitral decision rendered by this same CAAD in proceedings 183/2013-T correctly notes (…) 'The legislature's intention appears to indicate that the purpose of the rule of incidence is to tax independent, individualized realities and not those resulting from an aggregation or sum, even though legally constituted'" (article 54 of the petition).

For its part, the AT's position, defending the inadmissibility of the arbitral request, is, succinctly, as follows:

· "Item 28 of the General Table provides that stamp tax is levied on ownership, usufruct or surface right of urban properties whose patrimonial taxable value appearing in the register, in accordance with the CIMI, is equal to or greater than € 1,000,000.00" (article 22 of the arguments);

· "According to item 28.1, in the case of urban properties with housing purpose, the tax is levied on the patrimonial taxable value used for purposes of IMI" (article 23 of the arguments);

· "The patrimonial value relevant for purposes of the incidence of the tax is, therefore, the total patrimonial value of the urban property and not the patrimonial value of each of the parts that compose it, even when capable of independent use" (article 28 of the arguments);

· "The principle that each urban property corresponds to a single matrix entry is only excepted (…) with regard to mixed properties (…) and with regard to properties constituted as horizontal property ownership in which, although each autonomous unit is deemed to constitute a property under article 2, para. 4 of the CIMI, each building in horizontal property ownership regime has a single matrix entry" (article 32 of the arguments);

· "The urban property of the estate of A is not in horizontal property ownership regime, (…), but in vertical property ownership regime (…) However, it (…) has floors or independent units, valued in accordance with article 12, para. 3 of the CIMI (…) Such legal rule is not unprecedented, having correspondence in article 232, rule 1, of the Code of Real Estate Tax and Tax on Agricultural Industry (…), which provided that each dwelling or part of property would be automatically (sic) taken for purposes of determining taxable income on which the assessment would be levied (…) the taxable income necessarily had to correspond to the sum of the rental or rental value of each of the components of the property with economic autonomy" (articles 34-36 of the arguments);

· "The unity of the urban property in vertical property ownership composed of several floors or independent units is, nevertheless, not affected by the fact that all or some of these floors or independent units are capable of independent economic use (…) nor are (…) its distinct parts legally equated to autonomous fractions in horizontal property ownership regime" (articles 39 and 40 of the arguments);

· "The fact that the IMI was calculated based on the patrimonial taxable value of each part of the property with independent economic use does not equally affect the application of item 28, para. 1 of the General Table (…) This results from the fact that the determining factor for the application of that item of the General Table is the total patrimonial value of the property and not separately that of each of its parcels" (articles 47 and 48 of the arguments);

· "Any other interpretation would violate, in fact, 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 for in article 103, para. 2 of the Constitutional Law of the Portuguese Republic (CRP) (…) A type of incidence according to which the patrimonial taxable value of urban properties on which the application of item 28.1 of the General Table depends is the patrimonial value of each floor or independent unit and not the global patrimonial taxable value of the urban property with housing purpose has certainly no expression in the law" (articles 49 and 51 of the arguments);

· "It is, therefore, unconstitutional, for violation of the principle of tax legality, the interpretation of item 28.1 of the General Table, in the sense that the patrimonial value on which its incidence depends is ascertained globally and not floor by floor or unit by unit" (article 52 of the arguments);

· "It is not apparent how, furthermore, the taxation in question could have violated the principle of equality (…) horizontal property ownership and vertical property ownership are differentiated legal institutions" (articles 53 and 54 of the arguments);

· The legislature (…) may subject horizontal and vertical property regime properties to a distinct legal tax framework, thus discriminatory, in particular by benefiting the legally more evolved institution of horizontal property ownership, without such discrimination necessarily being considered arbitrary" (article 56 of the arguments).

Faced with the competing positions, it must be noted first that the AT is correct in stating that a property constituted in horizontal property ownership is a distinct legal-tax reality from an urban property in "full ownership" or "vertical ownership".

The rules of interpretation compel this, which have the text as their starting point, having the negative function of eliminating any meaning that has no support in the letter of the law[1].

First and foremost, because para. 4 of article 2 of the CIMI establishes the legal fiction that each of the autonomous units of a property constituted in horizontal property ownership embodies a property, while a part capable of independent use of an urban property not constituted in horizontal property ownership remains only that – a part of a property and not a property, as the AT itself acknowledges in its arguments, by stating that "horizontal property ownership and vertical property ownership are differentiated legal institutions".

This alone would suffice to conclude that, given that the legislature established distinct tax qualifications for legally differentiated realities (properties and parts of properties), it will not be legitimate for the rule applier, in the name of the "necessary adaptations" referred to in article 23, para. 7 of the Stamp Tax Code (CIS), to create a new rule of incidence of that tax, determining the taxation of parts of properties, as this matter is subject to the principle of tax legality, inherent in article 103, para. 2 of the Constitutional Law of the Portuguese Republic (CRP), according to which the essential elements of taxes – incidence, rate, tax benefits and taxpayers' guarantees – are established by law of the National Assembly, except where there is legislative authorization to the Government (article 165, para. 1, subparagraph i) and para. 2 of the CRP).

Item 28 of the TGIS, added by article 4 of Law No. 55-A/2012 of 29 October, determined, in its original wording, applicable to the case at hand, the objective incidence of stamp tax on urban properties with housing purpose (and not, as the AT contends, on parts of properties), whose patrimonial taxable value, for purposes of IMI, is equal to or greater than € 1,000,000.00, by establishing that stamp tax is levied on:

"28 – Ownership, usufruct or surface right of urban properties whose patrimonial taxable value appearing in the register, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than € 1,000,000.00 – on the patrimonial taxable value used for purposes of IMI:

28.1 – For residential property – 1%;

28.2 – For property, when the taxable persons who are not natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime, appearing in the ordinance approved by the Finance Minister – 7.5%."

Here too the literal element of the rule must be the starting point for its interpretation and, "in the absence of other elements that lead to the selection of the less immediate sense of the text, the interpreter should in principle opt for that sense which best and most immediately corresponds to the natural meaning of the verbal expressions used, and in particular to its technical-legal meaning, on the assumption (not always accurate) that the legislature knew how to correctly express its thought"[2].

In support of the thesis that the VPT relevant for the incidence of Stamp Tax of item 28.1 of the TGIS is the global VPT of the property not constituted in horizontal property ownership, the AT argues that all and each of its independent units were "valued in accordance with article 12, para. 3 of the CIMI", a rule which, according to the respondent, corresponds to "article 232, rule 1 of the Code of Real Estate Tax and Tax on Agricultural Industry (…), which provided that each dwelling or part of property would be automatically (sic) taken for purposes of determining taxable income on which the assessment would be levied", in which case "the taxable income necessarily had to correspond to the sum of the rental or rental value of each of the components of the property with economic autonomy".

However, the transposition of the interpretation given within the scope of the Code of Real Estate Tax and Tax on Agricultural Industry (CCPISIA), approved by Decree-Law No. 45,104 of 1 July 1963 and, for the most part, revoked by Decree-Law No. 442-C/88 of 30 November, to the IMI Code, in which there is no rule identical to article 232 of the first-mentioned Code, does not appear viable for several reasons, in particular, because the former Real Estate Tax was configured as a tax on income, real or presumed, as follows from its preamble, in which it is stated that "As for urban properties, the principle of taxing actual income whenever possible was immediately applicable, a principle which (…) in that case had necessarily to be restricted to leased properties. (…) As for unleased properties, (…) only had to maintain taxation based on estimated income (…)", while the Municipal Property Tax is a wealth tax.

In fact, para. 1 of article 232 of the CCPISIA provided that "Each dwelling or part of new property capable of separate lease shall be taken autonomously for the purpose of determining taxable income on which the assessment shall be levied," (underlined by us), but such autonomy was only relevant for purposes of entry in the ledgers and respective unitary assessment, and not for purposes of matrix registration, which was single for each property not constituted in horizontal property ownership, differently from what article 12, para. 3 of the CIMI currently provides.

The purpose of the autonomy referred to in para. 1 of article 232 of the CCPISIA was, as is still that of the autonomous matrix entry for each floor or independent unit capable of independent use, the control of the income generated by it, in case of lease; however, that income is now taxed under Personal Income Tax (category F).

With regard to the determination of the value of properties not constituted in horizontal property ownership, article 7, para. 2 of the CIMI applies, but only for "urban properties with parts that can be classified in more than one of the classifications of para. 1 of the previous article", in which case, according to its subparagraph b) "(…) each part is valued by applying the corresponding rules, and the value of the property is the sum of the values of its parts".

Under para. 1 of article 6 of the CIMI, urban properties are divided into a) Residential; b) Commercial, industrial or for services; c) Land for construction; d) Other.

From the combination of the rules of para. 2 of article 7 and para. 1 of article 6, both of the CIMI, it follows that, if an urban property not constituted in horizontal property ownership comprises exclusively parts or independent units with housing purpose (which is not the case in the proceedings at hand, as the claimant contends, although the value taken into account in the assessments made by the AT was the sum of the VPT of the units intended for housing), the value of the property does not equal the sum of its parts.

The same as to say that each of the parts is autonomous and that, regardless of the VPT assigned to it, it is excluded from the incidence of the stamp tax provided for in item 28 of the TGIS.

Here we must ask whether the subjection to stamp tax of item 28 of the TGIS of a part or independent unit, with housing purpose, of a property not constituted in horizontal property ownership, in which are integrated parts or independent units capable of independent use, classifiable in another of the classifications of para. 1 of article 6 of the CIMI, for example, units intended for commerce, industry or services, as is the case at hand, in which, of the 21 floors/independent units, only 16 are intended for housing.

The answer must be negative, notwithstanding the provision of subparagraph b) of para. 2 of article 7 of the CIMI, according to which the value of the property is the sum of the values of its parts or independent units capable of independent use, classifiable in more than one of the classifications of para. 1 of article 6 of the same Code.

This is because, here, attention must be paid, two legally distinct realities are not being compared, such as parts or independent units of an urban property not constituted in horizontal property ownership with autonomous units of properties subject to that regime, which, for purposes of IMI, are themselves properties.

Here, what is at issue are identical realities, that is, parts or independent units with housing purpose, integrated in urban properties not constituted in horizontal property ownership.

And the answer to the question must be negative, because nothing would justify the legislature intending to tax parts or independent units with housing purpose of an urban property not constituted in horizontal property ownership, comprised by other parts or independent units intended for other purposes and not tax parts or independent units with housing purpose of an urban property not constituted in horizontal property ownership, comprised exclusively by parts or independent units intended for housing. If the legislature intended to treat identically-situated realities unequally, it would then have to be concluded that there was a flagrant violation of the principle of equality.

Not appearing to be such the legislative intent, one cannot accept that the AT formulates a new rule of incidence ex novo, different from the one created by the legislature, intending to tax parts of properties, even if economically and functionally independent and, as such, separately registered in the matrix, which also distinguishes the respective patrimonial taxable value (cf. para. 3 of article 12 of the CIMI), since the law is clear in subjecting to stamp tax of item 28.1 of the TGIS urban properties with housing purpose, whose VPT, for purposes of IMI, is greater than € 1,000,000.00.

It would be different if a part or independent unit with housing purpose, inserted in an urban property not constituted in horizontal property ownership, but with a VPT, for purposes of IMI, equal to or greater than € 1,000,000.00, existed, considering the ratio legis of the rule of incidence.

In fact, as the claimant states in its arguments and has served as the basis for other arbitral decisions, in particular the one rendered in proceedings no. 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, in compliance with the provisions of article 9 of the Civil Code, according to which the interpretation of a legal rule should not be limited to the letter of the law, but should reconstruct from the texts and other interpretation elements the legislative thought, taking into account the unity of the legal system, the circumstances under which it was drafted and the specific conditions of the time in which it is applied.

The legislature, when introducing this legislative innovation, considered as the determining element of capacity to contribute urban properties with housing purpose of high value, more precisely, of value equal to or greater than € 1,000,000.00, on which a special rate of stamp tax was imposed, intending to introduce a principle of taxation on wealth manifested in the ownership, usufruct or surface right of luxury urban properties with housing purpose. The criterion was the application of the new rate to urban properties with housing purpose, whose VPT is equal to or greater than € 1,000,000.00.

This logic seems to make sense when applied to "housing", whether it be "a house", "an autonomous unit" or "a part of property with independent use" "an autonomous unit", because it is supposed to have capacity to contribute above the average and, to that extent, justifies the need for an additional contribution effort, it would make little sense to subsequently disregard the determinations "unit by unit" when only through the sum of their VPTs, because held by the same individual, the million-euro threshold would be exceeded.

This is concluded from the analysis of the discussion of Law Proposal No. 96/XII in the National Assembly, available for consultation in the National Assembly Gazette, I series, no. 9/XII/2 of 11 October 2012."

We thus have that, in addition to the grammatical element of the interpretation of the rule of incidence contained in item 28.1 of the TGIS, also its rational or teleological element, the ratio legis or purpose intended by the legislature in elaborating that rule, points toward the taxation being levied on urban properties of high VPT and not on parts of urban properties, even if of independent use, with VPT of value below that legally determined.

In view of the reasons set out, the assessment of matters relating to the alleged unconstitutionality of the interpretations given by the claimant and the respondent to the rule of item 28.1 of the TGIS, for violation of the principles of legality and tax equality, is prejudiced, since this rule does not accommodate the interpretation that, in this case, the AT has made thereof, by issuing the assessments that are the subject of the arbitral request, which cannot be maintained in the legal order.

Regarding Compensatory Interest

The claimant further requests that it be paid compensatory interest, due to error on the part of the services, in accordance with article 43 of the General Tax Law (LGT).

The cumulation of requests relating to the same tax act is implicitly admitted by article 3 of the RJAT, in which the "cumulation of requests even if relating to different acts" is provided for. It will thus also be possible with regard to the same tax act, the cumulation of requests for its annulment and payment of compensatory interest or compensation for improper provision of security.

Para. 1 of said article 43 of the LGT, applicable subsidiarily to the arbitral tax proceeding, pursuant to article 29, para. 1, subparagraph a) of the RJAT, provides that "1 – Compensatory interest is due when it is determined, in administrative appeal 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."

Error attributable to the services may consist of error regarding the factual premises, which occurs whenever there is "a divergence between reality and the factual matter used as a premise in the practice of the act"[3], or error regarding the legal premises, when "in the practice of the act there has been erroneous interpretation or application of legal rules, such as the rules of objective and subjective incidence (…)"[4] and "is demonstrated when administrative appeal or judicial challenge of that same assessment is filed and the error is not attributable to the services"[5].

For its part, the arbitral tax proceeding was conceived as an alternative to the judicial challenge proceeding, with article 24, para. 1, subparagraph b) of the RJAT determining that, "1 – The arbitral decision on the merits of the claim for which no appeal or challenge is available binds the tax administration from the end of the period provided for appeal or challenge, with the latter (…) b) Restoring the situation that would exist if the tax act that is the subject of the arbitral decision had not been practiced, adopting the acts and operations necessary for that purpose", with para. 5 of the same article adding that "5 – Payment of interest, regardless of its nature, is due, in accordance with the terms provided in the general tax law and in the Code of Tax Procedure and Process".

Having demonstrated the erroneous application of the rule of objective incidence contained in item 28.1 of the TGIS, which justifies the annulment of the assessments challenged, the right of the claimant to compensatory interest on the amounts improperly paid is recognized, from the date of payment of each instalment, in accordance with para. 5 of article 61 of the CPPT.

IV – DECISION

In view of the reasons set out and, in accordance with article 2 of the RJAT, it is decided:

− To declare the illegality of the Stamp Tax assessments challenged, due to error in the legal premises, determining their annulment;

− To condemn the Tax and Customs Authority to the restitution of the amounts improperly paid by the claimant;

− To condemn the Tax and Customs Authority to the payment of compensatory interest to the claimant, from the date of payment of each of said instalments, at the legal rate in force.

VALUE OF THE PROCEEDINGS: In accordance with the provisions of article 306, para. 2 of the CPC and article 97-A, para. 1, subparagraph a) of the CPPT and article 3, para. 2 of the Regulations of Costs in Tax Arbitration Proceedings, the value of the proceedings is set at € 10,927.40.

COSTS: Calculated in accordance with article 4 of the Regulations of Costs in Tax Arbitration Proceedings and Table I attached thereto, in the amount of € 918.00, to be borne by the Tax and Customs Authority.

Lisbon, 20 January 2015.

The Arbitrator,

/Mariana Vargas/

Text prepared by computer, in accordance with para. 5 of article 131 of the CPC, applicable by referral in subparagraph e) of para. 1 of article 29 of Decree-Law 10/2011 of 20 January.

The wording of this decision is governed by the 1990 Orthographic Agreement.

[1] In this sense, cf. MACHADO, J. Baptista, "Introduction to Law and the Legitimizing Discourse", Almedina, Coimbra, 1995, pp. 182-185.

[2] Cf. the cited Author, op. and loc. cit.

[3] SOUSA, Jorge Lopes de, "Code of Tax Procedure and Process – annotated and commented", Volume I, Áreas Editora, 5th Edition, 2006, p. 714.

[4] Ibid., ibidem.

[5] CAMPOS, Diogo Leite de, RODRIGUES, Benjamim Silva, SOUSA, Jorge Lopes de, "General Tax Law – Annotated and Commented", Encontro da Escrita, 4th Edition, p. 342.

Frequently Asked Questions

Automatically Created

Does Verba 28.1 of the TGIS apply to individual housing units in a building not constituted as horizontal property?
Yes, Verba 28.1 of the TGIS can apply to individual housing units in a building not constituted as horizontal property, but the method of application is disputed. According to the claimant's position supported by arbitral jurisprudence, when a property contains economically independent housing units that have been separately valued under Article 7(2)(b) of the CIMI, each unit should be assessed separately for Stamp Tax purposes. The subsidiary application of CIMI provisions through Article 67(2) of the Tax Code means that Article 12(3) of CIMI, which treats each independent floor or part as a separate property for tax purposes, should govern the assessment. This interpretation prevents artificial aggregation of values that would trigger tax obligations not applicable to individual units.
How is the taxable value determined for Stamp Tax when a property has independently valued units under Article 7(2)(b) of the CIMI?
When a property has independently valued units under Article 7(2)(b) of the CIMI, the taxable value for Stamp Tax should be determined separately for each economically independent unit, not by aggregating all units' values. Article 67(2) of the Tax Code (CIS) mandates subsidiary application of CIMI provisions to matters related to item 28 of the General Table. Consequently, Article 12(3) of CIMI applies, which establishes that each floor or part capable of independent use constitutes a distinct property for tax purposes. This means each unit's individual Patrimonial Taxable Value (VPT) should be considered separately when determining Stamp Tax liability under Verba 28.1, even when horizontal property ownership has not been formally constituted. The separate valuation under CIMI should translate to separate assessment for Stamp Tax purposes.
Can an undivided inheritance challenge Stamp Tax assessments through CAAD tax arbitration?
Yes, an undivided inheritance (estate) can challenge Stamp Tax assessments through CAAD tax arbitration. In this case, the Undivided Estate opened by the death of the property owner, represented by the universal heirs (two daughters resident in Brazil), successfully filed a request for arbitral decision pursuant to Articles 2 and 10 of the Legal Framework for Arbitration in Tax Matters (RJAT). The arbitral tribunal confirmed it had material competence to assess the dispute and that the claimant enjoyed legal personality, capacity, and legitimacy. Undivided estates have legal standing to contest tax assessments affecting estate property through the administrative arbitration mechanism provided by CAAD, even when the representatives are non-residents.
Is it lawful to aggregate the patrimonial tax values of separate housing units to trigger the Verba 28.1 threshold?
No, it is not lawful to aggregate the patrimonial tax values of separate housing units to trigger the Verba 28.1 threshold when those units have been independently valued under Article 7(2)(b) of CIMI. The claimant's position, supported by abundant arbitral jurisprudence, holds that aggregating separately valued independent units violates the subsidiary application of CIMI mandated by Article 67(2) of the Tax Code. Article 12(3) of CIMI explicitly provides that each floor or part capable of independent use constitutes a separate property for tax purposes. Aggregation would artificially inflate the taxable base and subject units to Stamp Tax liability they would not individually incur, potentially violating principles of tax legality and equality. The proper interpretation requires individual assessment of each economically independent unit's VPT.
Are taxpayers entitled to compensatory interest when Stamp Tax liquidations under Verba 28.1 TGIS are annulled?
Yes, taxpayers are entitled to compensatory interest when Stamp Tax liquidations under Verba 28.1 TGIS are annulled due to error by the tax services. The claimant in this case cumulatively requested assessment of the right to compensatory interest on amounts effectively paid, invoking error on the part of the tax services. Under Portuguese tax law, when tax assessments are declared illegal and annulled, and the taxpayer has made payments based on those erroneous assessments, compensatory interest is due to remedy the financial prejudice suffered by the taxpayer. This interest compensates for the State's improper retention of funds to which it was not entitled, running from the date of payment until reimbursement is made.