Process: 657/2015-T

Date: May 9, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitral decision addresses critical procedural and substantive issues in Portuguese Stamp Tax law under Verba 28.1 of the General Stamp Tax Table (TGIS). The claimant, A..., S.A., challenged four Stamp Duty assessments for 2014 concerning a property in Coimbra valued over €1,000,000. The central substantive question involved whether Stamp Tax liability for multi-unit residential properties should be calculated based on the total Patrimonial Value (VPT) of the entire property or the individual VPT of each autonomous unit. The property consisted of four autonomous units with horizontal ownership constituted in October 2014. However, significant procedural complications arose when the Tax Authority annulled all contested assessments on July 28, 2015, and notified the claimant on August 20, 2015—before the arbitration request was filed. The Tax Authority raised objections of original lack of utility (inutilidade da lide) and material incompetence of the arbitral tribunal, arguing that CAAD lacks jurisdiction to order tax refunds and compensatory interest once the underlying assessments have been annulled. The Authority contended that such claims should be pursued through enforcement of judgments procedures under Article 157(3) of the Administrative Procedure Code (CPTA). The Tax Authority also argued that the assessments resulted from the claimant's own error in failing to timely update the property register, precluding compensatory interest under Article 43 of the General Tax Law. This case illustrates the limitations of tax arbitration jurisdiction when the Tax Authority voluntarily annuls assessments before proceedings commence, and highlights the importance of proper property registration to avoid Stamp Tax assessments on horizontally-divided properties.

Full Decision

ARBITRAL DECISION

  1. REPORT

1.1 A…, S.A., with registered office at Rua…, no.…, …, …, …-…, legal person no. …, came, under article 2, no. 1, paragraph a) of Decree-Law no. 10/2011, of 20 January (hereinafter RJAT) and of Order no. 112-A/2011, of 22 March, to request the constitution of an arbitral tribunal.

1.2 The Respondent in these proceedings is the TAX AND CUSTOMS AUTHORITY.

1.3 The Ethics Council of the Administrative Arbitration Center (CAAD) appointed the undersigned to form the Sole Arbitral Tribunal, notifying the parties accordingly, and the Tribunal was constituted on 8 January 2016.

1.4 The request for an arbitral award concerns Stamp Duty assessments for the year 2014, numbers 2015…, 2015…, 2015… and 2015…, which are better identified in the Claimant's request and in the documents attached thereto, to which reference is made herein.

1.5 The Claimant invokes the illegality of the assessment acts, arguing that the subjection to stamp duty contained in item no. 28.1 of the TGIS is determined by the combination of two facts: the residential use and the Patrimonial Value of the Property (VPT) registered in the property register equal to or greater than €1,000,000.00. In the case of a property with the characteristics described in these proceedings, subjection to stamp duty is determined not by the VPT of the property as a whole, but by the VPT attributed to each of those floors or units.

The Claimant further petitions for the Respondent to be ordered to reimburse the amounts paid by virtue of the assessments in question, plus compensatory interest on all amounts paid, accrued up to the date of reimbursement.

1.6 The TAX AND CUSTOMS AUTHORITY replied, raising objections and contesting the claims.

By way of objection, the Respondent alleged that the assessments in question had already been annulled and the Claimant had already been notified thereof, all before the submission of the request to constitute the Arbitral Tribunal.

Therefore, at the date of submission of the request, there was no tax act susceptible to challenge, and the Respondent argues that the Arbitral Tribunal is incompetent to consider the request for reimbursement of tax paid and the request for payment of compensatory interest, which the Respondent submits should be pursued through the enforcement of judgments procedure provided for in no. 3 of article 157 of the Code of Administrative Procedure (CPTA).

It concludes, therefore, that there is no original utility of the proceedings as regards the main request for annulment of the identified tax assessments and that arbitration is not an appropriate remedy for the requests for restitution of tax and payment of compensatory interest.

By way of substantive defense, the Respondent argued, in summary, that the Claimant only corrected the registration in the property register after the issuance of the assessments in question, which promptly led to the correction of the register and the corresponding annulment of the improperly assessed tax. Therefore, the annulled assessments were made on the basis of an error attributable, according to the Tax Authority, to the Claimant itself, with no error attributable to the Services for purposes of application of no. 1 of article 43 of the General Tax Law (LGT), as well as the delay of more than one year, for purposes of application of paragraph c) of no. 3 of that article.

Accordingly, the Respondent concludes that the claims should be dismissed.

1.7 Notified to respond to the objection raised by the Respondent, the Claimant made no response.

1.8 Notified of the Tribunal's intention to waive the hearing of the arbitral tribunal provided for in article 18 of the RJAT, and as to the pleadings, the parties did not object. Notified to respond to the objection raised by the Respondent, the Claimant made no response.

  1. PROCEDURAL SANCTION

The Tribunal was properly constituted.

The parties have standing and capacity, are legitimate, and are properly represented.

The proceedings are not affected by any defects that would invalidate them.

The material jurisdiction of the Arbitral Tribunal is at issue, and its determination, as well as that of the objections of original lack of utility and inadequacy of the remedy raised by the Respondent, is postponed to the legal matters to be decided, as it is considered essential that a decision on the facts be rendered first.

  1. FINDINGS OF FACT

As relevant to the merits of the decision, the Tribunal finds the following facts to be proven:

  1. The Claimant is the owner of urban property located in Coimbra (…), on Rua…, parish of Coimbra (…), municipality of Coimbra, and Union of parishes of Coimbra (…, …, …and…), registered in the urban property register under article…;

  2. The said property consists of four autonomous units, which constitute independent, distinct and isolated units with separate exits, and horizontal ownership was constituted by notarial deed executed at the Notarial Office of… on 24 October 2014;

  3. The Tax and Customs Authority issued, with reference to the year 2014, the Stamp Duty assessments in question, relating to the various "floors" or "units" of the said property;

  4. The Claimant paid the amounts stated in the assessments;

  5. The Claimant submitted the request for registration or updating of properties in the register (Form 1 of IMI) on 30.10.2014;

  6. On 08.07.2015, the Claimant submitted a complaint, assigned number 2015…, through which it notified the "conversion to horizontal ownership", attaching a copy of the deed of constitution;

  7. On 28.07.2015, the Respondent issued accounting adjustment notices numbers 2015…, 2015…, 2015… and 2015…, reversing the amounts corresponding to the assessments in question, of which the Claimant was notified on 20.08.2015.

Facts Not Proven

No other essential facts relevant to the assessment of the merits of the case were alleged by the parties that were not proven.

Reasoning of the Decision on the Findings of Fact

The conviction as to the facts found proven is based on the allegations of the Claimant and Respondent that were not contradicted by the opposite party, supported by the documentary evidence submitted by both the Claimant and the Respondent, whose authenticity and correspondence to reality were also not questioned.

  1. LEGAL MATTERS - ISSUES TO BE DECIDED

The essential issues to be decided are:

  1. Where there is no challengeable assessment act, is the Arbitral Tribunal an appropriate forum to consider only the request for reimbursement of amounts paid and compensatory interest?

  2. With reference to properties not constituted under horizontal ownership but comprising various floors and units with independent use, some with residential use, is the relevant VPT as the criterion for the tax to apply the sum of the Patrimonial Value of the Property attributed to the different parts or floors (total VPT) or, rather, the VPT attributed to each of the parts or residential floors?

  3. If the act is illegal, does the Claimant have a right to compensatory interest calculated on the amounts paid?

It remains to be decided:

Jurisdictional issues are to be decided as a matter of priority, as provided for in article 13 of the Code of Administrative Procedure, subsidiarily applicable by virtue of article 29, no. 1, paragraph c), of the RJAT.

The jurisdiction of the arbitral tribunals operating within the CAAD is, in the first place, limited to the matters indicated in article 2, no. 1, of Decree-Law no. 10/2011, of 20 January (RJAT) - and also limited by the terms in which the Tax Administration accepted such jurisdiction by virtue of Order no. 112-A/2011, of 22 March - according to which it includes the consideration of the following claims:

a) The declaration of illegality of acts of tax assessment, self-assessment, withholding at source and payment on account;

b) The declaration of illegality of acts of determination of taxable matter when they do not give rise to any tax assessment, of acts of determination of taxable matter subject to collection and of acts of fixing Patrimonial Values (as amended by Law no. 64-B/2011, of 30 December).

Beyond the direct consideration of the legality of acts of this type, the jurisdiction of the arbitral tribunals operating within the CAAD also includes the power to consider second or third-level acts whose object is the consideration of the legality of acts of those types, namely acts that decide administrative appeals and hierarchical appeals, as results from the express references made in article 10, no. 1, paragraph a), of the RJAT to no. 2 of article 102 of the Tax Procedure Code (CPPT) (which concerns the judicial challenge of decisions on administrative appeals) and to "the decision on hierarchical appeal".

The fact that paragraph a) of no. 1 of article 10 of the RJAT refers to nos. 1 and 2 of article 102 of the CPPT, which identify the various types of acts that give rise to the period for judicial challenge, including administrative appeals, makes it clear that all types of acts capable of being challenged through the judicial challenge procedure covered by those nos. 1 and 2 will be within the jurisdiction of the arbitral tribunals operating within the CAAD, provided that they concern one of the types indicated in article 2 of the RJAT.

Moreover, this interpretation, to the effect that the fields of application of the judicial challenge procedure and the arbitral procedure are identical, is consistent with the said legislative authorization on which the Government based its approval of the RJAT, granted by article 124 of Law no. 3-B/2010, of 28 April, which reveals the intention that the tax arbitral process constitutes "an alternative procedural means to the judicial challenge procedure and to the action for recognition of a right or legitimate interest in tax matters" (no. 2).

This same argument drawn from the legislative authorization leads to the conclusion that the use of the arbitral process will be excluded when, in the judicial tax process, neither judicial challenge nor action for recognition of a right or legitimate interest is usable.

It is true that it has been understood, consistently with long-standing jurisprudence of the Supreme Administrative Court, that following a declaration of illegality of assessment acts made in a judicial challenge procedure, decisions may be rendered condemning payment of compensatory interest and also, by virtue of article 171, no. 1, of the CPPT, condemning payment of compensation for wrongful guarantees.

The fact remains that there is no legal basis for rendering condemnatory decisions of other types, even if they are consequences, at the enforcement level, of declarations of illegality of assessment acts. And, a contrario, such decisions cannot be rendered unless they are consequences of declarations of illegality of assessment acts.

In the present case, the annulment of the challenged acts by the tax administration means that they no longer exist in the legal order, so that the request for an arbitral award has no object at this point.

And it has no object, in terms of the facts found proven, ab initio.

The Claimant's claim had already been satisfied by the Respondent before the submission of the request to constitute the Arbitral Tribunal, and therefore, as the Respondent correctly argues, this constitutes not a subsequent lack of utility but an original lack of utility.

Both lead to the termination of the proceedings (under article 277 of the Code of Civil Procedure), but the distinction matters for the purposes of costs [1].

Furthermore, since the consideration of the legality of any assessment act, which would be the immediate object of the request, is not at issue, insofar as no longer any challengeable act exists in the legal order, it is manifest that this Arbitral Tribunal lacks jurisdiction to consider requests that are consequent to it, that is, the mediate objects, in this case, the request for reimbursement of amounts paid and the condemnation to pay compensatory interest.

Since the jurisdiction of the arbitral tribunals operating within the CAAD is limited to the field of application of the judicial challenge procedure, only requests that involve the consideration of the legality of an assessment act fall within this jurisdiction.

The legislative concern to exclude from the jurisdiction of the arbitral tribunals operating within the CAAD the consideration of the legality of administrative acts that do not involve the consideration of the legality of assessment acts, beyond resulting from the outset from the general directive to create an alternative means to the judicial challenge procedure and to the action for recognition of a right or legitimate interest, is clearly shown in paragraph a) of no. 4 of article 124 of Law no. 3-B/2010, of 28 April, which indicates among the possible objects of the tax arbitral process "administrative acts that involve the consideration of the legality of assessment acts", for this specification can only be justified by a legislative intention to exclude from the possible objects of the arbitral process the consideration of the legality of acts that do not involve the consideration of the legality of assessment acts.

The appropriate remedies for recognition of the rights of taxpayers that result from decisions issued by the Tax Administration favorable to the taxpayers and which the Administration does not properly enforce are those provided for in the section "On Enforcement Procedure" of the Administrative Procedure Code (CPTA), pursuant to no. 1 of article 146 of the CPPT.

Accordingly, to compel the Tax Administration to enforce final acts carried out by it (consolidated, non-challengeable acts), the appropriate and applicable remedy is the enforcement of judgments procedure provided for in the CPTA.

It must therefore be concluded that this Arbitral Tribunal lacks jurisdiction to consider the request for reimbursement and the condemnation to pay compensatory interest.

In fact, the Tribunal cannot exercise the powers conferred on it by law (namely, to declare the illegality of self-assessment acts), insofar as there are no assessment acts to review.

And although the Respondent has presented the objection as one of inadequacy of the remedy, what is actually at issue is an objection of lack of material jurisdiction, which must be considered ex officio and constitutes an obstacle to consideration of the merits of the case and justifies the dismissal of the Tax and Customs Authority from the proceedings [articles 16, no. 1, of the CPPT and 278, no. 1, paragraph a), of the Code of Civil Procedure, subsidiarily applicable by virtue of article 29, no. 1, paragraphs c) and e), of the RJAT].

Issues Prejudiced from Consideration

In accordance with the foregoing, since the proceedings are futile as regards the request for declaration of illegality and consequent annulment of the stamp duty assessments identified in the request to constitute the Arbitral Tribunal, because the claim of the taxpayer had already been satisfied by the Tax Administration (before submission of the request), and since the Tribunal lacks material jurisdiction to consider the requests for reimbursement of amounts paid by the Respondent and for payment of compensatory interest on such amounts, it is necessary to dismiss the Tax and Customs Authority from the proceedings, with the consequence that consideration of the other issues raised in the proceedings is prejudiced.

  1. DECISION

For these reasons and with the foregoing reasoning, the Tribunal decides:

To declare the original lack of object and the consequent termination of the proceedings due to the futility of the claim as regards the request for declaration of illegality and annulment of the stamp duty assessments identified in the request to constitute the Arbitral Tribunal;

To find that the Arbitral Tribunal lacks material jurisdiction to consider the requests for reimbursement of amounts paid by the Respondent and for payment of compensatory interest on such amounts, and, consequently, in that respect to dismiss the Tax and Customs Authority from the proceedings.

The value of the case is fixed at €13,488.70 (thirteen thousand, four hundred and eighty-eight euros and seventy cents), in accordance with articles 3, no. 2 of the Rules of Costs in Tax Arbitration Proceedings (RCPAT), 97-A, no. 1, paragraph a) of the CPPT and 306 of the Code of Civil Procedure.

The amount of costs is fixed at €918.00 (nine hundred and eighteen euros) under article 22, no. 4 of the RJAT and Table I attached to the RCPAT, to be borne by the Claimant, in accordance with articles 12, no. 2 of the RJAT and 4, no. 4 of the RCPAT and 527 of the Code of Civil Procedure.

Notification shall be given.

Lisbon, 9 May 2016

The Arbitrator

(Eva Dias Costa)

Document drawn up by computer, in accordance with article 131, no. 5 of the Code of Civil Procedure, applicable by reference to article 29, no. 1, paragraph e) of the RJAT.

[1] See the Judgment of the Court of Administrative Appeals, Southern Panel (TCA Sul) of 25.11.2000, rendered in Case 0684/10, the full text of which is available at http://www.dgsi.pt.

Frequently Asked Questions

Automatically Created

What is the Stamp Tax (Imposto do Selo) under Verba 28.1 of the TGIS for properties valued over €1,000,000?
Stamp Tax under Verba 28.1 of the TGIS (General Stamp Tax Table) applies to urban residential properties with a Patrimonial Value (VPT) equal to or exceeding €1,000,000. The tax is levied annually at progressive rates on high-value residential real estate. A critical interpretive question concerns multi-unit properties: whether the €1,000,000 threshold applies to the total property value or to each autonomous unit individually. In this case, the claimant argued that for properties with horizontal ownership comprising separate autonomous units, each unit should be assessed independently, meaning only units individually valued at €1,000,000 or more would be subject to the tax. The Tax Authority initially assessed the tax based on the property's total value but later annulled the assessments after the claimant registered the horizontal ownership division, implicitly recognizing the unit-by-unit approach. Proper and timely registration of horizontal ownership with the tax authorities is essential to ensure correct Stamp Tax treatment of multi-unit residential properties.
When can a tax arbitration case be dismissed for mootness (inutilidade da lide) due to prior annulment of tax assessments?
A tax arbitration case can be dismissed for mootness (inutilidade superveniente da lide) when the contested tax act ceases to exist before the arbitral tribunal renders its decision. In this case, the Tax Authority raised the objection of original lack of utility (inutilidade originária da lide) because the assessments were annulled on July 28, 2015, and the claimant was notified on August 20, 2015—both dates preceding the submission of the arbitration request. When no challengeable tax act exists at the time the arbitration is initiated, the main claim for annulment becomes moot. The Tax Authority argued that once the assessments were annulled, there was no longer any tax act susceptible to challenge through arbitration. This procedural defense goes to the heart of the arbitral tribunal's jurisdiction: arbitral tribunals under RJAT (Decree-Law 10/2011) have competence to declare the illegality of existing tax acts, but when those acts have already been eliminated by the Tax Authority itself, the legal basis for arbitration disappears. However, this raises the separate question of whether claims for reimbursement and compensatory interest survive the annulment as independent claims.
Does the CAAD Tax Arbitral Tribunal have jurisdiction to order tax refunds and compensatory interest after assessments are annulled?
The material jurisdiction of CAAD tax arbitral tribunals is limited by Article 2(1) of the RJAT (Decree-Law 10/2011) and Order 112-A/2011. Arbitral jurisdiction covers declaring the illegality of tax assessment acts, but whether it extends to ordering tax refunds and compensatory interest after assessments have been annulled is contested. In this case, the Tax Authority argued that the arbitral tribunal lacks competence to consider requests for reimbursement and compensatory interest once the underlying assessments have been annulled. The Authority contended these claims should be pursued through the enforcement of judgments procedure under Article 157(3) of the Code of Administrative Procedure (CPTA), not through arbitration. The rationale is that arbitration is designed to challenge existing administrative acts, not to function as a debt collection mechanism when no contested act remains. The arbitral tribunal's jurisdiction is fundamentally tied to the existence of a challengeable tax act; once that act is annulled, ancillary claims for reimbursement and interest may fall outside arbitral competence and require alternative procedural remedies through administrative or judicial enforcement channels.
How is the taxable value (VPT) determined for multi-unit residential properties under Portuguese Stamp Tax?
For multi-unit residential properties under Portuguese Stamp Tax law, the determination of taxable Patrimonial Value (VPT) depends on whether the property is constituted under horizontal ownership (propriedade horizontal). For a unified property not divided into autonomous units, the total VPT determines tax liability under Verba 28.1 TGIS. However, when horizontal ownership is properly constituted, each autonomous unit is treated as a separate property for tax purposes, and the VPT of each individual unit determines whether the €1,000,000 threshold is met. In this case, the claimant owned a property with four autonomous units with horizontal ownership constituted by notarial deed in October 2014. The Tax Authority initially issued Stamp Tax assessments treating the property as a whole, but after the claimant submitted Form 1 (IMI property registration) and filed a complaint notifying the horizontal ownership conversion in July 2015, the Tax Authority issued accounting adjustment notices annulling the assessments. This demonstrates that proper registration of horizontal ownership with tax authorities is crucial—failure to timely update the property register can result in incorrect Stamp Tax assessments based on total property value rather than individual unit values.
What legal remedies are available when the Tax Authority annuls Stamp Tax assessments before arbitration proceedings begin?
When the Tax Authority annuls Stamp Tax assessments before arbitration proceedings begin, taxpayers face limited remedies through the arbitral tribunal system. As this case demonstrates, once assessments are annulled, the primary claim for declaration of illegality becomes moot because there is no longer a challengeable tax act. However, taxpayers who paid taxes under the annulled assessments retain the right to seek reimbursement and compensatory interest. The critical procedural question is which forum has jurisdiction for these claims. The Tax Authority argued that claims for refund and interest must be pursued through enforcement of judgments procedures under Article 157(3) CPTA rather than through arbitration. Additionally, obtaining compensatory interest requires demonstrating that the erroneous assessment resulted from Tax Authority error under Article 43 of the General Tax Law (LGT). In this case, the Tax Authority contended the assessment error was attributable to the claimant's failure to timely register the horizontal ownership, precluding compensatory interest. Taxpayers in this situation should: (1) verify that refunds were actually processed following annulment; (2) calculate any compensatory interest owed under Article 43 LGT if the error was attributable to tax authorities; and (3) pursue refund claims through appropriate administrative channels or enforcement procedures rather than arbitration if assessments have already been annulled.