Process: 559/2017-T

Date: May 10, 2018

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 559/2017-T) addresses the controversial application of Stamp Tax (Imposto do Selo) under Clause 28.1 of the General Stamp Tax Table (TGIS) to properties under total ownership regimes. The claimant, A… S.A., challenged €11,903.58 in Stamp Tax assessments for 2013 relating to an urban property in Lisbon with multiple autonomous units. The Portuguese Tax Authority (AT) calculated the tax by aggregating the Tax Property Values (VPT) of all independent divisions within the building, which exceeded €1,000,000. The claimant argued this methodology violates the Municipal Property Tax Code (CIMI), which treats each economically independent unit separately for valuation purposes under Article 7(2)(b) and Article 12(3). The claimant contended that Stamp Tax should apply individually to each autonomous fraction based on its own VPT, not the aggregate building value. This interpretation aligns with Supreme Administrative Court jurisprudence (Case 047/15) and dominant CAAD precedents. The case exemplifies the ongoing dispute between taxpayers and AT regarding vertical property taxation methodology. Before accessing CAAD arbitration, the claimant exhausted administrative remedies: filing an administrative claim (dismissed) and hierarchical appeal (rejected on 21-08-2017), then requesting arbitration on 20-10-2017. The tribunal was constituted on 28-02-2018 as a single-arbitrator panel after the claimant declined to appoint a representative. This decision is significant for property owners with buildings containing multiple autonomous units near the €1 million threshold, as it determines whether Stamp Tax liability is calculated per unit or per building.

Full Decision

Arbitral Decision

I – REPORT

The Parties and the Constitution of the Arbitral Tribunal

A…, S.A., a private limited liability company, Tax Identification Number (NIPC)…, with registered office at …, no. … –…, in …-… Lisbon, (hereinafter referred to as "Claimant"), requested the constitution of a collective Arbitral Tribunal, pursuant to the provisions of article 2, no. 1, paragraph a) and 10, nos. 1 and 2 of Decree-Law no. 10/2011, of 20 January, hereinafter referred to as "RJAT" and Order no. 112-A/2011, of 22 March, for the purposes of challenging the decision dismissing the Hierarchical Appeal and declaring the illegality of the Stamp Duty (IS) assessments issued in application of item 28.1 of the General Table of Stamp Duty (TGIS) relating to the year 2013, in the total amount of €11,903.58, seeking its annulment, with reference to the urban property located at …, no. …, turning into Rua dos …, in Lisbon, which was inscribed in the respective urban property register under no. … of the parish …-….

In the present arbitral request, the Claimant challenges the decision dismissing the Hierarchical Appeal filed against the dismissal of the administrative claim that it had submitted on the grounds of illegality of the Stamp Duty assessments issued pursuant to item 28 of the TGIS, relating to the property described above, namely:

  • Assessment no. 2015… of 2013, in the amount of €436.26;
  • Assessment no. 2015… of 2013, in the amount of €975.88;
  • Assessment no. 2015… of 2013, in the amount of €791.27;
  • Assessment no. 2015… of 2013, in the amount of €182.82;
  • Assessment no. 2015… of 2013, in the amount of €436.26;
  • Assessment no. 2015… of 2013, in the amount of €975.88;
  • Assessment no. 2015… of 2013, in the amount of €791.27;
  • Assessment no. 2015… of 2013, in the amount of €436.26;
  • Assessment no. 2015… of 2013, in the amount of €975.88;
  • Assessment no. 2015… of 2013, in the amount of €791.27;
  • Assessment no. 2015… of 2013, in the amount of €436.26;
  • Assessment no. 2015… of 2013, in the amount of €975.88;
  • Assessment no. 2015… of 2013, in the amount of €791.27;
  • Assessment no. 2015… of 2013, in the amount of €900.73;
  • Assessment no. 2015… of 2013, in the amount of €359.22;
  • Assessment no. 2015… of 2013, in the amount of €791.27;
  • Assessment no. 2015… of 2013, in the amount of €855.90;

In the total amount of stamp duty assessed of €11,903.58.

The Claimant was notified in 2015 of the additional Stamp Duty assessments, issued with reference to the year in which the taxable event occurred (2013), and filed an administrative claim procedure which was assigned case number …2015…, which was subsequently dismissed. From this dismissal, the Claimant filed a Hierarchical Appeal, which was assigned case number …2015…, which was equally dismissed, as evidenced by the decision dated 21-08-2017. On 20-10-2017 the Claimant filed the present arbitral request.

The request for constitution of the Arbitral Tribunal was presented by the Claimant on 20-10-2017, was accepted by the Honourable President of CAAD and notified to the Tax and Customs Authority on 23-10-2017. The Claimant opted not to appoint an arbitrator, whereby, pursuant to the provisions of no. 1, article 6 of RJAT, the undersigned was appointed by the Deontological Council of the Centre for Administrative Arbitration on 17-12-2017 as arbitrator and to constitute the single Arbitral Tribunal.

Thus, in conformity with the provisions of paragraph c), no. 1, article 11, of RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Arbitral Tribunal was constituted on 28-02-2018. On the same date, an arbitral order was issued, for the Tax and Customs Authority (AT) to submit its response within the legal period, in accordance with and for the purposes of the provisions of nos. 1 and 2 of article 17 of RJAT.

On 01-02-2018 the Respondent submitted to the record its Response and the respective Administrative File (PA), which are considered to be fully reproduced. In its response, the Respondent contends that the issues under discussion in the present case are matters of law only and that therefore the meeting referred to in article 18 of RJAT may be dispensed with. On 14-02-2018 an arbitral order was issued for the Claimant to comment on the possible dispensation with the meeting. In the absence of a response, in conformity with the aforementioned arbitral order, the dispensation of the meeting was tacitly accepted, whereby, on 06-03-2018, an arbitral order was issued setting an equal and successive period of 10 days for the parties, should they wish, to submit written submissions.

On 12-03-2018 the Claimant, in compliance with the arbitral order previously issued, submitted to the record proof of payment of the subsequent arbitration fee and submitted its initial request in Word format.

After the period fixed for the submission of written submissions had elapsed, which the parties opted not to submit, by arbitral order issued on 24-05-2018, a date was set for the pronouncement of the arbitral decision by 10-05-2018.

B) THE CLAIM FORMULATED BY THE CLAIMANT:

The Claimant formulates the present request for arbitral pronouncement, seeking the illegality of the IS assessments, determined pursuant to item 28.1 of the TGIS, previously challenged by means of administrative proceedings, in the context of administrative claim and hierarchical appeal, as evidenced in the arbitral request.

On the property described above, AT assessed IS, with reference to the year 2013, pursuant to item 28.1 of the TGIS, because the total Tax Property Value (VPT) of the property constituted under a regime of total or vertical ownership, calculated on the basis of the sum of the VPT attributed to each part or independent division, has a value exceeding €1,000,000.00. In conformity with this understanding, official IS assessments were issued for the year 2013, in the total amount of €11,903.58.

In summary, to support its claim, the Claimant alleges that the assessment of IS on the sum of the VPT of the divisions capable of independent use that make up the property described in the case file is illegal, under a regime of total or vertical ownership. It should be considered that the incidence of IS provided for in item 28.1 of the TGIS should be determined in function – and only in function – of each division capable of independent use and not of the property in which they are integrated, taking exclusively into account their use and VPT. On the other hand, item 28.1 of the General Table of Stamp Duty attached to the Stamp Duty Code determines that the VPT to be used in the assessment of Stamp Duty corresponds to what results from the rules of the Municipal Property Tax Code (CIMI) which provides, in its article 7, no. 2 paragraph b) that: "If the different parts are economically independent, each part is assessed by application of the corresponding rules, and the value of the property is the sum of the values of its parts".

Furthermore, the CIMI Code also provides in no. 3 of article 12 that: "Each floor or part of property capable of independent use is considered separately in the matrix registration, which also specifies the respective tax property value."

Thus, in light of the CIMI Code, each autonomous part of the property has its own VPT, which constitutes the taxable value for purposes of this tax, and therefore should be the taxable value for purposes of Stamp Duty, namely, for application of item 28.1 of the General Table of Stamp Duty.

Finally, the Claimant invokes the jurisprudence of the Supreme Administrative Court, which unequivocally held this view, in the Judgment rendered in Case no. 047/15, of 09.09.2015. It further argues that the clearly dominant tendency of CAAD jurisprudence is in this same direction, citing, among others, the arbitral decisions rendered in Cases no. 428/2014-T, no. 206/2014-T, no. 30/2014-T, no. 181/2013-T, no. 132/2013-T, no. 50/2013-T, no. 248/2013-T, no. 849/2014-T and no. 179/2015-T.

In the present case, none of the floors or divisions capable of independent use of the urban property in question has a VPT equal to or exceeding €1,000,000.00, whereby any interpretation that admits and defends the incidence of Stamp Duty pursuant to item 28.1 of the General Table of Stamp Duty lacks any legal foundation, and is therefore manifestly illegal due to manifest error in the factual and legal assumptions underlying the application of this legal regime.

It concludes by requesting the annulment of all the tax assessments challenged, with reference to the year 2014, for violation of item 28.1 of the TGIS, article 23, no. 7, of the IS Code and article 12, no. 3, of the CIMI Code, applicable pursuant to article 67, no. 2, of the IS Code, with all legal consequences, namely, pursuant to article 43 of the General Tax Law (LGT), the processing of the reimbursement of the amount paid plus compensatory interest.

C – THE RESPONSE OF THE RESPONDENT

The Respondent AT, duly notified for this purpose, timely submitted its response in which, by way of opposition, it alleged, in summary, that with reference to the year 2013, in compliance with and pursuant to the provisions of article 6, no. 2 of Law no. 55-A/2012, of 29/10, which added item no. 28 to the TGIS, as amended by Law no. 83-C/2013 of 31/12 and whose respective norm of incidence refers to urban properties, assessed in accordance with the Municipal Property Tax Code (CIMI), with VPT equal to or exceeding €1,000,000.00 and, pursuant to item 28.1 thereof, with residential use. Therefore, AT proceeded to assess the tax which is the subject of the present request for arbitral pronouncement. The Respondent further alleges that article 44, no. 5, of the Stamp Duty Code (CIS), as amended by Law no. 55-A/2012, of 29/10 provides that, where an assessment is made, the tax referred to in item 28 of the TGIS is paid within the periods, terms and conditions defined in article 120 of the CIMI. It further contends that what is at issue is an assessment that results from the direct application of the legal rule, which translates into objective elements. The concept of property is defined in article 2, no. 1 of the CIMI, and it is provided in no. 4 thereof that, under the horizontal property regime, each autonomous unit is deemed to constitute a property. It contends, in sum, that a "property under total ownership with floors or divisions capable of independent use" is, unequivocally, distinct from a property under horizontal property regime, constituted by autonomous units, that is, by several properties.

It further alleges that these are assessments that result from the direct application of the legal rule, which translates into objective elements, without any subjective or discretionary appreciation.

It acknowledges that the constitution of horizontal property entails, as a fact, a mere legal alteration of the property, with no revaluation (Circulated Memorandum no. 40,025, of 11.08.2000, of DSCA), but contends that the legislator can, nevertheless, submit a different tax legal framework, and therefore discriminatory, to properties under horizontal and vertical ownership regimes, in particular, benefiting the more legally advanced horizontal property regime, without such discrimination being necessarily considered arbitrary. This discrimination can also be required by the need to impose coherence to the tax system.

In these terms, it concludes by seeking the legality of the IS assessments challenged and the dismissal of the arbitral request.

II - PROCEDURAL REQUIREMENTS

The Arbitral Tribunal is regularly constituted and is materially competent, pursuant to article 2, no. 1, paragraph a) of RJAT.

The Parties enjoy legal personality and capacity, are legitimate and are legally represented (see articles 4 and 10 no. 2 of RJAT and article 1 of Order no. 112/2011, of 22 March).

The case does not suffer from defects that would render it invalid.

Having regard to the tax administrative file, the documentary evidence submitted to the record, it is necessary to establish the factual matters relevant to the understanding of the decision, which is fixed as follows.

III – FINDINGS OF FACT

Facts Established

As relevant factual matters, the present tribunal considers the following facts as established:

Since the year 2012, the Claimant has been the owner of the urban property located at Avenue …, no. …, turning into Rua … no. …, in Lisbon, inscribed in the respective urban property register under no. …, of the Parish of …, Municipality and District of Lisbon;

The property in question is comprised of various floors with divisions capable of independent use, under a regime of total ownership, composed of 6 floors and 18 divisions capable of independent use, with residential use;

Each of the divisions capable of independent use, assessed in 2013, has an autonomous tax property value (VPT), determined separately, pursuant to article 7, no. 2, paragraph b), of the Municipal Property Tax Code ("IMI");

For purposes of IMI, each part or division capable of independent use has an individual VPT assigned, as is evidenced by the respective property certificates included in the record, which are considered to be fully reproduced;

In conformity with that assessment, the independent divisions that make up the property have autonomous tax property values comprised between €43,626.12 and €97,126.95; the sum of all these values being equal to €1,190,357.26;

On this property AT assessed IS, with reference to the year 2013, pursuant to item 28.1 of the TGIS, considering that its total VPT exceeds €1,000,000.00, calculated on the basis of the sum of the VPT attributed to each part or independent division with residential use;

The assessments notified to the Claimant in 2015 and challenged herein are as follows:

  • Assessment no. 2015… of 2013, in the amount of €436.26;
  • Assessment no. 2015… of 2013, in the amount of €975.88;
  • Assessment no. 2015… of 2013, in the amount of €791.27;
  • Assessment no. 2015… of 2013, in the amount of €182.82;
  • Assessment no. 2015… of 2013, in the amount of €436.26;
  • Assessment no. 2015… of 2013, in the amount of €975.88;
  • Assessment no. 2015… of 2013, in the amount of €791.27;
  • Assessment no. 2015… of 2013, in the amount of €436.26;
  • Assessment no. 2015… of 2013, in the amount of €975.88;
  • Assessment no. 2015… of 2013, in the amount of €791.27;
  • Assessment no. 2015… of 2013, in the amount of €436.26;
  • Assessment no. 2015… of 2013, in the amount of €975.88;
  • Assessment no. 2015… of 2013, in the amount of €791.27;
  • Assessment no. 2015… of 2013, in the amount of €900.73;
  • Assessment no. 2015… of 2013, in the amount of €359.22;
  • Assessment no. 2015… of 2013, in the amount of €791.27;
  • Assessment no. 2015… of 2013, in the amount of €855.90;

h) The IS determined as set out above, with reference to the year 2013, for the property described above, was €11,903.58;

i) On 31-07-2015 the Claimant filed an administrative claim on the grounds of illegality of the assessments, which was assigned case number …2015…, which was dismissed;

j) From this dismissal the Claimant filed a Hierarchical Appeal, which was dismissed, by memorandum dated 21-07-2017;

k) On 20-10-2017 the Claimant submitted the present arbitral request.

Facts Not Established

With relevance to the decision, there are no facts that should be considered as not established.

FOUNDATION OF THE FACTS ESTABLISHED

The facts described were established on the basis of the documentary evidence that the parties submitted to the present case, the Claimant with its arbitral request and AT in the Administrative File included in the record, regarding which there was no divergence.

It should be noted that, regarding the factual matter, the Tribunal does not need to pronounce itself on everything that was alleged by the parties, but rather has the duty to select the facts that matter for the decision and to distinguish established facts from unestablished facts [see article 123, no. 2, of the Code of Tax Procedure (CPPT) and article 607, no. 3 of the Code of Civil Procedure (CPC), applicable pursuant to article 29, no. 1, paragraphs a) and e), of RJAT]. Thus, the facts relevant to the judgment of the case are selected and defined according to their legal relevance, which is established in light of the various plausible solutions to the legal question(s) [see former article 511, no. 1, of the CPC, corresponding to current article 596, applicable pursuant to article 29, no. 1, paragraph e), of RJAT]. Having regard to the positions adopted by the parties, the documentary evidence and the Administrative File included in the record, the facts listed above were considered as established, with relevance to the decision, and were consensually recognized and accepted by the parties.

IV – ON THE LAW: FOUNDATION OF THE SUBSTANTIVE DECISION

Having established, as stated above, the factual matters, it is necessary to address the legal issue raised by the Claimant, which consists of assessing the terms of the configuration of the subjective scope of IS provided for in item 28 of the TGIS, in the specific case of properties under total (or vertical) ownership, comprised of various floors, with divisions or parts capable of independent use.

It is necessary to decide.

At issue in the present case, in the first place, is the question of whether the owner of a property under total (or vertical) ownership, constituted by divisions capable of independent use, whose VPT was determined separately, pursuant to article 7, no. 2, paragraph b) of CIMI, is subject to the incidence of IS, by virtue of the provision of item 28.1 of the TGIS, on the sum of the VPT of those divisions, when none of the referred divisions has a VPT exceeding €1,000,000.00, but the sum of the respective VPT exceeds this amount.

From the arguments presented by the parties, it can be concluded that, for AT, the criterion for determining the incidence of IS, provided for in item 28.1 of the TGIS, for properties under total (or vertical) ownership, with floors and divisions with independent use with residential use, corresponds to the sum of the respective VPT attributed to the parts or divisions. This understanding is what led to the IS assessments challenged herein and which the Claimant contests, as it considers such judgment to be illegal, which prompted the filing of the present request for constitution of an Arbitral Tribunal.

This issue has already been the subject of recurrent assessment in arbitral proceedings, and the jurisprudence is consistent in the sense of a negative response, as can be seen, by way of example, in the decisions rendered in cases no. 48/2013-T, 49/2013-T, 50/2013-T, 53/2013-T, 132/2013-T, 181/2013-T, 183/2013-T, 280/2013-T, 30/2014-T, 497/2014-T, 575/2014-T, 428/2014-T, no. 206/2014-T, no. 849/2014-T, no. 179/2015-T, among many others.

In the same vein, the Supreme Administrative Court (STA) ruled, in a Judgment of 09-09-2015, rendered in Case no. 047/15, in which the Honourable Judge Counselor Francisco Rothes was Reporting Judge, deciding as follows:

"I - With regard to properties under vertical ownership, for purposes of the incidence of Stamp Duty (Item 28.1 of the TGIS, as amended by Law no. 55-A/2012, of 29 October), the subjection is determined by the combination of two factors: residential use and the VPT recorded in the register equal to or exceeding €1,000,000.

II - Where it is a property constituted under vertical ownership, the incidence of IS should be determined, not by the VPT resulting from the sum of the VPT of all divisions or floors capable of independent use (individualized in the matrix article), but by the VPT attributed to each of those floors or divisions intended for housing."[1]

Notwithstanding the foregoing, the Respondent AT has continued to maintain the understanding embodied in the present case, seeking an interpretation based on formal concepts, particularly as regards the concept of property for purposes of the incidence of IS.

Now, on the fundamental question at hand, it may be said that the first limit of interpretation is the letter of the law, but not the only one. The interpretive task requires something more, that is, from the text of the rule it is necessary to discover the underlying ratio legis, "a task of interconnection and valuation that escapes the literal domain"[2], in other words "the legal practitioner must always keep before his eyes the purpose of the law, that is, the practical result that it proposes to achieve".[3]

In this conformity, the question centers on the interpretation of the norm of incidence, as expressed in the legal provision of items 28 and 28.1 of the TGIS, referring to "ownership, usufruct or right of superficies of urban properties, with residential use (28.1) whose tax property value recorded in the register, in accordance with CIMI, is equal to or exceeding €1,000,000.00 – on the tax property value used for purposes of IMI".

Now, it appears that such legal provision does not accept the understanding adopted by AT, insistent and recurrently, according to which, as regards properties "with residential use" under vertical ownership, with floors or divisions capable of independent use, the VPT on which IS tax should be levied should be the total VPT, corresponding to the sum of the VPT individually attributed to each fraction, part or independent division. Such understanding is, from the outset, contradicted by the letter of the law itself, when it unequivocally refers to the application of the principles prevailing in the context of IMI, which means that the incidence for purposes of IS – items 28 and 28.1 of the TGIS – should be levied on each floor or division capable of independent use (similar to what happens with properties under horizontal ownership regime), just as it occurs in the context of IMI.

For purposes of IMI, each part or division capable of independent use is, as we know, taxed individually, based on the individual VPT attributed for this purpose. The reference to CIMI, which the legislator introduced, expressly and unequivocally, in the letter of the law (items 28 and 28.1 of the TGIS) can only have one meaning, which admits of no doubt: it is that same VPT (individual, of each part or independent division) that serves as the reference for purposes of the incidence of IS established in items 28 and 28.1 of the TGIS.

In this regard, it is useful to recall the reasoning contained in Arbitral Decision no. 280/2013-T, which is particularly succinct and precise, to which we adhere:

"The legal question to be resolved in the first place is whether, in accordance with item 28.1 of the TGIS, the sum of the VPT of each of the parts or divisions capable of independent use should be considered, given that none of them has a value equal to or exceeding €1,000,000.00;

Taking into account that the CIS refers to the CIMI for the regulation of the concept of property and of matters not regulated with respect to item 28 of the TGIS (no. 6 of article 1 and no. 2 of article 67, both of the CIS), it is in the CIMI that we must observe the concepts that will allow us to resolve the issue; (emphasis ours)

The generalist concept of property is contained in article 2 of the CIMI. In article 3 of the same statute, the legislator, using criteria of use and location, established the concept of rural properties, then, in a classification by negation, in article 4 thereof, established that urban properties are all those that should not be classified as rural;

In no. 2 of article 5 of the same Code, the legislator established the concept of mixed properties which are those in which there are distinct rural and urban economic realities and there is no subordination of one to the other;

Article 6 of the cited CIMI divides urban properties into: residential, commercial, industrial or for services, land for construction and others;

In the present case, we are faced with an urban property with parts or divisions capable of independent use with residential use and others with commercial use, it is a property with parts that can be classified under the residential division of paragraph a) of no. 1 of article 6 and with parts that can be classified under paragraph b) of the same no. and article, but it will in no way be a mixed property in the concept established in the aforementioned article 5 of the CIMI;

Each of the parts or divisions capable of independent use that comprise the property in question, meets the concept of property established in article 2 of the CIMI, they are physically and economically independent and form part of the assets of a legal person;

Incidentally, AT, in purging the VPT of the parts or divisions with use other than residential, for purposes of taxation in IS, did nothing more than use the criterion defined in no. 4 of article 2 of the CIMI for properties under the horizontal ownership regime;

In other words, AT, in making this purge, considered that the parts or divisions capable of independent use were true autonomous parts of property under vertical ownership meeting the concept of property;

And did nothing more than observe what is provided in no. 3 of article 12 of the CIMI: "each floor or part of property capable of independent use is considered separately in the matrix registration, which also specifies the respective tax property value.

Equally, AT, in making the taxation in IMI, did so by separately taxing the VPT of each of the parts or divisions capable of independent use;

AT used the same criterion in taxation in IS, in calculating on the basis of the VPT of each of the parts or divisions with independent use with residential use, except that at the end it considered the global VPT, finding it to be greater than €1,000,000.00, and summed the IS values calculated separately;

But this procedure has no legal support, since none of the parts or divisions with independent use with residential use, each of which meets the concept of property set out in article 2 of the CIMI, has a VPT equal to or exceeding €1,000,000.00, a requirement necessary for there to be taxation in IS;

To levy taxation in IS considering the global VPT of the property, even purged of the VPT of the parts or divisions not intended for housing, as the respondent claims, finds no support in the CIMI, as referred to in no. 2 of article 67 of the CIS;

Nor should it be said that there is a different valuation and taxation of a property under total ownership with parts or divisions capable of independent use, as opposed to a property under horizontal ownership. In fact, it does not exist in IMI just as it cannot exist in IS, since, as has already been said, the applicable legislation is the same;

From this perspective and considering that none of the parts or divisions capable of independent use intended for housing has a VPT equal to or exceeding €1,000,000.00, it is necessary to conclude that the acts of assessment of IS are illegal for not having observed the conditions defined in item 28 of the TGIS."

Identical understanding results from the Judgment of the STA of 09-09-2015, already mentioned above.

A proper reading of the scope of the provision of the norm of incidence of items 28 and 28.1 of the TGIS, in light of what no. 7 of article 23 of the CIS allows us to conclude regarding the determination of the taxable matter and the resulting operation of assessment of the tax, which states: "In the case of tax due under the circumstances provided for in item no. 28 of the General Table, the tax is assessed annually, in relation to each urban property, by the central services of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in the CIMI."

Now, no. 3 of article 11 of the General Tax Law (LGT) also provides: "if there persists doubt as to the meaning of the norms of incidence to be applied, the economic substance of the taxable facts should be considered".

In the case at hand, the correct interpretation of the legal norm contained in items 28 and 28.1 of the TGIS should take into account the "economic substance of the taxable facts" in order to adequately implement the "necessary adaptations of the rules contained in the CIMI" for the proper assessment of the legal matter under discussion. Not forgetting respect for "the unity of the legal system", which is imposed, from the outset, by the coherent valuation or axiological consistency of the legal order". This is, without doubt, a determining factor for correct interpretation of the legal norm. Now, the legislator expressed its thinking on this matter in a coherent manner, by introducing a comprehensive reference to the principles contained in the CIMI.

The delimitation of the scope of the norm of incidence of this new tax should follow the guidance of both the letter and the spirit of the law. In the first instance, we should therefore pay attention to what is expressly provided in items 28 and 28.1 of the TGIS, with the "necessary adaptations of the rules contained in the CIMI", as results from the provisions of no. 7 of article 23 of the CIS. It is also important to bear in mind that the subjection to IS of properties with residential use resulted from the addition of item 28 to the TGIS, made by article 4 of Law 55-A/2012, of 29/10, which typified the following taxable events:

"28 – Ownership, usufruct or right of superficies of urban properties whose tax property value recorded in the register, in accordance with the Municipal Property Tax Code (CIMI), is equal to or exceeding €1,000,000.00 – on the tax property value for purposes of IMI:

28.1 – For a property with residential use – 1%

28.2 – For a property, when the taxable persons are not natural persons and are resident in a country, territory or region subject to a clearly more favorable tax regime, listed in the register approved by order of the Minister of Finance – 7.5%."

Law 55-A/2012 says nothing about the qualification of the concepts at issue, in particular, about the concept of "property with residential use." However, article 67, no. 2 of the CIS, added by said Law, provides that "to matters not regulated in this Code regarding item 28 of the General Table, the CIMI is applied subsidiarily." (emphasis ours)

The norm of incidence refers, then, to urban properties, the concept of which is what results from the provisions of article 2 of the CIMI, with the determination of the VPT obeying the terms provided in article 38 and following of the same code. Consulting the CIMI, it is verified that its article 6 only indicates the different types of urban properties, among which it mentions residential ones (see paragraph a) of no. 1), clarifying in no. 2 of the same article that "residential, commercial, industrial or for services are buildings or constructions licensed for such purposes or, in the absence of a license, which have as their normal intended use each of these purposes."

From the aforementioned norms, we can conclude that, from the legislator's perspective, what matters is not the legal-formal rigor of the specific situation of the property (it is irrelevant whether it is under vertical or horizontal ownership) but rather its normal use, the purpose to which the property is effectively intended.

It thus follows that, for the legislator, the situation of the property under vertical or horizontal ownership was not relevant, as no reference or distinction is made between one and the other. An identical conclusion is drawn from the reference that the legislator introduced in the matter of IS to the CIMI. Now, this tax establishes as a criterion for properties under vertical ownership the attribution of a VPT to each of the independent parts or divisions. What is relevant, then, is the material truth underlying its existence as an urban property and its use, that is, "with residential use".

Using the criterion that the law itself introduced in article 67, no. 2 of the CIS, "to matters not regulated in this Code regarding item 28 of the General Table, the CIMI is applied subsidiarily."

From the provisions of no. 4 of article 2 of the CIMI, it results that "For purposes of this tax, each autonomous fraction, under the horizontal ownership regime, is deemed to constitute a property." Adding further that no. 3 of article 12 of the CIMI provides that "Each floor or part of property capable of independent use is considered separately in the matrix registration which also specifies the respective tax property value".

Thus, AT's understanding appears to be inconsistent with the letter and spirit of the norm, and therefore does not appear to be in accordance with the law, nor with the principle of tax legality, whereby the assessments challenged are tainted with the defect of violation of law, due to manifest error regarding the factual and legal assumptions.

Moreover, its practical result would lead, for example, to the taxation of a property under vertical ownership by virtue of the sum of the individual values of its parts or independent divisions (as occurs in the present case), whereas if it were constituted under horizontal ownership regime, none of its fractions would be taxed. Furthermore, according to AT's understanding, we would be led to tax floors or divisions (fractions) capable of independent use of modest values (as in the present case), knowing that the same legislator excluded from taxation fractions of properties constituted under horizontal ownership regime, even if each fraction had a VPT of €999,999.00. Such interpretation, apart from being absurd, is totally contrary to the purpose that led the legislator to insert item 28 in the TGIS, justified by the purpose of taxing "luxury homes". In other words, the historical element also leads us to an understanding different from that defended by AT.

Furthermore, according to AT's criterion, many of the urban properties in existence under vertical ownership, despite being older, can easily reach the reference value for the incidence of IS, whereas properties of recent and sometimes luxurious construction, under horizontal ownership regime, but whose VPT per fraction does not equal or exceed the value of €1,000,000.00, are not subject to the tax. Now, it offends sensitivity and the fundamental minimum ethical standard underlying the interpretation and application of legal rules to conduct to such a solution.

The resort to ratio legis and to the interpretation principles set out above point in the direction opposite to that defended by the Respondent. If the properties at issue in the present case were under horizontal ownership regime, none of its residential fractions would be subject to the tax that intends to tax luxury properties or dwellings.[4] And, as has already been said, the legislator's thinking expressed in the norm of incidence, by referring to the application of the CIMI, was clear and unequivocal, following the principle of the prevalence of material truth over legal-formal reality and the uniformity of the legal system.

Finally, it should be added only this: even if it were hypothetically admissible that in cases of properties under total (or vertical) ownership, constituted by divisions capable of independent use, IS could be considered required for the entirety of the property, if the value fixed in item 28.1 of the TGIS was reached, any such value would still have to be fixed autonomously, through its own assessment, and not through the sum of the values at which each of the parts capable of independent use was autonomously assessed. Effectively, and as is clear to see, the "market value" of the whole will not necessarily – and will not, as a rule – equal the sum of the parts, it being well known and more profitable (which will even constitute part of the economic foundation of the horizontal property regime) to sell "in parts" than to sell the whole as a whole, from the outset by the broadening of the market, which the substantially lower price of the parts relative to the whole brings. Moreover, it will be this increase in economic value resulting from the division that will justify an independent assessment of each autonomous part of the property under total ownership, so as to ensure that there is no less tax revenue, in the context of IMI and IMT, because of the fact that the division of the property does not have a legal correspondence in the form of horizontal ownership. In other words, the division of the property into autonomous parts, capable of independent use, always entails an increase in the value of the whole, since the "market value" of the whole will be, (at least) as a rule, less than the "market value" of the parts, separately. Therefore, at the limit, if AT intended to legitimately apply item 28.1 of the TGIS to a property under total (or vertical) ownership, constituted by divisions capable of independent use, it would still be obliged to assess it as a whole (which would be a credible approximation to its "market value" in "gross") and not as a sum of the parts (in "retail"), precisely because these are not capable of being validly placed on the "market" separately.

Returning to the case of the present proceedings, the property in question is under vertical ownership and contains floors and divisions with independent use, intended for housing, as was established above. Given that none of the floors intended for housing has a tax property value equal to or exceeding €1,000,000.00, as results from the documents included in the record, it is concluded that the legal presupposition for incidence of IS provided for in item 28.1 of the TGIS has not been met.

Thus, as AT has not presented, and no grounds for disagreement with the arbitral jurisprudence cited are found officially, in addition to all the arguments which have been set out in this decision, it is adhered without further consideration to the jurisprudence cited above, and it is concluded that the assessments challenged, as well as the dismissals of the administrative claim and the Hierarchical Appeal filed, are affected by the defect of violation of law, due to error regarding the legal assumptions, finding the arbitral request formulated in this case to be well-founded.

VI - DECISION

For these reasons, this Arbitral Tribunal decides:

To judge as fully well-founded the arbitral request formulated and, in consequence, to annul all the tax acts which are the subject of the present case, with all legal consequences;

To condemn AT in the costs of the proceedings.

VALUE OF THE CASE

The value of the case is fixed at €11,903.58, pursuant to article 97-A, no. 1, paragraph a), of CPPT, applicable by virtue of paragraphs a) and b) of no. 1 of article 29 of RJAT and no. 2 of article 3 of the Regulations of Costs in Tax Arbitration Proceedings.

COSTS

The value of the arbitration fee is fixed at €918.00, pursuant to Table I of the Regulations of Costs in Tax Arbitration Proceedings, to be paid by the Respondent, since the request was entirely well-founded, pursuant to articles 12, no. 2, and 22, no. 4, both of RJAT, and article 4, no. 4, of the aforementioned Regulation.

Notify.

Lisbon, 10 May 2018

The Arbitral Tribunal,

(Maria do Rosário Anjos)

[1] See Judgment of STA of 09-09-2015, rendered in case no. 047/15, available at www.dgsi.pt)

[2] In this sense, see BAPTISTA MACHADO (1983) Introduction to Law and to Legitimizing Discourse, Almedina Coimbra, p. 181 et seq.

[3] In this sense, see FRANCESCO FERRARA, Interpretation and Application of Laws – translated by Manuel A. Domingues de Andrade (1978) 3rd edition, Arménio Amado – Successor Publisher, Coimbra, p. 137 et seq. Or, in the same sense, see Manuel A. Domingues de Andrade, in Essay on the Theory of Interpretation of Laws. Collection Stvdivm, Philosophical, Legal and Social Topics (1978) 3rd edition, Arménio Amado – Successor Publisher, Coimbra, p. 23 et seq.

[4] This same conclusion is drawn from the analysis of the discussion of legislative proposal 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 as "special tax on urban residential properties of higher value" is based on the invocation of the principles of social equity and tax justice, calling upon the holders of properties of high value intended for housing to contribute more intensely, with the new special tax focusing on "houses with value equal to or exceeding 1 million euros."

Frequently Asked Questions

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What is Stamp Tax (Imposto do Selo) under Clause 28.1 of the Portuguese General Stamp Tax Table (TGIS)?
Stamp Tax under Clause 28.1 TGIS is an annual tax on real estate ownership applicable when the Tax Property Value (VPT) of urban properties exceeds €1,000,000. Introduced for properties with higher valuations, it applies to ownership rights over valuable real estate. The controversy centers on whether, for buildings with multiple autonomous units under total ownership, the tax calculation uses the aggregate VPT of all units or treats each independent division separately based on its individual VPT as determined under CIMI regulations.
Can property owners challenge additional Stamp Tax assessments through CAAD arbitral proceedings?
Yes, property owners can challenge Stamp Tax assessments through CAAD (Centro de Arbitragem Administrativa) arbitral proceedings, but only after exhausting mandatory administrative remedies. Taxpayers must first file an administrative claim (reclamação graciosa) against the assessment. If dismissed, they must submit a hierarchical appeal (recurso hierárquico). Only after both administrative procedures are rejected can taxpayers request CAAD arbitration under Decree-Law 10/2011 (RJAT). The arbitration request must be filed within the legal deadline following the hierarchical appeal decision, as demonstrated in this case where the claimant filed on 20-10-2017 after the appeal dismissal on 21-08-2017.
What procedural steps must be followed before filing an arbitral claim against Stamp Tax assessments in Portugal?
Before filing an arbitral claim against Stamp Tax assessments, taxpayers must follow a two-stage administrative procedure: (1) File an administrative claim (reclamação graciosa) with the Tax Authority challenging the assessment's legality; (2) Upon dismissal, submit a hierarchical appeal (recurso hierárquico) to a superior administrative authority. Only after both remedies are exhausted and rejected can the taxpayer request CAAD arbitration under RJAT (Legal Regime of Tax Arbitration). The arbitration request must include documentation of prior administrative decisions, specify the challenged assessments, indicate the legal grounds for annulment, and be filed within statutory deadlines. Taxpayers may choose between single-arbitrator or collective tribunal configurations.
How does the concept of full property ownership (propriedade total) affect Stamp Tax liability under Verba 28.1 TGIS?
Full property ownership (propriedade total or vertical ownership) creates tax controversy under Verba 28.1 TGIS when a building contains multiple autonomous units. The Tax Authority interprets total ownership to mean aggregating all units' Tax Property Values (VPT) to determine if the €1 million threshold is exceeded, triggering Stamp Tax on the combined value. Conversely, taxpayers argue that CIMI (Municipal Property Tax Code) Articles 7(2)(b) and 12(3) mandate treating each economically independent unit separately with its own VPT for tax purposes. This interpretation would assess Stamp Tax only on individual units exceeding €1 million, not on aggregate building values. The distinction significantly impacts tax liability for property owners with multiple units individually valued below the threshold but collectively exceeding it.
What are the grounds for annulment of Stamp Tax assessments related to urban properties valued above the TGIS threshold?
Grounds for annulment of Stamp Tax assessments under Verba 28.1 TGIS include: (1) Incorrect calculation methodology—applying aggregate VPT instead of individual unit values violates CIMI principles that treat economically independent divisions separately; (2) Improper interpretation of tax incidence rules—Clause 28.1 references CIMI valuation rules requiring separate assessment of autonomous units per Article 12(3); (3) Contradiction with established jurisprudence—Supreme Administrative Court precedent (Case 047/15) and dominant CAAD decisions support individual unit taxation; (4) Violation of legal certainty principles when tax administration disregards the separate matrix registration and distinct VPT assigned to each autonomous fraction. Successful challenges typically demonstrate that the property's independent units, when assessed individually per CIMI standards, do not individually exceed the €1 million threshold triggering Stamp Tax liability.