Process: 777/2015-T

Date: June 9, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 777/2015-T) addresses the controversial application of Stamp Tax under Item 28.1 of the Portuguese General Table of Stamp Tax (TGIS) to high-value properties held in total ownership. Item 28.1, introduced by Law 55-A/2012, imposes stamp tax on urban properties with residential use having a Tax Patrimonial Value (VPT) equal to or exceeding €1,000,000. The claimant company challenged €32,904.18 in stamp tax assessments for 2014 concerning two Lisbon properties owned in full vertical ownership, comprising multiple independent units. The Tax Authority calculated the tax by aggregating the VPT of all individual divisions within each property, resulting in totals exceeding the €1,000,000 threshold (€2,129,029.09 and €1,236,130.98 respectively). The claimant argued this interpretation violates Item 28.1 TGIS, Article 23(7) of the Stamp Duty Code, and Articles 6, 7(2)(d), and 12(3) of the Municipal Property Tax Code. The core legal question is whether stamp tax incidence should be determined based on individual autonomous units or the aggregate value of all units within a single property registration. The claimant contended that each division susceptible of independent use should be separately assessed, and if individual units fall below €1,000,000, no tax applies regardless of their combined value. The arbitration proceeded under the RJAT framework (Decree-Law 10/2011), with a singular arbitral tribunal constituted in March 2016. Both parties agreed to dispense with oral hearings, treating the matter as purely legal. The claimant sought full annulment of all contested assessments plus compensatory interest under Article 43 of the General Tax Law. This case exemplifies the ongoing interpretative challenges surrounding Portugal's high-value property taxation regime and the critical importance of determining the correct taxable unit for stamp tax purposes.

Full Decision

ARBITRAL DECISION

Claimant: A… SA

Respondent: Tax and Customs Authority

I – REPORT

A) The Parties and Constitution of the Arbitral Tribunal

  1. A…, S.A., taxpayer number …, with registered office at …, n.º…, … left side, …-… (hereinafter referred to as "Claimant"), requested the constitution of a collective Arbitral Tribunal, pursuant to the provisions of article 2, no. 1, subparagraph a) and article 10, nos. 1 and 2 of Decree-Law no. 10/2011, of 20 January, hereinafter referred to as "RJAT" and of Regulation no. 112 – A/2011, of 22 March, for the challenge and declaration of illegality of the Stamp Duty (IS) assessments issued in application of the provisions of item 28.1 of the General Table of Stamp Duty (TGIS) relating to the year 2014, in the total amount of €32,904.18, seeking its annulment, with reference to the urban properties hereinafter identified:

Urban property located in the Parish of …, Lisbon, registered in the urban property register with number U-…, designated as "Property B…";

Urban property located in the Parish of …, Lisbon, registered in the urban property register with number U-…, designated as "Property C…";

In the present arbitral request, the Claimant challenges the following Stamp Duty assessments, provided for in item 28 of the TGIS, relating to "Property B…", namely: Stamp Duty assessments nos. 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…;

And

Stamp Duty assessments nos. 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, relating to "Property C…"

The total amount of €32,904.18 was paid in full by the Claimant. These assessments are duly identified and attached to the file, and proof of their payment is certified, as results from the tenor of the assessments themselves.

The request for constitution of the Arbitral Tribunal was presented by the Claimant on 23-12-2015, was accepted by the Esteemed President of CAAD and notified to the Tax and Customs Authority on 28-12-2015. The Claimant opted not to appoint an arbitrator, therefore, pursuant to the provisions of no. 1, article 6 of RJAT, the undersigned was appointed by the Deontological Council of the Centre of Administrative Arbitration on 16-02-2016 as arbitrator and to constitute the singular Arbitral Tribunal. Thus, in accordance with the provision of subparagraph c), no. 1, article 11 of RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Arbitral Tribunal was constituted on 02-03-2016. On 02-03-2016 an arbitral order was issued, directing the Tax and Customs Authority (TA) to present its response within the legal period, in accordance with and for the purposes of the provisions of nos. 1 and 2 of article 17 of RJAT.

On 31-03-2016 the Respondent attached to the file its response and the respective Administrative Process (PA), which are deemed to be fully reproduced. In its response, the Respondent understands that the issues under discussion in the file are merely matters of law and that therefore the meeting referred to in article 18 of RJAT may be dispensed with. On 15-04-2016 an arbitral order was issued for the Claimant to pronounce itself on the respondent's request to dispense with the holding of the meeting. On 27-04-2016 the Claimant pronounced itself in favor of such dispensation. Thus, by arbitral order issued on 19-05-2016, pursuant to the provisions of articles 16, subparagraph c), 19 and 29, no. 2 of RJAT, the holding of the aforesaid meeting was dispensed with, a deadline for pleadings was set and a date for pronouncing the arbitral decision was set for 13-06-2016. The Claimant was also notified to make the payment of the subsequent arbitration fee.

B) THE CLAIM FORMULATED BY THE CLAIMANT:

The Claimant formulates the present request for arbitral pronouncement, with accumulation of claims, seeking the illegality of the Stamp Duty assessments, determined under item 28.1 of the TGIS, as stated in the arbitral request, which relate to two distinct properties, both owned by the Claimant, in the regime of full (or vertical) ownership, namely:

a) Urban property located in the Municipality of Lisbon, in the Parish of …, registered in the urban property register with registration number U-…, designated as "Property B...", with the total Tax Patrimonial Value (VPT) of € 2,129,029.09; and

b) Urban property located in the Municipality of Lisbon, in the Parish of …, registered in the urban property register with registration number U-…, designated as "Property C…" with the total VPT of € € 1,236,130.98.

On each of these properties the TA assessed Stamp Duty, with reference to the year 2014, pursuant to item 28.1 of the TGIS, in that the total VPT of each property, calculated on the basis of the sum of the VPT attributed to each part or independent division, has a value exceeding €1,000,000.00. In accordance with this understanding the Stamp Duty owed, in the year 2014, for each of the properties described above, is € 20,542.88 and €12,361.30, respectively.

All assessments issued were paid by the Claimant, which are duly identified and attached to the file, as well as the payment proofs, contained in the assessments themselves, as certified by the stamp of the services attesting to their payment.

In summary, to substantiate its claim the Claimant alleges that it is illegal to assess Stamp Duty on the sum of the VPT of the divisions susceptible of independent use that make up each of the properties, in the regime of full or vertical ownership, identified in the present file. It should be considered that the incidence of Stamp Duty provided for in item 28.1 of the TGIS should be assessed according to – and only according to – each division susceptible of independent use and not the property in which they are integrated, taking exclusively into account their affectation and VPT. It further alleges that the understanding adopted by the TA according to which a property composed of floors or divisions susceptible of independent use for housing, whose VPTs separately determined are below € 1,000,000, but which in total add up to or exceed that value, are subject to Stamp Duty pursuant to item 28.1 of the TGIS should be judged illegal, for breach of the provisions of the aforementioned item, in articles 23, no. 7, of the Stamp Duty Code and in articles 6, 7, no. 2, subparagraph d) and 12, no. 3 of the Municipal Property Tax Code, these latter applicable ex vi of article 67, no. 2, of the Stamp Duty Code.

It concludes by requesting the annulment of all tax assessments challenged, with reference to the year 2014, for breach of item 28.1 of the TGIS, article 23, no. 7, of the Stamp Duty Code and article 12, no. 3, of the Municipal Property Tax Code, applicable ex vi of article 67, no. 2, of the Stamp Duty Code, with all legal consequences, namely, pursuant to article 43 of the General Tax Law (LGT), the processing of the reimbursement of the amount paid increased by compensatory interest.

C – THE RESPONSE OF THE RESPONDENT

The Respondent TA, duly notified for this purpose, timely presented its response in which, by challenge, alleged, in summary, that with reference to the year 2014, in compliance and pursuant to the provisions of article 6, no. 2 of Law no. 55-A/2012, of 29/10, which added item no. 28 to the TGIS, with the amendment made by Law no. 83-C/2013 of 31/12 and whose respective provision of incidence refers to urban properties, assessed pursuant to the Code of the Municipal Property Tax (CIMI), with VPT equal to or greater than €1,000,000.00 and, pursuant to its no. 28.1, with housing affectation. Therefore, the TA proceeded to assess the tax which is the subject of the present request for arbitral pronouncement. It further alleges that Respondent article 44, no. 5, of the Stamp Duty Code (CIS), as amended by Law no. 55-A/2012, of 29/10 which, where assessment takes place, the tax referred to in item 28 of the TGIS is paid, within the periods, terms and conditions defined in article 120 of CIMI. It further understands that what is at issue is an assessment that results from the direct application of the legal norm, which translates into objective elements. The concept of property is defined in article 2, no. 1 of CIMI, and it is established in its no. 4 that, under the regime of horizontal property ownership, each autonomous unit is deemed to constitute a property. It lastly understands that a "property in full ownership with floors or divisions susceptible of independent use" is, unequivocally, different from an asset under the regime of horizontal property ownership, constituted by autonomous units, that is, by several properties.

It concludes by arguing for the legality of the Stamp Duty assessments challenged and the dismissal of the arbitral request.

II - PROCEDURAL PREREQUISITES

The Arbitral Tribunal is regularly constituted. It is materially competent, pursuant to article 2, no. 1, subparagraph a) of RJAT. The Parties have judicial personality and capacity, are legitimate and are legally represented (see articles 4 and 10 no. 2 of RJAT and art. 1 of Regulation no. 112/2011, of 22 March).

  • Regarding the Accumulation of Claims

The assessments in question relate to the two properties identified above, which although distinct, are characterized as being owned by the Claimant, in the regime of vertical ownership, that is, both are composed of various floors and fractions or divisions susceptible of independent use.

The grounds that support the assessments challenged are based on the provisions of items 28 and 28.1 of the TGIS, with which the Claimant does not comply.

The prerequisites for the requested accumulation of claims are thus present, pursuant to the provisions of article 104 of the Code of Tax Procedure and Process (CPPT), in that there is "identity of the nature of the taxes, the grounds of fact and law invoked and the court competent for the decision". The accumulation of claims is therefore admitted.

The process is not affected by defects that would invalidate it.

Taking into account the tax administrative process, the documentary evidence attached to the file, it is necessary to establish the factual matter relevant to understanding the decision, which is set out as follows.

III – Factual Matter

A) Proven Facts

As relevant factual matter, the present tribunal deems the following facts to be established:

The Claimant is a commercial company whose corporate purpose is the promotion, management and marketing in any modality, namely in multi-ownership systems, of real estate, tourism and hotel developments and sports and leisure complexes; the preparation of studies and urban planning projects, tourism, sports complexes, civil construction and connected equipment and technologies and the acquisition, construction, promotion and direct marketing and resale of real estate and real estate management. – (See Permanent Certificate attached as Doc. no. 25);

Within the scope of its activity, the Claimant acquired various real estate assets that are allocated to the various activities contained in its corporate purpose;

On the date of the taxable event in question, the Claimant was the owner of two urban properties, under the regime of full (or vertical) ownership, namely:

i. property currently registered in the urban property register of the parish of … under the matriculation article U-…, which originated from the property registered in the urban property register of the parish of … under the matriculation article U-…, designated as "Property B…";

ii. property currently registered in the urban property register of the parish of…, under article U-…, which originated from the property registered in the urban property register of the parish of … under the matriculation article U-…, designated as "Property C…"; (See Property booklets attached as Docs. nos. 26 and 27 of the PA).

On each of these properties the TA assessed Stamp Duty, with reference to the year 2014, pursuant to item 28.1 of the TGIS, considering the total VPT of each property, calculated on the basis of the sum of the VPT attributed to each part or independent division with housing affectation, each property having a total VPT exceeding €1,000,000.00;

The Stamp Duty determined as set out above, with reference to the year 2014, for each of the properties described above, was €20,542.88 and €12,361.30 respectively for "Property B…" and "Property C…";

The properties in question are composed of various floors with divisions susceptible of independent use and comprised, on the date of the taxable events in question in the present process, the following composition:

i. The property designated as "Property B…" corresponds to a property in full ownership, composed of 14 floors or divisions susceptible of independent use, of which only 11 with housing affectation, and each one of them with a tax patrimonial value ("VPT") determined separately, pursuant to article 7, no. 2, subparagraph b), of the Code of the Municipal Property Tax ("CIMI");

ii. Each of the floors or independent divisions of this property had, on the date of the taxable events in question in the present process, an attributed VPT, determined pursuant to the provisions of CIMI, ranging between € 7,576.73 and € 192,700.35, the sum of the respective VPT totaling the amount of €2,129,029.09;

iii. As for the property designated as "Property C…", it corresponds to a property in full ownership, composed of 13 floors or divisions susceptible of independent use, all with housing affectation, whose VPT was determined separately, pursuant to article 7, no. 2, subparagraph b) of CIMI;

iv. Each of these floors or divisions susceptible of independent use had on the date of the taxable event an attributed VPT pursuant to CIMI, ranging between € 54,141.38 and € 101,176.38, the sum of the respective VPT totaling the amount of € 1,236,130.98;

g) With reference to "Property B…", the TA proceeded to assess Stamp Duty with reference only to the divisions for housing;

h) The assessments challenged, relating to the two properties described in the present file, sum the total amount of €32,904.18;

i) For purposes of Municipal Property Tax, each part or division susceptible of independent use has an individual VPT attributed, as appears in the respective property booklets attached to the file, respectively for each property, which are deemed to be fully reproduced.

B) UNPROVEN FACTS

There are no facts that should be considered as unproven in relation to matters relevant to the decision.

C) SUBSTANTIATION OF THE PROVEN FACTS

The facts described above were deemed to be proven based on the documentary evidence that the parties attached to the present process. Regarding the factual matter, the Tribunal does not have to pronounce on everything that was alleged by the parties; rather, it has the duty to select the facts that matter for the decision and to distinguish the proven from the unproven matter [see art. 123, no. 2, of CPPT and art. 607, no. 3 of the Code of Civil Procedure (CPC), applicable ex vi art. 29, no. 1, subparagraphs a) and e), of RJAT]. In this way, the facts relevant to the judgment of the case are chosen and defined according to their legal relevance, which is established in light of the various plausible solutions of the legal question(s) [see former article 511, no. 1, of the CPC, corresponding to the current article 596, applicable ex vi of article 29, no. 1, subparagraph e), of RJAT]. Taking into account the positions assumed by the parties, the documentary evidence and the PA attached to the file, the facts listed above were deemed to be proven, as relevant to the decision, which are otherwise consensually recognized and accepted by the parties.

IV – THE LAW: Substantiation of the Merit Decision

  1. Having established, as stated above, the factual matter, it is important to address the question of law raised by the Claimant, which consists of assessing the terms of the configuration of the subjective incidence of Stamp Duty provided for in item 28 of the TGIS, in the concrete case of properties under the regime of full (or vertical) ownership, composed of various floors, with divisions or parts susceptible of independent use.

A decision must be rendered.

  1. What is at issue in the file is, in the first place, the question of whether the owner(s) of a property in full (or vertical) ownership, constituted by divisions susceptible of independent use, whose VPT was determined separately, pursuant to article 7, no. 2, subparagraph b) of CIMI, is(are) subject to the incidence of Stamp Duty, by virtue of the provision of item 28.1 of the TGIS, on the sum of the VPT of those divisions, when none of the said divisions has a VPT exceeding €1,000,000.00, but the sum of the respective VPT exceeds this amount.

  2. From the argumentative framework presented by the parties, it is concluded that for the TA, the criterion for determining the incidence of Stamp Duty, provided for in item 28.1 of the TGIS, for properties in full (or vertical) ownership, with floors and divisions for independent use with housing affectation, corresponds to the sum of the respective VPT attributed to the parts or divisions. It was this understanding that led to the Stamp Duty assessments here challenged and which the Claimant contests, understanding that such judgment is illegal, which motivated the presentation of the present request for constitution of an Arbitral Tribunal.

This question has already been the subject of recurring consideration in arbitral proceedings, with consistent jurisprudence pointing to a negative answer, which can be seen, by way of example, in the decisions rendered in cases nos. 48/2013-T, 49/2013-T, 50/2013-T, 53/2013-T, 132/2013-T, 181/2013, 183/2013-T 248/2013-T and 280/2013-T, 30/2014-T, 497/2014-T, 575/2014-T, among others.

In the same sense, the Supreme Administrative Court (STA) pronounced itself, in a Decision of 09-09-2015, in which the Esteemed Judge Counselor Francisco Rothes was the Rapporteur, in which it was decided:

"I - With regard to properties in vertical ownership, for purposes of the incidence of Stamp Duty (Item 28.1 of the TGIS, as amended by Law no. 55-A/2012, of 29 October), the subjection is determined by the combination of two factors: housing affectation and the VPT in the register equal to or greater than € 1,000,000.

II - In the case of a property constituted in vertical ownership, the incidence of Stamp Duty should be determined, not by the VPT resulting from the sum of the VPT of all divisions or floors susceptible of independent use (individualized in the matriculation article), but by the VPT attributed to each of those floors or divisions intended for housing." [1]

Notwithstanding the above, the Respondent TA has maintained the understanding set out in the present file, arguing for an interpretation based on formal concepts, particularly with regard to the concept of property for purposes of the incidence of Stamp Duty.

Now, regarding the fundamental question at hand, it should be said that the first limit of interpretation is the letter of the law, but not the only one. The interpretive task requires something more, that is, from the text of the norm it is necessary to discover the underlying ratio legis, "a task of interconnection and evaluation that escapes the literal domain" [2], in other words "the lawyer must always keep before his eyes the scope of the law, that is, the practical result that it proposes to achieve". [3]

In accordance with this, the question centers on the interpretation of the provision of incidence, as expressed in the legal provision of items 28 and 28.1 of the TGIS, referring to "ownership, usufruct or right of superficies of urban properties, with housing affectation (28.1) whose tax patrimonial value in the register, pursuant to CIMI, is equal to or greater than 1,000,000.00 euros – on the tax patrimonial value used for purposes of Municipal Property Tax".

Now, it appears that such legal provision does not embrace the understanding adopted by the TA, insistently and recurrently, according to which as to properties "with housing affectation" in vertical ownership, with floors or divisions susceptible of independent use, the VPT on which Stamp Duty should be levied should be the total VPT, corresponding to the sum of the VPT attributed individually to each fraction, part or independent division. Such understanding is, from the outset, contradicted by the very letter of the law, when it unequivocally refers to the application of the principles in force in matters of Municipal Property Tax, which means that the incidence for purposes of Stamp Duty – items 28 and 28.1 of the TGIS – should be levied on each floor or division susceptible of independent use (similarly to what happens with properties under the regime of horizontal property ownership), as occurs for Municipal Property Tax purposes.

For purposes of Municipal Property Tax, each part or division susceptible of independent use is, as we know, taxed individually, based on the individual VPT attributed for this purpose. The reference to CIMI, which the legislator introduced, expressly and unequivocally, in the letter of the law (items 28 and 28.1 of the TGIS) can only have one meaning, which offers no doubt: it is that same VPT (individual, of each part or independent division) the reference for purposes of the incidence of Stamp Duty enshrined in items 28 and 28.1 of the TGIS.

  1. In this regard, let it be recalled the reasoning contained in Arbitral Decision no. 280/2013-T, particularly succinct and precise to which we adhere:

"The question of law to be resolved in the first place is whether, according to the provisions of item 28.1 of the TGIS, the sum of the VPT of each of the parts or divisions susceptible of independent use should or should not be considered, since none of them has a value equal to or greater than €1,000,000.00;

Bearing in mind that the Stamp Duty Code refers to CIMI the regulation of the concept of property and matters not regulated regarding item 28 of the TGIS (no. 6 of article 1 and no. 2 of article 67, both of the Stamp Duty Code), it is in CIMI that we must observe the concepts that will allow us to settle the question; (underlined)

The general concept of property is contained in article 2 of CIMI. In article 3 of the same statute the legislator, using criteria of affectation and location, established the concept of rural properties, then, in a classification by negation, in its article 4, establish that urban properties will be all those that should not be classified as rural;

In no. 2 of article 5 of the same Code the legislator establishes the concept of mixed properties which are those in which there are distinct rural and urban economic realities and there is no subordination of one to the other;

Article 6 of the cited CIMI divides urban properties into: residential, commercial, industrial or for services, land for construction and others;

In the concrete case we are faced with an urban property with parts or divisions susceptible of independent use with housing affectation and others with commercial affectation, it is a property with parts that can be classified in the housing division of subparagraph a) of no. 1 of article 6 and with parts that can be classified in subparagraph b) of the same no. and article, but in no way will it be a mixed property in the concept established in the aforementioned article 5 of CIMI;

Each of the parts or divisions susceptible of independent use that make up the property in question meets the concept of property established in article 2 of CIMI, they are physically and economically independent and are part of the assets of a legal person;

Moreover, the TA, in purging the VPT of the parts or divisions with affectation other than housing, for purposes of Stamp Duty taxation, did nothing other than use the criterion defined in no. 4 of article 2 of CIMI for properties under the regime of horizontal property ownership;

In other words, the TA, to effect this purging, considered that the parts or divisions susceptible of independent use were true autonomous parts of a property in vertical ownership meeting the concept of property;

And did nothing other than observe what is provided in no. 3 of article 12 of CIMI: "each floor or part of a property susceptible of independent use is considered separately in the matriculation registration, which also discriminates its respective tax patrimonial value."

Likewise, the TA, when making the taxation for Municipal Property Tax purposes, did so by separately taxing the VPT of each of the parts or divisions susceptible of independent use;

The TA used the same criterion in the taxation for Stamp Duty purposes, when calculating it on the basis of the VPT of each of the parts or divisions with independent use with housing affectation, except that in the end it considered the global VPT, finding it to be greater than €1,000,000.00 and added the Stamp Duty values calculated individually;

But this procedure has no legal support, since none of the parts or divisions with independent use with housing affectation, each of them meeting the concept of property enunciated in article 2 of CIMI, has a VPT equal to or greater than € 1,000,000.00, a requirement necessary for there to be taxation in Stamp Duty;

Undertaking Stamp Duty taxation considering the global VPT of the property, even purged of the VPT of the parts or divisions not for housing, as the respondent intends, finds no support in CIMI, as per the reference in no. 2 of article 67 of the Stamp Duty Code;

Neither should it be said that there is a different valuation and taxation of an asset in full ownership with parts or divisions susceptible of independent use, compared to an asset in horizontal property ownership. In truth, it does not exist in Municipal Property Tax as it cannot exist in Stamp Duty, since, as already stated, the applicable legislation is the same;

From this perspective and considering that none of the parts or divisions susceptible of independent use with destination or housing affectation has a VPT equal to or greater than €1,000,000.00, it is therefore necessary to conclude that the Stamp Duty assessment acts are illegal because the conditions defined in item 28 of the TGIS have not been observed."

An identical understanding results from the STA Decision of 09-09-2015, already mentioned above.

The thesis defended by the TA cannot prevail. An appropriate reading of the scope of the provision of the rule of incidence of items 28 and 28.1 of the TGIS, in light of what article 23, no. 7, of the Stamp Duty Code allows to be concluded regarding the determination of the taxable matter and consequent tax assessment operation which: "In the case of tax owed for the situations provided for in item no. 28 of the General Table, the tax is assessed annually, with respect to each urban property, by the central services of the Tax and Customs Authority, applying, with the necessary adjustments, the rules contained in CIMI."

Furthermore, article 11, no. 3 of the General Tax Law provides: "if doubt persists about the meaning of the tax incidence norms to be applied, the economic substance of the taxable facts should be considered."

In the case at hand, the correct interpretation of the legal norm contained in items 28 and 28.1 of the TGIS should take into account the "economic substance of the taxable facts" to properly concretize the "necessary adjustments of the rules contained in CIMI", for the proper consideration of the legal matter under discussion. Not forgetting the respect for the "unity of the legal system", which is required, first of all, by the coherence of values or axiological nature of the legal order". This is, undoubtedly, a determining factor for a correct interpretation of the legal norm. Now, the legislator expressed his thinking coherently on this matter, by introducing a comprehensive reference to the principles contained in CIMI.

The delimitation of the scope of the rule of incidence of this new tax should follow the orientation of the letter and spirit of the law. In the first place, attention should be paid, therefore, to the express provisions of items 28 and 28.1 of the TGIS, with the "necessary adjustments of the rules contained in CIMI", as results from the provisions of no. 7, article 23, of the Stamp Duty Code. It is also important to bear in mind that the subjection to Stamp Duty of properties with housing affectation resulted from the addition of item 28 to the TGIS, made by article 4 of Law 55-A/2012, of 29/10, which typified the following taxable facts:

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

28-1 – For property with housing affectation – 1%

28.2 – For property, when the taxpayers are not natural persons and are resident in a country, territory or region subject to a clearly more favorable tax regime, listed in a regulation approved by the Minister of Finance – 7.5%."

Law 55-A/2012 says nothing about the qualification of the concepts at issue, namely, regarding the concept of "property with housing affectation." But article 67, no. 2 of the Stamp Duty Code, added by the aforementioned Law, provides that "to matters not regulated in this code relating to item 28 of the General Table the CIMI shall apply subsidiarily." (underlined)

The provision of incidence thus refers to urban properties, the concept of which results from the provisions of article 2 of CIMI, with the determination of the VPT being subject to the provisions of article 38 and following of the same code. Consulting CIMI it is found that its article 6 only indicates the different species of urban properties, among which it mentions residential ones (see subparagraph a) of no. 1), clarifying in no. 2 of the same article that "residential, commercial, industrial or for services are buildings or constructions licensed for such purposes or, in the absence of a license, which have as their normal destination each of these purposes."

From the aforementioned provisions we can conclude that, from the legislator's point of view, it does not matter the legal-formal rigor of the concrete situation of the property (whether it is in vertical or horizontal ownership is irrelevant) but rather its normal use, the purpose for which the property is actually intended.

It follows thus that, for the legislator the situation of the property in vertical or horizontal ownership did not matter, as no reference or distinction is made between one and the other. The same conclusion is drawn from the reference that the legislator introduced in the matter of Stamp Duty to CIMI. Now, this tax establishes as a criterion for properties in vertical ownership the attribution of a VPT to each of the parts or independent divisions. What matters, therefore, is the material truth underlying its existence as an urban property and its use, that is, "with housing affectation."

Using the criterion that the law itself introduced in article 67, no. 2 of the Stamp Duty Code, "to matters not regulated in this code relating to item 28 of the General Table the CIMI shall apply subsidiarily."

From the provisions of no. 4 of article 2 of CIMI, it follows that "For purposes of this tax, each autonomous unit, under the regime of horizontal property ownership, is deemed to constitute a property." Furthermore, no. 3 of article 12 of CIMI adds that "Each floor or part of a property susceptible of independent use is considered separately in the matriculation registration which also determines its respective tax patrimonial value".

Thus, the understanding adopted by the TA appears to be non-conforming to the letter and spirit of the norm, therefore it does not appear to be in accordance with the law, nor with the principle of tax legality, therefore the assessments challenged are vitiated by the defect of breach of law, by manifest error as to the factual and legal prerequisites.

Moreover, its practical result would lead, for example, to the taxation of a property in vertical ownership by virtue of the sum of the individual values of its parts or independent divisions (as happens in the case of the file) whereas, if it were constituted under the regime of horizontal property ownership, none of its units would be taxed. It further adds that, following the TA's understanding we would be led to tax floors or divisions (units) susceptible of independent use of modest values (example of the file) knowing that the same legislator excluded from taxation units of properties constituted under the regime of horizontal property ownership, even if each unit had a VPT of €999,999.00. Such interpretation, apart from being absurd, is wholly contrary to the purpose that led the legislator to insert item 28 into the TGIS, justified by the purpose of taxing "luxury homes". In other words, the historical element also leads us to a different understanding from that advocated by the TA.

Furthermore, by the TA's criterion, many of the urban properties existing in vertical ownership, despite being older, can easily reach the reference value for the incidence of Stamp Duty, whereas properties of recent and sometimes luxurious construction, in the regime of horizontal property ownership, but whose VPT per unit does not equal or exceed the value of €1,000,000.00, is not subject to the tax. Now, it offends the sensitivity and the fundamental ethical minimum underlying the interpretation and application of the legal norm that would lead to such a solution.

The recourse to the ratio legis and the principles of interpretation set out above point in the opposite direction to what is advocated by the Respondent. If the properties in question in the present file were in the regime of horizontal property ownership, none of its housing units would be subject to the tax that seeks to tax luxury properties or homes. [4] And, as already stated, the legislator's thinking expressed in the provision of incidence, by referring to the application of CIMI, was clear and unequivocal, following the principle of the prevalence of material truth over legal-formal reality and the uniformity of the legal system.

  1. Finally, it should be added only this: even if, hypothetically, it were concedible that in cases of properties in full (or vertical) ownership, constituted by divisions susceptible of independent use, Stamp Duty could be required for the entirety of the property, if the value fixed in item 28.1 of the TGIS were reached, such value would nonetheless have to be fixed autonomously, through its own appraisal, and not through the sum of the values in which each of the parts susceptible of independent use was autonomously appraised. In fact, and as is evident, the "market value" of the whole will not necessarily – and will not, as a rule – equal the sum of the parts, it being well known and more lucrative (which will even constitute part of the economic foundation of the institute of horizontal property ownership) the sale "in parts" than the sale of the whole as a whole, first of all because of the market expansion, which the substantially lower price of the parts in relation to the whole brings. In fact, it will be this increase in economic value resulting from the division that will justify an independent appraisal of each autonomous part of the property in vertical ownership, so as to ensure that there is no less tax revenue, under Municipal Property Tax and Real Estate Transfer Tax, due to the fact that the division of the property does not have legal correspondence in the form of horizontal property ownership. In other words, the partition of the property always entails an increase in the value of the whole, since the "market value" of the whole will be, (at the very least) as a rule, less than the "market value" of the parts, separately. Therefore, at most, if the TA intended, legitimately, to apply item 28.1 of the TGIS to a property in full (or vertical) ownership, constituted by divisions susceptible of independent use, it would always be obliged to appraise the same as a whole (which would be a credible approximation to its "market value" by "wholesale") and not as the sum of the parts (by "retail"), first of all because these are not susceptible of being validly placed on the "market" separately.

  2. Returning to the case of the present file, the properties in question are in vertical ownership and contain floors and divisions for independent use, intended for housing, as was proven above. Since none of the floors intended for housing has a tax patrimonial value equal to or greater than €1,000,000.00, as results from the documents attached to the file, it is concluded that the legal prerequisite for the incidence of Stamp Duty provided for in item 28.1 of the TGIS has not been met.

  3. Thus, the TA not presenting, and it not being apparent upon a sua sponte examination any reason to disagree in a substantiated manner from the arbitral jurisprudence cited, as well as from the jurisprudence of the STA aforementioned, with the additions formulated above, we adhere without further consideration to the jurisprudence aforementioned, finding the arbitral request formulated in the present process to be well-founded.

V - Compensatory Interest

  1. The Claimant cumulates, with the request for annulment of the tax acts which are the subject of the present file, the request for condemnation of the TA to payment of compensatory interest.

In light of the merit of the request for annulment, the values paid by the Claimant should be reimbursed, relating to the tax acts annulled. In the case at hand, it is manifest that the illegality of the assessment acts, whose amount the Claimant paid, is attributable to the TA, which, by its initiative, undertook them without legal support.

Consequently, the Claimant is entitled to compensatory interest, pursuant to articles 43, no. 1, of the General Tax Law and 61 of the Code of Tax Procedure and Process. Compensatory interest is owed, from the date of the payments that were made, and calculated on the basis of their respective value, until their full reimbursement to the Claimant, at the legal rate, pursuant to articles, 43, nos. 1 and 4, and 35, no. 10, of the General Tax Law, 61 of the Code of Tax Procedure and Process and 559 of the Civil Code and Regulation no. 291/2003, of 8 April (without prejudice to any subsequent amendments to the legal rate).

  1. In accordance with the provisions of subparagraph b) of art. 24 of RJAT the arbitral decision on the merit of the claim that has no recourse or appeal binds the tax administration from the end of the period provided for recourse or appeal, with the tax administration being obliged, in the exact terms of the merit of the arbitral decision in favor of the taxpayer and until the end of the period provided for the execution of sentences from judicial tax courts, to "restore the situation that would exist if the tax act subject of the arbitral decision had not been undertaken, adopting the acts and operations necessary for this purpose", which is in line with the provision of art. 100 of the General Tax Law [applicable by force of the provision in subparagraph a) of no. 1 of art. 29 of RJAT] which establishes that "the tax administration is obliged, in case of total or partial merit of a claim, judicial challenge or appeal in favor of the taxpayer, to the immediate and full restoration of the legality of the act or situation which is the subject of the litigation, including the payment of compensatory interest, if applicable, from the end of the period of execution of the decision".

Although art. 2, no. 1, subparagraphs a) and b), of RJAT uses the expression "declaration of illegality" to define the competence of the arbitral tribunals functioning in CAAD, making no reference to condemning decisions, it should be understood that the competencies include the powers that in judicial challenge procedure are attributed to tax courts, and that is the interpretation that is in harmony with the sense of the legislative authorization on which the Government based itself to approve RJAT and in which it proclaims, as the first guideline, that "the tax arbitration process should constitute an alternative procedural means to the judicial challenge process and the action for the recognition of a right or legitimate interest in tax matters".

  1. The judicial challenge process, although it is essentially a process for the annulment of tax acts, admits condemnation of the tax administration to payment of compensatory interest, as is inferred from art. 43, no. 1, of the General Tax Law, in which it is established that "compensatory interest is owed when it is determined, in amicable claim or judicial challenge, that there was an error attributable to the services resulting in payment of the tax debt in an amount greater than that legally due" and from art. 61, no. 4 of CPPT (in the wording given by Law no. 55-A/2010, of 31 December, to which corresponds no. 2 in the original wording), which "if the decision that recognized the right to compensatory interest is judicial, the payment period is counted from the beginning of the period of its voluntary execution".

Thus, no. 5 of art. 24 of RJAT in saying that "payment of interest, regardless of its nature, is due, as provided for in the general tax law and in the Code of Tax Procedure and Process" should be understood as allowing the recognition of the right to compensatory interest in the arbitration process. In the case at hand, it is manifest that, following the declaration of illegality and consequent annulment of the assessment acts challenged, there is grounds for reimbursement of the tax, by virtue of the aforementioned art. 24, no. 1, subparagraph b), of RJAT and 100 of the General Tax Law, as such is essential to "restore the situation that would exist if the tax act subject of the arbitral decision had not been undertaken", in the part corresponding to the correction that was considered illegal.

The TA should, therefore, execute the present arbitral decision, pursuant to art. 24, no. 1, of RJAT, and reimburse to the Claimant the amounts paid increased by respective compensatory interest, at the legal supplementary rate for civil debts, pursuant to art. 35, no. 10, and 43, nos. 1 and 5, of the General Tax Law, 61 of the Code of Tax Procedure and Process, 559 of the Civil Code and Regulation no. 291/2003, of 8 April (or law or laws that succeed it).

Compensatory interest is owed from the dates of the payments made until the date of the processing of the credit note in which they are included (art. 61, no. 5, of CPPT).

VI - DECISION

For these reasons, this Arbitral Tribunal decides:

a) To find the arbitral request formulated wholly well-founded and, consequently, to annul the tax acts which are the subject of the present file;

b) To condemn the TA to reimburse to the Claimant the amounts of stamp duty paid, increased by compensatory interest, counting from the date on which the payment was made until full reimbursement;

c) To condemn the TA to pay the costs of the process, in the amount of €1,836.00.

VALUE OF THE PROCESS

The value of the process is fixed at €32,904.18, pursuant to article 97-A, no. 1, a), of CPPT, applicable by force of subparagraphs a) and b) of no. 1 of article 29 of RJAT and no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Processes.

COSTS

The arbitration fee is fixed at €1,836.00, pursuant to Table I of the Regulation of Costs of Tax Arbitration Processes, to be paid by the Respondent, since the request was wholly well-founded, pursuant to articles 12, no. 2, and 22, no. 4, both of RJAT, and article 4, no. 4, of the aforementioned Regulation.

Let notification be made.

Lisbon, 9 June 2016

The Arbitral Tribunal,

(Maria do Rosário Anjos)

[1] See Decision of the STA, of 09-09-2015, rendered in case no. 047/15, available at www.dgsi.pt).

[2] In this sense, see BAPTISTA MACHADO (1983) Introduction to Law and the Legitimizing Discourse, Almedina Coimbra, pages 181 et seq.

[3] In this sense, see FRANCESCO FERRARA, Interpretation and Application of Laws – translated by Manuel A. Domingues de Andrade (1978) 3rd edition, Arménio Amado – Editor Successor, Coimbra, page 137 et seq. Or still, in the same sense, see Manuel A. Domingues de Andrade, in Essay on the Theory of Interpretation of Laws. Collection Stvdivm, Philosophical, Legal and Social Themes (1978) 3rd edition, Arménio Amado – Editor Successor, Coimbra, page 23 et seq.

[4] This is concluded from the analysis of the discussion of the bill no. 96/XII in the Assembly of the Republic, available for consultation in the Diary of the Assembly of the Republic, I series, no. 9/XII/2, of 11 October 2012. The substantiation of the measure designated as "special tax on urban residential properties of higher value" is based on the invocation of the principles of social equity and fiscal justice, calling to contribute in a more intense manner the holders of properties of high value for housing purposes, making the new special tax incide on "homes with a value equal to or greater than 1 million euros."

Frequently Asked Questions

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What is Verba 28.1 of the Portuguese Stamp Tax General Table (TGIS) and how does it apply to high-value properties?
Verba 28.1 of the Portuguese Stamp Tax General Table (TGIS) is a provision introduced by Law 55-A/2012 that imposes annual stamp tax on urban properties with residential use (housing affectation) having a Tax Patrimonial Value (VPT) equal to or greater than €1,000,000. The tax applies to properties assessed under the Municipal Property Tax Code (CIMI). The key interpretative issue is whether the €1,000,000 threshold applies to individual autonomous units or to the aggregate VPT of all divisions within a property held in total ownership. When a property comprises multiple independent units, determining whether to assess each division separately or sum their values fundamentally changes tax liability. This provision was part of broader fiscal measures targeting high-value real estate and generates significant controversy regarding its application to properties with multiple autonomous fractions.
Can Stamp Tax under Verba 28.1 be charged on individual units within a property held in total ownership?
The central dispute in this case concerns whether Stamp Tax under Verba 28.1 can be charged on the aggregate value of individual units within a property held in total (vertical) ownership. The claimant argued that tax incidence should be determined separately for each division susceptible of independent use, based solely on its individual VPT and specific affectation. Under this interpretation, if individual units each have VPT below €1,000,000, no stamp tax applies even if their combined value exceeds the threshold. The Tax Authority adopted the opposite view, aggregating all unit values within a single property registration to determine if the €1,000,000 threshold is met. The claimant invoked Articles 6, 7(2)(d), and 12(3) of the Municipal Property Tax Code and Article 23(7) of the Stamp Duty Code (applicable via Article 67(2)) to support the position that autonomous units should be treated as separate taxable units for stamp tax purposes.
What are the grounds for challenging Stamp Tax (Imposto do Selo) liquidations before the CAAD arbitral tribunal?
Taxpayers can challenge Stamp Tax liquidations before the CAAD (Centro de Arbitragem Administrativa) arbitral tribunal under Decree-Law 10/2011 (RJAT - Regime Jurídico da Arbitragem em Matéria Tributária). Grounds for challenge include illegality of assessments due to incorrect interpretation or application of tax law provisions. In this case, the claimant alleged the Tax Authority violated Item 28.1 TGIS, Article 23(7) of the Stamp Duty Code, and relevant Municipal Property Tax Code provisions by incorrectly aggregating VPT values of independent units within properties held in total ownership. The arbitration process involves filing a request identifying the contested assessments, constitution of a singular or collective tribunal, submission of the Tax Authority's response with administrative file, optional hearings (which can be dispensed with for purely legal matters), written pleadings, and issuance of a binding arbitral decision. Claimants must pay arbitration fees and can seek full annulment of illegal assessments.
Are taxpayers entitled to compensatory interest (juros indemnizatórios) when Stamp Tax assessments are annulled?
Yes, taxpayers are entitled to compensatory interest (juros indemnizatórios) when Stamp Tax assessments are annulled, pursuant to Article 43 of the General Tax Law (Lei Geral Tributária - LGT). This article establishes the right to compensatory interest when taxpayers suffer financial loss due to illegal tax assessments that are subsequently annulled. The interest compensates for the period during which the taxpayer was deprived of funds wrongfully collected by the Tax Authority. In this case, the claimant specifically requested reimbursement of the €32,904.18 paid, increased by compensatory interest, as part of the legal consequences of annulling the contested assessments. Compensatory interest is calculated from the date of payment until reimbursement, using legally established rates. This mechanism ensures taxpayers are made whole when administrative or judicial review determines that tax was illegally assessed and collected, reflecting fundamental principles of taxpayer protection and state liability for unlawful acts.
How does the CAAD arbitration process work for disputing Portuguese Stamp Tax assessments under Decree-Law 10/2011 (RJAT)?
The CAAD arbitration process for disputing Portuguese Stamp Tax assessments under Decree-Law 10/2011 (RJAT) follows structured procedural steps. Taxpayers file a written request identifying contested assessments and legal grounds, choosing between a singular or collective tribunal. The CAAD President accepts the request and notifies the Tax Authority, which must respond within the legal deadline and submit the administrative file. The tribunal is constituted (in this case, on 02-03-2016) with arbitrators appointed by the Deontological Council if parties don't designate them. For purely legal matters, parties may agree to dispense with oral hearings, proceeding based on written submissions and pleadings. The tribunal issues procedural orders setting deadlines and managing the process. Arbitral decisions must be rendered within legally prescribed timeframes (here, initially set for 13-06-2016). Taxpayers pay arbitration fees based on the amount in dispute. The process provides a faster, specialized alternative to judicial courts for tax disputes, with arbitrators possessing technical expertise in tax law. Decisions are binding and enforceable, subject to limited grounds for annulment in administrative courts.