Process: 634/2014-T

Date: February 8, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitral case (634/2014-T) concerns the application of Stamp Duty under item 28.1 of the General Stamp Duty Table (TGIS) to a vertical property comprising four independent residential units with an aggregate patrimonial value of €1,281,140. The central dispute involves determining the correct taxable base: whether Stamp Duty should be assessed on the aggregate value of all independent units (€1,281,140) as claimed by the Tax Authority, resulting in total assessments of €12,811.40, or on each individual unit's value separately as argued by the taxpayer. The Claimant contends that item 28.1 TGIS expressly references Municipal Property Tax (IMI) valuation rules, which treat each independent unit autonomously regardless of whether the property is constituted under horizontal or vertical co-ownership. According to the Claimant, the legislative intent was to tax luxury houses exceeding €1,000,000, not to aggregate values of multiple units within a single property. The Claimant subsidiarily argues that the Tax Authority's interpretation violates constitutional principles of equality and contributory capacity. Conversely, the Tax Authority maintains that in properties not subject to horizontal co-ownership, independent units lack legal autonomy and cannot be considered separate properties for Stamp Duty purposes. The Respondent argues that the law mandates aggregation of unit values for vertical properties, and that the Claimant's interpretation would constitute an unconstitutional analogical application violating the legality principle under Article 103 of the Portuguese Constitution. The arbitral tribunal must interpret the statutory framework governing the intersection of IMI valuation methodology and Stamp Duty incidence on high-value residential properties.

Full Decision

ARBITRAL DECISION

Case No. 634/2014-T

Claimant: A… –, S.A.

Respondent: Tax and Customs Authority

I. REPORT

A… –, S.A., NIPC …, with registered office at Rua …, in Lisbon (hereinafter referred to as the Claimant), filed on 27-08-2014 a request for constitution of a singular arbitral tribunal pursuant to Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to as RJAT), in conjunction with subsection a) of Article 99 of the Tax Procedure Code (CPPT), naming as Respondent the Tax and Customs Authority (hereinafter referred to as the Respondent).

The Claimant requests the revocation of the decision dismissing the gracious complaint and the consequent annulment of the Stamp Duty assessments, with reference to item 28.1 of the General Stamp Duty Table (hereinafter TGIS), in the total amount of €12,811.40, which gave rise to collection notes Nos. 2013 …, relating to the property located at Rua da …, in Lisbon.

The Claimant further requests that the Respondent be condemned to refund the tax paid, plus compensatory interest.

The request for constitution of the arbitral tribunal was accepted by the Honorable President of the Tax Arbitration Centre on 28-08-2014 and notified to the Tax and Customs Authority on that same date.

Pursuant to subsection a) of paragraph 2 of Article 6 and subsection b) of paragraph 1 of Article 11 of the RJAT, the Deontological Council designated the undersigned as arbitrator of the singular arbitral tribunal, who communicated acceptance of the appointment within the applicable time period.

On 15-10-2014 the parties were duly notified of this designation and did not manifest any will to challenge the designation of the arbitrators, in accordance with Articles 11, paragraph 1, subsections a) and b) of the RJAT and Articles 6 and 7 of the Deontological Code.

In compliance with subsection c) of paragraph 1 of Article 11 of the RJAT, the singular arbitral tribunal was constituted on 30-10-2014.

By order of 12-01-2015, the meeting provided for in Article 18 of the RJAT was dispensed with, as well as the submission of oral or written arguments, by agreement of the parties.

The Claimant alleges, succinctly, that there was a material and legal error in the assessment of the disputed tax by taking as a prerequisite for incidence the total aggregate value of the parts susceptible to independent use that compose the property rather than the individual value of each of those same parts. By express statutory reference, the taxable base of Stamp Duty under item 28.1 of the TGIS should be the same as that of the Municipal Property Tax (IMI). Accordingly, where a property in vertical co-ownership is composed of units susceptible to independent use for residential purposes, the tax value relevant for purposes of Stamp Duty assessment shall be that of each of them individually considered and not their aggregate sum, as is apparent from the collection notes sent to the Claimant. This same conclusion follows from the fact that for purposes of IMI there is no distinction between properties in horizontal and vertical co-ownership, all being subject to the same rules for entry on the property register, valuation, and assessment.

Moreover, the Respondent's application of the law violates the very ratio legis as expressed by the State Secretary of Tax Affairs in declarations to the Parliamentary Budget and Finance Commission when stating that the new Stamp Duty would apply to luxury houses and not to luxury properties.

Subsidiarily, the Claimant also contends that the rules underlying the assessment of the tax now disputed, in the interpretation given by the Respondent, would be unconstitutional for violation of the principle of equality, provided for in Articles 13 and 104 of the Portuguese Constitution, in its aspects of contributory capacity and fiscal system coherence.

In response, the Respondent argues, succinctly, that in properties not subject to horizontal co-ownership, the units susceptible to independent use have no autonomy whatsoever; the autonomization for purposes of entry on the property register and valuation does not conflict with its legal-tax nature, with the law determining that the value of the property shall necessarily correspond to the sum of the value of the various independent units. Units of independent use cannot be considered as "properties" in accordance with the legal definition and therefore cannot be relevant for purposes of the incidence of item 28.1 of the TGIS. For purposes of this rule, account must therefore be taken of the tax value of the property in vertical co-ownership which shall correspond, pursuant to the law, to the aggregate of the values of each unit susceptible to independent use. The Respondent further concludes that the interpretation defended by the Claimant would imply the unconstitutionality of item 28 of the TGIS for violation of the principle of legality imposed by Article 103 of the Portuguese Constitution insofar as it would result in the analogical application of the rules provided for properties in horizontal co-ownership to properties in full ownership without there being, moreover, any true gap in the law.

III. PRELIMINARY EXAMINATION

The Arbitral Tribunal was regularly constituted and is competent.

The parties enjoy legal personality and capacity and are legitimate (Articles 4 and 10, paragraph 2, of the same legal instrument and Article 1 of Ordinance No. 112-A/2011, of 22 March).

The case is not affected by any nullities and there is no obstacle to the examination of the merits of the case.

IV. MATERIAL FACTS

A. Proven Facts

The following facts are considered proven:

  1. The Claimant is registered as owner of the urban property in full co-ownership registered on the urban property register of the extinct parish of …, in the municipality of Lisbon, under entry …, with tax value of €1,281,140 (document No. 1 of the case file);

  2. The property is currently registered on the urban property register of the parish of …, municipality of Lisbon, under entry … (document No. 1 of the case file);

  3. The property referred to in the preceding point is composed of 4 units susceptible to independent use for residential purposes;

  4. On 21 March 2013, the Respondent made the Stamp Duty assessments under item 28.1 of the TGIS with reference to the divisions susceptible to independent use of the property identified (documents 2 to 13 of the case file);

  5. The assessments in question gave rise to collection notes Nos. 2013 …, in the total amount of €12,811.40 (documents 2 to 13 of the case file);

  6. The collection notes attached to the file were paid in full within their respective legal time limits (documents No. 2 to 13);

  7. On 28 March 2014, the Claimant filed a gracious complaint against the assessments in question;

  8. The gracious complaint filed was dismissed by decision notified to the Claimant on 4 July 2014.

B. Unproven Facts

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

C. Justification of Material Facts

The material facts considered as proven are based on documentary evidence adduced and not contested.

V. LEGAL MATTERS

A. On the Tax Assessed

The essential question to be decided in the present dispute concerns the determination of the taxable base of Stamp Duty, item 28.1 of the TGIS, when there is a property not constituted in horizontal co-ownership and whose units susceptible to independent use are designated for residential purposes.

Specifically, it must be decided whether the tax value relevant as the criterion for tax incidence shall correspond to (i) the aggregate of the value of each of the units susceptible to independent use, as the Respondent contends, or (ii) the individual tax value of each of those units susceptible to independent use, considered autonomously and by themselves, as the Claimant argues.

The doubt results from the interpretation of items 28 and 28.1 of the TGIS, whose wording in force on 31 December 2012 was as follows:

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

28.1 For property with residential designation – 1%"

The legislator did not define the legal concept of "property with residential designation," having expressly provided that to all matters not regulated in the Stamp Duty Code with reference to the said item 28 of the TGIS, the provisions of the Municipal Property Tax Code (CIMI) would be applied subsidiarily (See paragraph 2 of Article 67 of the Stamp Duty Code). It is therefore necessary to search the CIMI for such a concept in order to be able to conclude regarding the taxable base of item 28.1 of the TGIS.

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

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

As a result of this difference in classification, it would be defensible that, for purposes of item 28.1 of the TGIS, each autonomous fraction should be considered as a "property" and thus there would only be place for the payment of such tax if, being designated for residential purposes, it had a tax value exceeding the indicated amount. In the case of a property in full co-ownership, the tax value to be considered for purposes of determining incidence would result from the sum of the tax values of each independent unit affected to residential use – see subsection b) of paragraph 2 of Article 7 of the CIMI. This is the position of the Respondent.

However, upon comparative analysis of the IMI regime applicable to autonomous fractions of properties in horizontal co-ownership and to units susceptible to independent use of properties in vertical co-ownership, it is concluded that there is no difference whatsoever. Indeed, notwithstanding the formal legal nature being distinct, the tax regime applicable to these figures is exactly the same. Materially, the law establishes no difference, as we can see:

(i) properties in horizontal and full co-ownership are subject to the same rules for entry in the property register, with it being expressly provided in paragraph 3 of Article 12 of the CIMI that the parts susceptible to independent use are considered separately in the property register entry which shall discriminate their respective tax value;

(ii) properties in horizontal and full co-ownership are subject to the same rules and procedures for valuation, with it being expressly determined in subsection b) of paragraph 2 of Article 7 of the CIMI that, where the parts composing the property in full co-ownership are economically independent, each part is valued by application of the corresponding rules.

This identity of regime extends even further, having relevant repercussions at the level of tax assessment itself, since the legislator determined that IMI assessment should be carried out with discrimination of the properties, their parts susceptible to independent use, and their respective tax value – see paragraph 1 of Article 119 of the CIMI. It is, therefore, the legislator who determines that tax assessment must be carried out individually, considering each economic reality (units susceptible to independent use) and not each legal reality (property or autonomous fraction of a property in horizontal co-ownership).

From this it is concluded that, for purposes of IMI, the autonomous fractions of properties in horizontal co-ownership and the parts susceptible to independent use that compose a property in full co-ownership receive exactly the same tax treatment. But more significant than that: for purposes of IMI, the taxable base of the tax is determined in exactly the same way, corresponding to the own individual value of each autonomous fraction or independent part, established at the time of valuation and contained in the register; assessment is carried out in an individualized and autonomous manner based on each of the independent parts of the property, whether or not they are autonomous fractions.

In the case of properties in full co-ownership, IMI is not assessed based on the total tax value of the property but based on the individual tax value of each autonomous unit that comprises it; the total collection due corresponds to the aggregate of the individual collections for each autonomous unit, determined based on their respective individual tax values. Everything proceeds in exactly the same manner as that applied to autonomous fractions of properties in horizontal co-ownership.

Moreover, pursuant to item 28.1 of the TGIS, only "properties with residential designation" are subject to taxation. Now, in properties composed of independent units with different purposes and uses - as is verified in the present case, (services and commerce, as appears from document No. 11 of the case file) - the determination of designation can only be made based on each of these units and not based on the property as a whole. This same conclusion results from subsection b) of paragraph 2 of Article 7 of the CIMI. On this aspect, it is appropriate to refer to J. Silvério Mateus and L. Corvelo de Freitas, Real Estate Taxes – Stamp Duty, Annotated and Commented, Engifisco, 1st Edition, 2005, p. 121, note 5, who understand that "The rules provided in this paragraph 2, relating to the determination of the tax value of urban properties with more than one designation, have to do with the diversity of some of the valuation elements provided for in Articles 38 et seq. of the CIMI, namely (….). Moreover, this rule is consistent with the principle of autonomization of the independent parts of an urban property, even if not constituted in horizontal co-ownership, provided for in paragraph 3 of Article 12." (emphasis ours)

In a situation such as this, how would one conclude that the property would have residential designation, with parts of it designated for other purposes?

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

Accordingly, it cannot be argued that "property with residential designation" corresponds to the strict and proper concept of Article 2 of the CIMI (comprising only, for the effect we intend, buildings and autonomous fractions of properties in horizontal co-ownership) because, as demonstrated, it would have no practical concrete applicability (as mentioned, a property in vertical co-ownership can have more than one designation or purpose). In our view, by using this expression the legislator intended to refer to the property as a reality susceptible to designation, hence to the independent parts that compose each property, whether or not they have the legal nature of autonomous fractions.

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

In that measure, the final part of item 28 of the TGIS, in determining that the tax shall apply "(…) to the tax value used for purposes of IMI:" expressly refers to the individual value of each independent part that comprises the property in full co-ownership and not to the total value of the property (corresponding to the sum of the individual tax values), since it is this individual value that is considered in IMI, for all purposes.

Moreover, pursuant to the aforementioned paragraph 7 of Article 23 of the Stamp Duty Code, the tax due under item 28 of the TGIS shall be assessed annually in accordance with the rules provided in the CIMI. And it was exactly these rules that led to the Respondent assessing the tax individually for each autonomous unit and considering its respective individual tax value. Hence various collection notes were issued.

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

Finally, it is appropriate to note that this matter has been the subject of various CAAD decisions, all in this same sense, with the following being transcribed here, by way of example, the arbitral decision rendered in Case 50/2013-T, in the part to which we adhere:

"Now, being thus, considering that the entry in the property register of real estate in vertical co-ownership, constituted by different parts, stories or divisions with independent use, in accordance with the CIMI, follows the same registration rules as real estate constituted in horizontal co-ownership, with their respective IMI, as well as the new Stamp Duty, being assessed individually in relation to each of the parts, there is no doubt whatsoever that the legal criterion for defining the incidence of the new tax must be the same.

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

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

Thus, there would only be place for incidence of the new stamp tax if any of the parts, floors or divisions with independent use presented a tax value exceeding €1,000,000.00.

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

The criterion sought by the Tax Authority, of considering the value of the aggregate of the tax values assigned to the parts, floors or divisions with independent use, on the argument that the property is not constituted in the regime of horizontal co-ownership, finds no legal support and is contrary to the criterion resulting from application for purposes of the CIMI and, by referral, for purposes of Stamp Duty.

To which is added the fact that the law itself expressly establishes, in the final part of item 28 of the TGIS, that the Stamp Duty to apply to urban properties of value equal to or exceeding €1,000,000.00 – 'on the tax value used for purposes of IMI.'

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

In the same sense, reference is made to the decision rendered in Case 132/2013-T, of which we transcribe the part to which we fully subscribe:

"Indeed, it makes no sense to distinguish in the law what the law itself does not distinguish (ubi lex non distinguit nec nos distinguere debemus). Moreover, distinguishing, in this context, between properties constituted in horizontal and full co-ownership would be an "innovation" without associated legal support, particularly because, as has been stated here, nothing indicates, either in item No. 28 or in the provisions of the CIMI, a justification for this particular differentiation. Note, for example, what Article 12, paragraph 3, of the CIMI provides: "each floor or part of property susceptible to independent use is considered separately in the property register entry, which also discriminates its respective tax value."

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

Finally, as has been recalled in various Arbitral Decisions (see Arbitral Decision No. 48/2013-T and Arbitral Decision No. 50/2013-T), it is not apparent, in the works relating to the discussion of bill No. 96/XII in the National Assembly, the invocation of an interpretive rationale different from that presented here. Indeed, this measure, dubbed the 'special tax on high-value urban residential properties,' was justified by the need to comply with the principles of social equity and fiscal justice, placing a greater burden on holders of properties of high value designated for residential purposes, and, in that measure, making the new 'special tax' apply to 'houses of value equal to or exceeding 1 million euros.'

Now, if such logic seems to make sense when applied to 'residential' property - whether it be 'house,' 'autonomous fraction' or 'part of property with independent use' / 'autonomous unit' - because it is presumed to have above-average contributory capacity and, in that measure, it is justified the need to realize an additional contributory effort, it would make little sense to subsequently disregard the determinations 'unit by unit' when only through the aggregate of the tax values of the same (because held by the same individual) would the million euro threshold be exceeded.

Moreover, to admit the differentiation of treatment could produce results incomprehensible from a legal point of view and contrary to the objectives that the legislator stated having for adding item No. 28. By way of example, suppose the following scenario, which seems plausible in light of the interpretation made by the now respondent: a citizen who is owner of a property constituted in full co-ownership designated for residential purposes, with the total value of the autonomous units equal to or exceeding €1,000,000.00 and the tax value of each one less than €1,000,000.00, is subject to an annual tax of 1% of that value (as occurred in the situation under analysis); whereas another citizen who holds a property with the exact same characteristics as the previous one but which has been constituted in horizontal co-ownership, with the total value of the autonomous fractions likewise equal to or exceeding €1,000,000.00 and the tax value of each one less than €1,000,000.00, shall not be subject to taxation under the aforementioned item No. 28.

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

If this line of reasoning makes sense – thereby justifying, therefore, the non-aggregation of the tax values of fractions of properties in horizontal co-ownership – no plausible reason is seen why the same should not apply to the autonomous units of properties in full co-ownership.

Observing now the case under analysis, it is noted that the tax values of the floors (autonomous units) of the property with residential designation vary between €104,140.00 and €113,780.00, therefore any one of them is less than €1,000,000.00. From this it is concluded, as a result of what has been stated, that the stamp tax referred to in item No. 28 of the TGIS cannot apply to them, therefore the acts of assessment impugned by the claimant are illegal."

In light of all that has been set out, this tribunal concludes that this is the interpretation of the law in accordance with the Constitution insofar as it ensures equal fiscal treatment of identical realities, giving prevalence to substance over form – an interpretive imperative imposed by paragraph 3 of Article 11 of the General Tax Law, without need for any analogical application.

Indeed, where it is a tax on property, the contributory capacity of each taxpayer should be assessed based on the value of their respective real property designated for residential purposes, regardless of its legal regime. To admit as valid the interpretation of the Respondent would lead to situations where for the same total value of real property, for example, €1,200,000.00 composed of 6 apartments of €200,000.00 each, there would be tax or not depending on whether the property was or was not in the vertical co-ownership regime. In this scenario, in which the contributory capacity differs between a taxpayer who has 6 apartments of €200,000.00 each in a property not subject to co-ownership and a taxpayer who has 6 apartments of €200,000.00 each in a property in horizontal co-ownership. Overall, does the property not have exactly the same value?

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

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

In light of the foregoing, there is no doubt that the interpretation defended by the Claimant and accepted here by this tribunal is the one that ensures the constitutional conformity of items 28 and 28.1 of the TGIS, vis-à-vis Articles 13 and paragraph 3 of Article 103 of the Portuguese Constitution, insofar as it enables "treating equally what is constitutionally equal and unequally what is constitutionally unequal," as referred to by the aforementioned author.

It is therefore unfounded the request of the Respondent to the effect of delivering a judgment of unconstitutionality of the said legal rules, for violation of the constitutional principles of equality and legality.

In light of all that has been set out above, the tribunal concludes that for purposes of application of item 28 of the TGIS to properties in full co-ownership the same rules of the CIMI applicable to properties in horizontal co-ownership apply, therefore the tax value to be considered for purposes of incidence shall be the individual value proper to each unit susceptible to independent use.

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

None of the independent units that compose the property identified and owned by the Claimant presents a value exceeding €1,000,000, therefore the minimum quantitative prerequisite for purposes of incidence of item 28.1 of the TGIS is not verified.

For all these reasons, this tribunal considers the Claimant's position well-founded, concluding that the acts of Stamp Duty assessment due under item 28.1 of the TGIS, with reference to the year 2012, underlying the collection notes identified are affected by the defect of violation of law, by error regarding the material and legal prerequisites, which justifies their annulment [Article 135 of the Administrative Procedure Code, applicable by virtue of Article 2, subsection c), of the General Tax Law] therefore the decision dismissing the gracious complaint filed cannot be maintained and should be revoked.

Moreover, the tribunal considers unfounded the allegation of unconstitutionality of item 28.1 of the TGIS, for violation of the principles of equality and legality provided for in Articles 13 and paragraph 3 of Article 103 of the Portuguese Constitution, respectively, made by the Respondent.

B. On Compensatory and Penalty Interest

It results from the proven facts that the collection notes issued with reference to the Stamp Duty of 2012, in the total amount of €12,811.40 were paid within their respective legal time limits.

Pursuant to paragraph 1 of Article 43 of the General Tax Law "Compensatory interest is due when it is determined, in a gracious complaint or judicial challenge, that there was an error attributable to the services resulting in payment of the tax debt in an amount greater than that legally due."

As stated by Diogo Leite de Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa, General Tax Law - Annotated and Commented, Encontro da Escrita Publisher, 4th Edition, 2012, p. 342, note 2 "The error attributable to the services that effected the assessment is demonstrated when a gracious complaint is filed or the assessment itself is challenged and the error is not attributable to the taxpayer (for example, there shall be annulment due to error attributable to the taxpayer when the assessment is based on erroneous material premises, but the error is based on an incorrect indication in the statement that the taxpayer submitted)."

Now, in the specific case, the Claimant's request for payment of compensatory interest is unequivocally justified since the tax assessments contested are shown to be affected by illegality and therefore should be annulled. In addition to the refund of the tax improperly paid, the Claimant also has the right to the payment of compensatory interest, at the legal rate in force, calculated from the date of payment until the date of processing of the respective credit note, in which they are included – see Article 43 of the General Tax Law and paragraph 4 of Article 61 of the Tax Procedure Code.

VI. DECISION

In accordance with the foregoing, this Arbitral Tribunal decides as follows:

A) To hold the request for arbitral ruling as well-founded regarding the request for annulment of the Stamp Duty assessments with reference to the year 2012 impugned by the Claimant, ordering the annulment of the assessments in question and condemning the Respondent to refund the tax improperly paid by the Claimant;

B) To condemn the Respondent to the payment of compensatory interest, at the legal rate in force, calculated from the date of improper payment of the tax until the date of processing of the respective credit note, in which they shall be included, pursuant to Articles 43 of the General Tax Law and 61 of the Tax Procedure Code;

Value of the case: In accordance with Article 306, paragraph 2, of the Civil Procedure Code and Article 97-A, paragraph 1, subsection a), of the Tax Procedure Code and Article 3, paragraph 2, of the Tax Arbitration Costs Regulation, the case is valued at €12,811.40.

Costs: Pursuant to paragraph 4 of Article 22 of the RJAT, the costs are fixed at €918.00, in accordance with Table I annexed to the Tax Arbitration Costs Regulation, to be borne by the Tax and Customs Authority.

Register and notify this arbitral decision to the parties.

Lisbon, 08-02-2015

The Sole Arbitrator

(Maria Forte Vaz)

Frequently Asked Questions

Automatically Created

How is Stamp Tax (Imposto do Selo) under Verba 28.1 of the TGIS applied to vertical property (propriedade vertical) with independent units?
Stamp Tax (Imposto do Selo) under Verba 28.1 of the TGIS applies to residential properties with patrimonial values exceeding €1,000,000, subject to progressive rates. For vertical property (propriedade vertical) with independent units, the central controversy involves whether each independent residential unit should be assessed separately based on its individual patrimonial value, or whether all units must be aggregated. Item 28.1 expressly references IMI (Municipal Property Tax) valuation rules as the taxable base. Since IMI treats each independent unit autonomously for registration and valuation purposes regardless of horizontal or vertical co-ownership structure, taxpayers argue this autonomy should apply equally for Stamp Duty purposes, with each unit assessed only if it individually exceeds the €1,000,000 threshold.
Can the tax authority aggregate the patrimonial value of all independent units in a vertical property for Stamp Tax purposes?
The Tax and Customs Authority's position is that for properties not constituted under horizontal co-ownership (regime de propriedade horizontal), the tax authority may and must aggregate the patrimonial values of all independent units to determine the taxable base for Stamp Duty under Verba 28.1 TGIS. The Respondent argues that independent units within vertical property lack legal autonomy and cannot be considered separate 'properties' (prédios) under the Civil Code definition. According to this interpretation, the relevant property value necessarily corresponds to the sum of all independent units' values. However, this position is contested by taxpayers who argue that such aggregation contradicts the express statutory reference to IMI valuation rules, which treat each independent unit separately, and violates the constitutional principles of equality and contributory capacity by creating disparate treatment between economically equivalent situations.
What is the relevant taxable base for Stamp Tax on residential properties exceeding €1,000,000 under Verba 28 TGIS?
The relevant taxable base for Stamp Tax on residential properties under Verba 28.1 TGIS is the patrimonial tax value (valor patrimonial tributário) used for Municipal Property Tax (IMI) purposes. Item 28.1 applies progressive rates to properties exceeding €1,000,000: properties from €1,000,000 to €2,000,000 are taxed at 0.7% (€7 per thousand), those exceeding €2,000,000 are taxed at 1.0% (€10 per thousand), and luxury properties may face additional rates. The critical interpretive question is whether, for vertical properties containing multiple independent residential units, the relevant taxable base is (i) the aggregate sum of all units' patrimonial values, potentially triggering higher tax brackets, or (ii) each independent unit's individual patrimonial value, with Stamp Duty applying only to units individually exceeding €1,000,000. This determination directly impacts tax liability and compliance with constitutional principles of legality and equality in taxation.
How does the CAAD arbitral tribunal assess the relationship between IMI valuation rules and Stamp Tax incidence on vertical property?
The CAAD arbitral tribunal must assess whether IMI valuation rules apply analogously to Stamp Tax incidence on vertical property. The Claimant argues that the express statutory reference in item 28.1 TGIS to IMI valuation methodology mandates treating each independent unit autonomously, as IMI makes no distinction between horizontal and vertical co-ownership for registration, valuation, and assessment purposes. All independent units receive separate entries on the property register (matriz predial) with individual patrimonial values. The tribunal must determine whether this IMI autonomy translates to Stamp Duty or whether, as the Tax Authority contends, properties not under horizontal co-ownership require mandatory value aggregation. The Respondent argues that accepting the Claimant's interpretation would constitute unconstitutional analogical application violating Article 103 of the Constitution (legality principle), as it would extend horizontal co-ownership rules to full ownership situations. The tribunal's analysis centers on statutory interpretation, legislative intent, and constitutional principles of equality and contributory capacity.
What remedies are available to taxpayers who overpaid Stamp Tax due to incorrect aggregation of property values, including compensatory interest (juros indemnizatórios)?
Taxpayers who overpaid Stamp Tax due to incorrect aggregation of property values have several remedies. First, they may file a gracious complaint (reclamação graciosa) with the Tax Authority within the statutory deadline seeking revocation of the assessment. If dismissed, taxpayers may request constitution of an arbitral tribunal under the Legal Framework for Arbitration in Tax Matters (RJAT) pursuant to Articles 2 and 10 of Decree-Law 10/2011, as occurred in this case. The arbitral request should seek annulment of the Stamp Duty assessments and condemnation of the Tax Authority to refund taxes paid plus compensatory interest (juros indemnizatórios). Compensatory interest accrues on amounts paid in excess of what was legally due, compensating taxpayers for the Treasury's undue enrichment. The interest rate and calculation method are established by law. Alternatively, taxpayers may pursue judicial review before administrative and tax courts. Successful challenges result in assessment annulment, tax refund, and compensatory interest from the payment date until actual refund, providing full restitution for the illegality.