Process: 598/2014-T

Date: February 8, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration decision (Process 598/2014-T) addresses a critical question in Portuguese Stamp Tax law: whether Verba 28.1 TGIS applies to the aggregate value of a vertical property or to each independent unit separately. The taxpayer challenged Stamp Duty assessments totaling €3,275.38 on a Lisbon property comprising 12 independent units (10 residential), with total tax-related value of €1,257,367.04. No individual unit exceeded €1,000,000. The applicant raised three formal defects: (i) failure to identify the act's author, violating Article 123 CPA and constituting nullity under Article 133 CPA; (ii) lack of reasoning, breaching Article 77 LGT and Article 36 CPPT, rendering acts voidable; and (iii) absence of prior hearing required by Article 60 LGT. On substance, the applicant argued that Stamp Duty should follow IMI (Municipal Property Tax) rules, where each independent unit constitutes a separate taxable property, not their aggregate. The Tax Authority contended that units in vertical property (full ownership, not horizontal ownership regime) lack legal autonomy, requiring taxation based on the property's total value as the sum of all units. The applicant further claimed the Tax Authority's interpretation violated constitutional principles of tax system consistency, legality (Article 103 CRP), justice, equality, proportionality, and impartiality (Articles 266 and 104 CRP). The Authority counter-argued that the applicant's interpretation would itself create unconstitutionality by violating Article 103 CRP's legality principle. Article 23(7) of the Stamp Duty Code refers to CIMI assessment procedures, making Articles 113 et seq. applicable. This case highlights the fundamental distinction between horizontal and vertical property ownership in Portuguese tax law and the procedural safeguards required for valid tax assessments.

Full Decision

ARBITRAL DECISION

I. REPORT

A, taxpayer no. …, resident at Rua …, in Lisbon (hereinafter referred to only as the Applicant), filed, on 31-07-2014, a request for constitution of a single arbitral tribunal, pursuant to articles 2.º and 10.º of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as RJAT), in conjunction with subparagraphs a) and d) of article 99.º of the Code of Tax Procedure (CPPT), in which the Tax and Customs Authority (hereinafter referred to only as the Respondent) is named as respondent.

The Applicant requests the declaration of nullity or the annulment of the Stamp Duty assessment acts, with reference to item 28.1 of the General Table of Stamp Duty (hereinafter, GTSД), in the total amount of € 3,275.38, which gave rise to collection notices nos. 2014 …, 2014 …, 2014 …, 2014 …, 2014 …, 2014 …, 2014 …, 2014 …, 2014 … and 2014 …, concerning the property located at Av. …, in Lisbon.

The Applicant further requests the condemnation of the Respondent to reimburse the tax paid, plus compensation interest.

The request for constitution of the arbitral tribunal was accepted by the Honorable President of CAAD on 01-08-2014 and notified to the Tax and Customs Authority on the same date.

In accordance with subparagraph a) of paragraph 2 of article 6.º and subparagraph b) of paragraph 1 of article 11.º of the RJAT, the Ethics Council designated the undersigned arbitrator for the single arbitral tribunal, who communicated acceptance of the appointment within the applicable period.

On 16-09-2014 the Parties were duly notified of this appointment and did not manifest any intention to challenge the designation of the arbitrators, in accordance with article 11.º paragraph 1, subparagraphs a) and b) of the RJAT and articles 6.º and 7.º of the Code of Ethics.

In accordance with the provision in subparagraph c) of paragraph 1 of article 11.º of the RJAT, the single arbitral tribunal was constituted on 02-10-2014.

By order of 24-11-2014 the meeting provided for in article 18.º of the RJAT was dispensed with, and the parties were granted a period to submit written arguments. Both parties chose not to exercise this right, and accordingly no arguments were submitted.

As grounds for its request, the Applicant alleges various formal defects of the challenged acts, namely:

(i) the lack of indication of the author of the act, which would violate article 123.º, paragraph 1, subparagraphs a) and g) of the CPA, whereby such acts would be null, pursuant to paragraph 1 of article 133.º of the CPA;

(ii) the lack of reasoning, in violation of article 77.º of the General Tax Code (LGT) and article 36.º of the CPPT, whereby such acts would be voidable; and

(iii) the lack of prior hearing, pursuant to paragraph 1 of article 60.º of the LGT, whereby such acts would be voidable.

The Applicant also contends that there has been a factual and legal error in the assessment of the disputed tax by taking the total aggregate value of the parts suitable for independent use that compose the property as the basis of incidence, rather than the individual value of each of those same parts. By express referral of the law, the basis of incidence of Stamp Duty of item 28.1 of the GTSD should be the same as that of the Municipal Property Tax (IMI). In that regard, where a property in full ownership is composed of units capable of independent use, some of which are used for housing, the tax-related real estate value relevant for the purposes of Stamp Duty assessment shall be that of each one individually considered and not their sum, as appears from the collection notices sent to the Applicant. This follows from the fact that under the IMI regime there is no distinction between properties in horizontal ownership and those in full ownership, all being subject to the same rules of registration in the property register, valuation and assessment. The Applicant further contends that the rules underlying the assessment of the tax now contested, in the interpretation given by the Respondent, would be unconstitutional due to violation of the consistency of the tax system, the principle of fiscal legality provided in article 103.º, paragraph 2, of the Constitution (CRP), and also the principles of justice, equality, proportionality and fiscal impartiality, set forth in paragraph 2 of article 266.º as well as articles 103.º and 104.º, paragraph 3, all of the CRP.

In response, the Respondent submits, briefly, that in properties not subject to horizontal ownership, the units suitable for independent use have no autonomy; the individualization for purposes of registration in the property register and valuation does not contend with their legal-tax nature, with the law determining that the value of the property shall necessarily correspond to the sum of the value of the various independent units. The units of independent use cannot be considered as "properties" in accordance with the legal definition and therefore cannot be relevant for purposes of the incidence of item 28.1 of the GTSD. For purposes of this rule, account must be taken of the tax-related real estate value of the property in full ownership which shall correspond, under the terms of the law, to the sum of the values of each unit capable of independent use. The Respondent further concludes that the interpretation defended by the Applicant with reference to said item 28.1 of the GTSD would imply its unconstitutionality due to violation of the principle of legality imposed by article 103.º of the CRP.

III. SANATION

The Arbitral Tribunal was regularly constituted and has jurisdiction.

The parties have judicial personality and capacity and are entitled to be parties (articles 4.º and 10.º, paragraph 2, of the same statute and article 1.º of Ordinance no. 112-A/2011, of 22 March).

The proceedings do not suffer from nullities and no obstacle arises to the merits of the case being examined, the request presented by the Applicant being timely.

IV. MATTERS OF FACT

A. Proven Facts

The following facts are considered proven:

  1. On 31 December 2013, the Applicant was the owner of 14/50 of an urban property in full ownership registered in the urban property register of the parish of …, in the municipality of Lisbon, under article …, with a tax-related real estate value of € 1,257,367.04 (doc. no. 11 of the file);

  2. The aforementioned property has 12 units capable of independent use, 10 of which are used for housing;

  3. None of the units capable of independent use has a tax-related real estate value exceeding € 1,000,000.00;

  4. In March 2014, the Applicant was notified of the Stamp Duty assessment notices, item 28.1 of the GTSD, for the year 2013, concerning each of the divisions capable of independent use used for housing of the identified property (docs. 1 to 10 of the file);

  5. The collection notices attached to the case file were paid in full on 30 April 2014 (docs. nos. 12 to 21).

B. Unproven Facts

No other facts with relevance to the arbitral decision were proven.

C. Grounds for the Matters of Fact

The matters of fact found to be proven are based on documentary evidence presented and not contested.

V. MATTERS OF LAW

A. On the Tax Assessed

The Stamp Duty Code does not provide for rules and procedures specific to the assessment of tax due under item 28 of the GTSD, the legislator having opted to make a direct referral to the rules and procedures for assessment provided in the Municipal Property Tax Code (CIMI). This is precisely what results from paragraph 7 of article 23.º of the Stamp Duty Code.

In that regard, articles 113.º and following of the CIMI shall be applicable here, with the necessary adaptations. In accordance with these rules, the tax of item 28 of the GTSD is assessed annually, during the months of February and March, by the central services of the Tax and Customs Authority, based on the tax-related real estate values of the properties and in relation to taxpayers registered in the property register on 31 December of the prior year.

Pursuant to article 119.º of the CIMI, it is the responsibility of the Tax and Customs Authority to send to the taxpayer, by the end of the month prior to payment, the corresponding collection document, with specification of the properties, their parts capable of independent use, the respective tax-related real estate value and the amount of tax attributable to each municipality where the properties are located. If the taxpayer does not receive the document in question, they should request a second copy thereof.

Applying these rules to the situation at hand, it is concluded from the examination of the collection notices sent to the Applicant that these do not suffer from any formal defect, contrary to what is alleged by the Applicant.

First, because it results therefrom that the issuing entity is the Tax and Customs Authority. As results from the legal regime described above, the law does not require any additional reference, namely with regard to the specific identification of the agent issuing the collection notices. The documents in question comply, in this regard, with the formalities required by article 119.º of the CIMI.

As to the alleged lack of reasoning, it is considered that the Applicant's position does not hold insofar as, being mere collection documents, the notices sent to the Applicant fully comply with the requirements established in article 119.º of the CIMI. In fact, the collection notices allow the taxpayer to know the grounds upon which the amount of tax to be paid was determined, since the taxable basis is indicated (tax-related real estate value of the property above 1 million euros and of each of the units capable of independent use), the applicable tax rate and the amount of tax determined, essential elements to which article 119.º of the CIMI refers.

Finally, as to the alleged omission of the duty of prior hearing, the Applicant's position likewise does not hold since not only does the Municipal Property Tax assessment regime not provide for prior hearing of the taxpayer (as follows from the already mentioned articles 113.º and following of the CIMI), but this also will not result from the general rules provided in article 60.º of the LGT. But, even if prior hearing of the taxpayer were mandatory, its omission would translate into a mere irregularity, without procedural relevance. This is because it has been understood by the case law of tax courts that the right of taxpayer participation (through prior hearing) shall prevail over the principle of preservation of administrative acts only if we are outside the scope of exercise of powers strictly bound by the administrative-tax authority. On this matter, we subscribe to what was stated in the judgment of the Central Administrative Court of the South, of 23/10/2012, handed down in case no. 0579/12 (available at www.dgsi.pt), which we now transcribe: "The principle of preservation of the administrative act does not have its own legal expression in our legal system, but has been accepted by doctrine and case law for reasons of procedural economy, thus embodying one of the dimensions of the efficiency indispensable to the realization of the public interest. It is, therefore, a matter of recognizing for the Court the power not to annul an invalid act when it is certain that the administrative decision could not have been otherwise, since in the execution of the restorative effect of the judgment there exists no 'legally valid alternative' other than to renew the invalid act, albeit without the defect that determined the annulment. The question arises, therefore, for what purpose annul an act if the new act would not introduce any significant modification to the existing situation and if, in essence, everything would remain the same? In the domain of acts performed in the exercise of bound powers (as is the tax act par excellence, the assessment) the Judge shall only be able to apply the principle of preservation of administrative acts when it is possible to conclude, without room for doubt, that the act in question could not have had any other decision-making content. In such cases, the aforementioned principle of preservation of the act can only be applied when one is faced with a situation of evident legal solution and in which there is no possibility foreseen that the omitted hearing of the taxpayer, before the assessment act, could influence the content thereof. This is the case, for example, of an assessment that is limited to applying a legal rate to a certain tax-related real estate value (assessment of IMI), not being accompanied by assessment of compensatory interest, since this already involves a judgment of fault regarding the taxpayer (see judgment of the Administrative Court - 2nd Section, 15/2/2007, appeal 1071/06; judgment of the Administrative Court - 2nd Section, 30/3/2011, appeal 877/09; judgment of the Administrative Court - 2nd Section, 20/6/2012, appeal 1013/11; José Manuel Santos Botelho and Others, Code of Administrative Procedure Annotated and Commented, Almedina, 4th edition, 2000, p.742)." (emphasis added). In the case at hand, we are, as stated in this judgment, within the scope of exercise of powers strictly bound by the Tax and Customs Authority insofar as, for purposes of assessment, the entity is limited to calculating the tax by applying the rate to the tax-related real estate value listed in the property register, in the name of the persons registered as holders. In that regard, the alleged formal defect of the challenged acts due to the omission of the right to prior hearing of the taxpayer does not hold.

Moving on to the analysis of the legal defects raised by the Applicant, we consider that the essential question to be decided pertains to the determination of the basis of incidence of Stamp Duty, item 28.1 of the GTSD, when a property not constituted in horizontal ownership is involved and whose units capable of independent use are intended for housing.

Specifically, it is necessary to decide whether the tax-related real estate value relevant as the criterion of incidence of tax corresponds to (i) the sum of the value of each of the units capable of independent use, as the Respondent contends, or (ii) the individual tax-related real estate value of each of those units capable of independent use, considered autonomously and by themselves, as the Applicant contends.

The doubt results from the interpretation of items 28 and 28.1 of the GTSD, whose wording in force on 31 December 2013 was as follows:

"28. Ownership, usufruct or right of superficies of urban properties whose tax-related real estate value registered in the property register, under the terms of the Municipal Property Tax Code (CIMI), is equal to or greater than € 1,000,000 - on the tax-related real estate value used for IMI purposes:

28.1 For properties with residential use – 1%"

The legislator did not establish the legal concept of "property with residential use," having expressly provided that all matters not regulated in the Stamp Duty Code with reference to said item 28 of the GTSD would be subsidiarily subject to the provisions of the CIMI, as already mentioned. It is therefore necessary to search the CIMI for such a concept so that the basis of incidence of item 28.1 of the GTSD can be determined.

The legal definition of "property" is contained in article 2.º of the CIMI, with paragraph 4 clarifying that "For purposes of this tax, each autonomous fraction, in the horizontal ownership regime, is deemed to constitute a property."

From the reading of this article, and especially the aforementioned paragraph 4, we would be led to conclude that, for IMI purposes, an autonomous fraction of a property in horizontal ownership assumes the nature of a "property" whereas a unit capable of independent use of a property in full ownership or total does not assume such nature, having no legal-tax autonomy.

As a result of this difference in classification, it would be defensible that, for purposes of item 28.1 of the GTSD, each autonomous fraction should be considered as a "property" and therefore tax would only be due if, being used for housing, it had a tax-related real estate value above the indicated amount. In the case of a property in full ownership, the tax-related real estate value to be considered for purposes of determining incidence would result from the sum of the tax-related real estate values of each independent unit used for housing – cf. subparagraph b) of paragraph 2 of article 7.º of the CIMI. This is the position of the Respondent.

However, in a comparative analysis of the Municipal Property Tax regime applicable to autonomous fractions of properties in horizontal ownership and to units capable of independent use of properties in full ownership, it is concluded that there is no difference whatsoever. Indeed, notwithstanding the formal legal nature being distinct, the tax regime of these figures is exactly the same. Materially, the law establishes no difference, as can be seen:

(i) properties in horizontal ownership and in full ownership are subject to the same rules of registration in the property register, with paragraph 3 of article 12.º of the CIMI expressly providing that the parts capable of independent use are considered separately in the registration in the property register which shall specify the respective tax-related real estate value;

(ii) properties in horizontal ownership and in full ownership are subject to the same rules and procedures of valuation, with subparagraph b) of paragraph 2 of article 7.º of the CIMI expressly determining that, if the parts that compose the property in full ownership are economically independent, each part is valued by application of the corresponding rules.

This identity of regime extends even further, having relevant repercussions at the level of the assessment itself of the tax since the legislator determined that the assessment of IMI shall be made with specification of the properties, their parts capable of independent use and respective tax-related real estate value – cf. paragraph 1 of article 119.º of the CIMI. It is, therefore, the legislator determining that the assessment of tax must be made individually, considering each economic reality (units capable of independent use) and not each legal reality (property or autonomous fraction of property in horizontal ownership).

From this it is concluded that, for IMI purposes, autonomous fractions of properties in horizontal ownership and the parts capable of independent use that compose a property in full ownership have exactly the same tax treatment. But more important than that: for IMI purposes, the basis of incidence of the tax is determined in exactly the same manner, corresponding to the own and individual value of each autonomous fraction or independent part, fixed in valuation and appearing in the property register; the assessment is made in an individualized and autonomous manner in function of each of the independent parts of the property, whether or not they are autonomous fractions.

In the case of properties in full ownership, IMI is not assessed based on the total tax-related real estate value of the property, but based on the individual tax-related real estate value of each autonomous unit that composes it; the total amount of tax due corresponds to the sum of the individual amounts for each autonomous unit, determined based on their respective individual tax-related real estate values. Everything is processed in exactly the same manner as that applied for autonomous fractions of properties in horizontal ownership.

Furthermore, under the terms of item 28.1 of the GTSD, only "properties with residential use" are subject to taxation. Now, in properties composed of independent units with different purposes and uses - as occurs in the present case (services and commerce, as results from doc. no. 11 of the file) - the determination of use can only be made in function of each of these units and not in function of the property as a whole. This is precisely what results from subparagraph b) of paragraph 2 of article 7.º of the CIMI. On this aspect, it is appropriate to refer to J. Silvério Mateus and L. Corvelo de Freitas, Property Taxes - Stamp Duty, Annotated and Commented, Engifisco, 1st Edition, 2005, p. 121, note 5, who understand that "The rules provided in this paragraph 2, relating to the determination of the tax-related real estate value of urban properties with more than one use, concern the diversity of some of the elements of valuation provided in articles 38.º and following of the CIMI, namely (….). On the other hand, this provision is in accordance with the principle of individualization of the independent parts of an urban property, even if not constituted in horizontal ownership, provided in paragraph 3 of article 12.º". (emphasis added)

In a situation such as the present one, how would one conclude that the property would have residential use, when parts thereof are used for other purposes?

In truth, in accordance with the valuation rules provided in the CIMI, what has use is not the property as a building in its entirety but the autonomous units that compose it, whether autonomous fractions or not. It is based on the actual and material use that the use of each independent unit or autonomous fraction is determined, the law not providing a specific use for the property as a building. Each independent unit – whether or not an autonomous fraction – has, therefore, its own use that does not "contaminate" the use of the property as a whole.

Thus, it cannot be argued that "property with residential use" corresponds to the strict and proper concept of article 2.º of the CIMI (encompassing, for the purpose we intend, only buildings and autonomous fractions of properties in horizontal ownership) since, as demonstrated, it would have no concrete practical applicability (as mentioned, a property in full ownership may have more than one use or purpose). In our understanding, in using this expression the legislator intended to refer to the property as a reality capable of use, hence to the independent parts that compose each property, whether or not they have the legal nature of autonomous fractions.

It is concluded, therefore, that, for purposes of application of item 28.1 of the GTSD, the units capable of independent use that integrate a property in full ownership regime and autonomous fractions are, in substance, identical realities and that, therefore, they are subject to the same regime of incidence.

In that regard, the final part of item 28 of the GTSD, in determining that the tax shall be levied "(…) on the tax-related real estate value used for IMI purposes:" expressly refers to the individual value of each independent part that composes the property in full ownership and not to the total value of the property (corresponding to the sum of the individual tax-related real estate values), since it is this individual value that is considered in IMI, for all purposes.

Moreover, under the terms of the already mentioned paragraph 7 of article 23.º of the Stamp Duty Code, the tax due under item 28 of the GTSD is assessed annually in accordance with the rules provided in the CIMI. And it was precisely these rules that led to the Respondent assessing the tax individually for each autonomous unit and considering the respective individual tax-related real estate value. Hence multiple collection notices were issued.

If the Respondent's understanding were to hold, there would be only one Stamp Duty assessment per property and not as many assessments as there are units capable of independent use.

Finally, it is appropriate to mention that this matter has been the subject of various CAAD decisions, all in this same sense, transcribing here, by way of example, the arbitral decision handed down in case 50/2013-T, in the part to which we adhere:

"Therefore, given that the registration in the property register of real estate in full ownership, constituted by different parts, floors or divisions with independent use, under the terms of the CIMI, follows the same registration rules as real estate constituted in horizontal ownership, and the respective IMI, as well as the new Stamp Duty, are assessed individually in relation to each of the parts, there is no doubt that the legal criterion for defining the incidence of the new tax must be the same.

Moreover, the Tax Authority admits that this is the criterion, which is why the assessment itself issued is very clear in its essential elements, from which results that the value of incidence corresponds to the tax-related real estate value of the 2nd floor and the individualized assessment on the part of the property corresponding to that same floor.

Therefore, if the legal criterion imposes the issue of individualized assessments for the autonomous parts of properties in full ownership, in the same manner as it establishes for autonomous fractions of properties in horizontal ownership, it has clearly established the criterion, which must be single and unequivocal, for defining the rule of incidence of the new tax.

Thus, the new Stamp Duty would only be applicable if any of the parts, floors or divisions with independent use presented a tax-related real estate value exceeding € 1,000,000.00.

The Tax Authority cannot, therefore, consider as the reference value for the incidence of the new tax the total value of the property, when the legislator itself established a different rule under the CIMI, and this is the code applicable to matters not regulated regarding item 28 of the GTSD.

The criterion sought by the Tax Authority, of considering the value of the sum of the tax-related real estate values attributed to the parts, floors or divisions with independent use, with the argument that the property is not constituted under the horizontal ownership regime, finds no legal support and is contrary to the criterion applicable under the CIMI and, by referral, under Stamp Duty.

Furthermore, the law itself expressly establishes, in the final part of item 28 of the GTSD, that Stamp Duty to be levied on urban properties with value equal to or greater than €1,000,000.00 – 'on the tax-related real estate value used for IMI purposes.'

Thus, the adoption of the criterion defended by the Tax Authority violates the principles of legality and fiscal equality, as well as the principle of prevalence of material truth over legal-formal reality."

In the same sense, reference should be made to the decision handed down in case 132/2013-T, of which we transcribe the part which we fully subscribe to:

"Indeed, it makes no sense to distinguish in law what the law itself does not distinguish (ubi lex non distinguit nec nos distinguere debemus). Furthermore, to distinguish, in this context, between properties constituted in horizontal ownership and in full ownership would be an "innovation" without associated legal support, especially since, as has been stated here, nothing suggests, neither in item no. 28, nor in the provision of the CIMI, a justification for that particular differentiation. Note, for example, what article 12.º, paragraph 3, of the CIMI states: 'each floor or part of property capable of independent use is considered separately in the registration in the property register, which also specifies the respective tax-related real estate value.'

The uniform criterion that is required is, therefore, the one that determines that the incidence of the rule in question only takes place when any of the parts, floors or divisions with independent use of a property in horizontal or full ownership with residential use possesses a tax-related real estate value exceeding €1,000,000.00. Setting as the reference value for the incidence of the new tax the total tax-related real estate value of the property in question, as the now respondent intended, finds no basis in the applicable legislation, which is the CIMI, given the referral made by the cited article 67.º, paragraph 2, of the Stamp Duty Code (CIS).

Finally, as has already been recalled in various Arbitral Decisions (see Arbitral Decision no. 48/2013-T and Arbitral Decision no. 50/2013-T), there is no indication, in the works relating to the discussion of the bill no. 96/XII in the National Assembly, of an interpretative rationale different from that presented here. Indeed, this measure, called the 'special tax on high-value residential urban properties', was justified by the need to comply with the principles of social equity and fiscal justice, placing a greater burden on holders of properties with high value intended for housing, and, in that regard, applying the new 'special tax' to 'houses with value equal to or greater than 1 million euros.'

Now, if this logic appears to make sense when applied to 'housing' - whether it be a 'house,' 'autonomous fraction' or 'part of property with independent use' / 'autonomous unit' -, since one assumes an above-average contributory capacity and, in that regard, the need for an additional contributory effort is justified, it would make little sense to go on to disregard the determinations 'unit by unit' when only through the sum of the tax-related real estate values of the same (because held by the same individual) would the million euros be exceeded.

Moreover, admitting such differentiation of treatment could produce results incomprehensible from a legal point of view and contrary to the objectives which the legislator stated having for adding item no. 28. By way of example, suppose the following hypothesis, which appears plausible in light of the interpretation made by the now respondent: a citizen who is the owner of a property constituted in full ownership intended for housing, with the total value of the autonomous units equal to or greater than €1,000,000.00 and the tax-related real estate value of each less than €1,000,000.00, is subject to an annual tax of 1% of that value (as occurred in the situation being analyzed); whereas another citizen who holds a property with the exactly same characteristics as the previous one but that has been constituted in horizontal ownership, with the total value of the autonomous fractions equally equal to or greater than €1,000,000.00 and the tax-related real estate value of each less than €1,000,000.00, will not be subject to taxation under the aforementioned item no. 28.

On the other hand, one could ask: if such fractions have the same owner, why does it make no sense to aggregate, for tax purposes, their respective tax-related real estate values? The answer can be illustrated through another hypothesis: a citizen who is the owner of a property in horizontal ownership, where each of its 20 fractions possesses a tax-related real estate value less than €1,000,000.00, would be subject to taxation if – if such aggregation were admitted – the total tax-related real estate value exceeded that amount; whereas another citizen with identical 20 fractions distributed among 5, 10 or 20 properties would not be subject to any taxation under the aforementioned item no. 28.

If this line of reasoning makes sense – thus justifying the non-aggregation of the tax-related real estate values of fractions of properties in horizontal ownership – there is no plausible reason why the same should not be applied to the autonomous units of properties in full ownership.

Observing, now, the case being analyzed, it is found that the tax-related real estate values of the floors (autonomous units) of the property with residential use range between €104,140.00 and €113,780.00, so that any one of them is less than €1,000,000.00. From this it is concluded, as a result of what was mentioned, that Stamp Duty as referred to in item no. 28 of the GTSD cannot be levied on them, being therefore the assessment acts challenged by the applicant illegal."

In light of all the foregoing, this tribunal concludes that this is the interpretation of the law in conformity with the Constitution insofar as it ensures equal fiscal treatment of identical realities, giving prevalence to substance over form – an interpretative imperative imposed by paragraph 3 of article 11.º of the LGT.

In truth, where it is a tax on property, the contributory capacity of each taxpayer should be assessed based on the value of the respective real estate property intended for housing, regardless of its legal regime. To accept as valid the interpretation of the Respondent would lead to situations where for the same total value of real estate property, for example, € 1,200,000.00 composed of 6 apartments of € 200,000.00, tax would or would not be due depending on whether the property was or was not in the full ownership regime. In this hypothesis, in which the contributory capacity of a taxpayer who has 6 apartments of € 200,000.00 each in a property not subject to horizontal ownership differs from that of a taxpayer who has 6 apartments of € 200,000.00 each in a property in horizontal ownership. Overall, does not the property have exactly the same value?

As José Casalta Nabais states in The Fundamental Duty to Pay Taxes, 2004, Almedina, p. 436, the constitutional principle of equality obligates the legislator to "(…) not make discriminations or equalities that are arbitrary or lacking in justification or material or rational foundation, not to make discriminations based on subjective criteria or objective criteria but applied in subjective terms, and to respect the subjective rights of equality (that is, to treat equally what is constitutionally equal and unequally what is constitutionally unequal)". This author further argues (cf. p. 442) that "(…) we can say that the principle of fiscal equality requires that what is (essentially) equal be taxed equally, and what is (essentially) unequal be taxed unequally to the extent of that inequality. But the comparison of what is equal or unequal implies a criterion or a term of comparison (tertium comparationis). And this is identified with the idea of contributory capacity."

Thus, it is not admitted that the mere legal-formal organization of real estate property – constituted or not in horizontal ownership – can be a constitutionally valid justification for differentiated treatment of taxpayers.

In light of the foregoing, there is no doubt that the interpretation defended by the Applicant and here adopted by this tribunal is the one that ensures the constitutional conformity of items 28 and 28.1 of the GTSD, against articles 13.º and paragraph 3 of article 103.º of the CRP, insofar as it allows "treating equally what is constitutionally equal and unequally what is constitutionally unequal," as mentioned by the author above identified.

It is therefore improper the request of the Respondent for a finding of unconstitutionality of said legal provisions, due to violation of the constitutional principles of equality and legality.

In light of all the foregoing, the tribunal concludes that for purposes of application of items 28 and 28.1 of the GTSD to properties in full ownership the same rules of the CIMI apply to properties in horizontal ownership, so that the tax-related real estate value to be considered for purposes of incidence shall be the individual value of each unit capable of independent use.

The material substance is what is imposed as the determinant criterion of contributory capacity and not the mere legal-formal reality of the property so that, materially, the tax regime applicable to properties in full ownership is exactly the same as that applied to properties in horizontal ownership regime.

None of the independent units intended for housing that compose the property identified and owned by the Applicant present a value exceeding € 1,000,000, so that the minimum quantitative requirement for purposes of incidence of item 28.1 of the GTSD is not met.

For all these reasons, this tribunal considers the Applicant's position well-founded, concluding that the acts of assessment of Stamp Duty due under item 28.1 of the GTSD, with reference to the year 2013, underlying the identified collection notices suffer from the defect of violation of law, due to error regarding the facts and law, which justifies their annulment [article 135.º of the Code of Administrative Procedure, applicable by force of the provision in article 2.º, subparagraph c), of the LGT].

Furthermore, this tribunal considers unfounded the allegation of unconstitutionality of item 28.1 of the GTSD, due to violation of the principles of equality and legality provided in articles 13.º and paragraph 3 of article 103.º of the CRP, respectively, made by the Respondent.

B. On Compensatory Interest and Compensation Interest

Pursuant to paragraph 1 of article 43.º of the LGT "Compensation interest is due when it is determined, in an amicable claim or judicial challenge, that there has been an error attributable to the services resulting in payment of the tax debt in an amount greater than that legally due."

As stated by Diogo Leite de Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa, General Tax Code - Annotated and Commented, Editora Encontro da Escrita, 4th Edition, 2012, p. 342, note 2 "The error attributable to the services that performed the assessment is demonstrated when an amicable claim or challenge of that same assessment is filed and the error is not attributable to the taxpayer (for example, there will be annulment due to error attributable to the taxpayer when the assessment is based on erroneous facts, but the error is based on an incorrect indication in a declaration submitted by the taxpayer)".

Now, in the specific case, the request for payment of compensation interest by the Applicant is unequivocally justified since the tax assessments being contested are found to suffer from illegality and therefore should be annulled. In addition to the refund of the tax overpaid, the Applicant is also entitled to the payment of compensation interest, at the legal rate in force, counted from the date of payment until the date of processing of the respective credit note, in which they shall be included – cf. article 43.º of the LGT and paragraph 4 of article 61.º of the CPPT.

VI. DECISION

In accordance with the foregoing, this Arbitral Tribunal agrees to:

A) Judge the request for arbitral ruling well-founded as to the request for annulment of the Stamp Duty assessments with reference to the year 2013 challenged by the Applicant, ordering the annulment of the said assessments and condemning the Respondent to reimburse the tax overpaid by the Applicant;

B) Condemn the Respondent to payment of compensation interest, at the legal rate in force, counted from the date of overpayment of the tax until the date of processing of the respective credit note, in which they shall be included, under the terms of articles 43.º of the LGT and 61.º of the CPPT;

Case Value: In accordance with the provision in article 306.º, paragraph 2, of the Code of Civil Procedure and 97.º-A, paragraph 1, subparagraph a), of the CPPT and 3.º, paragraph 2, of the Regulations of Costs in Tax Arbitration Proceedings, the case value is set at € 3,275.38.

Costs: Pursuant to paragraph 4 of article 22.º of the RJAT, the amount of costs is set at € 612.00, under the terms of Table I annexed to the Regulations of Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Let this arbitral decision be registered and notified to the parties.

Lisbon, 08-02-2015

The Single Arbitrator

(Maria Forte Vaz)

Frequently Asked Questions

Automatically Created

Does Stamp Tax under Verba 28.1 TGIS apply to the total value of a vertical property or to each independent unit separately?
Under Verba 28.1 TGIS, the central dispute concerns whether Stamp Tax applies to vertical property (full ownership) based on aggregate value or individual units. The taxpayer argued that independent units should be taxed separately, following IMI principles where each unit constitutes a distinct property regardless of ownership structure. The Tax Authority maintained that units in vertical property lack legal autonomy, requiring taxation on the total property value calculated as the sum of all independent units. The distinction between horizontal ownership (where units have clear legal autonomy) and vertical/full ownership is crucial, as Article 23(7) of the Stamp Duty Code refers to CIMI rules but doesn't explicitly resolve this interpretative question.
What formal defects can invalidate a Stamp Tax liquidation act by the Portuguese Tax Authority?
Three formal defects can invalidate Stamp Tax liquidation acts: (1) Lack of identification of the act's author - violates Article 123(1)(a) and (g) CPA, constituting absolute nullity under Article 133(1) CPA; (2) Insufficient or absent reasoning - breaches Article 77 LGT and Article 36 CPPT, rendering the act voidable (anulável); (3) Failure to provide prior hearing - violates Article 60(1) LGT, also making the act voidable. These defects reflect fundamental procedural guarantees in Portuguese tax procedure law, ensuring transparency, accountability, and taxpayer rights. Nullity (nulidade) is more serious than voidability (anulabilidade), with different legal consequences and contestation procedures.
Is the Tax Authority required to provide a prior hearing before issuing Stamp Tax assessments under Verba 28.1?
Yes, prior hearing (audiência prévia) is generally required before Stamp Tax assessments under Article 60(1) LGT, which establishes the taxpayer's right to be heard before acts that adversely affect their rights or legally protected interests. The applicant argued that failure to provide prior hearing rendered the Verba 28.1 assessments voidable. However, the Tax Authority may argue exceptions exist for certain automated or standardized assessments. The prior hearing principle reflects constitutional administrative procedure guarantees under Article 267(5) CRP and ensures taxpayers can present relevant information before final tax determination, particularly important for complex property valuations where factual or legal issues may require clarification.
Can a taxpayer claim reimbursement with compensatory interest after a successful CAAD arbitration on Stamp Tax?
Yes, taxpayers can claim reimbursement with compensatory interest (juros indemnizatórios) following successful CAAD arbitration. The applicant specifically requested condemnation of the Tax Authority to reimburse paid taxes plus compensatory interest. Article 43 LGT governs compensatory interest, payable when tax is collected without legal basis or in excess. The interest compensates taxpayers for loss of use of funds improperly collected. In CAAD proceedings under the RJAT (Decree-Law 10/2011), arbitral tribunals have jurisdiction to order such reimbursements when declaring nullity or annulment of tax acts. The interest rate and calculation period follow LGT provisions, typically running from payment date until actual reimbursement.
What are the grounds for nullity or annulment of Stamp Tax liquidation acts under Portuguese tax law?
Grounds for nullity or annulment of Stamp Tax liquidations include: (1) Formal/procedural defects - lack of act's author identification (nullity per Article 133 CPA), insufficient reasoning (voidability per Articles 77 LGT/36 CPPT), absence of prior hearing (voidability per Article 60 LGT); (2) Substantive errors - incorrect determination of taxable base, misapplication of legal provisions, factual errors in property valuation or classification; (3) Constitutional violations - breach of legality principle (Article 103 CRP), equality, proportionality, tax system consistency (Articles 104, 266 CRP). Under Articles 99 and 204 CPPT, taxpayers can challenge assessments through administrative complaints, judicial appeals, or arbitration (RJAT). Nullity (nulidade) involves more serious defects affecting act validity ab initio, while voidability (anulabilidade) involves irregularities requiring formal declaration of invalidity.