Process: 726/2014-T

Date: March 10, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Process 726/2014-T addresses whether Stamp Tax under Verba 28.1 TGIS applies to properties registered as vertical ownership (propriedade vertical) containing multiple autonomous residential units. The claimant owned a building with 20 apartments registered in vertical property, each valued below €1,000,000. The Tax Authority assessed 1% Stamp Tax on the aggregate taxable patrimonial value of €1,186,734.22, arguing that vertical property constitutes a single taxable unit. The claimant contested this, arguing that: (1) for IMI purposes, each apartment is taxed individually based on its separate taxable value, regardless of vertical or horizontal property registration; (2) applying the same logic, Stamp Tax should only apply if individual apartments exceed €1,000,000; (3) the Tax Authority's interpretation creates discriminatory 'double standards' by treating apartments separately for IMI but aggregating them for Stamp Tax; (4) this violates principles of equality, legal certainty, good faith, and legitimate expectations enshrined in the Constitution and General Tax Law. The claimant argued the legislator intended substance over form, targeting only high-value 'luxury' properties, not modest apartments. The case raises fundamental questions about whether the taxable base under Verba 28.1 should be determined by land registry form (vertical vs. horizontal property) or by economic substance (individual autonomous units). This arbitration decision is significant for interpreting Verba 28 TGIS in multi-unit property contexts and the relationship between land registry classifications and tax treatment.

Full Decision

ARBITRATION DECISION

REPORT

A, taxpayer with Tax Identification Number …, resident in … (hereinafter referred to as Claimant) hereby, under the combined provisions of Articles 2(1)(a) and 10(1)(a) of the Legal Regime for Arbitration in Tax Matters (RJAT), files a request for arbitration, in which the Tax and Customs Authority (hereinafter referred to as AT or Respondent) is named, seeking the declaration of illegality and consequent annulment of the "assessments relating to the second installments of stamp duty" for the year 2013, relating to the urban property registered in the land register under the article ... of the parish of ..., municipality of ..., which are contained in the payment notices attached to the arbitration request (documents 1 to 20).

The arguments presented by the Claimant are, in summary, as follows:

a) The assessments that are the subject of the arbitration request were based on the taxable patrimonial values of twenty apartments capable of being leased separately, which comprise the 1st and 2nd floors of the urban property situated in ..., registered in the property land register of the parish of ..., under article ... (articles 1 and 2 of the application);

b) Although the property in question had, since the date of its registration in the land register, the conditions necessary for its constitution as horizontal property, the fact is that the Claimant never chose to constitute it as such, since it never intended to sell the apartments (article 6 of the application);

c) Moreover, regardless of whether the property identified were registered in the land register as vertical property or horizontal property, in terms of Municipal Property Tax (IMI) taxation it had the same treatment, that is, the Municipal Property Tax collection, in either case, was calculated on the taxable patrimonial value of each of the apartments, and for that reason it was entirely irrelevant whether the property was registered in the land register as vertical property, as it was and is, or as horizontal property (article 7 of the application);

d) If the taxation of the property under Municipal Property Tax depended on one of those forms of land register registration and if the more favorable taxation depended on its constitution as horizontal property, the Respondent would not have failed to submit it to horizontal property (article 8 of the application);

e) However, notwithstanding the interpretation that the AT is giving to the rule that added item 28 to the Stamp Duty Table, the Claimant continues to believe that it is irrelevant whether the property is registered in one or the other regime (article 12 of the application);

f) The Claimant concludes that the AT is making an incorrect interpretation of the aforementioned rule (item 28 of the General Stamp Duty Table), in that whether properties are registered in the land register as vertical property or horizontal property, for purposes of Municipal Property Tax, the effect is precisely the same, since taxation is carried out, in this case, apartment by apartment, on the basis of the taxable patrimonial value of each, and if it is thus for Municipal Property Tax, equal treatment should apply to the 1% stamp duty and, as Stamp Duty is levied on taxable patrimonial value equal to or greater than €1,000,000.00 and none of the apartments has that value, the assessment in question was and is illegal (article 13 of the application);

g) Therefore, if the taxable patrimonial value of each of the divisions capable of being leased separately is valid for determining the Municipal Property Tax collection, it should equally be valid for purposes of stamp duty assessment, and when it is valid, this tax cannot be assessed precisely because none of the apartments has value equal to or greater than that previously indicated (…) in taking this action, the AT is using "double standards" [whereby] the principle of equality was and is being violated (articles 14 and 15 of the application);

h) Article 4 of Law No. 55-A/2012, of October 29, added item 28 to the General Stamp Duty Table with the following wording:

"28 – Ownership, usufruct or right of superficies of urban properties whose taxable patrimonial value registered in the land register, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than €1,000,000.00 – on the taxable patrimonial value used for Municipal Property Tax purposes:

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

28.2 – For property, when the taxpayers who are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, listed in the list approved by a ministerial ordinance by the Minister of Finance – 7.5%" (article 17 of the application);

i) By virtue of Article 6 of the Law that added item No. 28 to the General Table, the AT assessed, for the year 2012, Stamp Duty in the amount of €7,463.62, the total amount calculated from the sum of assessments made, considering the aggregate taxable patrimonial value of €1,186,734.22, relating to the sum of the taxable patrimonial value of the 20 autonomous residential units with residential use (article 18 of the application);

j) The Tax Services understood that, since the property (…) was not legally constituted in accordance with the horizontal property regime, it was not the fact that each of the 20 autonomous residential units had a taxable patrimonial value of less than €1,000,000.00 that exempted them from taxation at the rate of 1%, with the taxable patrimonial value of the aggregate of the 20 autonomous residential units being relevant, simply by virtue of the fact that the property was registered in the land register as vertical property (article 19 of the application);

k) The Claimant is in complete disagreement with the AT as regards taxation, for the simple reason that if this were the legislator's intention, it would not have targeted only the tax increase contemplated in the rule, relating to "luxury" units of high patrimonial value and never as is happening with the modest apartments mentioned above (article 20 of the application);

l) If this were the legislator's intention, it would be failing to respect (…) not only the principle of good faith, but the principle of legal certainty, the principle of reliance and the principle of cooperation and even that of equality (article 21 of the application);

m) (…) if the legislator said nothing regarding the form of taxation of such properties under 1% stamp duty and made no distinction between vertical property and horizontal property, intended for residential use, it is well known that it intended to give them the same treatment in terms of Stamp Duty taxation, similar to what occurs in terms of Municipal Property Tax (article 25 of the application);

n) Otherwise, the legislator would certainly not have failed to legislate to give taxpayers the necessary time to be able to convert to horizontal property those properties that offered the necessary requirements for such purposes, so that they would thus be exempt from taxation of the said Stamp Duty (…) the idea that emerges is that the legislator gave weight to substance and underestimated form (articles 26 and 29 of the application);

o) (…) In fact, it is not credible that, knowing the legislator the reality of land register registrations, the Law would suddenly appear and be applied to taxpayers in such circumstances (as in the case of the claimant), clearly violating, among others, the principles of legal certainty and good faith that should exist in relations between the Administration and private parties, enshrined in Articles 59 of the General Tax Law and 7 of the Administrative Procedure Code, provisions which had their origin in Articles 22, 266 and 267 of the Constitution of the Republic (article 38 of the application);

p) (…) As Vasco Branco Guimarães writes ("Lessons in Taxation", 2012 – Almedina, page 76): "Good faith in tax law manifests itself at three levels: a) At the level of interpretation of the law, as a legitimate belief of the parties; b) At the level of conduct in relations between the taxpayer and the Tax Services; c) At the level of coherence of professional action in decision-making" (…) in our view, in the assessments challenged, all three enshrined levels were left behind – interpretation of the law, conduct in relations and coherence (articles 41 and 42 of the application);

q) (…) The AT, disregarding the taxable patrimonial value relating to each of the autonomous residential units of the property in the stamp duty assessment of item No. 28 of the General Table, clearly disrespected the "ratio juris" of the rule, which can only provide for the incidence of the tax with respect to "luxury" units with taxable patrimonial value equal to or greater than €1,000,000.00;

r) Because subjecting such residential units to tax, solely by reason of the non-existence of the legal instrument that would formalize and formalizes horizontal property, is to completely deny the principle that prevails in Tax Law of "Prevalence of Substance over Form" (…) enshrined in many tax rules (…) (articles 45 and 46 of the application);

s) This same tax principle is clearly identifiable with the "principle of the prevalence of economic substance over the form of acts", and it is certain that, for purposes of classifying facts within rules of tax incidence and their consequent taxation, one must respect what is enshrined in Article 11(3) of the General Tax Law (article 47 of the application);

t) (…) the Tax Administration (…) cannot apply the principle of substance over form when it acts in its favor, that is, whereby through it tax assessments are achieved, and disregard it when the application thereof avoids tax incidences by respecting the same principle (article 51 of the application);

u) (…) with reference to the property identified in this petition, the taxable patrimonial value, necessarily broken down for each of its parts capable of separate rental and with complete economic autonomy between them, produces exactly the same effects, whether or not the deed of constitution of horizontal property is executed, both as regards the 1% stamp duty, and as regards Municipal Property Tax or the taxation of income from each of the portions leased separately under Personal Income Tax (article 52 of the application).

The Claimant concludes by requesting the complete annulment of the assessments challenged, resulting from an erroneous interpretation of the applicable legal rules, and consequently of the enforcement proceedings to which they gave rise, assigning to the case the value of €4,975.68.

Notified in accordance with and for the purposes provided in Article 17 of the RJAT, the Tax and Customs Authority filed a reply, defending itself by exception and by challenge, on the following grounds:

By exception:

  1. The "dual" untimeliness of the request

a) The AT considers that the arbitration request is untimely, given that the tax assessment, as evidenced by the date shown on all 20 payment notices attached to the case by the Claimant, is March 17, 2014, and the first voluntary payment deadline occurred in April 2014, in accordance with Article 120 of the Municipal Property Tax Code, applicable by virtue of Article 3 of Law No. 55A/2012, of October 29;

b) In accordance with Article 10(1)(a) of Decree-Law No. 10/2011, of January 20, which approved the Legal Regime for Tax Arbitration, and Article 102(1)(a) of the Code of Tax Procedure and Process, "the deadline for filing the request to constitute the arbitration tribunal is 90 days from the end of the deadline for voluntary payment of the tax," that is, the deadline for requesting the constitution of the arbitration tribunal ended on July 29, 2014;

c) (…) as this request was filed on October 17, 2014, almost three months later, it is clearly untimely;

d) But the request is also untimely for another reason: in accordance with Article 120(4) of the Municipal Property Tax Code, applicable here (…), non-payment of an installment of tax within the established deadline implies the immediate maturity of the remaining installments;

e) Now, having the Claimant failed to pay the 1st installment of the tax, whose deadline was April 30, 2014, it means that on that same date the 2nd and 3rd installments of the tax matured;

f) If the installment whose legality of the payment notice is now being contested had its payment deadline end on April 30, 2014, the request to constitute the arbitration tribunal, filed on October 17, 2014, is clearly untimely, considering the deadlines and rules cited above;

  1. The incompetence of the arbitration tribunal

g) But even if this were not the case, it must be stated, very clearly, that the act that is the subject of the arbitration request is beyond the competence of the Arbitration Tribunal;

h) In fact, the Claimant does not challenge a tax act, but rather challenges the payment of an installment of a tax act contained in a payment notice, that is, the object of the case is the annulment not of a tax act, but of a payment notice for the payment of the 2nd installment of a tax, a matter which is not contained, in any way, in the set of the rule that delimits the competence of tax arbitration tribunals, contained in Article 2 of the RJAT;

i) That is, the Arbitration Tribunal is incompetent to hear the request filed;

  1. Procedural litispendence

j) (…) we are facing a situation of procedural litispendence (…) if here the Claimant questions the legality of the collection of the 2nd installment of stamp duty in case 421/2014-T, with the date of the request to constitute the arbitration tribunal of June 9, 2014, the same Claimant questions, it seems, not only the collection of the 1st installment of the tax, but the very legality of the tax assessments;

k) Now, the legality of the tax assessment appears to be something that should be reviewed in case 421/2014-T, which has that object, and not in the present case, in which the legality of a payment notice for the 2nd installment of the tax previously assessed is being questioned;

By challenge:

l) (…) the Claimant held full ownership of the urban property in question, assessed in accordance with the Municipal Property Tax Code, as part of the general assessment of urban properties, contained in article ... of the urban property land register of the parish of ..., municipality of ..., described as "property in full ownership with floors or divisions capable of independent use," composed of 3 floors and 20 floors capable of independent use, with taxable patrimonial value (VP) exceeding €1,000,000.00;

m) With reference to the year 2013, in compliance with and in accordance with Article 6(2) of Law No. 55-A/2012, of 29/10, which added item No. 28 to the General Stamp Duty Table, (…) the AT proceeded to assess the matter that is the subject of the present arbitration request;

n) Article 44(5) of the Stamp Duty Code, as amended by Law No. 55-A/2012, of 29/10, provides that, where an assessment takes place, the tax referred to in item 28 of the General Stamp Duty Table is paid, in the deadlines, terms and conditions defined in Article 120 of the Municipal Property Tax Code, in three installments in the months of April, July and November, as provided in Article 120(1)(c) of that Code;

o) The concept of property is defined in Article 2(1) of the Municipal Property Tax Code, with it being stated in Article 2(4) that in the horizontal property regime, each autonomous fraction constitutes a property. It follows from the analysis of the rule that a "property in full ownership with floors or divisions capable of independent use" is, unequivocally, different from a property in the horizontal property regime, constituted by autonomous fractions, that is, several properties;

p) Article 12 of the Municipal Property Tax Code establishes the concept of the property land register, and Article 12(3) concerns, exclusively, the manner of recording land register data; as to the assessment of Municipal Property Tax, where it is a property in full ownership, the taxable patrimonial value that serves as the basis for its calculation will be unquestionably the taxable patrimonial value that the Claimant now defines as the "aggregate value of the property";

q) In compliance with Article 119(1) of the Municipal Property Tax Code, the payment document is sent to the taxpayer with a breakdown of the parts capable of independent use, their respective taxable patrimonial value and the tax collected imputable to each municipality in which the properties are located;

r) (…) the Claimant questions the taxable patrimonial value of the property, by reason of the fact that it is characterized by being a property in full ownership with floors or divisions capable of independent use, and as such do not have a taxable patrimonial value exceeding €1,000,000.00;

s) It argues that there is no rule that stipulates that the taxable patrimonial value of a property composed of several floors or divisions capable of independent use corresponds to the sum of the respective parts, arguing that we are faced with a defect of violation of law due to error as to the legal presuppositions;

t) However, the thesis defended by the Claimant lacks legal support, for although the assessment of Stamp Duty, in the situations provided for in item 28.1 of the General Stamp Duty Table, is carried out in accordance with the rules of the Municipal Property Tax Code, the truth is that the legislator reserves the aspects that require the necessary adaptations, namely those in which, as is the case with properties in full ownership, even though with floors or divisions capable of independent use (even though Municipal Property Tax is assessed in relation to each part capable of independent use) for purposes of Stamp Duty the property in its entirety is relevant, for the divisions capable of independent use are not considered as property, but only autonomous fractions in the horizontal property regime, in accordance with Article 2(4) of the Municipal Property Tax Code;

u) In accordance with the rules of the Municipal Property Tax Code, specifically Article 113(1), assessment is effected on the basis of the taxable patrimonial values of properties and in relation to the taxpayers contained in the land registers on December 31 of the year to which they relate (in the case of the 2013 tax);

v) It is not evident how the taxation in question could have violated the principle of equality (…) the AT understands that the provision in item 28.1 of the General Stamp Duty Table does not constitute any violation of the principle of equality, with there being no discrimination in the taxation of properties constituted as horizontal property and properties in full ownership with floors or divisions capable of independent use, or between properties with residential use and properties with other uses [for] horizontal property and vertical property are differentiated legal institutes;

w) The constitution of horizontal property does, it is a fact, merely a legal alteration of the property, with there being no re-evaluation (circular No. 40.025, of 11.08.2008, of the Directorate-General for Land Management), but the legislator may, however, subject to a distinct tax legal framework, and thus discriminatory, properties in horizontal and vertical regimes, in particular, benefiting the legally more developed institute of horizontal property, without such discrimination necessarily being considered arbitrary;

x) (…) the different valuation and taxation of a property in full ownership as opposed to a property constituted as horizontal property flows from the different legal effects inherent in these two figures;

y) In effect, the constitution as horizontal property determines the division/splitting of full ownership and the independence or autonomy of each of the fractions that constitute it, for all legal purposes, in accordance with Article 4(2) of the Municipal Property Tax Code and Articles 1414 et seq. of the Civil Code, whereas a property in full ownership constitutes, for all purposes, a single legal-tax reality;

z) Thus, one cannot conclude that there is alleged discrimination in violation of the principle of equality when, in truth, we are faced with distinct realities, valued by the legislator in a different manner;

aa) It is also important to note that taxation under Stamp Duty obeys the criterion of adequacy, precisely in so far as it aims at the taxation of wealth embodied in the ownership of high-value properties, arising in a context of economic crisis which cannot at all be ignored, [and therefore] the choice of this mechanism for obtaining revenue is legitimate, which would only be censurable, in light of the principle of proportionality, if it resulted in something clearly indefensible;

bb) Under these terms, the assessments now challenged remain entirely valid and legal and are duly substantiated in the administrative process, leading to the conclusion of their legality.

The request for constitution of the Arbitration Tribunal was filed with the Administrative Arbitration Centre (CAAD) on October 17, 2014, was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on October 20, 2014.

The Claimant chose not to appoint an arbitrator, and therefore, pursuant to Article 6(1) of the RJAT, the undersigned was appointed by the President of the CAAD Ethics Council to serve on the present arbitration tribunal, a responsibility which I accepted as legally provided.

The Arbitration Tribunal was duly constituted on December 23, 2014.

The parties have legal personality and capacity, are legitimate and are duly represented (Articles 4 and 10(2) of the RJAT and Article 1 of Ordinance No. 112-A/2011, of March 22).

By order of February 2, 2015 and, taking into account that the parties did not request the production of additional evidence, the meeting referred to in Article 18 of the RJAT was dispensed with, and it was determined that the case would proceed with successive written submissions, within a period of 10 days following notification for the Claimant's submissions and, with notification of the presentation of the Claimant's submissions, the same period for the AT's submissions.

Given the nature of the questions raised by the AT in its reply, the Claimant was also invited to inform the Tribunal on the possible payment of the first installment of the Stamp Duty assessments identified in the arbitration request, as well as, if it so understood and within the deadline for submissions, to clarify the request, in terms of the exact identification of the acts challenged: (1.) Whether the acts of assessment of Stamp Duty for the year 2013, relating to each of the economically independent parts of the urban property registered under article ... of the parish of ..., municipality of ..., or (2.) Whether only each of the second installments of the aforementioned Stamp Duty assessments.

The parties filed no submissions, nor did the Claimant provide any additional clarification regarding the object of the arbitration request.

MATERIAL FACTS

Facts with relevance to the decision, which are considered proven:

At the time of the occurrence of the tax event, as well as the issuance of the Stamp Duty assessments for the year 2013, the Claimant was the owner of the urban property registered in the property land register under article ..., of the parish of ..., municipality of ...;

The said property, in accordance with the property record issued by the Tax Service of the area of its location, comprised twenty floors or divisions capable of independent use, numbered 101 to 110 on the 1st floor, and 201 to 210 on the 2nd floor, all intended for residential use, whose taxable patrimonial values ranged between €69,574.75 and €108,761.13, in a total value of €1,492,734.28;

On an unspecified date, the Claimant was notified to make payment of the second installments of the Stamp Duty assessments, during the month of July 2014, by reference to the divisions of independent use that comprised the urban property above, in accordance with the payment documents identified with the numbers 2014 ..., 2014 ..., 2014 ..., 2014 ..., 2014 ..., 2014 ..., 2014 ..., 2014 ..., 2014 ..., 2014 ..., 2014 ..., 2014 ..., 2014 ..., 2014 ..., 2014 ..., 2014 ..., 2014 ..., 2014 ..., 2014 ..., 2014 ...;

Each of the said payment notices contains, among other elements, the identification of the division of independent use of the taxed urban property, references to the tax incidence rule (item 28.1 of the General Stamp Duty Table), the tax rate (1.00%), the tax collected, the date on which the assessment was made (March 17, 2014), as well as the amount of the 2nd installment and its respective payment month (July 2014);

At the time of filing the request to constitute the arbitration tribunal, neither the first nor the second installments of the Stamp Duty assessments for the year 2013 relating to the twenty divisions of independent use of the urban property identified had been paid.

Substantiation of the material facts considered as proven:

The Tribunal's conviction regarding the material facts with relevance to the decision, considered as proven, resulted from analysis of the documentary evidence attached to the arbitration request (copy of the property record of the property identified in it and of the notifications for payment of the second installments of the Stamp Duty assessments for the year 2013); as to non-payment of the first installments of the mentioned assessments, from the reference made to it in the Respondent's reply, not contested by the Claimant; as to non-payment of the second installments, from the content of the Claimant's request, according to which the assessments challenged should be annulled in their entirety and, consequently, the enforcement proceedings to which they gave rise, which the AT did not contest.

Facts not proven

There are no facts relevant to the decision of the case that should be considered as not proven.

SUBSTANTIVE LAW – REASONING

In its reply, the Tax and Customs Authority invokes exceptions which, if verified, will result in the dismissal of the claim. These are procedural matters of priority consideration, in accordance with Article 608(1) of the Civil Procedure Code, of subsidiary application to tax arbitration proceedings, by virtue of Article 29(1)(e) of the RJAT. Let us examine them.

The "Dual" Untimeliness of the Request

The first issue raised by the AT is that of the untimeliness of the arbitration request, as of the date of its filing with CAAD on October 17, 2014, the 90-day period from the final date for voluntary payment of the 2013 Stamp Duty assessments (April 30, 2014), referred to in Article 10(1)(a) of the RJAT, had been exceeded.

The AT argues that, in accordance with Article 120(4) of the Municipal Property Tax Code, "applicable by virtue of Article 3 of Law No. 55A/2012, of October 29, non-payment of an installment of tax within the established deadline implies the immediate maturity of the remaining installments."

Thus, not having been paid by April 30, 2014 the first installment of each of the assessments identified in the payment notices attached to the arbitration request, all remaining installments of the tax would have matured on that date, which would determine that the deadline for requesting the constitution of the arbitration tribunal would have ended on July 29, 2014.

In fact, Article 3 of Law No. 55-A/2012, of October 29, introduced amendments to various articles of the Stamp Duty Code, approved by Law No. 150/99, of September 11, among which its Article 44, which provides in paragraph 5:

"5 — If there is an assessment of the tax referred to in item No. 28 of the General Table, the tax is paid in the deadlines, terms and conditions defined in Article 120 of the Municipal Property Tax Code."

And, in turn, Article 120 of the Municipal Property Tax Code, as amended by Article 215 of Law No. 66-B/2012, of December 31 (State Budget for 2013), is worded as follows:

"Article 120 – Payment deadline

1 – The tax must be paid:

a) In one installment, in the month of April, when its amount is equal to or less than €250;

b) In two installments, in the months of April and November, when its amount is greater than €250 and equal to or less than €500;

c) In three installments, in the months of April, July and November, when its amount is greater than €500.

2 – Whenever an assessment must take place outside the deadline referred to in Article 113(2), the taxpayer is notified to proceed with payment, which must take place by the end of the month following that of the notification.

3 – Whenever in the same year, for reasons attributable to the services, tax is assessed relating to two or more years and the total amount to be collected is greater than €250, the tax relating to each of the years in arrears is paid at six-month intervals counted from the month following, inclusive, that of the notification referred to in the previous number, with the oldest tax being paid first.

4 – In the cases provided for in paragraphs 1 and 3, non-payment of an installment or an annuity within the established deadline implies immediate maturity of the remaining installments. (underlined)

5 – If the delay in assessment is attributable to the taxpayer, the latter is notified to proceed with payment of the tax relating to all years in arrears."

As the Stamp Duty assessments relating to the year 2013 and each of the divisions of independent use of the urban property identified in the proceedings were made at the rate of 1% and, with their taxable patrimonial values ranging between €69,574.75 and €108,761.13, in a total of €1,492,734.28, the tax assessed in relation to each of those divisions varied between €695.75 and €1,087.61, amounts to be paid in three installments, in the months of April, July and November of 2014, in a total of €14,927.34.

The payment notices whose copies were attached to the request to constitute the arbitration tribunal concern, exclusively, the second installments of the assessments notified to the Claimant, the sum of which equaling the value assigned to the case, that is, €4,975.68.

Not having been paid the first installment of each of the mentioned assessments by the end of April 2014, the second and third installments would have immediately matured.

However, such maturity proves ineffective with respect to the taxpayer, due to the fact that the AT notified it again, granting it a new deadline to proceed with payment (voluntary) of the second installments of those assessments, during the month of July 2014, as shown in the payment notices attached to the arbitration request.

Thus, with the deadline for voluntary payment of the second installments of the Stamp Duty assessments ending on July 31, 2014, and with the arbitration request having been filed before the expiration of the 90-day period from that date, the exception of its alleged untimeliness cannot be upheld.

The Incompetence of the Arbitration Tribunal

Another exception invoked by the AT is that of the incompetence of the arbitration tribunal to decide the dispute, on the ground that "the Claimant does not challenge a tax act, but rather challenges the payment of an installment of a tax act contained in a payment notice," that is, that "the object of the case is the annulment not of a tax act, but of a payment notice for the payment of the 2nd installment of a tax, a matter which is not contained, in any way, in the set of the rule that delimits the competence of tax arbitration tribunals, contained in Article 2 of the RJAT."

The competence of the tax arbitration tribunals operating with the CAAD is set by Articles 2(1) and 10(1) of the RJAT.

Specifically, Article 2(1)(a) of the RJAT states that such competence includes the review of claims relating to the declaration of illegality of acts of assessment of taxes, self-assessments, withholding at source and payments on account, while paragraph (a) of Article 10(1) establishes the 90-day deadline for filing the request to constitute the tribunal, "counted from the facts provided for in Article 102(1) and (2) of the Code of Tax Procedure and Process, as to acts susceptible of independent challenge, and likewise from the notification of the decision or the expiration of the legal deadline for decision of the hierarchical appeal."

To determine the competence of the arbitration tribunal to decide the claim that is the subject of the present proceedings, it will be necessary to ascertain whether the request for declaration of illegality and consequent annulment of one of the installments of a Stamp Duty assessment made under item 28 of the General Stamp Duty Table is equivalent to a request for total or partial annulment of the same assessment or, if not equivalent, whether one of those installments could constitute an act susceptible of independent challenge.

As to the first question, it may be stated that an installment does not equal a tax assessment, since, in accordance with Article 23(7) of the Stamp Duty Code, as amended by Article 3 of Law No. 55-A/2012, of October 29, "7 – Where the tax due under the situations provided for in item No. 28 of the General Table is in question, the tax is assessed annually, in relation to each urban property, by the central services of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in the Municipal Property Tax Code." (underlined)

Now, the expression "the tax is assessed annually" suggests that a single annual assessment is made, although the same may be divided, for payment purposes, into installments, and not as many assessments as there are installments in which the debt must be satisfied – the division of an assessment into installments will thus be nothing more than a mere technique for revenue collection.

On the other hand, the question of whether an installment can be regarded as a separately challengeable part of the assessment refers us to the divisibility of the tax act of assessment and the consequent possibility of its partial annulment.

On this matter, jurisprudence has held that assessment is a divisible act, both by nature, as it relates to an obligation of a pecuniary nature, and by legal definition, since Article 100 of the General Tax Law (LGT) admits "complete or partial allowance of complaints or administrative or judicial appeals in favor of the taxpayer," a situation in which the tax administration is then obliged to "the immediate and full restoration of the situation that would have existed if the illegality had not been committed, including the payment of compensatory interest, in accordance with the terms and conditions provided by law."

However, for there to be partial annulment of the tax act, it is necessary that the illegality affects only part of it (see, in this sense, the Decision of the Plenary of the Tax Contention Section of the Supreme Administrative Court, rendered on April 10, 2013, in appeal No. 0298/12, available at http://www.dgsi.pt, whose summary reads: "Summary: I – The tax act, as a divisible act, both by nature and by legal definition, is susceptible of partial annulment. II – The criterion for determining whether the act should be totally or partially annulled is to determine whether the illegality affects the tax act in its entirety, in which case the act should be wholly annulled, or only in part, in which case partial annulment is justified." (Underlined).

Thus, in cases where the tax act is divisible, "if partial annulment of a tax act is requested, the tribunal may not, in principle, wholly annul it"[1]; if total annulment is requested and the act is only partially annullable, the request will be partially denied.

On the question of the indivisibility of a Stamp Duty assessment referred to in item 28 of the General Stamp Duty Table, the CAAD has already ruled in case No. 205/2013-T (available at https://caad.org.pt/tributario/decisoes/), as shown in the extract that follows:

"11. The Respondent also disputes the value of the case, considering it to be €8,940.94 and not €28,822.80, as indicated by the claimant.

The claimant argues that 'the act challenged in this case is the assessment act No. ... of 22/02/2013, relating to the first installment of stamp duty for the year 2012, in the amount of €8,940.94, attached by the claimant to the request for arbitration as Doc. 1'.

However, it turns out that the value of assessment No. ... of 22/02/2013, as shown in that document, is actually €26,822.00 and not €8,940.94.

Note that there is no assessment of €8,940.94. This value is only the first installment of an assessment that was effected from the outset in the value indicated by the Claimant. From the fact that the value of the assessment can be paid in several installments, it does not follow that there are three assessments. It is, differently, an assessment that can be paid in several installments (underlined), with the taxpayer not being prevented from challenging it due to the fact that only the payment deadline for one of them has passed.

The taxpayer challenged the assessment act No. ... of 22/02/2013 in the value of €26,822.00, which had been notified to it, and that is the correct value of the case."

Also the arbitration case No. 120/2012-T, which was heard before the CAAD (available at https://caad.org.pt/tributario/decisoes/) and from which the following excerpts are taken, had already ruled on the indivisibility of a Municipal Property Tax assessment, a matter of subsidiary application to Stamp Duty assessments of item 28 of the General Stamp Duty Table, by virtue of Article 67(2) of the Stamp Duty Code:

"In accordance with Article 113(2) of the Municipal Property Tax Code, the assessment of this tax is made in the months of February and March of the year following that to which the tax relates. In accordance with Article 120(1) of the same statute, the tax must be paid in two installments, in the months of April and September, as long as its amount is greater than €250, with payment, in the event that amount is equal to or less than that limit, being made in a single installment during the month of April." (…) "As results, thus, from the provisions of the articles cited, although the independently actionable act is the act of Municipal Property Tax assessment (underlined), the deadline for contesting its legality should only be counted from the end of the payment deadline for the tax determined therein. It must be paid, in accordance with the law, in more than one installment, only with the end of the last of those (assuming, of course, the non-occurrence of early maturity situations) can the commencement of the counting of the deadline referred to in Article 102(1)(a) of the Code of Tax Procedure and Process, applicable, within the framework of the arbitration proceedings, by virtue of the provision in Article 10(1)(a) of Decree-Law No. 10/2011, of January 20 ("RJAT") thus begin." (…) "Such conclusion results, moreover, clearly from the indivisible nature of the act of assessment, as well as from the necessity – moreover, emphasized by the Respondent itself – that, as to the same Municipal Property Tax assessment – which, in accordance with the law, must be paid in two installments – contradictory administrative or judicial decisions not be issued." (underlined) (…) "Indeed – let us reiterate – as none of the installments of Municipal Property Tax payment are independently actionable – but only the act of assessment to which they refer." (underlined).

The installments of payment of a Municipal Property Tax assessment or, in the situation under analysis, of a Stamp Duty assessment, in accordance with item 28 of the General Stamp Duty Table, are not independently actionable, having originated in a single annual obligation, in accordance with the teaching of Braz Teixeira: "It is necessary not to confuse periodic installments, which, although being carried out by successive acts, at different times, have their origin in the same obligation and constitute the several parts of the same installment that was divided, with installments that must be made periodically, not due to a division of the overall installment, but rather to the periodic birth of new obligations, due to the permanence of the factual presuppositions of taxation."[2]

Concluding that the installments of a tax assessment are not independently challengeable, as they embody parts of an overall installment with origin in the same obligation, it must be determined whether one of those installments can be considered as an "act of independent challenge," as referred to in Article 10(1)(a) of the RJAT, with a referral to Article 102(1) and (2) of the Code of Tax Procedure and Process.

In a note to Article 102 of the Code of Tax Procedure and Process, and with respect to paragraph (e) of Article 102(1), in which the initial date of the deadline for judicial challenge is provided as the date of "notification of the remaining acts that may be subject to independent challenge under this Code," Jorge Lopes de Sousa writes: "(…) this rule applies not only to cases of independent challenge provided for in this Code [decisions of hierarchical appeal that involve review of the legality of acts of assessment (article 76(2)), acts of self-assessment (article 131), acts of withholding at source (article 132) and acts of fixation of patrimonial values (article 134), but also to other cases of challenge of acts of direct evaluation (article 86(1) of the LGT)"[3]

The fact that the declaration of illegality of acts of fixation of the taxable matter when it does not give rise to the assessment of any tax, acts of determination of the taxable matter and of fixation of patrimonial values, are included within the competence of arbitration tribunals, in accordance with Article 2(1)(b) of the RJAT, with the request to constitute the arbitration tribunal regarding them to be filed within 30 days from the date of their respective notification, in accordance with Article 10(1)(b) of the RJAT, leads to the necessary conclusion that the acts of independent challenge referred to in Article 10(1)(a) of the RJAT are acts of assessment, self-assessment and payments on account, even though, as to these, a complaint or hierarchical appeal has been filed, expressly or tacitly dismissed.

Having excluded the possibility of an installment constituting a tax act of assessment, much less can it be attributed the nature of self-assessment or payment on account.

As each of the installments of the Stamp Duty assessments identified in the proceedings is not independently challengeable, for the reasons set forth above, we are faced with a case of incompetence of the arbitration tribunal to review and declare their illegality and consequent annulment.

Procedural Litispendence

In accordance with Article 608(2) of the Civil Procedure Code, applicable subsidiarily to tax arbitration proceedings, by virtue of Article 29(1)(e) of the RJAT, "The judge must resolve all questions that the parties have submitted for review, except those whose decision is prejudiced by the solution given to others (…)."

The solution previously given to the question of the incompetence of the arbitration tribunal to decide the dispute that is the subject of the arbitration request renders unnecessary the review of the question regarding any procedural litispendence, by identity between the subjects, the request and the cause of action in the present proceedings and in arbitration case No. 421/2014-T, with the date of the request to constitute the arbitration tribunal of June 9, 2014, in which, according to the AT, "the same Claimant questions, it seems, not only the collection of the 1st installment of the tax, but the very legality of the tax assessments."

DECISION

The conclusion that a Stamp Duty assessment under item 28 of the General Stamp Duty Table is indivisible, with each of its installments not being independently challengeable, determines the incompetence of the arbitration tribunal and precludes the continuation of the proceedings, as well as review of the merits of the case. For these reasons, the Tax and Customs Authority is absolved of the claim.

CASE VALUE: In accordance with Articles 306(1) and (2) of the Civil Procedure Code, Article 97-A(2) of the Code of Tax Procedure and Process and Article 3(2) of the Regulation on Costs in Tax Arbitration Proceedings, the case is valued at €4,975.68 (four thousand, nine hundred and seventy-five euros and sixty-eight cents).

COSTS: Calculated in accordance with Article 4 of the Regulation on Costs in Tax Arbitration Proceedings and Table I appended thereto, in the amount of €612.00, to be borne by the Claimant.

Lisbon, March 10, 2015.

The Arbitrator,

Mariana Vargas

This document was prepared using computer means, in accordance with Article 131(5) of the Civil Procedure Code, applicable by virtue of Article 29(1)(e) of Decree-Law No. 10/2011, of January 20.

The present decision follows the orthographic agreement of 1990.

[1] SOUSA, Jorge Lopes de, "Code of Tax Procedure and Process – annotated and commented" Volume I, Áreas Editora, 2006, page 875.

[2] TEIXEIRA, António Braz, "Principles of Tax Law," Vol. I, 3rd Edition, Almedina, Coimbra, 1995, pages 243 and 244.

[3] SOUSA, Jorge Lopes de, "Code of Tax Procedure and Process – annotated and commented" Volume I, Áreas Editora, 2006, page 734.

Frequently Asked Questions

Automatically Created

Is Stamp Tax (Imposto do Selo) under Verba 28.1 TGIS applicable to buildings registered in vertical ownership (propriedade vertical)?
Yes, Stamp Tax under Verba 28.1 TGIS can be applied to buildings registered in vertical ownership (propriedade vertical). The Tax Authority's position in Process 726/2014-T was that when a property is registered as vertical property rather than horizontal property (propriedade horizontal), the entire building constitutes a single taxable unit for Stamp Tax purposes. Therefore, if the aggregate taxable patrimonial value of all autonomous units within the vertically-owned building equals or exceeds €1,000,000, the 1% Stamp Tax applies to the total value, even if individual apartments are each valued below this threshold. However, this interpretation was contested by the taxpayer who argued it creates inconsistency with IMI treatment.
How does the tax treatment differ between vertical ownership and horizontal ownership (propriedade horizontal) for Stamp Tax and IMI purposes?
The tax treatment differs significantly between vertical and horizontal ownership for Stamp Tax purposes, though not for IMI. For IMI (Municipal Property Tax), both vertical and horizontal property receive identical treatment - taxation is calculated on the taxable patrimonial value of each individual autonomous unit, regardless of the land registry form. However, for Stamp Tax under Verba 28.1, the Tax Authority distinguishes between the two: in horizontal property, each autonomous fraction is treated as a separate taxable unit, so the €1,000,000 threshold applies individually; in vertical property, the building is treated as a single unit, so the threshold applies to the aggregate value of all units combined. This creates what the claimant called 'double standards,' where the same property receives different tax treatment depending on its formal land registry classification rather than its economic substance.
Can a taxpayer challenge Stamp Tax liquidations on individual apartments within a vertically-owned building through tax arbitration at CAAD?
Yes, a taxpayer can challenge Stamp Tax liquidations on properties in vertical ownership through tax arbitration at CAAD (Centro de Arbitragem Administrativa). Process 726/2014-T demonstrates this, where the claimant filed an arbitration request under Articles 2(1)(a) and 10(1)(a) of the Legal Regime for Arbitration in Tax Matters (RJAT) seeking declaration of illegality and annulment of Stamp Tax assessments. The claimant contested 20 payment notices for the second installment of 2013 Stamp Tax relating to apartments within a vertically-owned property. The arbitration jurisdiction extends to challenging the Tax Authority's interpretation of Verba 28.1 TGIS, including whether the taxable base should be determined by aggregating all autonomous units or treating them individually, and whether the distinction between vertical and horizontal property registration is legally relevant for Stamp Tax purposes.
What is the legal interpretation of Verba 28 of the Tabela Geral do Imposto do Selo regarding the taxable base for multi-unit properties?
The legal interpretation of Verba 28 TGIS regarding the taxable base for multi-unit properties is disputed. Verba 28.1 states that 1% Stamp Tax applies to 'ownership, usufruct or right of superficies of urban properties whose taxable patrimonial value registered in the land register, in accordance with CIMI, is equal to or greater than €1,000,000.' The Tax Authority interprets this to mean that for properties in vertical ownership, the 'taxable patrimonial value' is the aggregate of all autonomous units; thus, if the sum exceeds €1,000,000, Stamp Tax applies to the total. The taxpayer's interpretation argues that since the law refers to 'taxable patrimonial value...in accordance with CIMI' (which taxes each unit separately regardless of registry form), and makes no distinction between vertical and horizontal property, the threshold should apply to individual autonomous units. The taxpayer contends the legislator intended to tax only high-value 'luxury' properties, not aggregate modest apartments, and that substance should prevail over form.
What was the outcome of CAAD process 726/2014-T on the annulment of Stamp Tax liquidations for a property in propriedade vertical?
The excerpt provided shows only the REPORT section containing the claimant's arguments in Process 726/2014-T, not the final decision. The claimant sought annulment of Stamp Tax assessments totaling €7,463.62 for 2013, arguing that: (1) individual apartments valued below €1,000,000 should not be subject to Stamp Tax merely because they're in vertical property; (2) the Tax Authority's interpretation violates principles of equality, legal certainty, good faith, and legitimate expectations; (3) IMI and Stamp Tax should have consistent treatment. To determine the actual outcome - whether CAAD ruled in favor of the taxpayer and annulled the liquidations, or upheld the Tax Authority's position - the full arbitration decision (FUNDAMENTAÇÃO and DECISÃO sections) would be required. This case represents an important test of whether land registry form or economic substance determines Stamp Tax liability under Verba 28.1 for multi-unit properties.