Process: 804/2014-T

Date: May 8, 2015

Tax Type: IUC

Source: Original CAAD Decision

Summary

This CAAD arbitration decision (Process 804/2014-T) addresses a critical question in Portuguese Stamp Duty law: whether the Tax Authority can aggregate the taxable property values (VPT) of individual units in a vertical property regime to reach the €1,000,000 threshold under Clause 28.1 of the General Stamp Duty Table (TGIS). The claimant, A SA, challenged Stamp Tax assessments for 2012 (partial - 3rd installment totaling €5,591.64) and 2013 (total - €16,795.60) relating to 16 residential floors in vertical ownership located in multiple buildings. The core legal dispute centers on tax incidence methodology: the Tax Authority summed the individual VPT values of separate floors to exceed the million-euro threshold, while the claimant argued each autonomous unit should be assessed independently. The claimant contended this aggregation violates the literal interpretation of Clause 28.1 TGIS, which applies a 1% annual Stamp Duty rate to residential properties with VPT equal to or exceeding €1,000,000. None of the individual units met this threshold independently. The claimant further alleged constitutional violations of the legality, justice, equality, and proportionality principles, citing similar favorable CAAD precedents. Procedurally, the case followed the Legal Regime of Arbitration in Tax Matters (RJAT), with the Tax Authority raising a timeliness exception for the 2012 assessment challenge. The Singular Arbitral Tribunal was constituted on February 13, 2015, and dispensed with the oral hearing given identical issues decided in numerous prior cases. The decision has significant implications for property owners holding multiple units in vertical ownership regimes, particularly regarding tax planning strategies and the fundamental question of whether each autonomous fraction constitutes an independent taxable unit for Stamp Duty purposes under Portuguese tax law.

Full Decision

ARBITRAL DECISION

THE PARTIES

Claimant – A SA., NIPC PT …, with registered office at ….

Respondent - Tax and Customs Authority (AT).

I. REPORT

a) On 09-12-2014, the Claimant submitted to CAAD a request, under the Legal Regime of Arbitration in Tax Matters (RJAT), for the constitution of a Singular Arbitral Tribunal (TAS).

b) The request is signed by a lawyer in representation of the Claimant.

THE REQUEST

c) The Claimant petitions for the partial annulment of the assessment of Stamp Tax of item 28 of the General Table of Stamp Tax (TGIS), carried out in 2013 and relating to the year 2012, (in the part individualized as 3rd installment and consisting of 16 collection notices) in a total of 5,591.64 €, alleging that an administrative appeal which it had filed against the respective administrative request was tacitly rejected, and also the total annulment of the assessment of Stamp Tax of item 28 of the TGIS, occurring in 2014 and relating to the year 2013 (single payment installment) generating a total collection of 16,795.60 €; both relating to cadastral articles corresponding to floors or divisions susceptible to independent use of urban property under vertical ownership regime, with residential use, located in ..., in ... nos 49, 51, 55, 65 and 69, parish of ... (extinct) current parish of Union of Parishes of ... and ...: articles U-...-49-1E (current ...-51-1E); U-...-49-1D (current ...-51-1D); U-...-49-2D (current ...-51-2D); U-...-49-2E (current ...-51-2E); U-...-49-3D (current ...-51-3D); U-...-49-3E (current ...-51-3E); U-...-49-4D (current ...-51-4D); U-...-49-4E (current ...-51-4E); U-...-55-1D (current ...-65-1D); U-...-55-1E (current ...-65-1E); U-...-55-2D (current ...-65-2D); U-...-55-2E (current ...-65-2E); U-...-55-3D (current ...-65-3D); U-...-55-3E (current ...-65-3E); U-...-55-4D (current ...-65-4D); U-...-55-4E (current ...-65-4E), (noting that in the collection notices the floors are individualized as autonomous cadastral articles, in addition to the individualization of their respective taxable property values used for the purposes of assessing Municipal Property Tax (IMI) in accordance with what is contained in the property register. The collection notices for the 2012 tax show the prior cadastral identification and those for the 2013 tax show the current one, with the property register linking the prior identification with the current one).

d) The Claimant further petitions for the condemnation of the AT to reimburse the amounts paid in enforcement procedures and to pay compensatory interest.

e) It invokes, in summary, (in addition to clarifying the formal question of possible non-conformity of the identification of police numbers of the property in relation to the floors for residential use), that the assessment acts are illegal due to violation of the tax rule of item 28.1 of the TGIS, in that the AT added the taxable property values of the floors in vertical ownership and none of them individually has a taxable property value equal to or greater than 1,000,000.00 euros, arguing that it should be the taxable property value of each floor and not their sum that should be relevant for taxation purposes.

f) It further alleges the unconstitutionality of the interpretation of the rule underlying the stamp tax assessments, due to violation of the principles of legality, justice, equality and proportionality.

g) It invokes in defense of its understanding various decisions adopted in CAAD in other identical cases.

OF THE ARBITRAL TRIBUNAL

h) The request for constitution of the TAS was accepted by the President of CAAD and automatically notified to the AT on 11.12.2014.

i) By the Ethics Council of CAAD, the undersigned was designated as arbitrator, with the parties being notified thereof on 28.01.2015.

j) Whereby the Singular Arbitral Tribunal (TAS) has been, since 13.02.2015, duly constituted to consider and decide on the subject matter of this dispute.

k) All these acts are documented in the communication of constitution of the Singular Arbitral Tribunal dated 13.02.2015 which is hereby reproduced.

l) On 13.02.2015 the AT was notified in accordance with article 17-1 of the RJAT. It responded on 07.04.2015.

m) Since this case raises issues entirely identical to those already raised in many other cases already decided in CAAD, the TAS by order of 09.04.2015 dispensed itself from scheduling the meeting referred to in article 18 of the RJAT, unless one or both parties came to raise the necessity of its realization.

n) Since in the response the AT invoked the exception of untimeliness of the request for annulment of the 2012 Stamp Tax assessment, assessed in 2013 (3rd installment), in the order of 09.04.2015 above mentioned, a period of 10 days was scheduled for successive written submissions.

o) On 17.04.2015 the Claimant submitted written submissions.

p) Whereby both parties having tacitly foregone the realization of the meeting of parties of article 18 of the RJAT, this procedural act did not take place.

PROCEDURAL REQUIREMENTS

q) Legitimacy, capacity and representation - The parties have legal personality, procedural capacity, are legitimated and are represented.

r) Principle of contradictory procedure - The AT was notified in accordance with item l). All procedural documents and documents filed with the case were made available to the respective counterpart.

s) Dilatory exceptions - The arbitral procedure does not suffer from nullities and the request for arbitral pronouncement is timely since it was presented within the prescribed period in subsection a) of no. 1 of article 10 of the RJAT. In fact,

The AT invokes the untimeliness of the presentation of the request for pronouncement as regards the request for partial annulment of the 2012 Stamp Tax assessment (3rd installment).

In fact, it is evident that the Claimant understood that there were as many assessments as there were installments of Stamp Tax that were notified to it, which, as is well understood, does not correspond to reality nor to the literal element drawn from the collection notices (as per sheets 2 to 17 of the PA1 attached by the AT and the collection notices attached by the Claimant in annex to the request for pronouncement under the designation of documents 3 to 18 and 22 to 37).

In simplistic terms it can be said that what is called an "assessment" (of taxes), is the product of the application of a rate (in this case the ad valorem rate of 1%) to a taxable matter (in this case the taxable property value of each of the floors with residential use) from which results a collection (in this circumstance e.g. 1,047.10 euros for each floor, as to those that have 104,710.00 euros of taxable property value). It is this act, this operation, that is subject to judicial review (the tax act).

That is, the Claimant filed before the AT three administrative requests (RG). The first with the number … as to the 1st installment payment of the collection of Stamp Tax. The second with the number … as to the 2nd installment payment of the collection of Stamp Tax. From the decisions of dismissal in these procedures it came to file a single administrative appeal.

In this part (as regards the outcome of these disputes with the AT in terms of administrative procedures) the Claimant did not raise the judicial review of the TAS.

The Claimant only raises judicial review with respect to the 3rd installment of the 2012 Stamp Tax assessment, whose administrative request procedure was numbered … (documents nos 20 and 21 attached with the request for pronouncement) and whose payment deadline was "November 2013". This procedure was not granted and from this dismissal, by registered mail of 17.07.2014, filed an administrative appeal, which by virtue of no. 5 of article 57 of the General Tax Code (LGT), is presumed rejected, after 4 months from the date of its receipt in the AT's services, for purposes of judicial challenge.

Now, since these last two administrative procedures were filed timely (the request and the appeal) before the AT (the parties at least did not allege this defect), surely as to the administrative appeal procedure, even if the AT received it 10 days after its sending, the minimum period of 4 months referred to in no. 1 of article 57 of the LGT has elapsed, to consider that a silent act of rejection occurred that legitimates recourse to the judicial avenue by the taxpayer.

On the other hand, the period for use of administrative or contentious means as to this type of tax assessments (payment in installments) shall be counted from the date of the last installment payment deadline, whereby, even as to the first and second installments of the tax in question, the period for filing a request and challenge would be the same as for the third installments.

It appears to the TAS that nothing prevents taxpayers from exercising their rights, partially (or in this case, before the beginning of the period for the exercise of rights, since the AT did not even place this ground as an impediment to the consideration of the first two requests, from which no claim is made here), as was the case here, in which the taxpayer comes only to petition the TAS for the annulment of 1/3 of the Stamp Tax assessment act of 2012, corresponding to the third installment of the global collection assessed for each cadastral article (each floor) that makes up the property under vertical ownership.

It is in this factual conformity that the TAS understands that it is not evident, in this case, as to the opportunity of the presentation of the request for pronouncement, aiming at the partial annulment of the 2012 Stamp Tax assessment (3rd installment), the alleged untimeliness, which thus fails.

The TAS cannot, as to the remaining part of the 2012 Stamp Tax (1st and 2nd installments), pronounce itself, under penalty of the vice of "beyond the scope requested".

SUMMARY OF THE CLAIMANT'S POSITION

As to the possible illegality of the assessment acts due to non-conformity with the tax rule of item 28.1 of the TGIS

t) It first invokes that the property in question, police numbers 49 and 55 of ..., does not have residential use, but rather commercial use.

u) Then, in summary, argues that the assessment acts are illegal due to violation of the tax rule of item 28.1 of the TGIS in that the AT added the taxable property values of the floors in vertical ownership and none of them individually has a taxable property value equal to or greater than 1,000,000.00 euros, arguing that it should be the taxable property value of each floor and not their sum that should be relevant for taxation purposes.

As to the possible unconstitutionality of the rule contained in item 28.1 of the TGIS, in the implicit reading carried out in practice by the AT

v) It further alleges the unconstitutionality of the interpretation of the rule underlying the stamp tax assessments, due to violation of the principles of legality, justice, equality and proportionality, making a comparison with floors under the horizontal ownership regime.

SUMMARY OF THE RESPONDENT'S POSITION

As to the possible illegality of the assessment acts due to non-conformity with the tax rule of item 28.1 of the TGIS.

w) The AT considers that "the taxable property value relevant for purposes of the incidence of the tax is, … the total taxable property value of the urban property and not the taxable property value of each one of the parts that compose it, even when susceptible to independent use".

x) What only does not occur – by virtue of article 84 of the Municipal Property Tax Code (CIMI) – as to mixed properties and autonomous fractions of properties under horizontal ownership.

y) It further states "the fact that the Municipal Property Tax has been calculated based on the taxable property value of each part of property with independent economic use does not equally affect the application of item 28, no. 1, of the General Table". It adds: "it is what results from the fact that the determining factor for the application of that item of the General Table is the total taxable property value of the property and not separately that of each one of its parcels."

z) It understands, in summary, that for purposes of Stamp Tax what is relevant is the property in its entirety since the divisions susceptible to independent use are not had as property, but only the autonomous fractions under the horizontal ownership regime are, in accordance with article 2-4 of the CIMI.

aa) It concludes: "any other interpretation would violate, rather, the letter and spirit of item 28.1. of the General Table", arguing for the legality of the assessments that are the subject of the petition.

As to the possible unconstitutionality of the rule contained in item 28.1 of the TGIS, in the implicit reading carried out in practice by the AT and in the reading argued by the Claimant

bb) The AT defends that the implicit reading of the law carried out in the assessment acts does not violate the principle of equality (nor of legality) because there is no discrimination between properties under horizontal ownership and properties in total ownership with floors or divisions susceptible to independent use.

cc) The different assessment and taxation of a property in total ownership as opposed to a property under horizontal ownership results from the different legal effects inherent to these two figures.

dd) It contraposes that "it is unconstitutional, as offensive of the principle of tax legality, the interpretation of item 28.1. of the General Table, in the sense that the taxable property value on which its incidence depends is calculated globally and not floor by floor or division by division".

ee) Arguing for the legality of the tax acts because they constitute a correct application of the law to the facts, both at the level of their conformity with ordinary law and at the level of their conformance with constitutional principles.

II - ISSUES FOR THE TRIBUNAL TO RESOLVE

It is incumbent first to consider the allegation that police numbers 49 and 55 of ..., do not have residential use, but rather commercial use.

It should be noted that if there existed on 31.12.2012 (the date to which the 2012 Stamp Tax assessment relates) any dysfunction between what is recorded in the property register and factual reality, the Claimant itself, as it certainly has already done, would have the duty to raise that alteration, in accordance with the declarative duties that result from the Municipal Property Tax Code (CIMI).

The collection notices for the 2012 tax show the prior cadastral identification and those for the 2013 tax show the current one, with the property register - current version -, making the link between the identification of the floors, prior and current.

Now, given the correspondence between the prior identification of the 16 floors with residential use and the current one (which the Claimant recognizes to be correct), in terms of substance, what the AT assessed (in 2012 and in 2013) were the same residential units, regardless of any non-conformity of the property register as to police numbers, from which the Claimant must not exempt itself.

The AT did not assess the article ...-49-RC (current ... -49-RC), the article ...-55-RC (current ...-55-RC), nor the ...-69-RC (current ...-69-RC), whereby this ground does not proceed.

On the substantive matter, in particular, CAAD has already pronounced itself in various decisions in which the central question is the same, namely, the scope of the tax rule of items 28 and 28-1 of the TGIS is discussed. These same Claimants and as to the same real property (2012 Stamp Tax assessment), have already filed, successfully, in CAAD, a request for pronouncement.

The limit of interpretation is the letter, the text of the rule. Then comes the task of interconnection and valuation that escapes the literal domain.

Starting from the principle that every rule has a provision (and a consequence), the issue that arises here is to determine, delimiting, whether the tax rule, as it is written – in its provision - ownership of urban properties … with residential use … whose taxable property value contained in the register, in accordance with the Municipal Property Tax Code (CIMI) is equal to or greater than 1,000,000.00 euros – on the taxable property value used for purposes of Municipal Property Tax, permits or does not permit the understanding that as to properties "with residential use" under vertical ownership, with floors or divisions susceptible to independent use, held by an entity, the taxable property value on which the rate will incide, should be their sum or should the individual taxable property value of each floor or division susceptible to independent use be considered, in a similar manner to what happens with properties under horizontal ownership and with the Municipal Property Tax assessment procedure.

What is at issue here is the adoption of an appropriate reading of the scope of the tax rule of items 28 and 28.1 of the TGIS, in light of what no. 7 of article 23 of the Stamp Tax Code (CIS) refers to as to the determination of the taxable matter and subsequent tax assessment operation:

"When it comes to the tax owed 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 Municipal Property Tax Code (CIMI)."

The AT, albeit implicitly, which can be inferred e.g. from articles 54 and 51 of the Response, seems to evidence that the legal basis it used to proceed with the addition of the taxable property values of the floors of the urban property in question, would have been article 23-7 of the Stamp Tax Code (CIS).

As we have referred in other decisions, as to the interpretation of tax rules there is a rule, although it may be considered residual, very particular, which is contained in no. 3 of article 11 of the General Tax Code (LGT): "persisting the doubt about the meaning of the rules of incidence to apply, the economic substance of the tax facts should be regarded". It is a criterion to be used in the hermeneutics of interpretation of the rules.

We do not defend an "economic interpretation" of tax law rules.

But it appears to us that here one could also appeal to the analysis of the "economic substance of the tax facts" to adequately implement the "necessary adaptations of the rules contained in the Municipal Property Tax Code (CIMI)", with a view to solving the issue that arises.

We are thus, only and solely, within the scope of the activity of interpretation and application of rules, that is, in the task of delimiting the legal-factual situations that should be understood to be encompassed in the provision of the tax rule of this new tax and which results from the combination of items 28 and 28-1 of the TGIS and in this case what should be understood as acceptable at the level of the "necessary adaptations of the rules contained in the Municipal Property Tax Code (CIMI)", following the command of no. 7 of article 23 of the Stamp Tax Code (CIS).

The possible non-conformity of the provision of the tax rule, in face of the constitutional text, (in the implicit reading carried out in the tax assessment in this case or in the reading argued by the Claimant) will only arise if the interpreter reaches the conclusion that a certain and unequivocal reading of the law – applied correctly to a concrete case - strikes one or several constitutional principles with such intensity that the legislative option adopted could not have been, having also in consideration that the AT cannot on the basis of possible unconstitutionalities of rules, not declared by the courts, refrain from applying the law, in the sense it understands to be most assertive.

The central question to which the TAS must respond is the following:

Do items 28 and 28-1 of the TGIS as tax rules, as they are written – in their provision - (ownership of urban properties … with residential use … whose taxable property value contained in the register, in accordance with the Municipal Property Tax Code (CIMI) is equal to or greater than 1,000,000.00 euros – on the taxable property value used for purposes of Municipal Property Tax), permit or do not permit the understanding that as to properties "with residential use" under vertical ownership, with floors or divisions susceptible to independent use, held by an entity, the taxable property value on which the rate will incide, should be their sum or should the individual taxable property value of each floor or division susceptible to independent use be considered, in a similar manner to what happens with properties under horizontal ownership and in the Municipal Property Tax assessment operations?

From the response given to this question will result the merit or lack of merit of the petition, and if the response is in a sense not in accordance with what was learned advocated by the AT, it will not be necessary for the TAS to pronounce itself on the remaining grounds invoked in the request for pronouncement or in the response, with possible impact on the validity of the tax assessment acts in question.

III. PROVEN AND UNPROVEN FACTUAL MATTERS AND GROUNDS

With relevance to the decision that will be adopted, these are the facts that are considered proven, indicating the respective documents (evidence by documents), as grounds.

Proven facts

  1. The Claimant – A SA., NIPC PT …, with registered office in..., is recorded as the holder of the right of full ownership of the urban property under vertical ownership regime, with 16 floors with residential use, located in ..., in ... nos 49, 51, 55, 65 and 69, parish of ... (extinct) current parish of Union of Parishes of ... and ..., comprising the following articles: U-...-49-1E (current ...-51-1E); U-...-49-1D (current ...-51-1D); U-...-49-2D (current ...-51-2D); U-...-49-2E (current ...-51-2E); U-...-49-3D (current ...-51-3D); U-...-49-3E (current ...-51-3E); U-...-49-4D (current ...-51-4D); U-...-49-4E (current ...-51-4E); U-...-55-1D (current ...-65-1D); U-...-55-1E (current ...-65-1E); U-...-55-2D (current ...-65-2D); U-...-55-2E (current ...-65-2E); U-...-55-3D (current ...-65-3D); U-...-55-3E (current ...-65-3E); U-...-55-4D (current ...-65-4D); U-...-55-4E (current ...-65-4E) - as per property register attached by the Claimant on 24.03.2015 and Documents nos 3 to 18 and 22 to 37 attached with the request for pronouncement.

  2. The Claimant was notified, on an undetermined date in 2013, of 16 collection notices relating to the third installment of payment of the Stamp Tax assessment, for the year 2012, of item 28.1 of the TGIS, assessment dated 21-03-2013, totaling 5,591.64 euros – as per Stamp Tax collection notices attached by the Claimant with the request for pronouncement with the designation of Documents nos 3 to 18.

  3. The Claimant was notified, on an undetermined date in 2014, of 16 collection notices relating to the single installment for payment of the Stamp Tax assessment, for the year 2013, of item 28.1 of the TGIS, assessment dated 02-06-2014, totaling 16,795.60 euros, assessment that generated a collection of the same value – as per Stamp Tax collection notices attached by the Claimant with the request for pronouncement with the designation of Documents nos 22 to 37.

  4. The floors or divisions susceptible to independent use subject to taxation, with residential use, have taxable property values between 104,710.00 euros (the articles U-...-49-1E (current ...-51-1E); U-...-49-1D (current ...-51-1D); U-...-49-2D (current ...-51-2D); U-...-49-2E (current ...-51-2E); U-...-49-3D (current ...-51-3D); U-...-49-3E (current ...-51-3E); U-...-55-1D (current ...-65-1D); U-...-55-1E (current ...-65-1E); U-...-55-2D (current ...-65-2D); U-...-55-2E (current ...-65-2E); U-...-55-3D (current ...-65-3D); U-...-55-3E (current ...-65-3E); U-...-55-4D (current ...-65-4D); U-...-55-4E (current ...-65-4E)) and 105,760.00 euros (the articles U-...-49-4D (current ...-51-4D); U-...-49-4E (current ...-51-4E)) – as per property register attached by the Claimant on 24.03.2015 and Documents nos 3 to 18 and 22 to 37 attached with the request for pronouncement.

  5. In the urban property register of the real property referred to in 1) it is stated: "Total taxable property value: € 2,324,780.00" – as per urban property register attached by the Claimant.

  6. In all collection notices it states: "Taxable property value of the property - total subject to tax: 1,679,560.00" euros, which corresponds to the sum of the taxable property values of the floors with residential use of the real property identified in 1) – as per Stamp Tax assessment notices of item 28.1 of the TGIS attached by the Claimant (Documents nos 3 to 18 and 22 to 37 in annex to the request for pronouncement).

  7. Tax assessed on the basis of item 28.1 of the TGIS – as per Stamp Tax assessment notices of item 28.1 of the TGIS attached by the Claimant (Documents nos 3 to 18 and 22 to 37 in annex to the request for pronouncement).

  8. The Claimant paid only some of the amounts stated in the collection notices of the 3rd installment of the 2012 Stamp Tax, assessed in 2013, in the course of fiscal enforcement, totaling 6,141.29 euros - As per articles 98, 102, 104, 110, 112, 114, 116, 118, 120 and 122 of the request for pronouncement, documents nos 55, 59, 61, 67, 69, 71, 73, 75 and 77 attached with the request for pronouncement and taking into account the non-contestation specified by the AT of the alleged amount paid (agreement of the parties).

  9. By registered mail at the post office on 28.03.2014 the Claimant sent to the Tax Office of the location of the property indicated in 1) an administrative request which was numbered …, aiming at the annulment of the 3rd installment payment of the Stamp Tax assessment referred to in 2) – Documents nos 19 and 20 attached with the request for pronouncement and article 20 of the response of the AT.

  10. The administrative request referred to in the previous item was rejected (not for extemporaneity) and the decision was notified to the Claimant by official letter ... of 17.06.2014 – Document no. 20 attached with the request for pronouncement and articles 21 and 22 of the response of the AT.

  11. By registered mail at the post office on 17.07.2014 the Claimant sent to the Tax Office of the location of the property indicated in 1) the administrative appeal arguing for the adoption of a decision contrary to the one adopted in the administrative request - Document no. 21 attached with the request for pronouncement.

  12. On 09-12-2014, the Claimant submitted to CAAD a request for constitution of the TAS – communication referred to in item K) of the Report of this decision.

Unproven facts

There is no other alleged factuality that is relevant for the correct resolution of the procedural dispute.

The settled matters result from the documents attached by the Claimants, whose contents and probative assessments did not merit disagreement from the AT.

IV. CONSIDERATION OF THE ISSUES FOR THE TAS TO RESOLVE

Do items 28 and 28-1 of the TGIS as tax rules, as they are written – in their provision - (ownership of urban properties … with residential use … whose taxable property value contained in the register, in accordance with the Municipal Property Tax Code (CIMI) is equal to or greater than 1,000,000.00 euros – on the taxable property value used for purposes of Municipal Property Tax), permit or do not permit the understanding that as to properties "with residential use" under vertical ownership, with floors or divisions susceptible to independent use, held by an entity, the taxable property value on which the rate will incide, should be their sum or should the individual taxable property value of each floor or division susceptible to independent use be considered, in a similar manner to what happens with properties under horizontal ownership and in the Municipal Property Tax assessment operations?

The subjection to stamp tax of properties with residential use resulted from the addition of items 28, 28-1 and 28-2 of the General Table of Stamp Tax, effected by article 4 of Law 55-A/2012, of 29/10, which typified the following tax facts:

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

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, contained in the list approved by order of the Minister of Finance – 7.5%."

With relevance to the case, reference is made to:

• No. 7 of article 23 of the Stamp Tax Code (CIS) as to the tax assessment: "When it comes to the tax owed 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 Municipal Property Tax Code (CIMI)."

• No. 4 of article 2 of the CIMI: "For purposes of this tax, each autonomous fraction, under the horizontal ownership regime, is deemed to constitute a property."

• No. 3 of article 12 of the CIMI: "Each floor or part of property susceptible to independent use is considered separately in the cadastral registration which also determines its respective taxable property value".

It appears to us that the response to the question raised in this request for pronouncement has to do with the implicit reading made by the AT of no. 7 of article 23 of the Stamp Tax Code (CIS).

The AT would have considered, to proceed with the sum of the taxable property values of the floors or divisions/parts of urban property, in order to determine whether it reaches, for each urban property under vertical ownership, the minimum taxation threshold of 1,000,000.00 euros, that the floors or divisions susceptible to independent use are not by formal legal definition considered urban properties. Which is indisputable.

And would have considered that this addition of taxable property value is required because the law states that one should proceed to the "necessary adaptations" of the "rules of the Municipal Property Tax Code (CIMI)" (no. 7 of article 23 of the Stamp Tax Code (CIS)).

Although items 28 and 28.1 speak of "urban properties" and "per property" and no. 7 of article 23 of the Stamp Tax Code (CIS) refers to that "the tax is assessed annually, in relation to each urban property", what appears to us to be here relevant, at the level of the determination of the eligible taxable matter and tax assessment, will be that one applies "… with the necessary adaptations, the rules contained in the Municipal Property Tax Code (CIMI)" as the referred no. 7 of article 23 of the Stamp Tax Code (CIS) states. But, obviously, "adaptations" insofar as they are necessary.

What occurred - as to urban properties with residential use, under vertical ownership, with floors or divisions susceptible to independent use - was that the AT made the "adaptation", in the Stamp Tax assessment operations, of adding the taxable property values of each floor or independent division assigned to residential purposes (excluding the taxable property values of the floors or divisions intended for other purposes), creating a new legal reality, which is a taxable property value of urban properties under vertical ownership, with residential use.

This operation of the tax process (incidence – determination of the taxable matter – assessment – payment) appears to us to contend with the literal element of the tax rule, item 28 of the TGIS, which states that this tax incides on "the taxable property value used for purposes of Municipal Property Tax".

It is that the AT, in the operation of determination of the taxable matter and subsequent Stamp Tax assessment of items 28 and 28.1 of the TGIS (operation of application of a rate to the taxable matter), as to urban properties with residential use, under vertical ownership, with floors or divisions susceptible to independent use, should not consider any taxable property value other than the one that results exclusively from no. 3 of article 12 of the Municipal Property Tax Code (CIMI). Either for the Municipal Property Tax or for this Stamp Tax.

And for the reason that urban properties under vertical ownership, as a whole, do not have a taxable property value. The law determines in these cases that the taxable property value be attributed to each floor or part of the property separately.

The above conclusion will not be affected by the fact that in the property registers of this type of property one indicates the "total taxable property value" which corresponds to the sum of the taxable property values of all floors, regardless of their use. What is relevant for this taxation will not be the "total taxable property value" but only the "taxable property value" of urban properties with residential use, in this case of the floors individually assigned in tax terms in terms of eligible taxable property value.

Furthermore, in the majority of cases of properties under vertical ownership, as is the case here, the "residential use" is characteristic of one or several floors separately and not of the property as a whole. There are three more floors that make up the property and that do not have residential use.

Creating a new legal reality, in order to find a new way of determining the taxable matter that is not used for purposes of Municipal Property Tax (a tax base for the floors or parts of property susceptible to independent use, with residential use) does not seem to have legal support in the "necessary adaptations" referred to in no. 7 of article 23 of the Stamp Tax Code (CIS).

Conclusion which will be reached taking into account the principle of tax legality, both in the dimension of no. 1 of article 8 of the General Tax Code (LGT) (if we consider that what is at issue is a tax rule), or in the dimension of subsection a) of no. 2 of article 8 of the General Tax Code (LGT) (if we consider that what is at issue is a rule that regulates the determination of the tax base on which a rate incides, that is, the tax assessment).

It occurs, it is perceived, non-conformity with the literal element of the final part of the tax rule (item 28 of the TGIS) which states that the tax incides on "the taxable property value used for purposes of Municipal Property Tax" and therefore, should not incide on the sum of taxable property values of properties, parts of properties or floors, and there is no legal support envisioned in the operation of addition of taxable property values of floors or parts of property susceptible to independent use, with residential use, in order to reach the minimum eligible taxation threshold of 1,000,000.00 euros or more.

That is, it is not in conformity with the law, the creation of a new taxable property value for purposes of Stamp Tax taxation as to item 28 of the TGIS, as results from the annotation in all collection notices of "taxable property value of property – total subject to tax" – item 6 of the settled factual matters.

What means that when no. 7 of article 23 refers to that "…the tax is assessed annually, in relation to each urban property", this expression "each urban property" will aim to encompass urban properties under horizontal ownership and the floors or parts of urban properties of properties under vertical ownership, as long as assigned to residential purposes, but always starting from only one tax base for all legal purposes: the taxable property value used for purposes of Municipal Property Tax (final part of item 28 of the TGIS).

The issue does not need, in our understanding, to be raised at the level of violation of the Portuguese Constitution, being sufficient, in compliance with what is referred to in no. 7 of article 23 of the Stamp Tax Code (CIS), that one carries out a reading, "with the necessary adaptations of the rules of the Municipal Property Tax Code (CIMI)" which will be to consider that the expression "each urban property" encompasses not only the floors under horizontal ownership (which are urban properties ope legis) as well as "the floors or parts of property susceptible to independent use" (no. 3 of article 12 of the Municipal Property Tax Code (CIMI)).

If e.g. for the floors that make up the autonomous fractions of residential urban properties, under horizontal ownership, (even though they are by definition and "ope legis" urban properties) one does not add the taxable property values to determine the threshold of the eligible taxable property value for subjection to Stamp Tax, by taxpayer, of 1,000,000.00 euros (operation of determination of the taxable matter), why should the same occur as to the "parts of property or floors" of properties under vertical ownership?

In both cases the same contributive capacity of taxpayers manifests itself (their level of wealth at the level of real property). It is the same "economic substance" analyzed from different angles. In both situations the same "ability-to-pay" manifests itself.

It appears to us that it is the tax rule contained in items 28 and 28-1 of the TGIS, in its literality, particularly its final part, combined with no. 7 of article 23 of the Stamp Tax Code (CIS), which allows us to conclude, with the "necessary adaptations of the rules of the Municipal Property Tax Code (CIMI)" that the AT should not have added the taxable property values of the floors or part of the property above identified to find a new taxable property value relating to those that are assigned to residential purposes, separated from the taxable property value of those that are assigned to other purposes.

It will be sufficient, therefore, a mere declarative interpretation of the law, given its literal element, it not being configured as necessary to resort even to its extensive interpretation (reasoning of parity of reason between the two types in which the ownership of floors materializes).

The Claimant alleges, fundamentally, the non-conformity of the tax acts with tax law, alleging the illegality contained in subsection a) of article 99 of the Administrative Tax Procedure Code (CPPT): "erroneous qualification … of tax facts".

In fact, with the grounds expressed above, the Stamp Tax assessments challenged as carried out in the manner in which they were, are not in harmony with the tax rule of items 28 and 28-1 of the TGIS, occurring, in this manner, the illegality provided in subsection a) of article 99 of the Administrative Tax Procedure Code (CPPT).

The first ground of the petition formulated by the Claimant in the request for pronouncement (item e) of the Report) proceeding, it becomes unnecessary to proceed to the consideration of the other grounds (items e) and dd) of the Report), for futility, since its consideration is precluded.

As a consequence of what is stated above, the petition for annulment of the tax acts submitted by the Claimant to the Arbitral Tribunal proceeds, since the Stamp Tax assessments carried out by the AT are not in conformity with the law, in the reading argued above.

In fact, it results from the proven facts (item 4) of part III of this decision) that none of the floors or parts of property have, of themselves, a taxable property value that is equal to or greater than the minimum taxation threshold indicated in item 28 of the TGIS (taxable property value equal to 1,000,000.00 euros).

Request for interest

In the legislative authorization on which the Government based itself to approve the RJAT, granted by article 124 of Law no. 3-B/2010, it is stated that "the arbitral tax process must constitute an alternative procedural means to the judicial challenge process and the action for recognition of a right or legitimate interest in tax matters".

Although subsections a) and b) of no. 1 of article 2 of the RJAT use the expression "declaration of illegality" to define the competence of the arbitral tribunals that function in CAAD and do not make reference to constitutive (annulment) and condemnatory decisions, it should be understood, in harmony with the referred legislative authorization, that the powers that in challenge proceedings are attributed to the tax tribunals are understood to be included in their competences in relation to acts whose consideration of legality is inserted in their competences.

Whereby a condemnation of the tax administration can be pronounced here in the payment of compensatory interest.

Article 43 of the General Tax Code (LGT) "does nothing but establish an expeditious and, so to speak, automatic means of indemnifying the injured party. Regardless of any allegation and proof of the damages suffered, it has the right to the indemnity established there, translated in compensatory interest in the cases included in the provision (…)" "Judgment of the Supreme Administrative Court of 2-11-2006, case 604/06, available at www.dgsi.pt"

In the case at hand, it has been proven that the Claimant paid some of the amounts stated in the collection notices that were notified to it, whereby it has the right to compensatory interest counted from the date of payment, wholly or partly, of the tax assessments now annulled until the date of issuance of the respective credit notes, with the period for that payment being counted from the beginning of the period for the spontaneous execution of this decision (article 61, nos 2 to 5, of the Administrative Tax Procedure Code (CPPT)), at the rate determined in accordance with what is provided in no. 4 of article 43 of the General Tax Code (LGT).

V. DISPOSITIF

In accordance with and for the grounds stated above, it is ruled:

  1. The petition of the Claimant is well founded, annulling the Stamp Tax assessments of item 28 of the TGIS of the year 2012 (in the part individualized as 3rd installment and consisting of 16 collection notices) in a total of 5,591.64 €, and of the year 2013 (single payment installment) generating a total collection of 16,795.60 €, with reference to the cadastral articles to which correspond floors or divisions susceptible to independent use of urban property under vertical ownership regime, with residential use, located in ..., in ... nos 49, 51, 55, 65 and 69, parish of ... (extinct) current parish of Union of Parishes of ... and ...: articles U-...-49-1E (current ...-51-1E); U-...-49-1D (current ...-51-1D); U-...-49-2D (current ...-51-2D); U-...-49-2E (current ...-51-2E); U-...-49-3D (current ...-51-3D); U-...-49-3E (current ...-51-3E); U-...-49-4D (current ...-51-4D); U-...-49-4E (current ...-51-4E); U-...-55-1D (current ...-65-1D); U-...-55-1E (current ...-65-1E); U-...-55-2D (current ...-65-2D); U-...-55-2E (current ...-65-2E); U-...-55-3D (current ...-65-3D); U-...-55-3E (current ...-65-3E); U-...-55-4D (current ...-65-4D); U-...-55-4E (current ...-65-4E), due to non-conformity with the rules contained in items 28 and 28.1 of the TGIS and in no. 7 of article 23 of the Stamp Tax Code (CIS).

  2. The petition for condemnation of the AT in the payment of compensatory interest to the Claimant is well founded, to be counted from the date of payment of the Stamp Tax installments, wholly or in part, until the date of issuance of the respective credit note, with the period for that payment being counted from the beginning of the period for the spontaneous execution of this decision (article 61, nos 2 to 5, of the Administrative Tax Procedure Code (CPPT)), at the rate determined in accordance with what is provided in no. 4 of article 43 of the General Tax Code (LGT).

It is noted that the right of the Claimant to obtain reimbursement of all amounts paid to the AT that resulted from the assessments now partially or wholly annulled, is a legal consequence of the regime of annulment of tax acts, such as, moreover, the AT itself recognizes in the response.

Case value: in accordance with what is provided in article 3, no. 2, of the Costs Regulation in Tax Arbitration Procedures (and subsection a) of no. 1 of article 97A of the Administrative Tax Procedure Code (CPPT)), the case is assigned a value of 22,610.71 euros.

Costs: in accordance with what is provided in article 22, no. 4, of the RJAT, the amount of costs is fixed at € 1,224.00 €, according to Table I annexed to the Costs Regulation in Tax Arbitration Procedures, at the charge of the respondent.

Notify.

Lisbon, 08 May 2015

Singular Arbitral Tribunal,

Text prepared by computer in accordance with the provisions of article 131, no. 5, of the Code of Civil Procedure (CPC), applicable by reference of article 29 of the RJAT.

The text of this decision is governed by the orthography prior to the 1990 Orthographic Agreement.

Frequently Asked Questions

Automatically Created

Can the Tax Authority sum the taxable property values (VPT) of individual units in vertical property to meet the €1,000,000 Stamp Duty threshold under Clause 28.1 of the General Stamp Duty Table?
No, according to the claimant's position supported by CAAD precedent, the Tax Authority cannot sum the taxable property values of individual units in vertical property to meet the €1,000,000 Stamp Duty threshold under Clause 28.1 TGIS. Each autonomous floor or unit in vertical ownership regime must be assessed independently. The tax applies only when an individual unit's VPT equals or exceeds €1,000,000. Aggregating values from separate cadastral articles with independent registrations violates the literal interpretation of the law, as each fraction constitutes a distinct property right. This interpretation aligns with the principle of tax legality, requiring strict adherence to statutory language without extensive interpretation that expands tax incidence beyond what the legislator expressly provided.
What is the subjective incidence rule for Stamp Duty (Imposto do Selo) on high-value residential properties in Portugal?
The subjective incidence rule for Stamp Duty on high-value residential properties in Portugal under Clause 28.1 of the General Stamp Duty Table identifies as taxpayers the owners of residential real estate with taxable property value (valor patrimonial tributário - VPT) equal to or exceeding €1,000,000. The tax applies at an annual rate of 1% on the VPT. For properties under vertical ownership regime, the critical question is whether each autonomous fraction (individual floor or unit) constitutes a separate taxable unit or whether multiple units owned by the same entity can be aggregated. The correct interpretation, based on property law principles, treats each fraction as an independent property right with its own cadastral identification and IMI assessment, meaning the VPT threshold must be met individually by each unit, not collectively across an owner's portfolio.
How does CAAD arbitration process work for challenging Stamp Duty assessments on vertical property buildings?
The CAAD (Centro de Arbitragem Administrativa) arbitration process for challenging Stamp Duty assessments follows the Legal Regime of Arbitration in Tax Matters (RJAT). Taxpayers must first exhaust administrative remedies by filing a complaint (reclamação graciosa) with the Tax Authority. If dismissed or tacitly rejected after 4 months (per Article 57 LGT), taxpayers can request arbitration within 90 days. The process involves: (1) filing a request specifying the contested acts and legal grounds; (2) appointment of arbitrator(s) by CAAD's Ethics Council; (3) formal constitution of the tribunal; (4) notification to the Tax Authority for response; (5) optional hearing (may be waived in cases with established precedent); and (6) written decision within statutory deadlines. Taxpayers can seek annulment of assessments, reimbursement of amounts paid, and compensatory interest.
Are individual floors or independent units in a vertical property regime assessed separately or collectively for Stamp Duty purposes under Clause 28.1 TGIS?
Individual floors or independent units in a vertical property regime are assessed separately for Stamp Duty purposes under Clause 28.1 TGIS, not collectively. Each autonomous fraction constitutes a distinct property right under Portuguese law, with independent cadastral registration and individual IMI (Municipal Property Tax) assessment. The €1,000,000 threshold applies to each unit's individual VPT, not to the aggregate value of multiple units owned by the same person. This interpretation respects the legal concept of vertical ownership (propriedade horizontal), where each fraction has autonomous legal status. The Tax Authority's practice of summing VPT values across separate cadastral articles violates the tax legality principle and the literal language of Clause 28.1, which references 'residential property' in singular form, indicating each property is assessed independently.
What remedies are available to taxpayers who overpaid Stamp Duty, including reimbursement and compensatory interest (juros indemnizatórios)?
Taxpayers who overpaid Stamp Duty are entitled to comprehensive remedies under Portuguese tax law. First, they can obtain full reimbursement (reembolso) of amounts unduly paid, including tax collected through enforcement proceedings. Second, they are entitled to compensatory interest (juros indemnizatórios) calculated from the payment date until reimbursement, as provided in Article 43 of the General Tax Law (LGT). The interest rate is legally established and compensates taxpayers for being deprived of their funds due to illegal tax collection. In arbitration proceedings, tribunals can order both principal reimbursement and accrued interest. If the Tax Authority collected tax through enforcement (execução fiscal), all amounts paid under such procedures must be returned with interest. These remedies ensure taxpayers are fully restored to their financial position prior to the unlawful taxation.