Process: 755/2015-T

Date: June 3, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitration decision addresses a critical question in Portuguese Stamp Tax law: whether Verba 28.1 of the General Stamp Tax Table (TGIS) applies to vertical property based on the total building value or individual unit values. The case involved an undivided estate owning a building with eleven independent residential units, each valued below €1,000,000, but collectively exceeding this threshold. The Tax Authority assessed €12,050.70 in Stamp Tax for 2014, treating each floor separately. The claimant argued that since Stamp Tax under item 28.1 TGIS only applies to urban properties exceeding €1,000,000 in taxable property value (VPT), and no individual unit surpassed this threshold, the tax was unlawfully imposed. The claimant contended the Tax Authority violated constitutional principles of legality (Articles 106(2) and 164(1)(i) of the Portuguese Constitution and Article 8 of the General Tax Law), tax equality, and justice by creating unauthorized tax norms through interpretation. The Tax Authority countered that the relevant VPT is the aggregate property value, not individual divisions, even when capable of independent use. This dispute highlights the tension between vertical property regimes and horizontal property condominiums, raising equality concerns if similar properties are taxed differently based solely on their legal structure. The claimant sought full restitution plus compensatory interest under Article 43(1) of the General Tax Law (LGT). The arbitral tribunal, constituted under the Legal Regime of Arbitration in Tax Matters (RJAT), proceeded without oral hearings at both parties' request. This case exemplifies important questions about tax interpretation, the scope of administrative discretion, and taxpayer protection in Portuguese tax arbitration.

Full Decision

ARBITRATION DECISION

Claimant/Applicant: A...

Respondent: Tax and Customs Authority (hereinafter A.T.A.)

1. Report

On 17-12-2015, A..., widow, taxpayer no. ..., resident in ..., ..., in her capacity as head of the undivided estate of B..., with tax identification number ..., hereinafter referred to as Claimant, submitted to the Administrative Arbitration Centre (CAAD) a request for the constitution of an arbitral tribunal with a view to declaring the illegality of the acts imposing Stamp Tax in the total amount of 12,050.70 €, relating to the year 2014 and to item 28.1 of the General Table of Stamp Tax. Said assessments relate to the urban property located in ..., ..., registered in the urban real property matrix of the union of the parishes of ... and ..., in the municipality of ..., under article ..., described in the Land Registry of ... under no. ..., consisting of vertical ownership and with eleven divisions capable of independent use for housing purposes.

The Claimant states that, not agreeing with the grounds of the Stamp Tax assessment, she filed a gracious complaint which was dismissed by order of 28-09-2015.

The Claimant alleges that the subjection to stamp tax is determined not by the global taxable property value (VPT) of the property, but by the VPT assigned to each of the floors or independent divisions. And since none of the floors with independent use has a taxable property value (VPT) exceeding one million euros (1,000,000 €), Stamp Tax cannot be assessed or collected.

The Claimant further alleges that "by having made the assessments whose legality is challenged based on an interpretation of item 28/28.1 of TGIS that has no correspondence in its letter and/or in its spirit, the AT created norms itself, with blatant violation of the principle of legality constitutionally and legally established (cf. arts. 106-2 and 164-1/i of CRP and 8 of LGT), in addition to, in the terms aforesaid, having violated the principles of fiscal equality, justice and the prevalence of material truth over legal-fiscal reality".

The Claimant finally requests the restitution of the tax unduly paid, plus compensatory interest, in accordance with article 43 no. 1 of the General Tax Law.

Suzana Fernandes da Costa was appointed as sole arbitrator on 05-02-2016.

In accordance with the provisions of article 11 no. 1 letter c) of RJAT, the singular arbitral tribunal was constituted on 23-02-2016.

Notified in accordance with article 17 of the Legal Regime of Arbitration in Tax Matters (RJAT), the Tax and Customs Authority presented its response on 06-04-2016, defending the maintenance of the tax acts in dispute, requesting dismissal of the claim, and alleging that the taxable property value relevant for purposes of the incidence of stamp tax would be the total taxable property value of the urban property and not the taxable property value of each of the floors or divisions, even if they were capable of independent use.

In its response, the A.T.A. requested exemption from the hearing provided for in article 18 of RJAT, as well as from the presentation of arguments.

On 07-04-2016, the Claimant filed a motion requesting exemption from the production of testimonial evidence requested by her, the holding of the hearing provided for in article 18 of RJAT and the presentation of arguments.

On 14-04-2016, an order was issued exempting the holding of the hearing provided for in article 18 of RJAT, testimonial evidence and the presentation of arguments. In the same order, the date of 03-06-2016 was set for the delivery of the arbitral decision, and the Claimant was warned to proceed, by that date, with payment of the subsequent arbitration fee.

The Claimant submitted proof of payment of the subsequent arbitration fee on 20-05-2016.

The parties have legal personality and capacity and are legitimate (articles 4 and 10 no. 1 and 2 of RJAT and article 1 of Order no. 112-A/2011 of 22 March).

The arbitral request is timely, in accordance with article 10 no. 1 letter a) of Decree-Law no. 10/2011 of 20 January and article 102 no. 1 letter a) of the Code of Tax Procedure and Process.

The process does not suffer from nullities and no preliminary questions were raised.

2. Facts

2.1. Established Facts:

Having analyzed the documentary evidence produced and the position of the parties contained in the procedural documents, the following facts are considered proven and of interest for the decision of the case:

  1. The Claimant A... is the head of the estate left by the death of her deceased husband B..., undivided estate with tax identification number ..., as per documents 36 and 37 attached to the arbitral request.

  2. The undivided estate identified above was, in 2014, the owner of the urban property located in ..., n. ..., ..., registered in the urban real property matrix of the union of the parishes of ... and ..., in the municipality of ..., under article ..., described in the Land Registry of ... under no. ..., consisting of vertical ownership and with eleven divisions capable of independent use for housing purposes, as per the property register and property certificate attached to the arbitral request as documents 38 and 39.

  3. The Claimant, in her capacity as head of the estate of B..., was notified of the following Stamp Tax assessments for the year 2014, attached to the arbitral request as documents 1 to 33:

  • assessment no. 2015 ... in the amount of 1,885.70 €, relating to the ground floor of the aforementioned property, whose VPT is 188,570.00 €, to be paid in three installments: April, June and September 2015;

  • assessment no. 2015 ... in the amount of 1,016.50 €, relating to the 1st left floor of the aforementioned property, whose VPT is 101,650.00 €, to be paid in three installments: April, June and September 2015;

  • assessment no. 2015 ... in the amount of 1,016.50 €, relating to the 1st right floor of the aforementioned property, whose VPT is 101,650.00 €, to be paid in three installments: April, June and September 2015;

  • assessment no. 2015 ... in the amount of 1,016.50 €, relating to the 2nd left floor of the aforementioned property, whose VPT is 101,650.00 €, to be paid in three installments: April, June and September 2015;

  • assessment no. 2015 ... in the amount of 1,016.50 €, relating to the 2nd right floor of the aforementioned property, whose VPT is 101,650.00 €, to be paid in three installments: April, June and September 2015;

  • assessment no. 2015 ... in the amount of 1,016.50 €, relating to the 3rd left floor of the aforementioned property, whose VPT is 101,650.00 €, to be paid in three installments: April, June and September 2015;

  • assessment no. 2015 ... in the amount of 1,016.50 €, relating to the 3rd right floor of the aforementioned property, whose VPT is 101,650.00 €, to be paid in three installments: April, June and September 2015;

  • assessment no. 2015 ... in the amount of 1,016.50 €, relating to the 4th left floor of the aforementioned property, whose VPT is 101,650.00 €, to be paid in three installments: April, June and September 2015;

  • assessment no. 2015 ... in the amount of 1,016.50 €, relating to the 4th right floor of the aforementioned property, whose VPT is 101,650.00 €, to be paid in three installments: April, June and September 2015;

  • assessment no. 2015 ... in the amount of 1,016.50 €, relating to the 5th left floor of the aforementioned property, whose VPT is 101,650.00 €, to be paid in three installments: April, June and September 2015;

  • assessment no. 2015 ... in the amount of 1,016.50 €, relating to the 5th right floor of the aforementioned property, whose VPT is 101,650.00 €, to be paid in three installments: April, June and September 2015;

The Claimant filed a gracious complaint of the Stamp Tax assessments mentioned above, which was expressly dismissed on 28-09-2015.

None of the floors or divisions with independent use possesses a taxable property value exceeding one million euros, as per the property register attached to the arbitral request as document 38.

The Claimant proceeded to pay all installments of the Stamp Tax assessments mentioned above, as per documents 1 to 33 attached to the arbitral request.

No other facts of relevance to the decision of the case were proven.

2.2. Reasoning for the Established Facts:

Regarding the established facts, the arbitrator's conviction was based on the documents submitted to the record by the Claimant, namely the assessments, the property register, the property certificate, and the collection notes as proof of payment.

3. Matters of Law:

3.1. Object and Scope of the Present Proceeding

The question to be decided in the present case is whether item 28.1 of the General Table of Stamp Tax (TGIS), in the case of properties not constituted in horizontal ownership, applies to the sum of the taxable property value assigned to the different parts or floors (global VPT), or rather to the taxable property value of each part of the property with independent economic use.

On this question have already ruled, among others, the CAAD decisions rendered in proceedings number 280/2013-T, 26/2014-T, 88/2014-T, 206/2014-T, 290/2014-T, 428/2014-T, 451/2014-T, 457/2014-T, 458/2014-T and 567/2014-T, 724/2014-T, 152/2015-T, 174/2015-T, 236/2015-T, 311/2015-T, 411/2015-T, 431/2015-T, 449/2015-T, 461/2015-T, 463/2015-T, 474/2015-T, 581/2015-T, 659/2015-T, 681/2015-T and decision no. 047/15 of the Supreme Administrative Court (STA).

3.2. Question of the Taxable Property Value Relevant for the Application of Item 28.1 of TGIS

According to the A.T.A., in a property in vertical ownership (or not constituted in horizontal ownership regime) the criterion for determining the incidence of stamp tax is the global taxable property value of the floors and divisions intended for housing.

For the Claimant, on the other hand, the subjection to stamp tax contained in item no. 28.1 of TGIS should be assessed not by the total value of the property but by the value assigned to each of the parts with independent use, depending on its respective VPT.

Let us see:

Law no. 55-A/2012, of 29 October, added item 28 to the General Table of Stamp Tax (TGIS), with the following wording:

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

28.1 – For property with housing dedication – 1% (...);

In the transitional provisions contained in article 6 of that Law no. 55-A/2012, the following rules were established:

c) The taxable property value to be used in the assessment of the tax corresponds to that which results from the rules provided in the Municipal Tax on Real Property Code by reference to the year 2011; (...)

f) The applicable rates are as follows:

i) Properties with housing dedication assessed in accordance with the IMI Code: 0.5%;

ii) Properties with housing dedication not yet assessed in accordance with the IMI Code: 0.8%;"

Item 28.1 TGIS and sub-items i) and ii) of letter f) of no. 1 of article 6 of Law no. 55-A/2012 contain a concept that is not used in any other tax legislation, which is that of "property with housing dedication".

For its part, article 67 no. 2 of the Stamp Tax Code, added by the aforesaid Law, provides that "to matters not regulated in the present code relating to item 28 of the General Table, the CIMI applies subsidiarily."

The rule of incidence refers to urban properties, whose concept is that which results from the provisions of article 2 of CIMI, with the determination of VPT obeying the terms provided in article 38 and following of the same code.

For its part, article 6 of CIMI indicates the different types of urban properties, and provides that "residential, commercial, industrial or service buildings or constructions licensed for such purpose or, in the absence of a license, that have as their normal destination each of these purposes." (see letter a) of no. 1 of article 6 CIMI).

It is thus to be concluded that for the legislator it is irrelevant whether the property is in vertical ownership or in horizontal ownership, what is relevant being only the material truth underlying its existence as an urban property and its use.

Since the Stamp Tax Code (CIS) refers to the IMI Code, we should consider that the registration in the matrix of properties in vertical ownership, constituted by different parts, floors or divisions with independent use, obeys the same registration rules of properties constituted in horizontal ownership.

It thus follows that the respective IMI, as well as Stamp Tax, are assessed individually in relation to each of the parts. For that reason, the legal criterion for defining the incidence of the new tax must be the same.

Thus it is concluded as in decision no. 50/2013-T of the CAAD and in decision no. 047/15 of the STA, according to which "if the legal criterion imposes the issuance of individualized assessments for the autonomous parts of properties in vertical ownership, in the same manner as it establishes for properties in horizontal ownership, it clearly established the criterion, which must be unique and unequivocal, for the definition of the rule of incidence of item 28.1 of TGIS".

It thus results from the law that there would only be an incidence of stamp tax from item 28.1 of TGIS if any of the parts, floors or divisions with independent use had a VPT exceeding one million euros (1,000,000.00 €), which does not occur in the present case.

The criterion defended by the A.T.A., which takes into account the sum of the parts, with the argument that the property would not be constituted in horizontal ownership regime, finds no legal support and is contrary to the criterion that results from CIMI and which applies by referral, in the context of Stamp Tax.

Added to this is the fact that the law itself expressly establishes, in the final part of item 28 of TGIS, that Stamp Tax inciding on urban properties of value equal to or greater than one million euros (1,000,000.00 €) – "on the taxable property value used for purposes of IMI."

In conclusion, the taxable property value relevant for purposes of the application of item 28.1 of TGIS is the VPT of the part, floor or division with independent use with housing dedication, as concluded by decision no. 047/15 of the Supreme Administrative Court.

In accordance with the interpretation upheld above, the taxation of parts with independent use of value less than one million euros is not covered by the rule of incidence; therefore, their taxation violates the principle of equality, more specifically in its corollaries of contributory capacity and fiscal proportionality.

As regards the principle of equality, we conclude, as in CAAD decision no. 218/2013-T, saying that "the assessment of Stamp Tax now under consideration manifestly violates the principle of fiscal equality provided for in article 13 of CRP, because: i) it is based on a norm that treats taxpayers in identical situations in very different ways, with the measure of the difference not being assessed by their actual contributory capacity; ii) it is based on an arbitrary legal solution devoid of any rational foundation."

In the case at hand, the property in question is in vertical ownership and contains eleven floors and divisions with independent use intended for housing, as proven above. Given that none of the floors intended for housing has taxable property value equal to or greater than one million euros (1,000,000.00 €), as results from the documents attached to the record, it is concluded that the legal prerequisite for the incidence of Stamp Tax provided for in Item 28 of TGIS is not met.

Looking now at the ratio legis of the provision in question in item 28.1 TGIS and citing CAAD decision no. 50/2013-T "the legislator, when introducing this legislative innovation, considered as the determining element of contributory capacity urban properties with housing dedication of high value (luxury), more precisely, of value equal to or greater than one million euros (1,000,000.00€), on which a special rate of stamp tax began to apply, intending to introduce a principle of taxation on wealth evidenced in the ownership, usufruct or right of superficies of urban properties of luxury with housing dedication. For this reason, the criterion was the application of the new rate to urban properties with housing dedication, whose VPT is equal to or greater than one million euros (1,000,000.00 €). Clearly the legislator understood that this value, when attributed to a dwelling (house, autonomous unit or floor with independent use) expresses an above-average contributory capacity and, as such, capable of determining a special contribution to ensure the fair distribution of the fiscal effort." Already when applied to a part or unit that does not exceed the said value of one million euros, the rule of incidence will not be satisfied.

The principle of fiscal equality requires that what is equal be treated fiscally in the same way and what is different be treated differently. However, there is no justification for the differentiated treatment of units or parts of a property solely because the same is already in horizontal ownership, provided that the units or parts have independent use.

As stated in CAAD decision in proceeding no. 218/2013-T, "The principle of fiscal equality is based on the general principle of equality provided for in article 13 of CRP, from which results the principle of contributory capacity which, by constitutional imperative, is the prerequisite and criterion of taxation."

Professor Casalta Nabais states that the principle of fiscal equality has embedded above all "the idea of generality or universality, in accordance with which all citizens are bound to the fulfillment of the duty to pay taxes, and of uniformity, requiring that such duty be assessed by the same criterion — the criterion of contributory capacity. This thus implies equal taxation for those who have equal contributory capacity (horizontal equality) and different taxation (in qualitative or quantitative terms) for those who have different contributory capacity in proportion to this difference (vertical equality)" (Casalta Nabais, Direito Fiscal, 5th edition, Coimbra, 2009, p. 151-152).

In CAAD decision in proceeding no. 50/2013-T it can be read that "the tax legislator cannot treat equal situations differently. However, if the property were in horizontal ownership regime, none of its housing units would be subject to the incidence of the new tax."

Thus, and in line with the jurisprudence of the Supreme Administrative Court and the CAAD, we conclude that there is a violation of the principle of fiscal equality and contributory capacity and, as such, that the claim is well-founded.

4. Compensatory Interest

The Claimant requests condemnation of the A.T.A. to refund the tax unduly paid, plus compensatory interest.

Article 43 no. 1 of LGT establishes that "compensatory interest is due when it is determined, in a gracious complaint or judicial challenge, that there was error attributable to the services resulting in payment of the tax debt in an amount exceeding that legally due".

In the present case, the error affecting the Stamp Tax assessments is attributable to the Tax and Customs Authority which carried out the assessment acts on its own initiative, whereby the Claimant is entitled to compensatory interest from the date of payment of each of the sums until reimbursement, at the legal supplementary rate, in accordance with articles 43 nos. 1 and 4, and 35 no. 10, of LGT, article 559 of the Civil Code and Order no. 291/2003, of 8 April.

As results from the aforesaid article 43 no. 1 of LGT, the right to compensatory interest depends on the payment of a tax debt in an undue amount.

Being affected by illegality, the Stamp Tax assessments, compensatory interest is due from the date of payment until the full reimbursement by the A.T.A., in accordance with articles 43 of LGT and 61 no. 2 of CPPT.

5. Decision

Given the foregoing, it is determined:

a) to judge as entirely well-founded the claim formulated by the Claimant in the present tax arbitral proceeding, as regards the illegality of the Stamp Tax assessments relating to the year 2014, object of the present arbitral request;

b) to judge as well-founded the claim for condemnation of the Tax and Customs Authority to reimburse to the Claimant the value of the tax unduly paid, plus compensatory interest in accordance with the legal terms, from the date on which such payment was made until the date of its full reimbursement.

6. Value of the Proceeding:

In accordance with the provisions of article 306 no. 2 of CPC and 97-A no. 1 letter a) of CPPT and 3 no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the action is fixed at 12,050.70 €.

7. Costs:

In accordance with article 22 no. 4 of RJAT, and Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at 918.00 €, payable by the Tax and Customs Authority.

Notify.

Lisbon, 3 June 2016.

Text prepared by computer, in accordance with article 138 no. 5 of the Code of Civil Procedure (CPC), applicable by referral of article 29 no. 1 letter e) of the Legal Regime of Tax Arbitration, reviewed by me.

The Sole Arbitrator

Suzana Fernandes da Costa

Frequently Asked Questions

Automatically Created

Is Stamp Tax under Verba 28.1 TGIS calculated on the total property value or on each independent unit's value in vertical property?
Under Verba 28.1 TGIS, the critical issue is whether Stamp Tax calculation uses the total property value or individual unit values in vertical property arrangements. The claimant argued that each independent division with separate use capacity should be taxed individually, meaning units below €1,000,000 escape taxation. The Tax Authority maintained that the aggregate building value determines tax liability, regardless of internal divisions. This interpretation dispute directly impacts numerous vertical property owners and affects whether the legal structure (vertical vs. horizontal property) creates different tax consequences for economically similar situations.
Can the tax authority levy Stamp Tax when no individual unit in a vertical property exceeds €1,000,000 in taxable heritage value?
The Tax Authority levied Stamp Tax despite no individual unit exceeding €1,000,000 by aggregating all unit values. The claimant challenged this approach as ultra vires, arguing the Tax Authority unlawfully created tax norms through interpretation rather than legislative authorization. If individual units are the correct taxable basis and none exceeds the €1,000,000 threshold in Verba 28.1 TGIS, then no Stamp Tax liability exists. This position invokes the constitutional principle of tax legality (Article 103 of the Portuguese Constitution), requiring explicit legislative authorization for taxation, not administrative gap-filling through expansive interpretation.
Does taxing vertical property differently from horizontal property violate the constitutional principles of tax equality and legality?
The claimant alleged constitutional violations of tax equality, legality, and justice principles. Specifically, if vertical property is taxed on aggregate value while horizontal property condominiums are taxed per unit, identical economic situations receive disparate tax treatment based solely on legal form. This potentially violates Article 13 (equality) and Article 104 (tax system based on equality and justice) of the Portuguese Constitution. The legality principle violation stems from the Tax Authority allegedly creating tax incidence rules through interpretation rather than adhering to strict legislative definitions, contravening Articles 103, 106(2), and 165(1)(i) of the Constitution and Article 8 of the General Tax Law.
What remedies are available to challenge Stamp Tax assessments on residential properties under Portuguese arbitration (RJAT)?
Portuguese taxpayers can challenge Stamp Tax assessments through administrative complaints (reclamação graciosa) and subsequently through tax arbitration under the Legal Regime of Arbitration in Tax Matters (RJAT - Decree-Law 10/2011). The RJAT provides an alternative to judicial courts, offering faster resolution through specialized arbitral tribunals at the Administrative Arbitration Centre (CAAD). Taxpayers must file arbitration requests within specific deadlines after administrative complaint dismissal (Article 10 RJAT). The process includes appointing arbitrators, written submissions, optional hearings, and binding decisions on tax act legality. Both parties may request exemption from oral hearings and testimonial evidence, streamlining proceedings for legal interpretation issues.
Are taxpayers entitled to compensatory interest under Article 43 LGT when Stamp Tax is unlawfully collected on vertical property units?
Under Article 43(1) of the General Tax Law (LGT), taxpayers are entitled to compensatory interest when taxes are unlawfully collected. If the arbitral tribunal declares Stamp Tax assessments on vertical property units illegal, the claimant receives full restitution of the €12,050.70 paid plus compensatory interest calculated from payment date until restitution. This interest compensates for the State's use of funds that should not have been collected. The right to compensatory interest is automatic upon establishing unlawful taxation, requiring no separate proof of damages. This mechanism ensures taxpayers are made whole when administrative errors or unlawful interpretations cause undue tax payments, protecting citizens against financial harm from incorrect tax administration.