Process: 619/2014-T

Date: December 12, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

Process 619/2014-T addressed a critical Stamp Tax issue concerning urban properties held in vertical ownership under items 28 and 28-1 of Portugal's General Stamp Tax Table (TGIS). The claimants challenged 45 Stamp Tax assessments totaling €5,732.15, issued in March 2014, involving cadastral units in a building under vertical ownership. The central dispute concerned whether the Tax Authority could aggregate the tax values of individual floors or divisions to determine if the €1,000,000 threshold for Stamp Tax liability was met. The claimants argued that each floor or division capable of independent use should be assessed separately, as none individually exceeded the statutory threshold. They contended that the Tax Authority's practice of summing the values violated the incidence rule, noting that each unit is subject to separate IMI (property tax) assessment. The claimants also challenged the constitutionality of treating vertical ownership differently from horizontal ownership regimes, arguing this distinction violated equality principles and created arbitrary discrimination based on ownership structure. Additionally, they raised procedural concerns regarding insufficient reasoning in the assessment notices. This case highlighted fundamental questions about how Stamp Tax applies to buildings with multiple independent units under vertical ownership, whether aggregation of values is legally supportable, and the extent to which constitutional equality principles constrain differential tax treatment of functionally similar properties under different ownership structures.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Case No. 619/2014-T

Subject Matter: Stamp Tax; items 28 and 28-1 of the General Tax Schedule (TGIS); urban property in vertical ownership

THE PARTIES

Claimants: A, in its own name and as head of the estate of B, NF … and …, respectively, domiciled at Rua …, nº … – …. … … and C, NF …, resident at Travessa … nº …, … Lisbon.

Defendant: Tax Authority and Customs Authority (AT).

REPORT

a) On 12-08-2014, A, in its own name and as head of the estate of B, NF … and …, respectively, and C, NF …, filed a request with the CAAD requesting, pursuant to the Legal Framework for Tax Arbitration (RJAT), the constitution of a singular arbitral tribunal (TAS).

b) The request is signed by counsel representing the Claimants.

THE REQUEST

c) The Claimants petition for the annulment of 45 assessments of Stamp Tax (IS) under item 28 of the TGIS, generating a total collection of 5,732.15 euros, dated 07.03.2014, relating to the following cadastral articles to which correspond floors or divisions capable of independent use of urban property under vertical ownership:

taxpayer NF … – B – head of estate

Cadastral Property Description Rule of Incidence Tax Value of Property (VPT) in € Share in Ownership Ad Valorem Rate Applied Disputed Collection in €
… Ext …-1ºD Art. 6º-1-f)-i) of Law 55A/2012 92,327.13 14/18 0.5% 359.05
… Ext …-1ºE Art. 6º-1-f)-i) of Law 55A/2012 88,778.88 14/18 0.5% 345.25
… Ext …-1ºFront Art. 6º-1-f)-i) of Law 55A/2012 48,181.50 14/18 0.5% 187.37
… Ext …-2ºD Art. 6º-1-f)-i) of Law 55A/2012 92,327.13 14/18 0.5% 359.05
… Ext …-2ºE Art. 6º-1-f)-i) of Law 55A/2012 88,778.88 14/18 0.5% 345.25
… Ext …-2º Front Art. 6º-1-f)-i) of Law 55A/2012 48,181.50 14/18 0.5% 187.37
… Ext …-3ºD Art. 6º-1-f)-i) of Law 55A/2012 92,327.13 14/18 0.5% 359.05
… Ext …-3ºE Art. 6º-1-f)-i) of Law 55A/2012 88,778.88 14/18 0.5% 345.25
… Ext …-3ºFront Art. 6º-1-f)-i) of Law 55A/2012 48,181.50 14/18 0.5% 187.37
… Ext …-4ºD Art. 6º-1-f)-i) of Law 55A/2012 92,327.13 14/18 0.5% 359.05
… Ext …-4ºE Art. 6º-1-f)-i) of Law 55A/2012 88,778.88 14/18 0.5% 345.25
… Ext …-4ºFront Art. 6º-1-f)-i) of Law 55A/2012 48,181.50 14/18 0.5% 187.37
… Ext …-5ºD Art. 6º-1-f)-i) of Law 55A/2012 92,327.13 14/18 0.5% 359.05
… Ext …-5ºE Art. 6º-1-f)-i) of Law 55A/2012 88,778.88 14/18 0.5% 345.25
… Ext …-5ºFront Art. 6º-1-f)-i) of Law 55A/2012 48,181.50 14/18 0.5% 187.37

Total…………………………………………………………………………..…….……………..….. 4,458.35 euros

taxpayer NF … – A

Cadastral Property Description Rule of Incidence Tax Value of Property (VPT) in € Share in Ownership Ad Valorem Rate Applied Disputed Collection in €
… Ext …-1ºD Art. 6º-1-f)-i) of Law 55A/2012 92,327.13 1/18 0.5% 25.65
… Ext …-1ºE Art. 6º-1-f)-i) of Law 55A/2012 88,778.88 1/18 0.5% 24.66
… Ext …-1ºFront Art. 6º-1-f)-i) of Law 55A/2012 48,181.50 1/18 0.5% 13.38
… Ext …-2ºD Art. 6º-1-f)-i) of Law 55A/2012 92,327.13 1/18 0.5% 25.65
… Ext …-2ºE Art. 6º-1-f)-i) of Law 55A/2012 88,778.88 1/18 0.5% 24.66
… Ext …-2º Front Art. 6º-1-f)-i) of Law 55A/2012 48,181.50 1/18 0.5% 13.38
… Ext …-3ºD Art. 6º-1-f)-i) of Law 55A/2012 92,327.13 1/18 0.5% 25.65
… Ext …-3ºE Art. 6º-1-f)-i) of Law 55A/2012 88,778.88 1/18 0.5% 24.66
… Ext …-3ºFront Art. 6º-1-f)-i) of Law 55A/2012 48,181.50 1/18 0.5% 13.38
… Ext …-4ºD Art. 6º-1-f)-i) of Law 55A/2012 92,327.13 1/18 0.5% 25.65
… Ext …-4ºE Art. 6º-1-f)-i) of Law 55A/2012 88,778.88 1/18 0.5% 24.66
… Ext …-4ºFront Art. 6º-1-f)-i) of Law 55A/2012 48,181.50 1/18 0.5% 13.38
… Ext …-5ºD Art. 6º-1-f)-i) of Law 55A/2012 92,327.13 1/18 0.5% 25.65
… Ext …-5ºE Art. 6º-1-f)-i) of Law 55A/2012 88,778.88 1/18 0.5% 24.66
… Ext …-5ºFront Art. 6º-1-f)-i) of Law 55A/2012 48,181.50 1/18 0.5% 13.38

Total…………………………………………………………………………….………………………………….…..…………..318.45 euros

taxpayer NF … – C

Cadastral Property Description Rule of Incidence Tax Value of Property (VPT) in € Share in Ownership Ad Valorem Rate Applied Disputed Collection in €
… Ext …-1ºD Art. 6º-1-f)-i) of Law 55A/2012 92,327.13 3/18 0.5% 76.94
… Ext …-1ºE Art. 6º-1-f)-i) of Law 55A/2012 88,778.88 3/18 0.5% 73.98
… Ext …-1ºFront Art. 6º-1-f)-i) of Law 55A/2012 48,181.50 3/18 0.5% 40.15
… Ext …-2ºD Art. 6º-1-f)-i) of Law 55A/2012 92,327.13 3/18 0.5% 76.94
… Ext …-2ºE Art. 6º-1-f)-i) of Law 55A/2012 88,778.88 3/18 0.5% 73.98
… Ext …-2º Front Art. 6º-1-f)-i) of Law 55A/2012 48,181.50 3/18 0.5% 40.15
… Ext …-3ºD Art. 6º-1-f)-i) of Law 55A/2012 92,327.13 3/18 0.5% 76.94
… Ext …-3ºE Art. 6º-1-f)-i) of Law 55A/2012 88,778.88 3/18 0.5% 73.98
… Ext …-3ºFront Art. 6º-1-f)-i) of Law 55A/2012 48,181.50 3/18 0.5% 40.15
… Ext …-4ºD Art. 6º-1-f)-i) of Law 55A/2012 92,327.13 3/18 0.5% 76.94
… Ext …-4ºE Art. 6º-1-f)-i) of Law 55A/2012 88,778.88 3/18 0.5% 73.98
… Ext …-4ºFront Art. 6º-1-f)-i) of Law 55A/2012 48,181.50 3/18 0.5% 40.15
… Ext …-5ºD Art. 6º-1-f)-i) of Law 55A/2012 92,327.13 3/18 0.5% 76.94
… Ext …-5ºE Art. 6º-1-f)-i) of Law 55A/2012 88,778.88 3/18 0.5% 73.98
… Ext …-5ºFront Art. 6º-1-f)-i) of Law 55A/2012 48,181.50 3/18 0.5% 40.15

Total ……………………………………………………………………………………………………………………………..955.35 euros

floors or divisions capable of independent use that comprise the following real property:

  • Urban property currently registered in the land registry of the Estrela parish under article …º, former article …º of the Prazeres Parish (extinct).

d) They argue, in summary, that the assessment acts are unlawful because they violate the rule of incidence of item 28.1 of the TGIS insofar as the AT added together the tax values of the floors in vertical ownership and none of them individually has a VPT equal to or greater than 1,000,000.00 euros, contending that it should be the VPT of each floor and not its sum that is relevant for tax purposes.

e) And for the reason that, as to each floor "the tax value of property (VPT) registered in the land registry does not exceed 1,000,000.00 so the rule of incidence provided for in item 28.1 of the TGIS does not apply" and "there is no legal rule that makes the VPT of a property comprising several independent fractions correspond to the sum of its respective parts, which are moreover subject to separate IMI assessment based on the respective – each fraction – VPT".

f) They further invoke the unconstitutionality of the interpretation of the rule underlying the stamp tax assessments, for violation of the principle of equality, inasmuch as "the distinction, introduced by the legislator and interpreter, between properties constituted in horizontal ownership and properties in full ownership with parts capable of independent use for stamp tax purposes constitutes an arbitrary distinction and violation of the principle of equality", "an arbitrary distinction that also occurs in the use given to the property by its owners, depending on whether they assign it functionally to housing or commerce, even though in either situation it is intended for the rental market".

g) They further invoke the "defect of lack of reasoning" insofar as "the Claimants were notified of various payment documents, identified with different numbers but with no indication of the underlying assessment: only the document number relating to each notification is identified".

h) It concludes by requesting the annulment of the tax acts identified in c), for "error as to legal assumptions" or alternatively for lack of reasoning.

OF THE ARBITRAL TRIBUNAL

i) The request to constitute the TAS was accepted by the President of the CAAD and automatically notified to the AT on 18.08.2014.

j) By the Ethics Council of the CAAD, the signatory of this decision was appointed as arbitrator, and the parties were notified thereof on 20.10.2014.

k) Whereby the Singular Arbitral Tribunal (TAS) has been, since 04.11.2014, properly constituted to hear and decide the subject matter of this dispute.

l) All of these acts are documented in the communication of constitution of the Singular Arbitral Tribunal dated 04.11.2014, which is here reproduced.

m) On 04.11.2014 the AT was notified in accordance with and for the purposes of article 17º-1 of the RJAT. It responded on 05.12.2014.

n) Since questions identical to those already raised in many other cases already decided by the CAAD are at issue in this proceeding, the TAS in the order referred to in the preceding item invited the parties to pronounce themselves on the waiver of the hearing referred to in article 18º of the RJAT and likewise on the submission of arguments.

o) In its response the AT proposed not to hold the hearing of parties and likewise not to submit arguments.

p) By order of 05.12.2014 the TAS waived the holding of the hearing of parties referred to above, if the Claimants did not expressly object within a period of 5 days.

q) Whereby, both parties having waived, expressly or tacitly, the holding of the hearing of parties under article 18º of the RJAT and the submission of arguments, these procedural acts were not held.

PROCEDURAL REQUIREMENTS

r) Legitimacy, capacity and representation – the parties have legal personality and capacity, are legitimate and are represented.

s) Adversarial process – the AT was notified in accordance with item m). All orders issued in the proceeding and all documents attached were notified to the respective counterparty.

t) Dilatory exceptions – the proceeding does not suffer from defects and the request for arbitral pronouncement is timely since it was submitted within the prescribed period in subparagraph a) of no. 1 of article 10º of the RJAT.

SUMMARY OF THE POSITION OF THE CLAIMANTS

As to the possible unlawfulness of the assessment acts by non-conformity with the rule of incidence of item 28.1 of the TGIS

u) They argue that the assessment acts are unlawful because they violate the rule of incidence of item 28.1 of the TGIS insofar as the AT added together the tax values of the floors in full ownership and none of them individually has a VPT equal to or greater than 1,000,000.00 euros, contending that it should be the VPT of each floor and not its sum that is relevant for tax purposes.

v) And for the reason that, as to each floor "the tax value of property (VPT) registered in the land registry does not exceed 1,000,000.00 so the rule of incidence provided for in item 28.1 of the TGIS does not apply" and "there is no legal rule that makes the VPT of a property comprising several independent fractions correspond to the sum of its respective parts, which are moreover subject to separate IMI assessment based on the respective – each fraction – VPT".

w) They further invoke the "defect of lack of reasoning" insofar as "the Claimants were notified of various payment documents, identified with different numbers but with no indication of the underlying assessment: only the document number relating to each notification is identified".

As to the possible unconstitutionality of the rule inherent in item 28.1 of the TGIS, in the implicit reading implemented by the AT

x) The Claimants consider that there is unconstitutionality in the interpretation of the rule underlying the stamp tax assessments, for violation of the principle of equality, inasmuch as "the distinction, introduced by the legislator and interpreter, between properties constituted in horizontal ownership and properties in full ownership with parts capable of independent use for stamp tax purposes constitutes an arbitrary distinction and violation of the principle of equality", "an arbitrary distinction that also occurs in the use given to the property by its owners, depending on whether they assign it functionally to housing or commerce, even though in either situation it is intended for the rental market".

SUMMARY OF THE POSITION OF THE TAX AUTHORITY

As to the possible unlawfulness of the assessment acts by non-conformity with the rule of incidence of item 28.1 of the TGIS.

y) The AT contends that "although the assessment of IS, under the conditions provided for in item 28.1 of the TGIS is carried out in accordance with the rules of the CIMI, the fact is that the legislator reserves the aspects that require the necessary adaptations".

z) "As is the case with properties in full ownership, even though with floors or divisions capable of independent use, since although IMI is assessed for each part capable of independent use",

aa) For IS purposes the property as a whole is relevant since divisions capable of independent use are not regarded as property, but only autonomous fractions under the horizontal ownership regime, in accordance with article 2º-4 of the CIMI".

As to the possible unconstitutionality of the rule inherent in item 28.1 of the TGIS, in the implicit reading implemented by the AT

bb) There is no violation of the principle of equality (nor of legality) because there is no discrimination between properties in horizontal ownership and properties in full ownership with floors or divisions capable of independent use.

cc) Since item 28.1 of the TGIS is a general and abstract rule, applicable indiscriminately to all cases where the respective factual and legal requirements are met.

dd) The different valuation and taxation of property in full ownership as opposed to property in horizontal ownership stems from the different legal effects inherent to these two forms of ownership.

ee) These are distinct situations, valued by the legislator in different ways.

ff) Contending for the legality of the tax acts because they constitute a correct application of the law to the facts, both at the level of their conformity with ordinary law and at the level of their conformity with constitutional principles.

II. ISSUES TO BE DECIDED BY THE TRIBUNAL

On this matter, in specific, the CAAD has already pronounced itself in several decisions in which the underlying issue is the same, namely, the scope of the rule of incidence of items 28 and 28-1 of the TGIS is debated.

The limit of interpretation is the letter, the text of the rule. What follows is the "task of interconnection and evaluation that escapes the literal domain".

Starting from the principle that every rule has a provision (and a provision), the issue that arises here is to determine, by delimiting, whether the rule of incidence, as drafted – in its provision - (ownership of urban properties … with housing use … whose tax value of property recorded in the registry, in accordance with the CIMI, is equal to or greater than 1,000,000.00 euros – based on the tax value of property used for IMI purposes), allows or does not allow the understanding that as to properties "with housing use" in vertical ownership, with floors or divisions capable of independent use, held by an entity, the VPT on which the tax rate will apply should be the sum thereof or should the individual VPT of each floor or division capable of independent use be considered, similar to what occurs with properties under horizontal ownership regime and the IMI assessment procedure.

Fundamentally, what is at issue is the adoption of an appropriate reading of the scope of the rule of incidence of items 28 and 28.1 of the TGIS, in view of what no. 7 of article 23º of the CIS states regarding the determination of taxable matter and consequent operation of tax assessment:

"Where tax is owed for situations provided for in item no. 28 of the General Schedule, the tax is assessed annually, for each urban property, by the central services of the Tax Authority and Customs Authority, applying, with the necessary adaptations, the rules contained in the CIMI."

The AT expressly states in article 33º of the response that the addition of the VPT of the floors of the urban property in question was carried out having as legal support the reading made of this rule (article 23º-7 of the CIS).

As we have stated in other decisions, regarding the interpretation of tax rules there is a rule, although it may be considered residual, very specific that is found in no. 3 of article 11º of the LGT: "if doubts persist as to the meaning of the rules of incidence to be applied, account should be taken of the economic substance of the tax facts". It is a criterion to be used in the context of interpretation of rules.

We do not advocate for an "economic interpretation" of tax law rules.

But it appears to us that here too appeal may be made to the analysis of the "economic substance of the tax facts" to appropriately implement the "necessary adaptations of the rules contained in the CIMI", with a view to resolving the issue that arises.

We are thus, solely and exclusively, within the scope of the activity of interpretation and application of rules, that is, in the task of delimiting the juridical-factual situations that should be considered as encompassed in the provision of the rule of incidence of this new tax and which results from the combination of items 28 and 28-1 of the TGIS and in this case what should be deemed acceptable at the level of the "necessary adaptations of the rules contained in the CIMI", following the command of no. 7 of article 23º of the CIS.

The issue of conformity of the provision of the rule of incidence, in the face of the constitutional text, only arises if the interpreter reaches the conclusion that a certain and unequivocal reading of the law – correctly applied to a specific case - violates one or more constitutional principles with such intensity that the legislative choice adopted could not have been made, still bearing in mind that the AT cannot, based on possible unconstitutionalities of rules, not declared by the courts, cease to apply the law, in the meaning it deems most assertive.

It appears to us that the fundamental issue to which the TAS should respond is the following:

Do items 28 and 28-1 of the TGIS, as rules of tax incidence, as they are drafted – in their provision - (ownership of urban properties … with housing use … whose tax value of property recorded in the registry, in accordance with the CIMI, is equal to or greater than 1,000,000.00 euros – based on the tax value of property used for IMI purposes), allow or do not allow the understanding that as to properties "with housing use" in vertical ownership, with floors or divisions capable of independent use, held by an entity, the VPT on which the tax rate will apply should be the sum thereof or should the individual VPT of each floor or division capable of independent use be considered, similar to what occurs with properties under horizontal ownership regime?

From the answer given to this question will result the merits or lack thereof of the request, and if the answer is in a sense not in accordance with what was ably argued by the AT, it will not be necessary for the TAS to pronounce itself on the other grounds invoked by the Claimants in the request for pronouncement, with possible impact on the validity of the assessment acts at issue.

III. FACTS PROVEN AND NOT PROVEN. REASONING

Facts relevant to the decision to be adopted are those considered proven, with indication of the respective documents (proof by documents), as reasoning:

Facts Proven

  1. The Claimants A, in its own name and as head of the estate of B, NF … and …, respectively, and C, NF …, are registered as holders of the right of full ownership (in the proportion of 1/18, 14/18 and 3/18, respectively) of the urban property under vertical ownership, with floors or divisions capable of independent use, more specifically on the floors intended for housing that comprise it, namely: urban property currently registered in the land registry of the Estrela parish under article …º, former article …º of the Prazeres Parish (extinct), articles U-…º-1ºD, U-…º-1ºE, U-…º-1º Front, U-…º-2ºD, U-…º-2ºE, U-…º-2ºFront, U-…º-3ºD, U-…º-3ºE, U-…º-3ºFront, U-…º-4ºD, U-…º-4ºE, U-…º-4ºFront, U-…º-5ºD, U-…º-5ºE, U-…º-5ºFront – As shown by the urban property register and IS assessment notes for item 28.1 of the TGIS attached by the Claimants with the request of 19.11.2014.

  2. The Claimants were notified, on a date not specified (but which the Claimants indicate to be 08.07.2014), of the assessments of Stamp Tax for item 28.1 of the TGIS, expressed in item c) of the Report, generating a total collection of 5,732.15 euros – As shown by 45 notes of IS assessment for item 28.1 of the TGIS attached by the Claimants with the request of 19.11.2014.

  3. The floors or divisions capable of independent use subject to taxation, with housing use, have VPT comprised between 92,327.13 euros (articles U-…º-1ºD, U-…º-2ºD, U-…º-3ºD, U-…º-4ºD and U-…º-5ºD) and 48,181.50 euros (articles U-…º-1ºFront, U-…º-2ºFront, U-…º-3ºFront, U-…º-4ºFront, U-…º-5ºFront) – As shown by the urban property register and IS assessment notes for item 28.1 of the TGIS attached by the Claimants with the request of 19.11.2014.

  4. In the urban property register of the real property referred to in 1) it is stated: "Total tax value of property: € 1,287,226.30" – As shown by the urban property register attached by the Claimants with the request of 19.11.2014.

  5. In the 45 assessment notes it is stated: "Tax Value of Property of the property – total subject to tax: 1,146,437.55" euros, which corresponds to the sum of the VPT of the floors with housing use of the real property identified in 1) – As shown by the 45 notes of IS assessment for item 28.1 of the TGIS attached by the Claimants with the request of 19.11.2014.

  6. Tax assessed based on article 6º-1-f)-i) of Law 55A/2012, of 29.10 – As shown by the 45 notes of IS assessment for item 28.1 of the TGIS attached by the Claimants with the request of 19.11.2014.

Facts Not Proven

There is no other factuality alleged that is relevant for the proper resolution of the procedural dispute.

The settled facts result from the documents attached by the Claimants, whose contents and evidentiary valuations met with no disagreement from the AT.

IV. ASSESSMENT OF THE ISSUES TO BE DECIDED BY THE TAS

Do items 28 and 28-1 of the TGIS, as rules of tax incidence, as they are drafted – in their provision - (ownership of urban properties … with housing use … whose tax value of property recorded in the registry, in accordance with the CIMI, is equal to or greater than 1,000,000.00 euros – based on the tax value of property used for IMI purposes), allow or do not allow the understanding that as to properties "with housing use" in vertical ownership, with floors or divisions capable of independent use, held by an entity, the VPT on which the tax rate will apply should be the sum thereof or should the individual VPT of each floor or division capable of independent use be considered, similar to what occurs with properties under horizontal ownership regime?

The subjection to stamp tax of properties with housing use resulted from the addition of items 28, 28-1 and 28-2 to the General Schedule of Stamp Tax, effected by article 4º of Law 55-A/2012, of 29/10, which typified the following tax facts:

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

28-1 – For property with housing use – 1%;

28-2 – For 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, as listed in the order approved by the Minister of Finance – 7.5%."

Of relevance to this case are the following:

  • No. 7 of article 23º of the CIS regarding tax assessment: "Where tax is owed for situations provided for in item no. 28 of the General Schedule, the tax is assessed annually, for each urban property, by the central services of the Tax Authority and Customs Authority, applying, with the necessary adaptations, the rules contained in the CIMI."

  • No. 4 of article 2º of the CIMI: "For purposes of this tax, each autonomous fraction, under horizontal ownership regime, is regarded as constituting a property."

  • No. 3 of article 12º of the CIMI: "Each floor or part of property capable of independent use is considered separately in the land registration which also determines its respective tax value of property".

It appears to us that the answer to the question posed in this request for pronouncement has to do with the reading made by the AT of no. 7 of article 23º of the CIS.

The AT will have considered, in order to proceed with the addition of the tax values of property (VPT) of the floors or divisions/parts of urban property, in order to determine if the minimum taxation threshold of 1,000,000.00 euros is attained, for each urban property in vertical ownership, that the floors or divisions capable of independent use are not by formal legal definition considered urban properties. Which is indisputable.

This is what results from the AT's response (article 33º).

And it will have considered that this addition of VPT is required because the law states that "the necessary adaptations" of the "rules of the CIMI" must be carried out (no. 7 of article 23º of the CIS).

In fact, although items 28 and 28.1 speak of "urban properties" and "per property" and no. 7 of article 23º of the CIS states that "the tax is assessed annually, for each urban property", what appears to us to be relevant here, at the level of determining eligible taxable matter and tax assessment, is that "the necessary adaptations of the rules contained in the CIMI" be applied as stated in the aforementioned no. 7 of article 23º of the CIS. But, obviously, "adaptations" provided that necessary.

What occurred – as to urban properties with housing use, in vertical ownership, with floors or divisions capable of independent use – was that the AT's "adaptation" made, in the IS assessment operations, was to add the VPT of each floor or independent division assigned to housing purposes (excluding the VPT of the floors or divisions assigned to other purposes), creating a new legal reality, which is a tax value of property of urban properties in vertical ownership, with housing use.

This operation of the tax proceeding (incidence – determination of taxable matter – assessment – payment) appears to us to conflict with the literal element of the rule of incidence, item 28 of the TGIS, which states that this tax applies to "the tax value of property used for IMI purposes".

That is, the AT, in the operation of determining taxable matter and consequent assessment of IS for items 28 and 28.1 of the TGIS (operation of applying a rate to taxable matter), as to urban properties with housing use, in vertical ownership, with floors or divisions capable of independent use, should not consider another tax value of property (on which the ad valorem rate of the tax is applied) other than that which results exclusively from no. 3 of article 12º of the CIMI. Whether for IMI or for this IS.

And for the reason that urban properties in vertical ownership, as a whole, do not have VPT. The law determines in these cases that the VPT be attributed to each floor or part of the property separately.

The above conclusion will not be weakened by the fact that in the property registers of this type of property "total tax value of property" is indicated, which corresponds to the sum of the VPT of all floors, regardless of their use. What is relevant for this taxation will not be the "total tax value of property" but only the "tax value of property" of urban properties with housing use, in this case of the floors made independently autonomous in terms of eligible VPT.

Particularly because, in the majority of cases of vertically owned property, as occurs in this case, the "housing use" is characteristic of one or several floors separately and not of the property as a whole. There are two other floors that make up the property and that do not have housing use.

Creating a new legal reality, with a view to finding a new form of determination of taxable matter that is not used under IMI (a taxable base for the floors or parts of property capable of independent use, with housing use) does not appear to have legal support in the "necessary adaptations" referred to in no. 7 of article 23º of the CIS.

A conclusion to be reached having regard to the principle of tax legality, both in the dimension of no. 1 of article 8º of the LGT (if we consider that a rule of incidence is at issue), and in the dimension of subparagraph a) of no. 2 of article 8º of the LGT (if we consider that a rule regulating the determination of the tax base on which a rate applies is at issue, that is, the assessment of the tax).

There is also, it is perceived, non-conformity with the literal element of the final part of the rule of incidence (item 28 of the TGIS) which states that this tax applies to "the tax value of property used for IMI purposes" and therefore should not apply to the sum of tax values of property of properties, parts of properties or floors, with no legal support being discernible in the operation of adding tax values of property of floors or parts of property capable of independent use, with housing use, in order to reach the eligible taxation threshold of 1,000,000.00 euros or more.

That is, it is not in conformity with the law to create a new VPT for IS taxation purposes regarding item 28 of the TGIS, as results from the entry on all collection notes of "tax value of property of property – total subject to tax" – item 5 of the settled factual matter.

What is to say that when no. 7 of article 23º refers to "…the tax is assessed annually, for each urban property", this expression "each urban property" is intended to encompass urban properties in horizontal ownership and floors or parts of urban properties in properties under vertical ownership, provided that assigned to housing purposes, but always starting from a single taxable base for all legal purposes: the tax value of property used for IMI purposes (final part of item 28 of the TGIS).

The question does not, in our view, need to be raised at the level of violation of the Constitution, it suffices, in fulfillment of what is stated in no. 7 of article 23º of the CIS that a reading, "with the necessary adaptations of the rules of the CIMI" be carried out, which will be to consider that the expression "each urban property" encompasses not only floors in horizontal ownership (which are urban properties ope legis) but also "floors or parts of property capable of independent use" (no. 3 of article 12º of the CIMI).

If, for example, for the floors comprising the autonomous fractions of residential urban properties, in horizontal ownership, (even though they are by definition and "ope legis" urban properties) the VPT are not added together to determine the threshold of eligible VPT for IS subjection, per taxpayer, of 1,000,000.00 euros (operation of determining taxable matter), why should the same occur for the "parts of property or floors" of properties in vertical ownership?

In both cases the same taxpaying capacity of the taxpayers is manifested (their wealth level in terms of real property). It is the same "economic substance" analyzed from different perspectives. In both situations the same "ability-to-pay" is manifested.

It appears to us that it is the rule of incidence contained in items 28 and 28-1 of the TGIS, in its literality, particularly its final part, combined with no. 7 of article 23º of the CIS, that allows concluding, with the "necessary adaptations of the rules of the CIMI" that the AT should not have added the VPT of the floors or parts of the property identified above in order to find a new VPT relating to those that are assigned to housing purposes, severed from the VPT of those assigned to other purposes.

The Claimants allege, in essence, the non-conformity of the tax acts with tax law, pleading the unlawfulness contained in subparagraph a) of article 99º of the CPPT: "erroneous classification … of tax facts".

In fact, with the reasoning expressed above, the IS assessments disputed, carried out in the manner they were, are not in line with the rule of incidence of items 28 and 28-1 of the TGIS, and the unlawfulness provided for in subparagraph a) of article 99º of the CPPT therefore occurs.

The first ground of the request formulated by the Claimants in the request for pronouncement (items d) and e) of the Report) proceeding, there is no need to proceed to an assessment of the other grounds (items f) and g) of the Report), for manifest futility.

As a consequence of the above, the request for annulment of the tax acts submitted by the Claimants to the Arbitral Tribunal proceeds, since the IS assessments carried out by the AT are not in conformity with the law, in the reading advocated above.

In fact, it results from the facts proven (item 3) of part III of this decision) that none of the floors or parts of property has, of itself, a VPT that is equal to or greater than the taxation threshold indicated in item 28 of the TGIS (VPT equal to 1,000,000.00 euros).

V. DECISION

Based on the above reasoning and grounds, the request of the Claimants is judged to have merit, and the following IS assessments indicated in item c) of the Report (which are here reproduced) are annulled, generating a total collection of 5,732.15 euros, (taxpayer NF … – B – head of estate – 4,458.35 euros; taxpayer NF … – A – 318.45 euros and taxpayer NF … – C – 955.35 euros) with reference to the urban property under vertical ownership, with floors or divisions capable of independent use, more specifically the floors intended for housing that comprise it, namely:

  • urban property currently registered in the land registry of the Estrela parish under article …º, former article …º of the Prazeres Parish (extinct), articles U-…º-1ºD, U-…º-1ºE, U-…º-1º Front, U-…º-2ºD, U-…º-2ºE, U-…º-2ºFront, U-…º-3ºD, U-…º-3ºE, U-…º-3ºFront, U-…º-4ºD, U-…º-4ºE, U-…º-4ºFront, U-…º-5ºD, U-…º-5ºE, U-…º-5ºFront,

for non-conformity with the rules contained in items 28 and 28.1 of the TGIS and in no. 7 of article 23º of the CIS.

Value of the case: in accordance with the provisions of article 3º, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings (and subparagraph a) of no. 1 of article 97ºA of the CPPT), the value of the case is fixed at 5,732.15 euros.

Costs: in accordance with the provisions of article 22º, no. 4, of the RJAT, the amount of costs is fixed at € 612.00 €, according to Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, at the expense of the defendant.

Notify.

Lisbon, 12 December 2014

Singular Arbitral Tribunal,

Augusto Vieira

Text produced by computer in accordance with the provisions of article 131º, no. 5, of the CPC, applicable by reference of article 29º of the RJAT.

The text of this decision follows the orthography prior to the 1990 Spelling Agreement.

[1] In the assessment notes the floors are set out as being autonomous cadastral articles, apart from the separation of their respective tax values of property used for IMI assessment purposes.

Frequently Asked Questions

Automatically Created

What is the Stamp Tax (Imposto do Selo) under Clauses 28 and 28.1 of the Portuguese General Stamp Tax Table (TGIS)?
Items 28 and 28-1 of the Portuguese General Stamp Tax Table (TGIS) impose an annual Stamp Tax on urban properties with a tax value (VPT) equal to or exceeding €1,000,000. This tax was introduced by Article 6(1)(f)(i) of Law 55-A/2012 and applies at a rate of 0.5% of the property's registered tax value. The tax targets high-value real estate holdings and applies to properties registered in the land registry that meet the value threshold. The incidence rule focuses on the property's official tax value as determined for property tax purposes.
How does vertical property ownership affect Stamp Tax liability on urban buildings in Portugal?
Vertical property ownership creates significant complexity for Stamp Tax liability under items 28 and 28-1 of TGIS. The key issue is whether the tax authority can aggregate the values of all floors or divisions capable of independent use within a single vertical property to reach the €1,000,000 threshold, or whether each independently usable unit must be assessed separately. In Process 619/2014-T, claimants argued that vertical ownership should be treated similarly to horizontal ownership (condominiums), where each autonomous fraction is taxed individually. They contended that since each floor had a separate cadastral article and was subject to separate IMI assessment, aggregating their values for Stamp Tax purposes created unconstitutional discrimination between ownership structures.
Can individual units in a vertical property building be taxed separately under the TGIS Stamp Tax?
The dispute in Process 619/2014-T centered precisely on whether individual units in a vertical property building could be taxed separately under TGIS Stamp Tax provisions. The claimants argued that each floor or division capable of independent use, despite being part of a vertical property ownership structure, should be assessed individually for Stamp Tax purposes. They emphasized that none of the 45 cadastral units individually exceeded the €1,000,000 threshold, and each was subject to separate IMI property tax assessment. They contended that no legal rule authorized summing the tax values of parts of a property with independent use capability, and doing so violated both the literal interpretation of the incidence rule and constitutional equality principles by treating vertical ownership differently from horizontal ownership regimes.
What was the CAAD arbitral tribunal's decision on the 45 Stamp Tax assessments in Process 619/2014-T?
While the complete text of the arbitral tribunal's decision in Process 619/2014-T is not fully available in the excerpt provided, the case involved the claimants' request for annulment of 45 Stamp Tax assessments totaling €5,732.15. The assessments concerned cadastral units in a building under vertical ownership, where the Tax Authority had applied items 28 and 28-1 of TGIS by aggregating values of separate floors. The tribunal would have needed to decide whether the aggregation methodology violated the legal incidence rule, whether constitutional equality principles were breached by differential treatment of vertical versus horizontal ownership, and whether the assessment notices contained sufficient legal reasoning. The outcome would have significant implications for how Stamp Tax applies to properties with multiple independent units under vertical ownership structures.
How can property owners challenge Stamp Tax assessments through CAAD tax arbitration in Portugal?
Property owners can challenge Stamp Tax assessments through the CAAD (Centro de Arbitragem Administrativa) tax arbitration system by filing a request for constitution of an arbitral tribunal under the Legal Framework for Tax Arbitration (RJAT). As demonstrated in Process 619/2014-T, filed on August 12, 2014, claimants must submit a formal arbitration request signed by legal counsel, identifying the contested assessments, the legal grounds for annulment, and the relief sought. Taxpayers can challenge assessments on substantive grounds (such as incorrect application of tax rules, violation of constitutional principles, or exceeding legal authority) or procedural grounds (such as insufficient reasoning). CAAD arbitration provides an alternative dispute resolution mechanism to traditional administrative and judicial appeals, often offering faster resolution of tax disputes with specialized arbitrators deciding technical tax law questions.