Process: 765/2015-T

Date: May 27, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

This Portuguese tax arbitration case (Process 765/2015-T) addresses whether Stamp Tax under Verba 28.1 TGIS applies to buildings not held in horizontal property regime when individual units have Tax Patrimonial Values (VPT) below €1,000,000 but collectively exceed that threshold. Two co-owners challenged Stamp Tax assessments totaling €3,583.58 on a Lisbon building with five independent floors, each valued between €154,180 and €234,050, totaling €1,075,080. The Tax Authority aggregated the VPT of all floors and applied the 1% Stamp Tax, arguing the building's total value exceeded €1,000,000. The claimants contested this interpretation, asserting that Verba 28.1 TGIS should apply only when an individual dwelling unit exceeds €1,000,000 in VPT. They argued that Article 7(2)(b) of the IMI Code requires separate VPT determination for independent-use divisions, and that vertical property regimes should receive the same tax treatment as horizontal property regimes under principles of equality and legality. The claimants maintained that the legislative intent was to tax high-value individual dwellings as indicators of exceptional tax capacity, not to aggregate multiple modest units. They invoked principles of tax legality, equality, proportionality, and material truth over formal legal classification. The case requested annulment of the assessments, refund of improperly paid amounts, compensatory interest, and procedural costs through the CAAD arbitration system.

Full Decision

ARBITRAL DECISION

  1. REPORT

A..., with TIN..., and B..., with TIN..., both residents of Lisbon (hereinafter referred to as Claimants), hereby request, pursuant to the combined provisions of articles 2, no. 1, letter a), 3, no. 1 and 10, no. 1, letter a) of Decree-Law no. 10/2011, of 20 January, which approved the Legal Regime of Arbitration in Tax Matters (LRATM), the constitution of an Arbitral Tribunal, with the intervention of a single arbitrator, in which the Tax and Customs Authority (AT) is the Respondent, with a view to the declaration of illegality and consequent annulment of the Stamp Tax assessments (Item 28.1, of the GTST) referring to the year 2014 (third installment) and to the urban property registered under article ... of the parish of ..., municipality of Lisbon, of which they are co-owners, in the proportion of one half each, in the amount of € 3,583.58 (three thousand, five hundred and eighty-three euros and fifty-eight cents).

Additionally, the Claimants request that the Respondent be ordered to refund the amounts improperly paid, as well as to pay compensatory interest and the costs of the arbitral proceedings.

The grounds for the request are as follows:

a. In the year 2014, the property of which the Claimants are co-owners was not held in horizontal property regime, being comprised of a total of 5 floors and independent-use divisions, with its Tax Patrimonial Value (TPV) totaling € 1,075,080.00;

b. The TPV of the floors and independent-use divisions, determined separately, in accordance with article 7, no. 2, letter b), of the Municipal Property Tax Code (MPTC), ranges between € 154,180.00 and € 234,050.00, with none of the dwelling units or floors having a TPV exceeding € 1,000,000.00;

c. However, the AT considers that Stamp Tax item 28.1 of the GTST applies to the aforementioned property, which was materialized in the following assessments:

i. In the name of Claimant A...:

(i) Document no. 2015..., dated 20/03/2015 – 1st floor, in the amount of € 379.15;

(ii) Document no. 2015..., dated 20/03/2015 – 2nd floor, in the amount of € 379.15;

(iii) Document no. 2015..., dated 20/03/2015 – 3rd floor, in the amount of € 386.45;

(iv) Document no. 2015..., dated 20/03/2015 – 4th floor, in the amount of € 390.08;

(v) Document no. 2015..., dated 20/03/2015 – 5th floor, in the amount of € 256.96;

ii. In the name of Claimant B...:

(i) Document no. 2015..., dated 20/03/2015 – 1st floor, in the amount of € 379.15;

(ii) Document no. 2015..., dated 20/03/2015 – 2nd floor, in the amount of € 379.15;

(iii) Document no. 2015..., dated 20/03/2015 – 3rd floor, in the amount of € 386.45;

(iv) Document no. 2015..., dated 20/03/2015 – 4th floor, in the amount of € 390.08;

(v) Document no. 2015..., dated 20/03/2015 – 5th floor, in the amount of € 256.96;

d. The Claimants contend that the aforementioned assessments, all paid on 18/11/2015, are based on the erroneous interpretation adopted by the AT, that Stamp Tax applies to urban properties not held in horizontal property regime, whenever the sum of the TPVs of the floors individually considered exceeds € 1,000,000.00, with which they do not concur;

e. Item 28 of the GTST, added by Law no. 55-A/2012, of 29/10, typified the following tax events:

"28 – Ownership, usufruct or surface right of urban properties whose tax patrimonial value as stated in the register, in accordance with the Municipal Property Tax Code (MPTC), is equal to or greater than € 1,000,000 – on the tax patrimonial value for purposes of IMI:

28.1 – For property with residential use – 1%;

28.2 – For property, when the taxpayers that are not natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime, listed in the order approved by the Finance Minister – 7.5%." (underlining in original);

f. Although Law no. 55-A/2012, of 29/10, does not define what is meant by "property with residential use," article 67, no. 2, of the Stamp Tax Code, added by the aforementioned Law, in providing that "to matters not regulated in this Code relating to item 28 of the General Table, the MPTC is subsidiarily applied," refers to the concept of urban property established by article 2 of the MPTC, whose TPV is determined in accordance with articles 38 et seq. of the same Code;

g. In the view of the legislator, what matters is not legal-formal rigor but rather the material truth of the situation of the property, that is, its intended use or normal utilization, with no distinction being made between properties in vertical or horizontal property regime;

h. It is not acceptable, in light of the principle of tax legality, that the AT should consider, for purposes of the applicable rule, that urban properties comprised of several independent-use divisions, intended for dwelling, should be considered as a whole;

i. The registration of properties in vertical property regime follows the same rules as the registration of properties in horizontal property regime; given that IMI is assessed independently in relation to each part, it should be concluded that the same criterion applies to the applicability of Stamp Tax;

j. In fact, in the assessments issued by the AT, the tax applies to the TPV of each floor or independent-use division, but taking as reference the total value of the property, a criterion that finds no legal support and violates the principles of legality and tax equality, as well as that of the prevalence of material truth over legal-formal reality;

k. The legislator considered ownership of residential-use urban properties of high value (with TPV equal to or exceeding € 1,000,000.00) as an indicator of tax capacity, intending to introduce a principle of taxation on wealth;

l. The legislator understood that this value, when referring to a dwelling (house, autonomous fraction or floor with independent use), reflects a tax capacity above average, capable of supporting a special contribution that ensures the fair distribution of tax burdens;

m. From the legislative intent it results that the existence of property in horizontal or vertical property regime is not, in itself, an indicator of tax capacity, but that both should receive the same tax treatment;

n. Thus, it is illegal and unconstitutional to consider as the tax base the sum of the TPVs attributed to the various parts or independent-use divisions of properties in vertical property regime, due to violation of the principle of equality and proportionality in tax matters.

The Claimants conclude by formulating the requests for (i) declaration of illegality of the Stamp Tax assessment acts for the year 2014, in the total amount of € 3,583.58, (ii) condemnation of the AT to refund the amounts improperly paid, plus compensatory interest, and (iii) condemnation of the AT to pay the costs of the arbitral proceedings.

Notified in accordance with the terms and for the purposes provided in article 17 of the LRATM, the AT submitted its response on 11 April 2016, in which it defended itself by exception and by refutation.

In the response initially submitted to the case file, the AT raised the following arguments:

A – By exception – of the unappealability of the Stamp Tax assessment acts

a. "Pursuant to article 2, no. 1, letter a) of the LRATM, arbitral tribunals are competent to assess the legality of tax assessment acts, just as article 97, no. 1, letter a) of the TCPC provides for the challenging of tax assessments";

b. (...) refers Professor Casalta Nabais: "Assessment in the broad sense, that is, as the set of all operations intended to determine the amount of tax, comprises: 1) Subjective assessment intended to determine or identify the taxpayer or tax subject in the legal tax relationship, 2) Objective assessment through which the taxable or tributary matter of the tax is determined and, equally, the rate to be applied is determined, in case of plurality of rates, 3) Assessment in the strict sense, reflected in the determination of the tax collection through the application of the rate to the taxable or tributary matter, and 4) Any deductions from the collection." (See. Tax Law, 3rd Ed., Almedina, 2005, p. 308);

c. (...) "Assessment is unique and only it constitutes a harmful act, susceptible of being challenged and which can, evidently, only be subject to a single challenge, regardless of the tax being able to be paid in several installments (...)";

d. "The payment of one of the installments of assessment effected under the provision of item 28.1 of the GTST is not a partial payment of that assessment, but merely a technique of tax collection that has been assessed, which is evidenced by no. 4 of article 120 of the MPTC, applicable subsidiarily, according to which 'In the case provided for in nos. 1 and 3, the non-payment of an installment or annuity, within the established period, implies the immediate maturity of the remaining ones'";

e. (...) "when the law provides for payment of the value of assessment in several installments, the annulment of the tax act will have consequences relating to all of them";

f. "In fact, article 23, no. 7, of the Stamp Tax Code provides that 'in the case of tax due for the situations provided in item 28 of the General Table, the tax is assessed annually, in relation to each urban property (...), applying, with the necessary adaptations, the rules contained in the MPTC', and article 44, no. 5, establishes that 'If there is assessment of the tax referred to in item 28 of the general table, the tax is paid in the periods, terms and conditions defined in article 120 of the MPTC'";

g. "For its part, article 113, no. 1, of the MPTC, applicable by reference from that norm of the STC, establishes that tax is assessed annually and article 120, no. 1, of the same Code provides for payment in one, two and three installments, respectively in the months of April, April and November, and in the months of April, July and November, depending on whether its amount is less than € 250, from € 250 to € 500, and greater than € 500";

h. (...) "Applying such understanding to the case at hand in the present proceedings, in which only and solely the autonomous challenge of the collection notices corresponding to the 3rd installments of the assessment acts of item 28 of the GTST for the year 2014, dated 20/03/2015, which constitute the object of the present request for arbitral pronouncement, and to which corresponds the economic value set for the proceedings, there occurs the dilatory exception provided for in letter c), of no. 1, of article 89 of the ACPCT, subsidiarily applicable by article 29, no. 1, letter c), of the LRATM, which prevents knowledge of the merits and results in the absolution of the AT from the instance".

B. By refutation:

i. (...) "according to the authors of the request for arbitral pronouncement, when the urban property is comprised of floors or divisions, the subjection to stamp tax is determined, not as a function of the total tax patrimonial value of the property, but as a function of the tax patrimonial value of each floor or division", given the "fact that, for purposes of the municipal property tax (IMI), in accordance with article 12, no. 3, of the Municipal Property Tax Code (M.P.T.C.), each floor or part of property capable of independent utilization is considered separately in the matriculation registration";

j. (...) "Such interpretation has no correspondence with the letter of item 28.1 of the General Table";

k. (...) "According to item 28.1, in case of urban properties with residential use, the tax falls upon the tax patrimonial value used for purposes of municipal property tax (IMI)";

l. (...) "Article 80, no. 2, of the M.P.T.C. declares that, except as provided in articles 84 and 92, to each property corresponds a single article registered in the register", a principle that "is only excepted with respect to mixed properties in which, in accordance with article 84, each distinct part is registered in the register in the part pertaining to it and with respect to properties held in horizontal property regime in which, despite, in accordance with article 2, no. 4, of the M.P.T.C., each autonomous fraction being deemed to constitute a property, to each building in horizontal property regime corresponds a single matriculation registration";

m. (...) "The unity of the urban property in vertical property regime comprised of several floors or divisions is not, however, affected by the fact that all or part of those floors or divisions are capable of independent economic utilization"; "Such property continues to be only one, not being, thus, its distinct parts legally equated with autonomous fractions in horizontal property regime";

n. (...) "The fact that IMI has been calculated based on the tax patrimonial value of each part of property with independent economic utilization does not equally affect the application of article 28, no. 1, of the General Table"; "This is what results from the fact that the determining factor for application of that item of the General Table is the total tax patrimonial value of the property and not separately that of each of its portions";

o. (...) "Any other interpretation would violate the letter and spirit of item 28.1 of the General Table and the principle of legality of the essential elements of the tax provided for in article 103, no. 2, of the Constitution of the Portuguese Republic (C.P.R.)";

p. (...) "A type of applicability according to which the tax patrimonial value of urban properties upon which the application of item 28.1 of the General Table depends is the tax patrimonial value of each floor or division capable of independent utilization and not the total tax patrimonial value of the urban property with residential use certainly has no expression in the law";

q. "It should be concluded, thus, by the legality of the challenged assessments, with the Claimants' claim being considered unfounded and the Respondent absolved of all requests".

Finally, the AT requested that, "given that the exception of the unappealability of each installment per se of the Stamp Tax assessment acts has a strictly legal nature and the disputed question in the proceedings is exclusively one of law, and furthermore, the position of the parties is fully defined in the case file and supported by the evidence provided by the Claimant" and, "in consonance with the principles of cooperation, good faith procedure and free conduct of proceedings set forth, respectively, in letter f) of article 16, and in article 19 of the L.R.A.T.M., and also with the principle of the limitation of useless acts of article 130 of the C.P.C., the exemption from the presentation of the Administrative Process, as well as, the exemption from holding the meeting provided for in article 18 of the LRATM, and from submission of arguments".

On the same date, a second response from the Respondent was entered in the case file and notified to the Claimants, in which the AT invoked the exception of lack of competence of the Arbitral Tribunal to assess the request of the Claimants, alleging that:

r. The object of the proceedings is not the annulment of a tax act, but rather a collection notice for payment of the third installment of the tax, a matter which is not included in the rule delimiting the competence of tax arbitral tribunals, that is, article 2 of the LRATM;

s. Having the Claimants not timely questioned the tax assessment when they were properly notified thereof, for payment of the 1st installment, that is, of the Stamp Tax assessment act for the year 2014, they cannot later, when paying the 3rd collection notice, and having the arbitral tribunal's competence exceeded, later come to question that assessment, which thus became final.

The AT also submitted a copy of the arbitral decision rendered on 17 February 2016 in the Arbitral Process that ran its course before the CAAD under no. 557/2015-T, in which the Claimants challenged the second installments of the same Stamp Tax assessments, relating to the same tax period (2014) and to the property identified in the case file, in the amount of € 3,583.58 and in which the exception of lack of competence of the Arbitral Tribunal ratione materiae was ruled to be well-founded, absolving the Respondent from the instance.

The request for constitution of the Arbitral Tribunal was filed with the CAAD on 21 December 2015, having been accepted by the Honorable President of the CAAD and automatically notified to the AT on 4 January 2016.

The Claimants informed that they did not intend to use the faculty of designating an arbitrator, therefore, pursuant to the provision in no. 1 of article 6 of the LRATM, the undersigned was appointed arbitrator by the Honorable President of the Deontological Council of the CAAD, a charge which she accepted within the legally prescribed period, without objection from the Parties.

The Singular Arbitral Tribunal was regularly constituted on 2 March 2016, to assess and decide the dispute that is the subject matter of the present proceedings.

The Parties have legal personality and capacity, are legitimate and are properly represented (articles 4 and 10, no. 2, of the LRATM and article 1 of Order no. 112-A/2011, of 22 March).

By arbitral order of 11 April 2016, following notification of the Response in which the AT invoked the exception of lack of competence of the Arbitral Tribunal, the holding of the meeting provided for in article 18 of the LRATM was dispensed with, and, with a view to the exercise of the right to be heard, it was determined that the proceedings proceed with successive written arguments for 10 days, beginning with the Claimants, fixing the date of 27 May 2016 for rendering of the arbitral decision and warning the Claimants that, until that date, they should proceed with the payment of the subsequent arbitral fee.

On 12 April 2016, the first response transmitted by the AT was recorded and notified to the Claimants, and on 14 April 2016, the application in which they exercised their right to be heard, alleging, in summary:

(i) As to the value of the cause:

  • The Claimants, by mistake, incorrectly stated the value of the cause, which should correspond to the sum of the challenged assessments, that is, € 10,750.74, and not to the sum of the collection notices indicated in the initial request;

  • It is requested that the respective correction be made, in accordance with articles 97-A, no. 1, letter a) of the TCPC and 306 of the CPC, subsidiarily applicable ex vi article 29 of the LRATM and as permitted by article 249 of the Civil Code;

(ii) As to the exception raised:

  • The AT confusingly invokes the exception of lack of competence of the Arbitral Tribunal by referring that the Claimants are challenging a collection notice and not an assessment act;

  • According to the AT, for the proceedings to continue, the Claimants should have challenged the first installment of the assessment;

  • It is not clear what the nature of the exception invoked is: whether it is the lack of competence of the Arbitral Tribunal, or the untimeliness of the request;

  • The tax act challenged that is the subject matter of the present proceedings was correctly identified in the request for constitution of the Arbitral Tribunal, in which the Claimants declare their intention to request the assessment of the "legality of the Stamp Tax assessment acts (ST) for the year 2014";

  • The AT understood the object of the present proceedings well and expressly admitted it in article 1 of the response presented;

  • The reference made by the Claimants to the collection notice for the 3rd installment was merely intended to count the period for challenging the assessments, given that these are not autonomously notified to the taxpayers, but only the collection notices are;

  • In accordance with the Jurisprudence of the SAT, should there be doubts about the object of the request, these should be analyzed in the general context of the initial request presented by the Claimants;

  • For the reasons set forth, the Claimants request that (i) the value of the cause be corrected to € 10,750.74 and (ii) the exception invoked by the AT be ruled unfounded.

Notified to pronounce itself on the tenor of said application, the AT came to state:

  • "The exception raised in the Response of the Respondent and on which the Claimants are called to pronounce themselves consists of the unappealability of the installments of the Stamp Tax assessment acts and its assessment obstructs knowledge of the merits and leads to the absolution of the instance of the Respondent, or not, in accordance with article 89, no. 2 and 4, letter i), of the ACPCT, and article 576, no. 1 of the CPC, applicable ex vi article 29 of the LRATM, which implies, logically, in the procedural course, its assessment by the Tribunal prior to admission of the application for expansion of the object of the proceedings and the value of the cause";

  • "It would not be thus if the Respondent had not presented a defense by exception, or if the application for modification of the object of the request and the value of the cause had been presented before the exception raised";

  • "A response to the exception of unappealability of the installment of the Stamp Tax assessment act, item 28, that is the subject of the request for arbitral pronouncement at hand, in which the Claimants pronounce themselves in favor of the admissibility of the autonomous challenge of each installment and consequent unfoundedness of the exception, and simultaneously, covered by that pronouncement, request the expansion of the object and the value of the cause to the total amount of the assessment, translates an expedient that aims to annul the opportunity and empty the meaning of the assessment of the exception by the Arbitral Tribunal";

  • (...) "All the more so since in the Arbitral Decision rendered in process no. 557/2015 T, attached to the present case file, the Respondent was absolved from the instance as a consequence of the well-foundedness of the exception of unappealability of the 2nd installment of the Stamp Tax assessment for the year 2014, which puts in evidence that the object of the present request for arbitral pronouncement configured by the Claimants, corresponds to the 3rd installment of the Stamp Tax assessment for 2014 (...)";

  • "Nothing would prevent the Claimants from challenging, in the present request for arbitral pronouncement, the assessment act in totum, the only challengeable act (...) "Especially since the Claimants were notified of the Arbitral Decision rendered in the aforementioned process no. 557/2015-T CAAD, by registration with date of 17/02/2016, well before the submission of the Response of the respondent in the present proceedings, on 11/04/2016".

Notified by the CAAD, the Claimants came to exercise their right to be heard on the AT's pronouncement, defending, in summary, that the correction requested of the value of the cause does not constitute an expansion of the request and maintaining and developing the legal position set forth in the response to the exception invoked by the AT.

By arbitral order of 3 May 2016, the application of the Claimants was granted, with all questions being deferred to the final decision.

It is necessary to assess and decide.

  1. MATTERS OF FACT

2.1. Facts considered proven:

2.1.1. In the year to which the tax relates (2014), the Claimants were co-owners, in equal parts, of the urban property above identified, intended for commerce and dwelling, comprised of shops, 1st, 2nd, 3rd, 4th floors and basement (5th floor) intended for dwelling, with a total TPV of € 1,369,380.00;

2.1.2. The sum of the TPVs attributed to floors or divisions capable of independent utilization and residential use is the amount of € 1,075,080.00, being that the value indicated in each of the Stamp Tax collection notices as "Tax Patrimonial Value of the property – total subject to tax";

2.1.3. The TPV attributed to each floor or division capable of separate rental and residential use, as stated in the collection notices issued, ranges between € 154,180.00 and € 234,080.00;

2.1.4. In the name of the Claimants, assessment acts were issued on 20 March 2015, for voluntary payment in three annual installments, of Stamp Tax for the year 2014, based on the TPV of each independent-use division, the rate of 1% and the share of 1/2 for each of the co-owners;

2.1.5. On 11 November 2015, the Arbitral Tribunal was constituted in process no. 557/2015-T, in which the Claimants requested the "assessment of the legality of the tax assessment acts of stamp tax, for the year 2014 (...) relating to the 2nd installment";

2.1.6. In the context of said arbitral proceedings, the Respondent raised the exception of lack of competence of the Arbitral Tribunal, in light of the provision of article 2, no. 1, letter a), of the LRATM;

2.1.7. On 17 February 2016, the Arbitral Tribunal constituted in process no. 557/2015-T decided "To declare the exception raised by the respondent well-founded, absolving it from the instance".

2.2. Justification of the proven matters of fact:

The Tribunal's conviction as to the matters of fact given as proven resulted from the analysis of the documentary evidence attached to the request for arbitral pronouncement and to the response of the Respondent.

2.3. Facts not proven

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

  1. MATTERS OF LAW – JUSTIFICATION

3.1. As to the exceptions invoked by the Respondent

In the response of the Tax and Customs Authority initially notified to the Claimants, the latter invoked the lack of competence of the Arbitral Tribunal to assess the legality of one of the installments of the Stamp Tax assessment, subject of the case, on the grounds provided in article 2 of the LRATM; in the response first rendered, but later notified, the AT invoked the exception of the unappealability of the act, provided for in article 89, no. 4, letter i), of the ACPCT, in the form given to it by D.L. no. 214-G/2015, of 02/10, subsidiarily applicable to the tax arbitral proceedings ex vi article 29, no. 1, letter c), of the LRATM.

These are procedural questions of priority knowledge, in accordance with no. 1 of article 608 of the Code of Civil Procedure, of subsidiary application to tax arbitral proceedings, ex vi the provision of article 29, no. 1, letter e), of the LRATM, whose verification results in the absolution of the instance.

Let us see then.

As stated above, the Claimants had the opportunity to exercise their right to be heard on the exceptions invoked by the AT – whether the unappealability of one of the installments in which the Stamp Tax assessment for the year 2014 was subdivided, whether the lack of competence of the Arbitral Tribunal, questions which, moreover, are closely related.

Indeed, the competence of the tax arbitral tribunals that function at the CAAD is fixed by article 2, no. 1, of the LRATM, comprising the powers to proceed with the assessment of claims relating to the "declaration of illegality of tax assessment acts, self-assessment acts, withholding acts and payment on account acts" (letter a) and to the "declaration of illegality of acts fixing the taxable matter when not giving rise to assessment of any tax, acts determining the taxable matter and acts fixing patrimonial values" (letter b).

With respect to Stamp Tax assessments of item 28.1 of the GTST, article 23, no. 7, of the Stamp Tax Code, added by Law no. 55-A/2012, of 29 October, provides that "7 - In the case of tax due for the situations provided in item no. 28 of the General Table, 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 MPTC."

For its part, article 113, no. 1, of the MPTC, relating to competence and deadline for assessment, establishes that "1 - The tax is assessed annually, in relation to each municipality, by the central services of the Tax Directorate-General, based on the tax patrimonial values of the properties and in relation to the taxpayers that appear in the registers as of 31 December of the year to which it relates", with article 120, no. 1, of the same Code determining that the tax be paid in one, two or three installments, depending on whether the value of the tax assessed is equal to or less than € 250.00 (letter a); greater than € 250.00 and equal to or less than € 500.00 (letter b) and greater than € 500.00 (letter c), respectively.

From the combination of the legal provisions transcribed it results that there is a single annual assessment, only that being susceptible to challenge and that the installments in which it is subdivided do not present autonomy, as they relate to the same tax obligation and not to distinct periodic obligations.

In fact, according to the teaching of Braz Teixeira, in tax matters, "It is necessary not to confuse periodic installments, which, although performed by successive acts, in different moments, originate in the same obligation and constitute the various portions of the same installment that has been divided, with installments that must be made periodically, not due to a division of the global installment, but rather due to the birth, also periodic, of new obligations, due to the permanence of the factual presuppositions of taxation"[1] (underlining ours), with the installments of a Stamp Tax assessment of item 28 of the GTST being found in that first situation.

A position, moreover, with which the Claimants appear to agree, for that, notified of the AT's response, they come to invoke the lapse in the indication of the value of the cause, clarifying that it should correspond to the sum of the challenged assessments, being these and not the third installment of each of them the object of the proceedings.

The Claimants consider that, being a mere lapse in the indication of the value of the cause, the tribunal could request the improvement of the initial request, or proceed officiously with that correction.

However, the AT disagrees with such understanding, as it clearly appears from the initial request that the Claimants intended to challenge in the present proceedings only the third installment of the Stamp Tax assessment for 2014, with no lapse or excusable error existing in that indication, for, on a date prior to that of the constitution of the Arbitral Tribunal, more precisely on 17 February 2016, they were notified of the Decision rendered in Arbitral Process no. 557/2015-T, in which they had requested the annulment of the second installment of the same assessments and in which the exception of lack of competence of the Arbitral Tribunal was ruled well-founded, absolving the Respondent from the instance.

The AT further considers that the Claimants would not be prevented from challenging the Stamp Tax assessments for 2014 in the present proceedings if, in the interval between notification of said Arbitral Decision and the constitution of the Arbitral Tribunal, they had proceeded with the modification of the request and corrected the value of the cause, but before the Respondent had invoked any exception.

And the AT is right.

In the tax arbitral proceedings organized at the CAAD, in the majority of cases, two distinct phases succeed each other: the procedure phase (Chapter II of the LRATM) and the proceedings phase proper (Chapter III of the LRATM), with the transition between phases marked by the constitution of the arbitral tribunal.

With the arbitral tribunal constituted and not being in the presence of lapse or excusable error that gives rise to correction of the initial request,[2] as is clearly the case in the proceedings in which no doubts remain as to the act identified therein, the principle of stability of the instance determines that, on the one hand, the moment to be heeded for determination of the value of the cause be that of the filing of the action (cf. article 299 of the CPC), or, in the present case, that of the constitution of the arbitral tribunal, and that, on the other, there be place for expansion of the request only (in the case of the proceedings, in which the declaration of illegality and the annulment of the third installment of the tax were requested, identified in the initial request, for the assessment, in its entirety) if supervening facts are verified with which the challenger could not have reckoned at that time (cf. no. 1 of article 63 of the ACPCT).

For the reasons set forth, the exception of autonomous unappealability of the third installment of the Stamp Tax assessments for the year 2014 is verified, as is the consequent lack of competence of the arbitral tribunal ratione materiae.

  1. DECISION

Based on the factual and legal grounds set forth above, it is decided that, ruling the exception of unappealability of the challenged act, invoked by the Respondent, to be well-founded, to absolve it from the instance.

VALUE OF THE PROCESS: In accordance with the provision of article 306, nos. 1 and 2, of the CPC, 97-A of the TCPC and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the process is set at € 3,583.58 (three thousand, five hundred and eighty-three euros and fifty-eight cents).

COSTS: Calculated in accordance with article 4 of the Regulation of Costs in Tax Arbitration Proceedings and Table I attached thereto, in the amount of € 612.00 (six hundred and twelve euros), to be borne by the Claimants.

Lisbon, 27 May 2016.

The Arbitrator,

/Mariana Vargas/

Text prepared by computer, in accordance with no. 5 of article 131 of the CPC, applicable by reference from letter e) of no. 1 of article 29 of DL 10/2011, of 20 January.

The wording of this decision is governed by the 1990 Orthographic Agreement.

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

[2] On the possibility of remedying deficiencies of the initial request, cf. Jorge Lopes de Sousa, in comments to article 110 of the TCPC, in Code of Tax Procedure and Process, Annotated and Commented, Volume II, Áreas Editora, 6th Edition, 2011, pp. 228 and 229.

Frequently Asked Questions

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Does Stamp Tax under Verba 28.1 TGIS apply when individual units of a building each have a VPT below €1,000,000 but the total exceeds that threshold?
The central dispute concerns whether Stamp Tax under Verba 28.1 TGIS applies when a building comprises multiple independent units, each with VPT below €1,000,000, but whose aggregate VPT exceeds this threshold. The claimants argued that Stamp Tax should only apply when an individual dwelling unit (whether an autonomous fraction in horizontal property or an independent floor in vertical property) has a VPT equal to or exceeding €1,000,000. They contended that aggregating the values of separate independent-use divisions violates the principle of tax legality and equality, as the legislative intent was to tax high-value individual dwellings as indicators of exceptional wealth, not to sum multiple modest units within a single building. The Tax Authority's position was that properties not constituted as horizontal property should be assessed as a whole for Stamp Tax purposes.
How is the taxable value determined for Stamp Tax purposes on properties not held in horizontal property (propriedade horizontal)?
For properties not held in horizontal property regime (propriedade horizontal), the determination of taxable value for Stamp Tax purposes depends on whether the property contains independent-use divisions. The claimants invoked Article 7(2)(b) of the IMI Code, which provides for separate VPT determination for floors and independent-use divisions within buildings. They argued that when a building has structurally and functionally independent units capable of autonomous use, each should be valued separately for Stamp Tax purposes, following the same logic applied to IMI assessments. The principle of material truth over formal legal classification means the actual configuration and use of the property should determine taxation, not merely its registration status. The claimants maintained that vertical property regimes should receive identical tax treatment to horizontal property regimes when independent dwelling units exist, as both reflect the same economic and tax capacity realities.
Can co-owners of a property challenge Stamp Tax assessments through tax arbitration at CAAD?
Yes, co-owners can challenge Stamp Tax assessments through tax arbitration at CAAD (Centro de Arbitragem Administrativa). This case was initiated under Articles 2(1)(a), 3(1), and 10(1)(a) of Decree-Law 10/2011 (RJAT), which establishes that arbitral tribunals have jurisdiction to assess the legality of tax assessment acts. Co-owners of property subject to Stamp Tax under Verba 28.1 TGIS have standing to request arbitration seeking annulment of allegedly illegal assessments. In this case, both co-owners jointly requested arbitration with a single arbitrator, challenging assessments issued in each of their names proportionally to their ownership shares (one-half each). The arbitration procedure allows taxpayers to seek declaration of illegality, annulment of tax assessments, refund of improperly paid amounts, compensatory interest, and recovery of procedural costs.
What is the role of Article 7(2)(b) of the IMI Code in determining the VPT of independent units within a single building?
Article 7(2)(b) of the IMI Code plays a crucial role in determining the VPT of independent units within a single building. This provision establishes that when a building contains floors and independent-use divisions with distinct autonomous utilization, the VPT should be determined separately for each such division. The claimants argued this principle should extend to Stamp Tax application under Verba 28.1 TGIS, citing Article 67(2) of the Stamp Tax Code, which provides that matters not regulated in the Stamp Tax Code relating to Verba 28 should subsidiarily apply the IMI Code. This subsidiary application creates a systematic connection between IMI valuation methodology and Stamp Tax assessment. The claimants contended that if IMI assesses each independent floor separately for property tax purposes, the same individualized approach should apply when determining whether the €1,000,000 threshold is met for Stamp Tax purposes, ensuring consistency across the tax system.
Are taxpayers entitled to refund of overpaid Stamp Tax and compensatory interest when CAAD annuls unlawful tax assessments?
Yes, taxpayers are entitled to refund of overpaid Stamp Tax and compensatory interest when CAAD annuls unlawful tax assessments. The claimants specifically requested (i) declaration of illegality and annulment of the Stamp Tax assessments totaling €3,583.58, (ii) condemnation of the Tax Authority to refund the amounts improperly paid, plus compensatory interest, and (iii) condemnation of the Tax Authority to pay the costs of arbitral proceedings. When an arbitral tribunal declares a tax assessment illegal and orders its annulment, the taxpayer has the right to restitution of amounts paid pursuant to the invalid assessment. Compensatory interest compensates taxpayers for the time value of money during which the Tax Authority held funds to which it was not legally entitled. This follows general principles of administrative legality and taxpayer protection, ensuring that unlawful tax collection does not unjustly enrich the state at the expense of taxpayers who prevail in demonstrating the illegality of assessments.