Process: 578/2014-T

Date: January 28, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 578/2014-T) addresses a stamp tax dispute concerning the application of Verba 28.1 of the General Table of Stamp Duty (TGIS) to vertical property ownership. The claimant, as head of an inheritance estate, challenged stamp tax assessments for 2013 on an urban property located in Lisbon. The property, approximately 100 years old, consists of six floors with two units per floor (12 independent units total), registered under a single matrix article in a vertical ownership regime. The claimant contested the tax assessments issued by Lisbon Finance Service - 2, seeking their annulment on grounds of illegality and unconstitutionality. The legal arguments centered on two main grounds: first, violation of law due to misinterpretation of Verba 28.1 TGIS and error regarding applicable legal assumptions; second, unconstitutionality stemming from violation of the constitutional principle of equality and contributory capacity. The claimant argued that the Tax Administration's practice in assessing the property constituted a manifest error, disregarding applicable regulations and constitutional principles. Additionally, the claimant requested reimbursement of taxes paid plus default interest from payment dates until actual reimbursement. The Tax and Customs Authority (Autoridade Tributária e Aduaneira) defended the assessments as lawful and valid, arguing they conformed to the legal regime in force at the time of the taxable events, with no attributable error by the services. The Respondent contested the right to indemnifying interest, asserting that legal requirements for such interest were not met. The arbitral proceedings followed standard CAAD procedures: tribunal constitution in October 2014, response deadline, written arguments phase, and waiver of the oral hearing by mutual agreement. The case illustrates the complexity of applying stamp tax provisions to properties with multiple independent units under vertical ownership, particularly regarding proper tax base determination and constitutional compliance with equality principles in real estate taxation.

Full Decision

ARBITRAL DECISION [1]

Claimant – A...

Respondent – Tax and Customs Authority

The Arbitrator, Dr. Sílvia Oliveira, appointed by the Ethics Council of the Administrative Arbitration Centre (CAAD) to form the Arbitral Tribunal, constituted on 1 October 2014, with respect to the process above identified, decided as follows:

1. REPORT

1.1. A... (hereinafter designated as "Claimant"), widow, resident at Rua ..., Lisbon, taxpayer no. ..., in the capacity of head of household in the inheritance (TIN ...) opened by the death of her father B..., presented a request for arbitral decision and constitution of a single arbitral tribunal, on 29 July 2014, under the terms of article 4 and no. 2 of article 10 of Decree-Law no. 10/2011, of 20 January [Legal Regime of Arbitration in Tax Matters (RJAT)], in which the Tax and Customs Authority is the Respondent (hereinafter designated as "Respondent").

1.2. The Claimant requests that the Arbitral Tribunal:

1.2.1. "Determine the legality of the tax assessment acts provided for in item 28.1 of the General Table of Stamp Duty (TGIS) for the year 2013, carried out by the Finance Service Lisbon – 2, affecting the urban property situated at Rua ... nos. 121 to 125, parish of ... (...), in Lisbon, to which corresponds the matrix article no. ... of said parish", and, in consequence;

1.2.2. "The request aims (...) at the declaration of illegality and consequent annulment of the Stamp Duty assessment acts relating to the aforementioned property, on the grounds of the existence of defects of violation of law and unconstitutionality".

1.3. The request for constitution of the Arbitral Tribunal was accepted by the President of the CAA and automatically notified to the Respondent, on 30 July 2014.

1.4. The Claimant did not proceed to appoint an arbitrator, so, under the terms of article 6, no. 2, paragraph a) of the RJAT, the undersigned was appointed as arbitrator by the President of the Ethics Council of the CAAD, the appointment having been accepted within the time and legal terms provided.

1.5. On 16 September 2014, the parties were duly notified of this appointment and did not manifest an intention to refuse the arbitrator's appointment, in accordance with article 11, no. 1, paragraphs a) and b) of the RJAT in conjunction with articles 6 and 7 of the Ethics Code.

1.6. Thus, in accordance with the provision in paragraph c), no. 1, of article 11 of the RJAT, the Arbitral Tribunal was constituted on 1 October 2014, and an arbitral order was issued on the same date (and notified on 6 October 2014), to the effect of notifying the Respondent to, in accordance with article 17, no. 1 of the RJAT, present a response, within a maximum period of 30 days and, if it wished, request the production of additional evidence.

1.7. On 6 November 2014, the Tax and Customs Authority presented its Response, having defended itself by contesting and concluding that:

1.7.1. "In these terms, and in all other respects of law (...) the present request for arbitral decision should be judged to be without merit, maintaining in the legal order the tax assessment acts and absolving, accordingly, the respondent entity of the claims".

1.8. Additionally, a request was presented by the Respondent, on the same date, for waiver of "the meeting referred to in article 18 of the RJAT, should the Claimant not object".

1.9. Thus, the Claimant was notified of the order of this Arbitral Tribunal, dated 6 November 2014, to pronounce itself, within 5 days, on the content of the waiver request referred to in the preceding point, and the Claimant confirmed its agreement therewith on 12 November 2014.

1.10. In these terms, by order of this Arbitral Tribunal, dated 13 November 2014, the Claimant and Respondent were notified to "in this order and successively, submit written arguments within a period of 15 days, with the Respondent's period beginning to run with notification of the joining of the Claimant's arguments".

1.11. The date of 28 January 2015 was also set in the order referred to in the preceding point for the purpose of issuing the arbitral decision, and the Claimant was further warned that "until the date of issuing the arbitral decision, should proceed to payment of the subsequent arbitral fee, in accordance with no. 3 of article 4 of the Regulation of Costs in Tax Arbitration Proceedings and communicate such payment to the CAAD", which it did on 19 January 2015.

1.12. On 24 November 2014, the Claimant requested the joining to the case file of the proof of payment of the 3rd instalment of Stamp Duty which is the subject of the present request for arbitral decision, and the Arbitral Tribunal admitted, by order dated 24 November, the joining to the case file of said proof and ordered that the Respondent be notified thereof.

1.13. On 3 December 2014, the Claimant presented written arguments to the effect that:

1.13.1. "The practice of the Tax Administration adopted in said assessment acts, namely in the interpretation made of the aforementioned item of the TGIS, is affected by violation of law, due to error regarding the legal assumptions applicable, and also by unconstitutionality, due to violation of the principle of equality" (our emphasis);

1.13.2. "Therefore, it cannot fail to constitute an error attributable to the services the assessment of tax in the case file, when the applicable regulations were manifestly disregarded and the assessment operation was executed in violation of constitutional principles of equality and contributory capacity" (our emphasis);

1.13.3. "Therefore, the payment of interest is entirely due".

1.14. Concluding that "the request for challenge formulated should be judged to be well-founded and consequently all challenged assessment acts should be annulled, and the amount of tax paid should be refunded, increased by default interest at the legal rate, from the date on which the various instalments of payment took place until the date of actual reimbursement".

1.15. On the same date, an arbitral order was issued to notify the Respondent of the submission of arguments by the Claimant, so that it could comply with the content of the arbitral order of 13 November 2014 (see point 1.10., supra).

1.16. On 2 December 2014, the Claimant requested the joining to the case file of the proof of payment of the 2nd instalment of Stamp Duty which is the subject of the present request for arbitral decision, and the Arbitral Tribunal admitted, by order dated 4 December 2014, the joining to the case file of said proof and ordered that the Respondent be notified thereof.

1.17. On 19 December 2014, the Respondent presented written arguments to the effect that "the assessment now being contested remains entirely valid and lawful, concluding from the lawfulness thereof", for which reason "(...) it is clear that the tax acts in question are valid and lawful, because in conformity with the legal regime in force on the date of the tax facts, there having occurred, in this case, no error attributable to the services", "with the legal requirements for granting the right to indemnifying interest not being met" (our emphasis).

1.18. Concluding, as in the Response submitted, to the effect of "the present request for arbitral decision should be judged to be without merit, maintaining in the legal order the tax assessment acts and absolving, accordingly, the respondent entity of the claims".

2. GROUNDS OF CLAIM

The Claimant sustains its request, in summary, as follows:

"Violation of law due to error regarding the legal assumptions and right to indemnifying interest"

2.1. "The property in relation to which the tax now being challenged was assessed is approximately one hundred years old and consists of six floors, having two units per floor, for a total of twelve units capable of independent use, and has always been, in a regime of full (vertical) ownership, with only a single matrix article".

2.2. The aforementioned property "forms part of an undivided inheritance, with the respective owners in hereditary co-ownership".

2.3. "Now, the tax assessment acts which are the subject of the present challenge originated from Law no. 55-A/2012, of 29 October, which, in article 4, added item no. 28 to the TGIS, with the following content:

28 – Ownership, usufruct or right of superficies of urban properties whose tax patrimonial value contained in the matrix, in accordance with the Code of Municipal Property Tax (IMI), is equal to or greater than EUR 1,000,000 – on the tax patrimonial value (TPV) used for IMI purposes:

28.1 – For property with residential use – 1%;

28.2 – (...)".

2.4. According to the Claimant, "by virtue of this regime a new tax was created which (...) affects the holders of real rights over urban properties whose use is residential".

2.5. Indeed, "(...) the Tax Service (...), in the assessment acts it carried out, took as reference the TPV of each of the twelve units of the property, any of which much less than one million euros and then, contradictorily, added the values of each floor, reaching by means of this operation the threshold of one million euros provided for in the law".

2.6. In truth, "from the assessment documents notified to the Claimant (...) it is evident that the value of each of the units of the property varies between EUR 109,680.00 (the lowest) and EUR 121,610.00 (the highest)" and "from the sum of these values resulted a total amount of tax of EUR 13,417.38, the value of economic utility of the present request".

2.7. Amount of which the "Claimant has already paid on this date" (of presentation of the request) "the 1st instalment to prevent the continuation of the respective enforcement proceedings".

2.8. However, the present Claimant understands that "the criterion followed by the tax administration (...) of considering the sum of the TPV of each of the units of independent use of the property, which is in full ownership, to the detriment of the individual TPV of each of them, for the purposes of the incidence of the tax of item 28.1 of the TGIS constitutes violation of law" inasmuch as, "if it is the law itself that mandates the application to matters pertaining to item no. 28 of the TGIS not regulated in the Stamp Duty Code of the rules of the IMI Code, it cannot give rise to doubt that, in the case of urban residential properties in full ownership, the criterion for the incidence of tax must be that indicated in article 12, no. 3 of the IMI Code[2], that is, the TPV of each floor capable of independent use should be considered individually" (our emphasis).

2.9. According to the Claimant, "these rules therefore enshrine the principle of autonomization of independent parts of properties in full ownership, which have their own TPV for the purposes of Stamp Duty".

2.10. In these terms, in accordance with the position of the Claimant, "the action of the tax service in question was thus based on a criterion of convenience which is illegal (...)" for which reason "the assessment acts being challenged are thus, vitiated by violation of law, due to error regarding the applicable legal assumptions, and therefore should be annulled" (our emphasis).

2.11. Taking into account the amounts paid and to be paid, the Claimant understands having "the right to reimbursement of the amounts paid, increased by indemnifying interest, at the legal rate, from the date on which the respective payments took place, until complete reimbursement thereof, in accordance with articles 43 of the General Tax Law (LGT) and 61 of the Code of Tax Procedure and Process (CPPT)".

"Material unconstitutionality of article 4 of Law no. 55-A/2012, which created item no. 28 of the TGIS, due to violation of the principle of equality"

2.12. In this regard, the Claimant understands that "the law proceeded (...) to positive discrimination in favor of owners of urban properties devoted to non-residential use, who are not covered by the incidence of this tax, as are also not the holders of non-real estate property".

2.13. Thus, according to the Claimant, "the question is exactly whether in the case of this tax there exists any reason that justifies the discrimination that is made, or if, on the contrary, it is mere state arbitrariness".

2.14. In this regard, the Claimant understands that "it can be concluded that (...), beyond generic considerations on social equity in the distribution of the fiscal burden of taxpayers and the extension of taxation to all types of income[3], the Government gave no explanation for the fact that, in the implementation of these objectives, the criterion followed excluded the ownership of urban properties of non-residential use, as well as assets of non-real estate content".

2.15. And, the Claimant continues, "for the same reasons, it is not understood how, acting the Government with the aforementioned concern to promote fiscal equity and just distribution of sacrifices among all taxpayers, only real estate assets of a certain type are to be taxed, and not also personal property assets".

2.16. In these terms, the Claimant argues that "the criterion of the law that imposed taxation in Stamp Duty of residential urban properties, beyond being unjustifiably discriminatory, also offends elementary principles of justice" for "the tax of item no. 28 of the Table, in affecting properties of a certain value, does not distinguish according to whether they are in singular or plural ownership, that is, whether there is only one or more than one taxpayer", "from which it results that what ends up being taxed may be the aggregate value of the assets of various persons, which creates another level of fiscal inequality".

2.17. Thus, "for all the reasons indicated, it must be concluded that the normative interpretation of article 4 of Law no. 55-A/2012 which underlies the assessment acts being challenged, and which corresponds to the current practice followed by the tax administration (...) violates the principle of equality of citizens before the law (...)" (our emphasis).

2.18. In these terms, the Claimant concludes that "the present challenge should be judged to be well-founded and proven, declaring null and void all assessment acts of Stamp Duty relating to each of the floors of the property in the case file, due to illegality thereof in the application of the legal assumptions for the incidence of the tax and for being based on an unconstitutional rule due to violation of the principle of equality, enshrined in article 13 of the CRP and further recognizing the right to indemnifying interest as requested" (our emphasis).

3. RESPONSE OF THE RESPONDENT

3.1. The Respondent replied sustaining the lack of merit of the request for arbitral decision and invoking the following arguments:

3.2. "With reference to the year 2013, in compliance and in accordance with article 6, no. 2 of Law no. 55-A/2012, of 29/10, which added item no. 28 to the TGIS (...) the AT carried out the assessments which are the subject of the present request for arbitral decision, for which reason the Respondent cannot agree with the request for arbitral decision presented" (our emphasis).

3.3. Indeed, according to the Respondent, "what is at issue here are assessments resulting from the direct application of the legal rule, which translates into objective elements, without any subjective or discretionary appraisal (...) with no reason assisting the Claimant in this matter (...) in alleging that the Stamp Duty assessments sub judice are shown to be illegal by understanding that the TPV to be considered for the purposes of tax incidence corresponds to the TPV of each of the independent divisions, with the assessment of this Stamp Duty item being individualized over the part of the property to which it relates and not to its entirety" (our emphasis).

3.4. In truth, the Respondent alleges that "the Claimant wrongly seeks to assimilate vertical ownership to horizontal ownership, in order to be able to extract fiscal consequences that do not assist it" for, in accordance with article 2, no. 4 of the IMI Code, "(...) each autonomous fraction, in a horizontal property regime, is deemed to constitute a property", "with the fractions of the latter that are not subject to the horizontal property regime not constituting urban properties, as is precisely the case at hand", concluding that "there is here no unequal treatment, nor identity of situations as the Claimant seeks to suggest" (our emphasis).

3.5. Thus, according to the Respondent, "it was the legislator himself who understood that only fractions subject to the horizontal property regime could acquire the status of property" for which reason "the thesis defended by the Claimant lacks legal support (...)" given that "(...) for the purposes of Stamp Duty what is relevant is the property in its entirety because the divisions capable of independent use are not deemed to be property, but only the autonomous fractions in a horizontal property regime (...)" (our emphasis).

3.6. "However, the matrix registration of floors capable of independent use and the attribution of an individual patrimonial value not only does not remove the patrimonial value of the respective property where they are inserted, but ends up contributing to or determining the very tax patrimonial value of the urban property, from which it is concluded that the TPV of the urban property necessarily results from the sum of the patrimonial values of the floors capable of independent use" (our emphasis).

3.7. Thus, in the Respondent's view, "the thesis defended by the Claimant lacks (...) legal support, because although the assessment of Stamp Duty (...) is carried out in accordance with the rules of the IMI Code (...), the divisions capable of independent use are not deemed to be property, but only the autonomous fractions in a horizontal property regime (...) what, expressly, results from the letter of the law is that the legislator wanted to tax with item 28.1 of the TGIS properties as a single legal-tax reality" (our emphasis).

3.8. The Respondent further adds that, as regards the alleged violation of the principle of equality and proportionality "it is not seen how the taxation in question could have violated any of these principles" given that it understands that (our emphasis):

3.8.1. "(...) The provision of item 28.1 of the TGIS does not constitute any violation of the principle of equality, with there being no discrimination in the taxation of properties constituted in horizontal ownership and properties in full ownership with floors or divisions capable of independent use, or between properties with residential use and properties with other uses" since "horizontal and vertical ownership are differentiated legal institutions" (our emphasis).

3.8.2. "Taxation under Stamp Duty follows the criterion of suitability, in that it aims at the taxation of wealth embodied in the ownership of real estate of high value, arising in a context of economic crisis that cannot be entirely ignored", seeking "(...) to achieve maximum effectiveness as to the objective to be achieved, with the least harm to other interests considered relevant" (our emphasis).

3.8.3. If "the option for this mechanism of obtaining revenue is thereby justified, which would only be censurable, in light of the principle of proportionality, if it resulted in being manifestly indefensible".

3.9. In these terms, the Respondent concludes that:

3.9.1. "The assessment in question constitutes a correct interpretation and application of law to the facts, not suffering from the defect of violation of law (...) and should therefore be judged to lack merit and the (...) Respondent absolved of the claim" (our emphasis),

3.9.2. "With the legal requirements for granting the right to the requested indemnifying interest not being met".

4. SANATION

4.1. The request for arbitral decision is timely in that it was presented within the time provided in paragraph a) of no. 1 of article 10 of the RJAT.

4.2. The parties have legal personality and capacity, are entitled with respect to the request for arbitral decision and are duly represented, in accordance with articles 4 and 10 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March.

4.3. The Tribunal is competent as regards the appraisal of the request for arbitral decision formulated by the Claimant.

4.4. No exceptions of which cognizance should be taken were raised.

4.5. No nullities were found and therefore it is now necessary to examine the merits of the request.

5. FACTS

5.1. Of facts proven

5.2. The following facts documented by documents joined to the case file are considered as proven:

5.2.1. The Claimant is head of household of the inheritance opened by the death of her father, B..., relating to the urban property situated at Rua ..., no. 121 to 125, in Lisbon, which is registered in the urban property matrix under article ..., of the parish ... – ... (as per document 1, attached with the request).

5.2.2. The aforementioned urban property is not subject to a horizontal property regime, comprising ground floor plus five floors, for a total of 12 floors or divisions capable of independent use (as per document 1, attached with the request).

5.2.3. The total TPV of the aforementioned urban property is EUR 1,372,020.00, having been determined in December 2012, by initiative of the Respondent, such evaluation having been carried out considering individually each of the floors with independent use (all 12 that comprise the aforementioned property), to which the respective individual TPV was attributed (see summary in the following point) (as per document 1, attached with the request).

5.2.4. The Claimant was notified of the following Stamp Duty assessments, dated 17 March 2014, relating to the year 2013, whose payment deadline was "April/2014" (1st instalment), having paid the amounts relating to this instalment on 16 July 2014 (and, therefore, increased by default interest and costs):

Assessment No. Floor TPV Amount 1st Instalment Attached Documents
... G/F Right 109,680.00 1,096.80 365.60 1 and 17
G/F Left 121,610.00 1,216.10 405.36 1 and 14
1st Right 112,840.00 1,128.40 376.13 1 and 15
1st Left 112,740.00 1,127.40 375.80 1 and 23
2nd Right 113,970.00 1,139.70 379.90 1 and 20
2nd Left 112,840.00 1,128.40 376.13 1 and 22
3rd Right 113,970.00 1,139.70 379.90 1 and 16
3rd Left 113,970.00 1,139.70 379.90 1 and 21
4th Right 115,100.00 1,151.00 383.66 1 and 18
4th Left 115,100.00 1,151.00 383.66 1 and 19
5th Right 115,100.00 1,151.00 383.66 1 and 24
5th Left 115,100.00 1,151.00 383.66 1 and 25

5.2.5. The total of the amounts above identified totals EUR 13,720.20 and not EUR 13,417.38, as indicated by the Claimant in the request.

5.2.6. The Claimant was notified to proceed to payment of the 2nd (whose payment deadline was "July/2014") and 3rd (whose payment deadline was "November/2014") instalments relating to the Stamp Duty assessments, dated 17 March 2014, having paid the same, respectively, on 19 September and 24 November 2014, in accordance with documents attached with the requests presented by the Claimant, on 5 December and on 24 November 2014.

5.2.7. The Claimant presented no gracious complaint against the Stamp Duty assessment acts referred to in point 5.2.4, supra.

5.3. No other facts were proven capable of affecting the decision on the merits of the request.

5.4. Of facts not proven

5.5. No other facts were found as not proven with relevance to the arbitral decision.

6. LEGAL GROUNDS

6.1. In the case file, the essential question to be decided is whether, with reference to properties not constituted in a horizontal property regime (vertical ownership), comprised of various floors and divisions with independent use, the TPV that is relevant.

6.2. That is, whether the relevant TPV as a criterion for tax incidence is that corresponding to the sum of the TPV attributed to the different parts or floors (total TPV) or, on the contrary, the TPV attributed to each of the residential parts or floors.

6.3. The answer to this question requires the analysis of the applicable legal rules in order to determine what the correct interpretation is in light of the provisions of the Law and the Constitution, given that it is a matter of assessing a tax incidence assumption, carefully protected by the principle of fiscal legality, resulting from article 103, no. 2 of the CRP.

6.4. In the case under analysis, there will be two disputed legal questions, underlying the Request for Arbitral Decision, in order to assess the legality of the Stamp Duty assessments notified to the Claimant, with reference to the year 2013:

6.4.1. Is subjection to Stamp Duty, in accordance with what item no. 28 of the TGIS provides, determined by the TPV corresponding to each of the parts of the property with residential use or is it, on the contrary, determined by the total TPV of the property, which would correspond to the sum of all TPV of the floors (with that type of use) that comprise it?

6.4.2. Is item no. 28 of the TGIS or is it not unconstitutional due to violation of the principle of equality, as well as due to violation of article 104, no. 3, of the CRP ("taxation of property must contribute to equality between citizens")?

6.5. As to the answer to be given to the first of the above formulated questions (point 6.4.1.), it is important to analyze the essence of item no. 28 of the TGIS, added by article 4 of Law no. 55-A/2012, of 29 October, in accordance with which the following is established:

"28. Ownership, usufruct or right of superficies of urban properties whose TPV contained in the matrix, in accordance with the IMI Code, is equal to or greater than EUR 1,000,000 – on the TPV for IMI purposes:

28.1. – For property with residential use – 1%.

28.2. – (...)".

6.6. Notwithstanding Law no. 55-A/2012 (in force since 30 October 2012) not having proceeded to qualify the concepts contained in said item no. 28, namely, the concept of "property with residential use", if the provision of article 67, no. 2, of the Stamp Duty Code (also added by said Law no. 55-A/2012) is observed, it is verified that "to matters not regulated in the present Code relating to item 28 of the TGIS, the IMI Code is applied subsidiarily".

6.7. Now, from reading the IMI Code, it is easy to perceive that the concept of "property with residential use" refers, naturally, to the concept of "urban property", defined in accordance with articles 2 and 4 of that Code.

6.8. Indeed, in accordance with article 2, no. 1 of the IMI Code, "for the purposes of this Code, property is any fraction of territory, encompassing water, plantations, buildings and constructions of any nature therein incorporated or resting, with the character of permanence, provided it forms part of the assets of a natural or legal person and, in normal circumstances, has economic value, as well as water, plantations, buildings or constructions, in the aforementioned circumstances, endowed with economic autonomy in relation to the land on which they are located, although situated in a fraction of territory that constitutes an integral part of a different asset or does not have a patrimonial nature" (our emphasis).

6.9. Further in accordance with no. 2 and 3 of the same article, "buildings or constructions, even if movable by nature, are deemed to have the character of permanence when devoted to non-transitory purposes", it being presumed "the character of permanence when the buildings or constructions are located in the same location for a period exceeding one year".

6.10. For IMI purposes, "each autonomous fraction, in a horizontal property regime, is deemed to constitute a property".

6.11. In accordance with article 4 of the IMI Code, "urban properties are all those which should not be classified as rustic (...)".

6.12. Among the various species of "urban properties" referred to in article 6 of the IMI Code, "residential urban properties" are expressly mentioned [no. 1, paragraph a)], with no. 2 of the same article adding that these "are buildings or constructions licensed for such purpose or, in the absence of a license, which have as their normal destination each of these purposes".

6.13. While it is true that no. 4 of article 2 of the IMI Code refers to "for the purposes of this tax, each autonomous fraction, in a horizontal property regime, is deemed to constitute a property", it is also true that there is nothing in the law that points to discrimination between properties in horizontal and vertical ownership as regards their identification as "residential urban properties".

6.14. Thus, it can be concluded therefrom that the autonomous parts of properties in vertical ownership, with residential use, should be considered as "residential urban properties".

6.15. As sustained in various Arbitral Decisions, namely in that issued in Process 88/2013-T, "in the legislator's perspective, the legal-formal rigor of the concrete situation of the property is not what matters but rather its normal use, the purpose to which it is devoted".

6.16. Therefore, "it must thus be concluded that for the legislator it is irrelevant whether the property is constituted in vertical or horizontal ownership, what is relevant being only the material truth underlying its existence as an urban property and its use" (our emphasis).

6.17. Indeed, in the interpretation of the legal text, it makes no sense to distinguish what the law itself does not distinguish (ubi lex non distinguit nec nos distinguere debemus) for to distinguish, in this context, between properties constituted in horizontal ownership and properties constituted in full ownership would be an "innovation" without associated legal support.

6.18. In truth, nothing indicates, either in item no. 28 of the TGIS or in the IMI Code, a justification for such particular differentiation.[4]

6.19. Indeed, it can be affirmed that it is today settled understanding that tax laws are interpreted like any others, and their true meaning must be determined in accordance with techniques and interpretive elements generally accepted by legal doctrine (see article 9 of the Civil Code and article 11 of the LGT).[5]

6.20. On the other hand, it is necessary to bear in mind that the rules on the incidence of taxes must be interpreted in their exact terms, without recourse to analogy, making prevail certainty and security in their application.[6]

6.21. In these terms, the uniform criterion that must be adopted is that which determines that the incidence of the provision in the rule in question (item 28 of the TGIS) takes place only when any of the parts, floors or divisions with independent use of a property in horizontal ownership (or full ownership), with residential use, possesses a TPV exceeding EUR 1,000,000.00 (our emphasis).

6.22. Thus "if the legal criterion imposes the issuance of individualized assessments for the autonomous parts of properties in vertical ownership, in the same manner as it establishes for properties in horizontal ownership, it clearly established a criterion, which must be single and unequivocal, for the definition of the rule for the incidence of item 28.1 of the TGIS" [7], for which reason to establish as the reference value for the incidence of the new tax the total TPV of the property in question, as the Respondent contends, finds no basis in applicable legislation.[8]

6.23. Finally, it will also be important to inquire as to what the ratio legis underlying the rule of item 28 of the TGIS is and, in compliance with article 9 of the Civil Code[9], what circumstances attended the enactment of the norm and what specific conditions of the time in which it is applied obtain.

6.24. Indeed, the legislator intended to introduce a principle of taxation on the wealth manifested in the ownership, usufruct or right of superficies of luxury residential urban properties, having considered, as a determinant element of contributory capacity, urban properties, with residential use, of high value (luxury), that is, of value equal to or exceeding EUR 1,000,000.00, on which would (and did) become subject a special rate of Stamp Duty.

6.25. And we understand that this is precisely what can be concluded from the analysis of the discussion of Bill no. 96/XII in the National Assembly[10], with no invocation being discerned of an interpretive ratio different from that here presented.[11]

6.26. Indeed, the justification for the measure designated as "special tax on the highest value residential urban properties" is based on the invocation of the principles of social equity and fiscal justice, calling to contribute in a more intense manner the holders of properties of high value intended for residence, thereby causing the new special tax to incide on "houses of value equal to or exceeding 1 million euros".

6.27. Now, if such logic seems to make sense when applied to a "residence" (whether it be a house, an autonomous fraction, a part of a property with independent use or an autonomous unit) whenever the same represents, on the part of its holder, a contributory capacity above the average (and, in that measure, capable of determining a special contribution to ensure just distribution of the fiscal burden), it would no longer make any sense if applied "unit by unit" to, through the sum of the TPV of the same (because held by the same individual), determine such value equal to or exceeding one million euros.

6.28. Furthermore, admitting the differentiation of treatment could produce results incomprehensible and discriminatory from a legal point of view, as they would be contrary to the objectives (promotion of social equity and fiscal justice) that the legislator stated it had in adding item no. 28.

6.29. In truth, the existence of a property in vertical or horizontal ownership cannot, by itself, be indicative of contributory capacity, it resulting from the law that one and the other should receive the same fiscal treatment in compliance with the principles of justice, fiscal equality and material truth.

6.30. Conversely, the existence in each property of independent residences, in a horizontal or vertical ownership regime, can be susceptible to triggering the incidence of the new tax if the TPV of each of the parts or fraction is equal to or exceeding the limit defined by law, that is, EUR 1,000,000.00.

6.31. Thus, it is illegal and unconstitutional to consider that the reference value for the assessment of the tax is that corresponding to the sum of the TPV attributed to each part or division, not least because we would be faced with a clear violation of the principle of equality and proportionality in fiscal matters.

6.32. The tax legislator cannot treat equal situations differently, depending on whether we are dealing with a property in horizontal or vertical ownership.

6.33. Now, if the property under analysis were found in a horizontal property regime, it would be clear that none of the residential fractions that comprise it would be subject to the incidence of the new tax, inasmuch as none of them would exceed, individually considered, the limit of EUR 1,000,000.00 defined by law (see point 5.2.4. supra as to the TPV of each of the floors).

6.34. It is thus, for that very reason, that article 12, no. 3 of the IMI Code provides that "each floor or part of a property capable of independent use is considered separately in the matrix registration which also discriminates the respective TPV" so as not to generate situations of violation of the principles of social equity and fiscal justice.

6.35. Indeed, the constitution of horizontal property implies merely a juridical alteration of the property not even requiring a new evaluation, for which reason the material truth is what imposes itself as the determinant criterion of contributory capacity and not the mere legal-formal reality of the property.

6.36. In consequence, the discrimination carried out by the Respondent translates itself into arbitrary and illegal discrimination, since the law does not impose the obligation of constitution of horizontal property.

6.37. And, taking into account all the social and economic reality (sometimes present in many of the properties existing in vertical ownership), the tax legislator itself in the IMI Code treated the two situations (horizontal and vertical ownership) in an equitable manner, applying the same criteria.

6.38. Indeed, reiterate that the Respondent cannot distinguish where the legislator itself understood not to do so, under penalty of violating the coherence of the fiscal system and the principles of fiscal legality (article 103, no. 2 of the CRP), of justice, of equality and of fiscal proportionality, included therein.

6.39. Analyzing the situation sub judice, it is evident that the TPV of the floors (autonomous units) with residential use varies between EUR 109,680.00 and EUR 121,610.00, for which reason, in any one of them, individually considered, the said TPV is less than EUR 1,000,000.00, as already referred to in point 6.33., supra)

6.40. Thus, in light of the above, and in response to the first of the questions above posed (see point 6.4.1.), it is concluded that on the floors with residential use (of the property identified in the case file) Stamp Duty as referred to in item no. 28 of the TGIS cannot incide, being therefore illegal the assessment acts which are the subject of the Request for Arbitral Decision presented by the Claimant [12].

6.41. Additionally, taking also into account all that has been previously stated, we can conclude that, as to the answer to be given to the second of the above-stated questions (see point 6.4.2.), the interpretation made by the Respondent is not in conformity with the Law and the Constitution, inasmuch as it violates the principle of equality (article 13 of the CRP) and does not contribute to equality between citizens (article 104, no. 3, of the CRP) [13].

6.42. In this regard, it is concluded that item no. 28 of the TGIS, in opening the possibility of taxing differently the holding of real estate assets of equal value, held by different persons, on the basis of criteria that can contradict, without any justification, in particular, the principle of contributory capacity, cannot fail to be considered unconstitutional, given the violation of the principle of equality.

6.43. Finally, as to the request presented by the Claimant to be "recognized the right to indemnifying interest (...) having the right to reimbursement of the amounts paid, increased by indemnifying interest, at the legal rate, from the date on which the respective payments took place, until complete reimbursement thereof (...)", it is important to note that, in accordance with paragraph b), no. 1, of article 24 of the RJAT, and in conformity with what is established therein, "the arbitral decision on the merits of the claim of which no recourse or challenge lies binds the tax administration as from the end of the period provided for recourse or challenge, and the latter must re-establish the situation that would have existed if the tax act which is the subject of the arbitral decision had not been carried out, adopting the acts and operations necessary for that purpose"[14] (our emphasis).

6.44. In truth, in accordance with article 100 of the LGT, applicable to the case by virtue of paragraph a), no. 1, of article 29 of the RJAT, "the tax administration is obliged, in the case of total or partial granting of complaints or administrative remedies, or of judicial proceedings in favor of the taxpayer, to the immediate and full re-establishment of the situation that would have existed if the illegality had not been committed, comprising the payment of indemnifying interest, in accordance with the terms and conditions provided for in the law" (our emphasis).

6.45. In the situation under analysis, and in the sequence of the illegality of the assessment acts above already identified, there must be place, by virtue of the rules previously referred to, for the reimbursement of the amounts already paid, on this date, by the Claimant, as a manner of achieving the re-establishment of the situation that would have existed if the illegality had not been committed.

6.46. As to the indemnifying interest requested by the Claimant, it appears that, in light of what is established in article 61 of the CPPT and the requirements for the right to indemnifying interest being met (that is, the existence of error attributable to the services having been verified, as a result of which payment of the tax debt in an amount greater than legally due, as provided for in no. 1, article 43 of the LGT), the Claimant has the right to indemnifying interest at the legal rate, calculated on the amounts paid relating to the Stamp Duty assessments dated 17 March 2014 (and relating to the year 2013), which shall be counted in accordance with the provision of no. 3 of article 61 above already referred to, that is, from the date of payment of the undue tax until the date of issuance of the respective credit note.

7. DECISION

7.1. In accordance with article 22, no. 4, of the RJAT, "the arbitral decision issued by the arbitral tribunal includes the fixing of the amount and distribution among the parties of the costs directly resulting from the arbitration proceedings".

7.2. In this regard, the basic rule relating to responsibility for process costs is that the party which caused them should be condemned, it being understood that the party gives cause to process costs, the party that loses to the extent it loses [article 527, no. 1 and 2 of the Code of Civil Procedure (CPC)].

7.3. In the case under analysis, having regard to the above, the principle of proportionality imposes that total responsibility for costs be attributed to the Respondent.

7.4. In these terms, having regard to the analysis carried out, this Arbitral Tribunal decided:

7.4.1. To judge the request for arbitral decision presented by the Claimant to be well-founded and condemn the Respondent as to the request for declaration of illegality of the Stamp Duty assessments dated 17 March 2014 (relating to the year 2013 and identified in this proceedings), annulling, in consequence, the respective tax acts;

7.4.2. To judge the request for condemnation of the Respondent for reimbursement of the amounts unduly paid by the Claimant, increased by indemnifying interest at the legal rate, counted in accordance with legal terms, to be well-founded;

7.4.3. To condemn the Respondent to payment of the costs of the present proceedings.

Value of the proceedings: Having regard to the provision of articles 306, no. 2 of the CPC, article 97-A, no. 1 of the CPPT and article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at EUR 13,720.20.

Costs of the proceedings: In accordance with the provision of Table I of the Regulation of Costs in Tax Arbitration Proceedings, the value of the costs of the Arbitral Proceedings is fixed at EUR 918.00, at the charge of the Respondent, in accordance with article 22, no. 4 of the RJAT.

Let it be notified.

Lisbon, 28 January 2015

The Arbitrator

Sílvia Oliveira

[1] The drafting of the present decision is governed by the orthography prior to the 1990 Orthographic Agreement, except as regards the transcriptions carried out.

[2] "Each floor or part of a property capable of independent use is considered separately in the matrix registration, which also discriminates the respective tax patrimonial value".

[3] See in this sense the statement of the Council of Ministers of 20 September 2012 (Government portal), relating to the content of Bill no. 96/XII/2nd, from which Law no. 55-A/2012 would result, partially transcribed in the petition.

[4] In this regard, note the provision of article 12, no. 3, of the IMI Code, in referring that "each floor or part of a property capable of independent use is considered separately in the matrix registration, which also discriminates the respective TPV".

[5] In this sense, see Administrative Court of Appeals Decision (AC TCAS) Process 07648/14, of 10 July 2014.

[6] See AC TCAS Process 5320/12, of 2 October 2012, AC TCAS Process 7073/13, of 12 December 2013 and AC TCAS 2912/09, of 27 March 2014.

[7] See Arbitral Decision no. 50/2013-T (CAAD), of 29 October 2013.

[8] Which is the IMI Code, given the referral made by the aforementioned article 67, no. 2, of the Stamp Duty Code.

[9] According to which the interpretation of a legal rule should not be confined to the letter of the law, but should reconstruct the legislator's intent, based on the texts and other elements of interpretation, taking into account the unity of the legal system.

[10] Available for consultation in the Journal of the National Assembly, I series, no. 9/XII/2, of 11 October 2012.

[11] As already referred to in various Arbitral Decisions issued by the CAAD (see Process no. 48/2013-T and Process no. 50/2013-T).

[12] In this sense, see Arbitral Decision no. 368/2014-T, of 18 December 2014, issued by the undersigned.

[13] In this sense, see Arbitral Decision identified in the preceding note.

[14] In this sense, see Arbitral Decision 27/2013-T, of 10 September 2013, regarding "reimbursement of the total amount paid and indemnifying interest".

Frequently Asked Questions

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What is Verba 28.1 of the Tabela Geral do Imposto do Selo (TGIS) and how does it apply to vertical property?
Verba 28.1 of the General Table of Stamp Duty (Tabela Geral do Imposto do Selo - TGIS) establishes stamp tax on urban property rights. When applied to vertical property (propriedade vertical), this provision taxes properties that, despite having multiple independent units capable of autonomous use, are registered under a single matrix article without formal horizontal property division. The tax assessment under Verba 28.1 considers the property's patrimonial value as registered in the tax matrix. In vertical property regimes, the challenge arises in determining whether the tax should be assessed on the entire building as a single unit or on each independent unit separately. The Tax Administration typically applies Verba 28.1 to the total registered value when there is a single matrix article, regardless of the number of physically independent units within the building. This interpretation has been subject to legal challenges based on arguments that it disregards the economic reality of multiple distinct units and may violate principles of equality and contributory capacity when compared to horizontally divided properties.
Can stamp tax (Imposto do Selo) liquidation on urban property be challenged through tax arbitration at CAAD?
Yes, stamp tax (Imposto do Selo) liquidation on urban property can be challenged through tax arbitration at the Administrative Arbitration Centre (Centro de Arbitragem Administrativa - CAAD). Under the Legal Regime of Arbitration in Tax Matters (RJAT - Decree-Law 10/2011 of 20 January), taxpayers have the right to submit disputes regarding stamp tax assessments to arbitral tribunals as an alternative to judicial courts. The CAAD arbitration process provides a faster, specialized forum for resolving tax disputes, including those involving Verba 28.1 TGIS assessments on urban real estate. To initiate arbitration, the taxpayer must file a request for constitution of an arbitral tribunal within the legal deadlines, typically within 90 days from notification of the contested tax act or the express or tacit rejection of an administrative claim. The arbitral tribunal has jurisdiction to review the legality of stamp tax assessments, including grounds of illegality, unconstitutionality, and violation of fundamental tax principles. This arbitration pathway has become increasingly popular for real estate stamp tax disputes due to its efficiency and the specialized knowledge of appointed arbitrators in tax law matters.
What are the legal grounds for annulling a stamp tax assessment based on unconstitutionality under Portuguese tax law?
Under Portuguese tax law, a stamp tax assessment can be annulled based on unconstitutionality through several legal grounds. The primary constitutional basis includes violation of the principle of equality (Article 13 of the Portuguese Constitution), which prohibits arbitrary discrimination and requires that taxpayers in similar situations be treated equally for tax purposes. In stamp tax cases involving vertical property, unconstitutionality arguments often invoke the principle of contributory capacity (Article 104 of the Constitution), which mandates that taxation should be based on actual economic capacity and real value. Taxpayers can argue that assessing stamp tax on the entire building value when multiple independent units exist treats them differently from owners of horizontally divided properties, violating horizontal equity. Additionally, claims may be based on disproportionality or violation of property rights (Article 62 of the Constitution) when the tax burden is considered excessive relative to the property's actual use or division. The arbitral tribunal or court must evaluate whether the interpretation and application of Verba 28.1 TGIS creates unconstitutional discrimination, whether the tax adequately reflects contributory capacity, and whether the legal framework provides sufficient safeguards against arbitrary taxation. If unconstitutionality is found, the tribunal declares the assessment illegal and orders its annulment.
How does the CAAD arbitral tribunal process work for contesting Imposto do Selo on vertical property (propriedade vertical)?
The CAAD arbitral tribunal process for contesting Imposto do Selo on vertical property follows a structured procedure under the RJAT (Decree-Law 10/2011). First, the taxpayer files a request for constitution of an arbitral tribunal, specifying the contested stamp tax acts and legal grounds (illegality, unconstitutionality, etc.). The request must be filed within legal deadlines and accompanied by payment of the initial arbitral fee. Upon acceptance, the CAAD President notifies the Tax and Customs Authority (AT), which becomes the Respondent. An arbitrator is appointed either by the parties or by the CAAD Ethics Council. The tribunal is formally constituted, typically within 2-3 months of the initial request. The AT then has 30 days to file a Response defending the assessments. Both parties may request evidence production or waive the oral hearing by mutual agreement. If the hearing is waived, parties submit written arguments within specified deadlines (typically 15 days each, successively). The arbitrator analyzes the legal arguments, reviews the administrative file, examines the application of Verba 28.1 TGIS to the specific vertical property situation, and evaluates constitutional compliance. The arbitral decision must be issued within statutory deadlines (usually 6 months from tribunal constitution, extendable). If the tribunal finds in favor of the taxpayer, it annuls the assessments and may order reimbursement plus default interest. The decision is binding and enforceable, with limited grounds for judicial appeal.
What is the role of the Autoridade Tributária e Aduaneira in stamp tax disputes involving high-value urban real estate?
The Autoridade Tributária e Aduaneira (AT - Tax and Customs Authority) plays multiple roles in stamp tax disputes involving high-value urban real estate. As the tax administration entity, the AT is responsible for: (1) Assessment and liquidation: The AT's local Finance Services assess and liquidate stamp tax under Verba 28.1 TGIS based on property matrix values, issuing tax notices to property owners or inheritance estates. (2) Interpretation and application: The AT interprets and applies TGIS provisions to determine tax liability, particularly in complex cases like vertical property where the legal framework's application may be ambiguous. (3) Respondent in disputes: When taxpayers challenge stamp tax assessments through CAAD arbitration or judicial proceedings, the AT acts as the Respondent, defending the legality and constitutionality of its tax acts. The AT presents formal Responses, submits the administrative file, argues for the validity of its assessments, and contests claims for interest or reimbursement. (4) Compliance enforcement: The AT monitors payment compliance, issues collection notices, and may initiate enforcement proceedings for unpaid stamp tax on high-value properties. (5) Legal defense: The AT's legal departments defend the tax system's interpretation, arguing that assessments comply with applicable law and constitutional principles, and that no attributable error by tax services occurred. In vertical property cases, the AT typically maintains that single matrix article properties should be taxed as unified assets under current legal frameworks.