Process: 617/2014-T

Date: June 9, 2015

Tax Type: Valor do pedido:

Source: Original CAAD Decision

Summary

This CAAD arbitration decision (Process 617/2014-T) addresses the controversial application of Stamp Tax under Item 28.1 of the General Stamp Tax Table (TGIS) to vertical property ownership (propriedade vertical). The claimant, as head of an inherited estate, contested 13 stamp duty assessments totaling €10,668.60 for tax year 2012 on an urban property with 13 independent residential fractions. The core dispute concerns whether the €1,000,000 threshold in Item 28.1 TGIS applies to each individual fraction or the aggregate value of all fractions in a vertical property regime. The Tax Authority argued that vertical property differs from horizontal property (propriedade horizontal), requiring aggregation of all fraction values (totaling €1,066,860), thus exceeding the threshold. The claimant countered that each fraction (valued between €57,690-€86,190) should be assessed individually, as none exceeds €1,000,000, making the tax inapplicable. The claimant alleged illegality based on erroneous qualification of the taxable event, unconstitutional interpretation of the norm, and procedural violations. After filing an administrative complaint (reclamação graciosa) that resulted in deemed refusal due to administrative silence after four months, arbitration was sought under the Legal Regime of Tax Arbitration (LRTA). The case raises fundamental questions about equal treatment between vertical and horizontal property regimes, as other taxes (IMI, IRC, IRS) treat fractions individually regardless of property constitution type.

Full Decision

ARBITRAL DECISION

Process no. 617/2014-T

Claimant: A…, in the capacity of head of indivisible estate of B… with the tax identification number and designation of estate …

Respondent: Tax and Customs Authority

I. Report

  1. On 08-08-2014 A…, married, tax identification number …, resident at Rua …, …, … Lisbon, in the capacity of head of the estate following the death of B…, with the tax identification and estate designation number …, following the formation of the presumption of tacit dismissal of the administrative claim previously filed, in accordance with the provisions of articles 57, nos. 1 and 5, of the General Tax Law, and 106 of the Tax Procedure and Process Code (hereinafter, TPPC), came, in accordance with the provisions of articles 2, no. 1, subparagraph a), 3, no. 1, and 10, no. 1, subparagraph a), all of the Legal Regime of Tax Arbitration (hereinafter LRTA), to submit a request for arbitral pronouncement, with cumulative claims, concerning the tax acts of stamp duty assessment for the year 2012, carried out by His Excellency the Director-General of the Directorate-General of Taxes, which concerned the urban property located at Rua …, no. …, … Lisbon, which forms part of the hereditary estate.

  2. The claimant presented as justification the illegality of the assessments which, in the case sub judice, and in accordance with article 99 of the TPPC, applicable by virtue of article 10, no. 2, subparagraph c) of the LRTA, is based on the erroneous qualification of the taxable fact, error as to the legal assumptions – the normative interpretation underlying the present assessments being unconstitutional – and also on the breach of formal requirements.

  3. In accordance with the provisions of subparagraph a) of no. 2 of article 6 and subparagraph b) of no. 1 of article 11 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Ethics Council of the Administrative Arbitration Centre appointed as arbitrator Ana Teixeira de Sousa, and the parties, after being duly notified, did not object to such appointment.

  4. Thus, in accordance with the provision of subparagraph c) of no. 1 of article 11 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the arbitral tribunal was constituted on 09.10.2014.

  5. The senior official of the Tax and Customs Authority (hereinafter referred to as the "Respondent" or "TCA") was notified to, if it so wished, submit a reply within 30 days and request additional evidence production, a reply being submitted on 17.11.2014, subscribed by counsel Ms. …. and … on behalf and in representation of the Respondent, no administrative file having been submitted.

  6. In light of the TCA's Reply, the tribunal, by order of 18.02.2015, decided, which was not contested by the parties, that the meeting referred to in article 18 of the LRTA is dispensed with, as well as oral and written submissions, with the legal period for pronouncing the decision being extended twice until 9 June 2015.

The Request for Arbitral Pronouncement

  1. In summary, the grounds presented by the Claimant are as follows.

  2. The Claimant is the owner of the urban property under the regime of vertical property ownership located at Rua …, no. …, … Lisbon, registered in the urban property matrix in the year 1955, under article no. …, of the current parish of ..., former article …, of the same parish (as better shown in the property notebook).

  3. On 17.07.2013, His Excellency the Director-General of the Directorate-General of Taxes promoted thirteen stamp duty assessments for the year 2012, which determined a total amount of tax to be paid of € 10,668.60 (ten thousand six hundred and sixty-eight euros and sixty cents), and on 28.10.2013, the now claimant, in the capacity of head of the estate, was notified by the Tax Administration to proceed with its payment by the end of November 2013.

  4. The aforementioned tax acts of assessment, subject of the present request for arbitral pronouncement, consist of the following documents: 2013 …, in the amount of € 861.90; 2013 …, in the amount of € 861.90; 2013 …, in the amount of € 861.90; 2013 …, in the amount of € 861.90; 2013 …, in the amount of € 861.90; 2013 …, in the amount of € 861.90; 2013 …, in the amount of € 861.90; 2013 …, in the amount of € 861.90; 2013 …, in the amount of € 861.90; 2013 …, in the amount of € 861.90; 2013 …, in the amount of € 610.80; 2013 …, in the amount of € 861.90 and 2013 …, in the amount of € 576.90 and are hereby reproduced for all legal purposes.

  5. The aforementioned stamp duty assessments concerned the taxable property values of thirteen floors with independent use: Ground Floor D, Ground Floor E, 1st Floor D, 1st Floor E, 2nd Floor D, 2nd Floor E, 3rd Floor D, 3rd Floor E, 4th Floor D, 4th Floor E, 5th Floor D, 5th Floor E, and CV126.

  6. With reference to the stamp duty assessment, the taxable property value of each of the thirteen fractions allocated to housing, determined separately, insofar as they constitute economically independent parts, is between € 57,690.00 and € 86,190.00 (doc. no. 14).

  7. Also with reference to the stamp duty assessment, the sum of the taxable property values of all fractions comprising the aforementioned property under vertical ownership and intended for housing, totals the amount of € 1,066,860.00 (doc. no. 14).

  8. The aforementioned assessments were subject to voluntary payment, as is better shown in the table with the list of payments made, and the copy of the bank account extract where these payments are mentioned.

  9. On 18.02.2014, the Claimant filed an administrative claim against the aforementioned stamp duty assessments, which was delivered to the competent local peripheral body, the Lisbon Financial Services Office – ….

  10. Until the date of 8 August 2014, after four months fixed by law for the conclusion of the procedure, the claimant was not notified of any decision issued in the context of the aforementioned administrative claim procedure, nor, moreover, had knowledge that any decision had, possibly, been issued.

  11. In the understanding of the Claimant, these 13 tax acts of stamp duty assessment (item 28.1 of the GTSTI), are illegal due to error in their factual and legal assumptions, in that none of the floors or independent divisions of this property of the Claimant that the TCA taxed under stamp duty, Item 28.1 GTIS, has a TPV exceeding € 1,000,000.00 (one million euros) if individually considered.

  12. For the Tax Administration, a distinction must be made between urban properties under horizontal property ownership and urban properties under vertical property ownership, available on the Finance Portal, at http://info.portaldasfinancas.gov.pt/NR/rdonlyres/C50E0100-CA10-4FDF-A9F0-C7578F4F614D/0/IVE_4599-226_2013.pdf.

  13. In urban properties under horizontal property ownership, each fraction is considered individually for purposes of the incidence of this item, whereas in properties under vertical ownership, for the TCA, the aggregate applies.

  14. However, this interpretation of the Tax Administration only occurs under item 28.1 of the GTIS, since, for purposes of IMI, IRC, IRS, fractions are treated separately, whether or not the property is constituted as horizontal property ownership.

  15. Contrary to the understanding of the TCA, in the taxation of properties there is no distinction based on the type of property – vertical or horizontal – but only based on use – housing, commerce, services or other – and tax treatment is always carried out fraction by fraction, with or without autonomous nature.

  16. The Claimant enumerates the legal provisions that support and outline the applicability of the incidence rule provided in item 28.1 of the Stamp Duty Code, to conclude that, for the tax legislator, the situation of property under vertical or horizontal ownership was not relevant, as no reference or distinction is made between them in the rules of the Municipal Property Tax Code, applicable by reference from the Stamp Duty Code, namely no. 7 of article 23 of the Stamp Duty Code.

  17. Considering that the registration in the matrix of properties under vertical ownership, consisting of different floors with independent use, in accordance with the CIMI, follows the same registration rules as properties constituted under horizontal property ownership, and the respective IMI, as well as the stamp duty, is levied 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.

  18. That is, in the case of the property owned by the Claimant, item 28.1 of the GTIS would only be incidental if one of the parts, floors or divisions with independent use presented a TPV exceeding € 1,000,000.00 (one million euros).

  19. The TCA cannot consider as the reference value for the incidence of the new item 28 of the GTIS the total value of 13 of the floors of the urban property in question, when the legislator itself established a different rule under the CIMI, and this is the Code applicable to matters not regulated regarding Item no. 28.1 of the GTIS.

  20. The criterion sought by the TCA, of considering the value of the sum of the TPV assigned to the parts, floors or divisions with independent use, with the argument that the property is not constituted under horizontal property ownership, finds no legal support and is contrary to the criterion applicable under the CIMI and, by reference, under stamp duty.

  21. It is, therefore, the understanding of the Claimant that, in situations such as the present one, by nature item 28.1 of the GTIS is inapplicable, because defending the application of this rule to properties under vertical ownership, consisting of fractions whose global property value equals or exceeds one million euros, violates the principles of equality, the prevalence of material truth over legal-formal reality and tax capacity.

  22. Moreover, and as the Tax Administration itself has recognized, what is relevant for purposes of registration in the property matrix is the autonomy that can be attributed within the same property to each of its parts, economically and functionally independent, and the constitution of horizontal property ownership implies merely a legal alteration of the property, not even requiring a new valuation (see arbitral decision no. 50/2013).

  23. This is so that, in accordance with the provisions of no. 3 of article 12 of the CIMI, "each floor or part of property capable of independent use is considered separately in matrix registration, which also discriminates its respective taxable property value" (underlined and bold ours).

  24. Indeed, it is, once again, the Tax Authority itself that admits that this is the legal criterion, which is why the respective issued assessments are very clear in their essential elements, from which it follows that the value of incidence corresponds to the taxable property value of each floor with independent use, and moreover those assessments are individualized – one assessment act on each of the floors comprising the aforementioned urban property.

  25. Therefore, if the legal criterion imposes the issuance of individualized assessments for the autonomous parts of properties under vertical ownership, in the same manner as it establishes for properties under horizontal ownership, it clearly established the criterion, which must be unique and unequivocal, for defining the rule of incidence of the new tax.

  26. Furthermore, the legislator, in introducing this legislative innovation, clearly sought to tax "luxury residences", with taxable property value equal to or exceeding € 1,000,000.00, on which a special rate of stamp duty was to be levied, intending to introduce a principle of taxation on wealth externalized in the ownership of luxury properties with housing allocation.

  27. Clearly, the legislator understood that this value, when attributed to housing (house, autonomous fraction or floor with independent use) reflects above-average tax capacity and, as such, likely to determine a special contribution to ensure fair distribution of the tax burden.

  28. This is not the case of the property in question, where all floors have a value much lower than the one million euro limit.

  29. On the other hand, the tax legislator cannot treat equal situations differently.

  30. Indeed, if the property were constituted under horizontal property ownership, none of its housing fractions would be subject to the incidence of the new tax.

  31. Material truth is what prevails as the determining criterion for tax capacity and not the mere legal-formal reality of the property.

  32. Consequently, the discrimination operated by the TCA represents an arbitrary and illegal discrimination; nothing in the law requires, moreover, the constitution of horizontal property ownership.

  33. The Claimant concludes by requesting that the tribunal declare the illegality of the stamp duty assessment acts, subject of the present request for arbitral pronouncement, for violating the incidence rule provided in item no. 28 of the GTIS, articles 13, 18, 81 subparagraph b), 103 and 104 of the Constitution, as well as article 60, no. 1, subparagraph a) of the GTL, and furthermore declare the illegality of the tacit dismissal of the administrative claim filed, and thus those tax acts should be annulled, with all subsequent legal consequences, such as the Tax Administration proceeding with the reimbursement of the amounts paid unduly under the aforementioned assessments, in the amount of € 10,668.60 (ten thousand six hundred and sixty-eight euros and sixty cents), and furthermore be condemned to pay, in accordance with the provisions of articles 43, nos. 1 and 2, and 100 of the General Tax Law and article 24, no. 5 of the LRTA, compensatory interest until the end of the voluntary execution period of the judgment, and default interest from that moment until effective and complete payment.

Reply of the Tax and Customs Authority

  1. The Tax and Customs Authority (or Respondent) filed a reply maintaining the impugned assessments based, briefly, on the following arguments.

  2. The TCA alleges that the claimant is a co-owner of a property under the regime of full or vertical property ownership.

  3. From the notion of property in article 2 of the CIMI, only autonomous fractions of property under horizontal property ownership are deemed to be properties – no. 4 of the cited article 2 of the CIMI. Therefore,

  4. Being the property of which it is owner under the regime of full property ownership, it does not possess autonomous fractions, to which tax law attributes the qualification of property.

  5. Thus the claimant, for purposes of IMI and also of stamp duty, by virtue of the wording of the aforementioned item, is not the owner of 13 autonomous fractions, but rather of a single property.

  6. As is well known, horizontal property ownership is a specific legal regime of property provided for in article 1414 and following of the Civil Code, whose method of constitution is provided therein, as well as the other rules on real rights.

  7. Now, to claim that the interpreter and applier of tax law apply, by analogy, to the regime of full property ownership, the regime of horizontal property ownership is what is abusive and illegal.

  8. These two regimes of property ownership are regimes of civil law, which were imported into tax law, namely in the terms referred to by article 2 of the CIMI.

  9. And the interpreter of tax law cannot equate these regimes, in accordance with the rule according to which the concepts of other branches of law have the meaning in tax law that is given to them in those branches of law, or in the words of article 11, no. 2 of the GTL, on the interpretation of tax law: "Whenever, in tax rules, terms proper to other branches of law are used, they must be interpreted in the same sense that they have there, unless otherwise directly results from the law."

  10. Being the property submitted to the regime of full ownership, but being physically constituted by parts capable of independent use, tax law attributes relevance to this materiality, evaluating these parts individually, in accordance with article 12 and consequently, in accordance with article 12, no. 3, of the C.I.M.I., each floor of property capable of independent use is considered separately in matrix registration, but in the same matrix, proceeding with the assessment of IMI taking into account the taxable property value of each part.

  11. Such legal rule is relevant, thus, for purposes of registration in the property matrix, the autonomy that, within the same property, can be attributed to each of its parts, economically and functionally independent.

  12. Such property does not cease, by the fact of being one only, not being, thus, its distinct parts legally equated to autonomous fractions under horizontal property ownership.

  13. The fact that IMI has been calculated based on the taxable property value of each part of property with independent economic use does not equally affect the application of item 28, no. 1, of the General Table.

  14. It is, thus, unconstitutional, for being offensive to the principle of tax legality, the interpretation of item 28.1 of the General Table, in the sense that the taxable property value on which its incidence depends is to be calculated globally and not floor by floor or division by division.

  15. It is not apparent how, on the other hand, the taxation in question could have violated the principle of equality referred to by the claimant.

  16. The legislator can submit to a distinct tax legal framework, hence discriminatory, properties in horizontal and vertical ownership regimes, in particular, benefiting the legally more evolved institute of horizontal property ownership, without such discrimination needing to be considered necessarily arbitrary.

  17. Finally, it should be noted that the matrix registration of each part capable of independent use is not autonomous, per matrix, but consists of a matrix description of the property in its entirety – see the property notebook of this property which represents the document of the owner containing the matrix elements of the property.

  18. The taxable fact of stamp duty of item 28.1 consisting of the ownership of urban properties whose taxable property value recorded in the matrix, in accordance with the C.I.M.I., is equal to or exceeding € 1,000,000.00, the taxable property value relevant for purposes of the incidence of the tax is, thus, the total taxable property value of the urban property and not the taxable property value of each of the parts that comprise it, even when capable of independent use.

  19. Therefore, the Respondent concludes that the assessments are correct and should be upheld and the request for pronouncement should be judged unfounded, absolving the Respondent entity from the claim.

Object of the Claim

  1. The question that the Claimant seeks to have decided is:

· Legality of the assessment of Stamp Duty provided for in item 28.1 of the GTIS (added by article 4 of Law no. 55-A/2012, of 29 October) concerning the global taxable property value of a building, corresponding to the sum of the taxable property values of various floors or divisions capable of independent use.

Preliminary Matters

  1. The arbitral tribunal is materially competent, in accordance with the provisions of articles 2, no. 1, subparagraph a) of the Legal Regime of Tax Arbitration.

  2. The parties have legal personality and capacity and have legitimacy in accordance with article 4 and no. 2 of article 10 of the Legal Regime of Tax Arbitration (LRTA), and article 1 of Ordinance no. 112-A/2011, of 22 March.

  3. The process is not affected by any nullity nor have the parties raised any exceptions that prevent the examination of the merits of the case, so the conditions are met for the pronouncement of the arbitral decision.

II. REASONING

Established Facts

Based on the documents submitted by the Claimant (request for arbitral pronouncement, Doc. nos. 1 to 18 attached to that Request and attached documents; Reply of the T.A.); non-contestation of the facts alleged by the Claimant by the TCA itself, the following facts are established:

  1. The Claimant is the owner of the urban property under the regime of vertical property ownership located at Rua …, no. …, … Lisbon, registered in the urban property matrix in the year 1955, under article no. …, of the current parish of ..., former article …, of the same parish (as is better shown in the property notebook, attached to the process as document 14).

  2. On 17.07.2013, the TCA promoted thirteen stamp duty assessments for the year 2012, which determined a total amount of tax to be paid of € 10,668.60 (ten thousand six hundred and sixty-eight euros and sixty cents), and on 28.10.2013, the now Claimant, in the capacity of head of the estate, was notified by the Tax Administration to proceed with its payment by the end of November 2013.

  3. The aforementioned tax acts of assessment, subject of the present request for arbitral pronouncement, consist of the following documents: 2013 …, 2013 …, 2013 …, 2013 …, 2013 …, 2013 …, 2013 …, 2013 …, 2013 …, 2013 …, 2013 …, 2013 …, 2013 …, which were attached as docs. nos. 1 to 13, and are hereby reproduced for all legal purposes.

  4. The aforementioned stamp duty assessments concerned the taxable property values of thirteen floors with independent use: Ground Floor D, Ground Floor E, 1st Floor D, 1st Floor E, 2nd Floor D, 2nd Floor E, 3rd Floor D, 3rd Floor E, 4th Floor D, 4th Floor E, 5th Floor D, 5th Floor E, and CV126.

  5. Also with reference to the stamp duty assessment, the sum of the taxable property values of all fractions comprising the aforementioned property under vertical ownership and intended for housing, totals the amount of € 1,066,860.00 with reference to the year 2012 (doc. no. 14).

  6. The aforementioned assessments were subject to voluntary payment, as is better shown in the table with the list of payments made, and the copy of the bank account extract where these payments are mentioned, which are attached as docs. nos. 15 and 16, respectively, and are hereby reproduced for all legal purposes.

  7. On 18.02.2014, the Claimant filed an administrative claim against the aforementioned stamp duty assessments, which was delivered to the competent local peripheral body, the Lisbon Financial Services Office – …, all as is better shown in the registration receipt, and copy of the aforementioned administrative claim, which are now attached as docs. nos. 17 and 18, respectively, and are hereby reproduced for all legal purposes, without prejudice.

  8. Until the date of 8 August 2014, after four months fixed by law for the conclusion of the procedure, the now Claimant was not notified of any decision issued in the context of the aforementioned administrative claim procedure, nor, moreover, had knowledge that any decision had, possibly, been issued.

  9. Facts Not Proven

The facts not proven are considered irrelevant for the examination of the merits of the case.

The Applicable Law

The Scope of Item 28 of the General Table of Stamp Duty

  1. It results from the positions of the Parties that the essential question in the present case is whether in the case of properties under full ownership, with floors or divisions of independent use but not constituted under horizontal property ownership, the TPV to be considered for purposes of incidence of Stamp Duty provided for in item 28.1 of the GTIS should correspond to the TPV of each floor or division with housing allocation and independent use or to the sum of the TPV corresponding to the floors or divisions of independent use with housing allocation. That is, whether the TPV relevant as a criterion for tax incidence is the corresponding to the sum of the taxable property values attributed to the different parts or floors (global TPV) or, rather, the TPV attributed to each of the parts or housing floors.

  2. This question has already been examined in several cases within the scope of Tax Arbitration[1], with no arguments being identified so far that would break the unanimity achieved in the decisions issued.

  3. Beginning by making reference to the relevant legal provisions in the tribunal's decision-making.

  4. Item 28 of the General Table of Stamp Duty, appended to the Stamp Duty Code (CIS), was added by article 4 of Law no. 55-A/2012, of 29 October, with the following content:

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

28-1 – Per property with housing allocation – 1%;

28.2 – Per property, when the taxpayers who are not natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime, listed in the ordinance approved by the Ministry of Finance – 7.5%."

  1. According to the amendments to the Stamp Duty Code introduced by article 3 of Law no. 55-A/2012, of 29/10, the stamp duty provided for in item 28 of the GTIS is incidental to a legal situation (no. 1 of article 1 and no. 4 of article 2 of the CIS), in which the respective taxpayers are those referred to in article 8 of the CIMI (no. 4 of article 2 of the CIS), to whom the burden of the tax falls (subparagraph u) of no. 3 of article 3 of the CIS).

  2. The provisions of the CIS, in the wording given by Law no. 55-A/2012, both in article 4, no. 6 ("In the situations provided for in item 28 of the General Table, the tax is due whenever the properties are situated in Portuguese territory") and in article 23, no. 7 ("In the case of tax due by the situations provided for in item no. 28 of the General Table, the tax is levied annually, in relation to each urban property, by the central services of the Tax and Customs Authority, with the necessary adaptations, the rules contained in the CIMI being applied"), read together with article 1 of the CIMI, consider the property itself as the taxable fact (the situation that triggers taxation) provided that it reaches the value provided for in item 28 of the General Table of Stamp Duty, regardless of the number of taxpayers, possessors (as owners, usufructuaries or superficiary holders) of the assets in question[2].

  3. As to the rates, subparagraph f) of no. 1 of the same article 6 of Law no. 55-A/2012 provides for the application in 2012 of a rate lower than the rate of 1%, provided for in item 28.1 of the GTIS for properties with housing allocation, distinguishing further between cases of properties valued in accordance with the Municipal Property Tax Code (rate of 0.5%) and properties with housing allocation not yet valued in accordance with the Municipal Property Tax Code (rate of 0.8%).

  4. From 2013 onwards the normally applicable rate is 1%.

The Concept of Property Used in Item 28 of the GTIS

  1. The concept of "properties with housing allocation" used in item 28.1[3] is not expressly defined in any provision of the CIS or in the CIMI, the regulation to which no. 2 of article 67 of the CIS refers.

  2. In the case of the present matter, whether one takes into account the property of the Claimant under vertical property ownership or each of its respective autonomous divisions, it is (not contested) a property classified as urban and residential, at least partially, in accordance with the criteria established in articles 2, 4 and 6 of the Municipal Property Tax Code, applicable by reference from article 67 of the CIS.

  3. Thus, the question is solely regarding the exact meaning of the application of the "taxable property value considered for purposes of IMI", contained in the incidence rule of stamp duty in the body of item 28: in the case of properties under full property ownership but with floors or divisions capable of independent use, the TPV relevant corresponds to the sum of the TPV of the various divisions/floors, as the TCA claims, or is it necessary to take into account the TPV of each of the respective autonomous floors or divisions, as the Claimant argues?

  4. Now this provision is integrated in a text that defines as the object of incidence of stamp duty the "Ownership, usufruct or right of superficies of urban properties whose taxable property value recorded in the matrix, in accordance with the Municipal Property Tax Code (CIMI), is equal to or exceeding € 1,000,000 – on the taxable property value for purposes of IMI" (bold ours).

  5. As has been repeatedly invoked and acknowledged, the Municipal Property Tax Code enshrines, both as to matrix registration and discrimination of the respective taxable property value, and as to tax assessment, the autonomization of parts of urban property capable of independent use and the segregation/individualization of the TPV relating to each floor or part of property capable of independent use.

  6. Thus, each property corresponds to a single article in the matrix (no. 2 of article 80 of the CIMI) but, according to no. 3 of article 12 of the same Code, relating to the concept of property matrix (registration of property, its characterization, location, TPV and ownership), "each floor or part of property capable of independent use is considered separately in matrix registration, which discriminates its respective taxable property value", not taking as reference the sum of the property values attributed to the autonomous parts of a single property, but the value attributed to each of them individually considered.

  7. As to the assessment of IMI – application of the rate to the tax base – article 119, no. 1 provides that "the competent collection document" contains the "discrimination of properties, their parts capable of independent use, their respective taxable property value and the tax collected (…)".

  8. That is, the rule is the autonomization, the characterization as "property" of each part of a building, provided that it is functionally and economically independent, capable of independent use[4], in accordance with the concept of property defined right in no. 1 of article 2 of the CIMI: property is any fraction (of land, encompassing waters, plantations, buildings and constructions of any nature incorporated therein or built thereon, with a character of permanence) provided that it forms part of the assets of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, under the above circumstances, endowed with economic autonomy (presentation and underlined ours)[5].

  9. Thus, when no. 4 of article 2 provides that "For purposes of this tax, each autonomous fraction, under horizontal property ownership, is deemed to constitute a property", it does not establish properly an exceptional or special regime for properties under horizontal property ownership.

  10. Each building under horizontal property ownership (article 92) has only one single matrix registration (no. 1), the building being generically described and mentioning the fact that it is under horizontal property ownership (no. 2) and the matrix autonomy is concretized in the attribution to each of the autonomous fractions, described in detail and individualized, of a capital letter, according to alphabetical order (no. 3). This appears to be the specificity of buildings under horizontal property ownership; in other cases, of properties under vertical or full ownership, divisions or floors with autonomy but without the status of horizontal property ownership, the matrix also enshrines autonomy but evidencing the units with indication of the type of floor/story.

  11. On the other hand, the argument that "taxation under Stamp Duty obeys the criterion of adequacy, aiming at the taxation of wealth embodied in the ownership of high-value real property, arising in a context of economic crisis that cannot be ignored at all", is not acceptable, because the distinct treatment of properties in horizontal and vertical ownership regimes is neither justified as "a discrimination imposed by the need to impose coherence on the tax system" (what coherence?) nor can it escape the qualification of arbitrary in treating in different ways realities that are largely identical, and, if they are different, with risk even of treating more gravely situations generally related to lesser tax capacity than those that would have more beneficial treatment.

  12. Nor is the argument of the Respondent persuasive that in the case of properties under full property ownership, even though with floors or divisions capable of independent use, although IMI is assessed in relation to each part capable of independent use, the taxable property value on which the incidence of the Stamp Duty of item no. 28.1 of the General Table depends had to be, as it was, the global taxable property value of the properties, and not that of each of its floors or independent parts, because item no. 28.1 of the GTIS is applied according to the rules of the CIMI but "with reservation of aspects that require the necessary adaptations". (underlined ours).

  13. Therefore, no reason is apparent in the law approved for, in matters of incidence of the Stamp Duty provided for in item 28.1 of the GTIS, giving to fractions of properties in "vertical property ownership", endowed with autonomy, treatment different from that granted to properties in horizontal property ownership, when in any of those situations IMI is applied to the taxable property value evidenced in the matrix for each of the autonomous units.

  14. The interpretation sustained above, resulting from the analysis of the letter of the law and its placement in the set of other applicable tax rules, is the most consonant with the spirit of the legislative amendments introduced by Law no. 55-A/2012, of 29 October.

  15. As has already been evidenced in other arbitral decisions, "the legislator in introducing this legislative innovation considered as the determining element of tax capacity urban properties, with housing allocation, of high value (luxury), more rigorously, of value equal to or exceeding €1,000,000.00 on which a special rate of stamp duty was to be levied, intending to introduce a principle of taxation on wealth externalized in the ownership, usufruct or right of superficies of urban properties of luxury with housing allocation. Therefore, the criterion was the application of the new rate to urban properties with housing allocation, whose TPV is equal to or exceeding €1,000,000.00". (...) "The justification for the measure termed "special tax on the highest-value residential urban properties" is based on the invocation of the principles of social equity and tax justice, calling to contribute in a more intense way the holders of high-value properties intended for housing, imposing the new special rate on the "houses of value equal to or exceeding 1 million euros. Clearly the legislator understood that this value, when attributed to housing (house, autonomous fraction or floor with independent use) reflects above-average tax capacity and, as such, likely to determine a special contribution to ensure fair distribution of the tax burden." [6]

  16. Now, it appears to lack entirely adhesion to reality the sustaining of the thesis that the holding of fractions devoid of the status of horizontal property ownership denotes greater tax capacity than if they were endowed with such nature.

  17. Conversely, in the majority of cases, as evidenced by Arbitral Decision no. 50/2013, "many of the existing properties under vertical property ownership are old, with undeniable social utility, as in many cases they house residents with modest and more affordable rents, factors that necessarily must be taken into account."

  18. Thus, it is considered correct the interpretation that item 28 of the GTIS does not encompass each of the floors, divisions or parts capable of independent use when only from the respective sum results a TPV greater than that provided in the same item.

  19. As decided in other arbitral cases, this tribunal understands that concerning the date of constitution of the tax obligation, tax connection, determination of the tax base, assessment and payment of the stamp duty in question, the corresponding rules of the CIMI are applicable, by express reference of articles 5, no. 1, subparagraph u), 4, no. 6, 23, no. 7, 44, no. 5, 46, no. 5 and 49, no. 3, of the CIS.

  20. To subject to the new stamp duty autonomous parts without the legal status of horizontal property ownership or that is, as long as vertical property ownership is maintained and not to subject any of the residential fractions if the property were under the regime of horizontal property ownership would constitute a violation of the constitutional principle of equality, treating equal situations differently.

  21. In the case of the present matter, verifying that none of the "fractions" of any of the buildings in question presents, per se, "value equal to or exceeding 1 million euros", there is no place for incidence of item 28 provided in the General Table of Stamp Duty.

Compensatory Interest

  1. Along with the annulment of the assessments and reimbursement of the amounts of tax unduly paid, the Claimant further requested that compensatory interest be levied on it, under the provisions of article 43 of the GTL.

  2. In accordance with the provisions of subparagraph b) of article 24 of the LRTA, the arbitral decision on the merits of the claim that is not subject to appeal or challenge binds the tax administration from the end of the period provided for appeal or challenge, and the latter must, in the exact terms of the pronouncement of the arbitral decision in favor of the taxpayer and until the end of the period provided for voluntary execution of the sentences of the tax courts, "restore the situation that would exist if the tax act subject of the arbitral decision had not been performed, adopting the acts and operations necessary for that purpose".

  3. This is compatible with the provision of article 100 of the GTL [applicable by virtue of the provision of subparagraph a) of no. 1 of article 29 of the LRTA] which establishes that "the tax administration is obliged, in case of total or partial merit of an administrative claim, judicial challenge or appeal in favor of the taxpayer, to the immediate and full restoration of the legality of the act or situation subject of the dispute, comprising the payment of compensatory interest, if applicable, from the end of the period of execution of the decision".

  4. It is the understanding of the tribunal, followed by arbitral case law, that arbitral tribunals functioning in the CAAD integrate within the scope of their competence the powers that in judicial challenge proceedings are attributed to the tax courts.

  5. The judicial challenge proceeding, although essentially a proceeding for annulment of tax acts, allows the condemnation of the Tax Administration in the payment of compensatory interest, as can be understood from article 43, no. 1, of the GTL, in which it is established that "compensatory interest is owed when it is determined, in an administrative claim or judicial challenge, that there was an error imputable to the services resulting in payment of the tax debt in an amount exceeding that legally due".

  6. Thus, no. 5 of article 24 of the LRTA in saying that "payment of interest, regardless of its nature, is owed in the terms provided in the general tax law and in the Tax Procedure and Process Code" should be understood as allowing the recognition of the right to compensatory interest in the arbitral proceeding.

  7. In the present case, and in the logical course of the recognition, by the tribunal, of the illegality of the stamp duty assessments subject of the initial petition, there will be place for reimbursement of the tax, by force of the aforementioned articles 24, no. 1, subparagraph b), of the LRTA and 100 of the GTL, as this is essential to "restore the situation that would exist if the tax act subject of the arbitral decision had not been performed".

  8. Being the illegality of the tax acts of stamp duty assessment imputable to the Tax and Customs Authority, which, on its own initiative, performed them, in manifest breach of violation of substantive law, embodied in error as to the legal assumptions.

  9. Consequently, the Claimant is entitled to compensatory interest, in accordance with article 43, no. 1, of the GTL and article 61 of the TPPC, calculated on the amounts it paid unduly.

  10. Thus, the Tax and Customs Authority must execute the present decision, in accordance with article 24, no. 1, of the LRTA, determining the amount to be reimbursed to the claimant and calculating the respective compensatory interest, at the legal default rate for civil debts, in accordance with articles 35, no. 10, and 43, nos. 1 and 5, of the GTL, 61 of the TPPC, 559 of the Civil Code and Ordinance no. 291/2003, of 8 April (or regulation or regulations that succeed it).

  11. Compensatory interest is owed from the dates of the payments and on the respective amounts until the date of processing of the credit note in which they are included (article 61, no. 5, of the TPPC).

Conclusion

Thus, the present arbitral tribunal concludes that the assessments of Stamp Duty, based on item 28/28.1 of the GTIS, concerning each of the floors or parts capable of independent use, property of the Claimant, subject of the present case, are affected by illegality, because the aforementioned provisions cannot be interpreted in the sense of their application to floors or parts capable of independent use of a property under vertical property ownership, when only from the sum of each of those floors or parts is a TPV equal to or exceeding € 1,000,000.00 (one million euros) obtained, not exceeding the TPV of each of the aforementioned floors or parts that legal threshold.

And, as results from the established facts, none of the "fractions" of any of the buildings in question presents, for purposes of housing, of the property under vertical ownership, subject of this proceeding, taxable property value equal to or exceeding €1,000,000.00, it is concluded that the legal assumption for the incidence of the Stamp Duty provided for in Item 28 of the GTIS is not met.

Decision

In accordance with and on the grounds set out, the arbitral tribunal decides to judge the request for arbitral pronouncement well-founded with the consequent annulment of the impugned assessments, with all legal consequences.

Value of the Case

In accordance with the provisions of no. 2 of article 315 of the CPC, subparagraph a) of no. 1 of article 97-A of the TPPC and also no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Cases, the value of the case is fixed at € 10,668.60 (ten thousand six hundred and sixty-eight euros and sixty cents).

Costs

For the purposes of the provisions of no. 2 of article 12 and no. 4 of article 22 of the LRTA and no. 4 of article 4 of the Regulation of Costs in Tax Arbitration Cases, the amount of costs is fixed at € 918.00 (nine hundred and eighteen euros) in accordance with Table I appended to the aforementioned Regulation, to be borne entirely by the Respondent.

Let it be notified.

Lisbon, 9 June 2015

The Arbitrator

(Ana Teixeira de Sousa)

[Text prepared by computer, in accordance with article 131, no. 5 of the Code of Civil Procedure (CPC), applicable by reference of article 29, no. 1, subparagraph e) of the Tax Arbitration Regime. The drafting of the present decision follows the former spelling.]

[1] Regarding the application of item 28 of the GTIS in the case of properties under vertical property ownership, decisions are already published on the CAAD website, namely in Cases 50/2013-T; 132/2013-T; 181/2013-T; 183/2013-T; 185/2013-T; 248/2013-T; 240/2013-T; 280/2013-T, available at www.caad.org.pt.

[2] The provisions of Law no. 55-A/2012, of 29 October, regarding the new item 28 of the General Table of Stamp Duty, entered into force on the day following the publication of the law, that is, 30 October 2012. Article 6 of Law no. 55-A/2012 provides for transitional provisions by virtue of which, in that first year of validity, that is, 2012: the taxable fact occurs on 31 October (when, in accordance with article 8 of the CIMI, applicable by reference of no. 4 of article 2 of the CIS, it would be on 31 December); the taxpayer of the tax is the holder of the property (no. 4 of article 2 of the CIS) also on that 31 October; the taxable property value to be used in the assessment of the tax corresponds to what results from the rules provided for in the CIMI by reference to the year 2011; the assessment of the tax by the TCA is carried out by the end of November 2012; the tax is to be paid in a single installment by the taxpayers by 20 December of that year 2012.

[3] The wording of this no. was amended by Law no. 83-C/2013, of 31 December, now using the concept "residential property", but the assessments subject of the present case refer to the year 2012.

[4] On this aspect, and in line with the commentary cited in the previous note, see the reasoning contained in decision no. 248/2013-T: "The autonomization in the matrix of the parts functionally and economically independent of a property under full ownership relates to reasons of a fiscal and extra-fiscal nature. On the fiscal plane, this autonomization relates to the very determination of the taxable property value, which constitutes the tax base of IMI, given that the formula for determining that value, provided for in article 38 of the same Code, contains indexes that vary according to the use attributed to each of these parts. On the extra-fiscal plane, this autonomization continues to find justification in the relevance attributed to the taxable property value of properties and their autonomous parts in urban rental legislation." It is also mentioned therein no. 1 of article 15-O of Decree-Law no. 287/2003, of 12/11, added by Law no. 60-A/2011, of 30/11 (providing that the safeguard clause relating to the aggravation of taxation in IMI resulting from the general valuation of urban properties is applicable per property or part of urban property that is subject of the aforementioned valuation) as confirming the individualization, for tax purposes, of autonomous parts of urban properties.

[5] As observed in Case 132/2013: "The rules (...) listed enshrine the principle of autonomization of independent parts of an urban property, even when not constituted under horizontal property ownership. That is, each part capable of independent use must be, for IMI purposes, valued in light of its specificities and use, resulting in an autonomous TPV, individualizable and corresponding to each part capable of independent use."

[6] Excerpts from the Decision in case no. 50/2014-T, also referring to Arbitral Decision in case no. 48/2013-T, regarding the analysis of the Discussion of the legislative proposal in the Parliament.

Frequently Asked Questions

Automatically Created

What is the scope of Verba 28.1 of the Tabela Geral do Imposto de Selo regarding vertical property (propriedade vertical)?
Verba 28.1 of the Tabela Geral do Imposto de Selo (TGIS) imposes stamp tax on urban property rights intended for housing with taxable property value (VPT) exceeding €1,000,000. The key interpretative dispute regarding vertical property (propriedade vertical) concerns whether this threshold applies to individual autonomous fractions or the aggregate value of all fractions comprising the building. The Tax Authority's position distinguishes vertical from horizontal property ownership, requiring aggregation for vertical properties, while taxpayers argue that each economically independent fraction should be assessed separately, consistent with treatment under other property taxes (IMI, IRC, IRS) where fractions are evaluated individually regardless of the property constitution regime.
Can Stamp Tax (Imposto de Selo) be levied on individual units within a vertical property building under Verba 28.1 TGIS?
According to the Tax Authority's interpretation contested in this case, Stamp Tax under Verba 28.1 TGIS can be levied on individual units within a vertical property building when the aggregate value of all fractions exceeds €1,000,000, even if individual units fall below this threshold. The Authority assesses each fraction separately but applies the threshold test to the total property value. The claimant challenged this approach, arguing it creates discriminatory treatment compared to horizontal property regimes and lacks basis in the legal text of Item 28.1 TGIS, which makes no distinction based on property constitution type. The claimant maintains that taxation should occur fraction-by-fraction based on individual values, with the tax only applying to fractions individually exceeding the €1,000,000 threshold.
How does the CAAD handle challenges to Stamp Tax assessments filed through gracious complaint (reclamação graciosa) with deemed refusal?
The CAAD (Centro de Arbitragem Administrativa) handles challenges to Stamp Tax assessments filed through gracious complaint (reclamação graciosa) with deemed refusal (indeferimento tácito presuntivo) under Articles 57(1) and (5) of the General Tax Law and Article 106 of the Tax Procedure and Process Code (CPPT). When the Tax Authority fails to decide an administrative complaint within the legal four-month period, deemed refusal forms automatically, enabling taxpayers to seek arbitration under Article 10(1)(a) of the Legal Regime of Tax Arbitration (RJAT). The tribunal constitutes following arbitrator appointment by the Ethics Council, with the Tax Authority notified to submit a reply within 30 days. The proceedings may dispense with hearings if parties agree, and decisions must be issued within the statutory period, which may be extended.
What are the grounds for claiming unconstitutionality in the interpretation of Verba 28.1 TGIS applied to inherited property?
Grounds for claiming unconstitutionality in the interpretation of Verba 28.1 TGIS applied to inherited property include violation of equality principles by creating discriminatory treatment between vertical and horizontal property regimes without reasonable justification. The claimant argued that the normative interpretation underlying the assessments is unconstitutional because it applies different taxation criteria based solely on property constitution type (vertical vs. horizontal), while all other property-related taxes treat fractions uniformly as independent taxable units regardless of constitution regime. The interpretation allegedly violates constitutional principles by imposing heavier tax burdens on vertical property owners without rational basis, particularly when individual fractions constitute economically independent units. Additional grounds include error as to legal assumptions and breach of the principle of legality, as Item 28.1 TGIS contains no textual basis for distinguishing between property types.
What procedural requirements must be met when contesting Stamp Tax liquidations on inherited urban property before the CAAD?
Procedural requirements for contesting Stamp Tax liquidations on inherited urban property before CAAD include: (1) prior filing of administrative complaint (reclamação graciosa) with the competent local tax office, as required by Article 10(2)(c) of RJAT; (2) waiting for deemed refusal to form after four months without decision per Articles 57(1) and (5) LGT and Article 106 CPPT; (3) submitting the arbitration request within the statutory deadline following deemed refusal; (4) identifying the claimant's capacity (e.g., head of estate/cabeça-de-casal) with proper tax identification; (5) specifying the contested tax acts with assessment numbers and amounts; (6) articulating legal grounds under Article 99 CPPT (erroneous qualification, legal error, procedural violations); (7) payment of arbitration fees; and (8) presenting supporting documentation including property records, assessment notices, and proof of voluntary payment if made. The request must comply with Articles 2(1)(a), 3(1), and 10(1)(a) of RJAT.