Process: 86/2016-T

Date: October 31, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

Process 86/2016-T addresses whether Stamp Tax under Item 28.1 of the General Stamp Tax Table (TGIS) applies to vertical property (propriedade vertical) on an aggregate or individual unit basis. The taxpayer owned a Lisbon building with seven independent residential units, each valued below €200,000, but collectively worth €1,153,830. The Tax Authority assessed Stamp Tax on the total value, triggering Item 28.1 TGIS which applies to residential property exceeding €1,000,000. The taxpayer challenged this before CAAD, arguing that each unit should be taxed separately, as done for Municipal Property Tax (IMI) purposes under Article 12(3) of the IMI Code. The claimant invoked error in legal prerequisites, violation of proportionality and equality principles, and constitutional concerns. The arbitral tribunal was constituted as a singular panel on May 6, 2016. Following standard CAAD procedure under RJAT, the arbitrator waived the Article 18 hearing and oral arguments, finding all necessary elements in the case file for decision. The taxpayer requested annulment of the third installment assessments for 2014 (totaling €3,846.14) and payment of compensatory interest (juros indemnizatórios). This case raises fundamental questions about the unit of assessment for vertical property under Stamp Tax law and whether legislative intent treats multi-unit buildings as single taxable objects or as aggregations of independent properties.

Full Decision

ARBITRAL DECISION

I. REPORT

A - PARTIES AND CONSTITUTION OF THE ARBITRAL TRIBUNAL

A…, taxpayer number…, residing at Rua …, nº…, … Esq, …-…, in Lisbon, hereinafter designated "Claimant" or "taxpayer",

TAX AND CUSTOMS AUTHORITY, hereinafter designated as Respondent or TA.

The petition for constitution of the Arbitral Tribunal was accepted by His Excellency the President of CAAD and the Arbitral Tribunal was regularly constituted on 6 May 2016, to examine and decide the object of the present proceedings, as appears from the respective minutes.

The Claimant did not proceed to appoint an arbitrator, and therefore, under the provisions of Article 6, paragraph 1 and Article 11, paragraph 1, letter b) of Decree-Law No. 10/2011, of 20 January, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council designated the undersigned, the appointment having been accepted in accordance with legally foreseen terms.

On 20 April 2016, the parties were duly notified of such appointment and did not manifest any intention to refuse the appointment of the arbitrator, in accordance with Article 11, paragraph 1, letters a) and b) of the RJAT and Articles 6 and 7 of the Deontological Code.

In conformity with the provisions of Article 11, paragraph 1, letter c) of Decree-Law No. 10/2011, of 20 January, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the singular arbitral tribunal is regularly constituted on 6 May 2016. On 9 May 2015, an arbitral order was issued notifying the TA to present its response within the legal time frame, in accordance with and for the purposes of Articles 17, paragraphs 1 and 2 of the RJAT.

On 31 August 2016, an arbitral order was issued, since no exceptions were raised, there was no need for production of additional evidence beyond that which was already documentally incorporated in the case file, and no need was foreseen for the parties to correct their procedural pleadings, the proceedings having all the necessary elements for issuing the decision, for reasons of procedural economy and expedition, and the prohibition of unnecessary acts, the Tribunal deemed it appropriate to waive the holding of the meeting referred to in Article 18 of the RJAT, as well as the presentation of arguments.

Neither party manifested disagreement with the Tribunal's position, and therefore the meeting referred to in Article 18 of the RJAT aforementioned was not held, nor did the parties present arguments.

B – PETITION

The Claimant filed the present petition for arbitral ruling seeking the declaration of illegality of the assessments for Stamp Tax purposes, more precisely of the third installment, determined under Item 28.1 of the General Stamp Tax Table, as stated in the documents attached to the arbitral petition, which are:

  • Assessment No. 2015…, concerning the left basement, in the amount of €328.80;
  • Assessment No. 2015…, concerning the right basement, in the amount of €347.30;
  • Assessment No. 2015…, concerning the ground floor, in the amount of €608.10;
  • Assessment No. 2015…, concerning the first floor, in the amount of €634.14;
  • Assessment No. 2015…, concerning the second floor, in the amount of €640.48;
  • Assessment No. 2015…, concerning the third floor, in the amount of €640.48;
  • Assessment No. 2015…, concerning the fourth floor, in the amount of €646.84,

which fixed a total tax payable of €3,846.14 (three thousand eight hundred and forty-six euros and fourteen cents).

The tax assessments challenged concern the property located at Rua …, nº…, …, in Lisbon, which is the property of the present Claimant, described in the Property Registry Conservatory of Lisbon, under file…, registered in the urban property matrix under article…, as appears from the property record book attached to the case file.

The property in question is composed of six floors, with various parts or divisions capable of independent use, all intended for housing, and is held under a full ownership or vertical property regime. The tax patrimonial value (TPV) contained in the urban property matrix is €1,153,830.00 (one million one hundred and fifty-three thousand eight hundred and thirty euros), with each of its parts or divisions capable of independent use having TPV calculated in accordance with the IMI Code as follows:

  • The left basement has a TPV of €98,640.00;
  • The right basement has a TPV of €104,190.00;
  • The ground floor has a TPV of €182,430.00;
  • The first floor has a TPV of €190,240.00;
  • The second floor has a TPV of €192,140.00;
  • The third floor has a TPV of €192,140.00;
  • The fourth floor has a TPV of €194,050.00.

Subsidiarily, the Claimant requested that, should the Arbitral Tribunal not consider the possibility of autonomously annulling the third installment and should consider that only the act in its entirety can be challenged, all tax assessment acts for Real Estate Transfer Tax of the year 2014 be annulled.

C – GROUNDS FOR THE CLAIM

To support its petition for arbitral ruling, the Claimant alleged, with a view to declaring the illegality of the tax assessment acts for Stamp Tax purposes, in summary, the following:

1 - The assessment act in question is manifestly illegal because it is tainted by an error in the legal prerequisites, which originates from the erroneous classification of the fractions of which the Claimant is the owner, as property with housing purpose and tax patrimonial value exceeding €1,000,000.00 (one million euros), for the purposes of taxation under Item 28.1 of the General Stamp Tax Table, and therefore its annulment should be declared.

2 - The urban property of which the Claimant is the owner corresponds to property held under full ownership with floors or divisions capable of independent use, located at Rua…, nº…, …, in Lisbon.

3 - The Claimant indicates that it is an urban property composed of six floors and seven divisions with independent use.

4 - The divisions, with independent use, were evaluated individually, with a tax patrimonial value being attributed to each one, not exceeding €200,000.00 (two hundred thousand euros).

5 - For the purposes of Municipal Property Tax (IMI), the Claimant is taxed in accordance with Article 12, paragraph 3 of the IMI Code and each fraction composing the property was evaluated individually.

6 - In summary, to support its claim, the Claimant alleges that it is illegal to assess Stamp Tax on the sum of the TPV of the divisions capable of independent use that make up the property under a full or vertical property regime. According to the Claimant, the reference value for the incidence of Stamp Tax, in the case of residential property composed of various parts or divisions capable of independent use, in vertical property, should be that corresponding to the TPV attributed to each of those parts or divisions capable of such type of use.

7 - The Claimant petitions for the annulment of the tax assessments challenged, with reference to the third installment of the year 2014, and claims reimbursement of the amounts paid, plus compensatory interest.

8 - The Claimant sustains, finally, the voidability of the Stamp Tax assessment acts due to violation of law, violation of the principle of proportionality, violation of the principle of material truth, and sustains that the rule of incidence, in the interpretation carried out in practice by the TA, is unconstitutional, due to violation of the principle of equality established in Article 13 of the Constitution of the Portuguese Republic.

D – RESPONSE OF THE RESPONDENT

The Respondent, duly notified for such purposes, presented its response within the proper time in which, in summary, it alleged the following:

9 - The urban property in question was evaluated in accordance with the IMI Code, within the framework of the general assessment, being described as "property held under full ownership with floors or divisions capable of independent use", 2 basements, ground floor, and 4 floors or 7 divisions capable of independent use and destined for housing, with tax patrimonial value (TPV) exceeding €1,000,000.00 (€1,153,830.00 - one million one hundred and fifty-three thousand eight hundred and thirty euros).

10 - The subjection to Stamp Tax of Item 28.1 of the General Table annexed to the Stamp Tax Code results from the conjunction of two factors, namely, the housing purpose and the tax patrimonial value of the urban property registered in the matrix being equal to or exceeding €1,000,000.00 (one million euros).

11 - The concept of property is defined in Article 2, paragraph 1, of the IMI Code, whose paragraph 4 provides that in the horizontal property regime, each autonomous fraction is deemed to constitute a property, but the case of the property in this file is "property held under full ownership with floors or divisions capable of independent use".

12 - Although the assessment of Stamp Tax, in the situations foreseen in Item No. 28.1 of the General Stamp Tax Table, proceeds in accordance with the rules of the IMI Code, the legislator provides for the aspects that require appropriate adaptations: this is the case of properties held under full ownership, even though with floors or divisions capable of independent use (notwithstanding that IMI is assessed for each part capable of independent use).

13 - For purposes of Stamp Tax, what is relevant is the property in its entirety, because the divisions capable of independent use are not all deemed to be property, only being so the autonomous fractions in the horizontal property regime, in accordance with paragraph 4 of Article 2 of the IMI Code.

14 - Finding the property in a full ownership regime, not possessing autonomous fractions, to which tax law attributes the qualification of property, because from the concept of property in Article 2 of the IMI Code only the autonomous fractions of property in a horizontal property regime are deemed to be properties (paragraph 4 of the aforementioned Article 2), there is no violation of law due to error as to the legal prerequisites.

15 - Nor is there a violation of the principle of tax equality and contributive capacity, the Respondent contends.

16 - It is unconstitutional, as offensive to the principle of tax legality, the interpretation of Item 28.1 of the General Table, to the effect that the tax patrimonial value upon which its incidence depends is determined globally and not floor by floor or division by division.

17 - Horizontal property and vertical property are legal institutes with differentiated civil-legal regimes, justifying the benefit being given to the legally more evolved institute of horizontal property.

18 - Item 28.1 is a general and abstract rule, applicable indiscriminately to all cases in which its respective factual and legal prerequisites are met, taxation for purposes of Stamp Tax obeys the criterion of adequacy, in the exact measure that it aims at taxation of the wealth embodied in the ownership of real property of high value.

19 - This mechanism for obtaining revenue does not violate the principle of proportionality, because it is applicable indiscriminately to all holders of property with housing purpose of value exceeding €1,000,000.00 (one million euros).

20 - The tax patrimonial value relevant for purposes of the incidence of tax is, thus, the total tax patrimonial value of the urban property and not the tax patrimonial value of each of the parts that compose it, even when capable of independent use.

E – PROCEDURAL CLARIFICATION

The Arbitral Tribunal is regularly constituted. It is materially competent, in accordance with Articles 2, paragraph 1, letter a), and 30, paragraph 1, of Decree-Law No. 10/2011, of 20 January.

The parties enjoy legal personality and capacity, are legitimately interested and are legally represented (Articles 4 and 10, paragraph 2, of the same diploma and Article 1 of Ordinance No. 112-A/2011, of 22 March).

The proceedings are not tainted by defects that would invalidate them, nor were any exceptions raised.

II. FACTUAL MATTER

A – ESTABLISHED FACTS

Before entering into the examination of the questions, the factual matter relevant to their understanding and decision shall be presented, based on documentary evidence and taking into account the facts alleged.

The facts established above were deemed proven based on the documentary evidence that the parties submitted to the present proceedings.

Regarding the factual matter, the Tribunal does not have to rule on everything that was alleged by the parties. It is incumbent upon it, rather, to have the duty to select the facts that matter for the decision and to discriminate the proven matter from the unproven, as referred to in Articles 123, paragraph 2 of the Tax and Administrative Court Procedure Code and Article 607, paragraph 3 of the Civil Procedure Code, applicable by virtue of Article 29, paragraph 1, letters a) and e) of the RJAT.

Thus, the facts pertinent to the judgment of the case were chosen based on their legal relevance, which is established in view of the various plausible solutions of questions of law. (See Article 596 of the Civil Procedure Code, applicable by virtue of Article 29, paragraph 1, letters a) and e) of the RJAT).

Thus, taking into account the positions assumed by the parties and the documentary evidence attached to the case file, the following facts are considered proven, with relevance to the decision, and moreover consensually recognized and accepted by the parties:

  1. The Claimant, at the date of the tax event in question in the present proceedings, was the owner of the urban property located at Rua…, nº…, …, in Lisbon, described in the Property Registry Conservatory of Lisbon, under file…, registered in the urban property matrix under article….

  2. The property consists of seven divisions capable of independent use, intended for housing, with tax patrimonial values between €98,640.00 (ninety-eight thousand six hundred and forty euros) and €194,050.00 (one hundred and ninety-four thousand and fifty euros).

  3. The TA assessed Stamp Tax on this property, for the year 2014.

  4. The TA, for the year 2014, assessed Stamp Tax by reference to Item 28.1 of the General Table of Stamp Tax, for the property described above.

  5. These assessments resulted in a Stamp Tax of a total value of €11,538.28 (eleven thousand five hundred and thirty-eight euros and twenty-eight cents).

  6. The Stamp Tax determined in accordance with the terms set out, with reference to the year 2014, corresponds to three installments of €3,846.14 (three thousand eight hundred and forty-six euros and fourteen cents) each.

  7. For this purpose, it determined as the basis of incidence of the tax the value corresponding to the sum of the TPVs attributed to each independent part or division, namely, €1,153,830.00 (one million one hundred and fifty-three thousand eight hundred and thirty euros), a value exceeding €1,000,000.00 (one million euros).

  8. For purposes of IMI, each part or division capable of independent use has an individual TPV attributed, as appears from the property record book attached to the case file, which is taken as fully reproduced.

  9. The Claimant intends, in these proceedings, to annul the tax act relating to the third installment of the year 2014, in the amount of €3,846.14 (three thousand eight hundred and forty-six euros and fourteen cents), and, subsidiarily, the Claimant requested that, should the Arbitral Tribunal not consider the possibility of autonomously annulling the third installment and should consider that only the act in its entirety can be challenged, all tax assessment acts for the year 2014 be annulled.

B – UNPROVEN FACTS

There are no facts that should be considered as unproven with relevance to the decision in question.

III. APPLICABLE LAW: GROUNDS FOR THE MERITS DECISION

With the factual matter established as above, it is necessary to address the question of law raised by the Claimant and, given the positions of the parties assumed in the arguments presented, the following constitute central questions to be resolved and must therefore be examined and decided:

A – THE SCOPE OF INCIDENCE OF ITEM 28 OF THE GENERAL STAMP TAX TABLE

The fundamental legal question in controversy in the present case consists of determining whether, in the case of property held under full ownership, with floors or divisions capable of independent use, but not constituted under a horizontal property regime, the TPV to be considered, for purposes of the incidence of Stamp Tax foreseen in Item 28.1 of the General Stamp Tax Table, should correspond to the TPV of each floor or division with housing purpose and independent use, or to the sum of the TPVs corresponding to the floors or divisions of independent use with housing purpose.

That is, whether the TPV relevant as a criterion for the incidence of tax is that corresponding to the sum of the tax patrimonial value attributed to the different parts or floors (global TPV) or, instead, the TPV attributed to each of the residential parts or floors capable of independent use.

The TA understands that the sum of the TPVs of the fractions with independent use of housing purpose should be taken into account. And the sum of their respective TPVs, in the case before us, is €1,153,830.00. Thus, Stamp Tax is incident, since, for property under vertical property, the criterion for determining the incidence of Stamp Tax is the TPV corresponding to the sum of the TPVs of the floors and divisions intended for housing.

The TA argues to the effect that "The present claimant is a co-owner of property held under a full ownership regime. (…) The property of which it is a co-owner, being held under a full ownership regime, does not possess autonomous fractions, to which tax law attributes the qualification of property. Thus, the present claimant, for purposes of both IMI and Stamp Tax, by force of the wording of the aforementioned item, is not a co-owner of autonomous fractions but rather of a single property." (points 19 and 21 of the Response)

This matter has been the subject of recurring examination in arbitral proceedings, and the case law is consistent in considering that the TPV is individual, as can be seen, by way of example, in the decisions issued in the CAAD proceedings, No. 26/2014-T, 30/2014-T, 240/2014-T, 248/2014-T; 268/2014-T; 280/2014-T, among others.

Citing, as an example, Arbitral Decision No. 280/2013-T, for being particularly synthetic and precise, in which the following was stated:

"Given that the Stamp Tax Code refers to the IMI Code for the regulation of the concept of property and matters not regulated regarding Item 28 of the General Stamp Tax Table (paragraph 6 of Article 1 and paragraph 2 of Article 67, both of the Stamp Tax Code), it is in the IMI Code that we must observe the concepts that will allow us to resolve the question;

The generalist concept of property appears in Article 2 of the IMI Code. Article 6 of the aforementioned IMI Code divides urban properties into: residential, commercial, industrial or service, land for construction, and others;

In the specific case, we are in the presence of urban property with parts or divisions capable of independent use with housing purpose and others with commercial purpose. (…) Each of the parts or divisions capable of independent use that compose the property in question meets the concept of property established in Article 2 of the IMI Code, they are physically and economically independent and form part of the assets of a legal entity;

Indeed, the TA, in eliminating the TPV of parts or divisions with purposes other than housing, for purposes of Stamp Tax assessment, did nothing other than use the criterion defined in paragraph 4 of Article 2 of the IMI Code for properties in a horizontal property regime;

In other words, the TA, in order to carry out such elimination, considered that the parts or divisions capable of independent use were true autonomous parts of property under vertical property, meeting the concept of property;

And did nothing other than observe what Article 12, paragraph 3 of the IMI Code provides: 'each floor or part of property capable of independent use is considered separately in the property registration, which also discriminates its respective tax patrimonial value.'

Likewise, the TA, in assessing for purposes of IMI, did so by separately assessing the TPV of each of the parts or divisions capable of independent use;

The TA used the same criterion in assessing for purposes of Stamp Tax, in calculating it based on the TPV of each of the parts or divisions with independent use with housing purpose, only in the end it considered the global TPV, finding it to exceed €1,000,000.00, and summed the values of Stamp Tax calculated individually;

But this procedure has no legal support, since none of the parts or divisions with independent use with housing purpose, each of them meeting the concept of property set out in Article 2 of the IMI Code, has a TPV equal to or exceeding €1,000,000.00, the requirement necessary for there to be Stamp Tax assessment;

To assess Stamp Tax considering the global TPV of the property, even purged of the TPV of parts or divisions not destined for housing, as the respondent intends, finds no support in the IMI Code, as referred to in paragraph 2 of Article 67 of the Stamp Tax Code;

Nor should it be said that there is a different assessment and taxation of property held under full ownership with parts or divisions capable of independent use, compared to property held under horizontal property. In truth it does not exist in IMI just as it cannot exist in Stamp Tax, since, as already stated, the applicable legislation is the same;

In this perspective and considering that none of the parts or divisions capable of independent use destined for or with housing purpose has a TPV equal to or exceeding €1,000,000.00, it is necessary to conclude that the acts of assessment of Stamp Tax are illegal because the conditions defined in Item 28 of the General Stamp Tax Table have not been observed."

In the same sense, the Supreme Administrative Court (STA) recently ruled, in Decision of 9 September 2016, issued in case No. 047/15, in which the rapporteur was His Excellency Judge Counselor Francisco Rothes, in which it was decided:

"I - Regarding property held under vertical property, for purposes of the incidence of Stamp Tax (Item 28.1 of the General Stamp Tax Table, as amended by Law No. 55-A/2012, of 29 October), the subjection is determined by the conjunction of two factors: the housing purpose and the TPV registered in the matrix equal to or exceeding €1,000,000.

II - Where property is constituted under vertical property, the incidence of Stamp Tax should be determined, not by the TPV resulting from the sum of the TPV of all divisions or floors capable of independent use (individualized in the article registered), but by the TPV attributed to each of those floors or divisions intended for housing."

The factual matter is established and proven, which is why the applicable law will be determined in relation to the disputed facts, giving priority, in compliance with the provisions of Article 124, paragraph 2, letter a) of the Tax and Administrative Court Procedure Code, to the defects whose substantiation would result in more stable and effective protection of the interests of the Claimant, here being included that relating to the defect of violation of law due to error in the legal prerequisites of the tax assessment, regarding the question of the classification of urban properties under a full or vertical property regime, within the scope of incidence of Article 28, paragraph 1 of the General Stamp Tax Table, introduced by Law No. 55-A/2012, of 29 October.

The change in the regime relating to the subjection of Stamp Tax on properties with housing purpose, through the addition of Item 28 of the General Stamp Tax Table, came to typify the following tax facts, through the following wording:

"28 – Ownership, usufruct or right of superficies of urban properties whose tax patrimonial value registered in the matrix, in accordance with the Municipal Property Tax Code, is equal to or exceeding €1,000,000 – on the tax patrimonial value used for purposes of Municipal Property Tax:

28.1 – For property with housing purpose – 1%;

28.2 – For property, when the taxpayers who are not individuals are resident 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%."

Article 6 of Law No. 55-A/2012 contains the transitional provisions that established the rules relating to the assessment of the tax foreseen in that item:

"1 – In 2012, the following rules must be observed in reference to the assessment of the Stamp Tax foreseen in Item No. 28 of the respective General Table:

a. The tax event occurs on 31 October 2012;

b. The taxpayer of the tax is that mentioned in paragraph 4 of Article 2 of the Stamp Tax Code on the date referred to in the preceding letter;

c. The tax patrimonial value to be used in the assessment of the tax corresponds to that resulting from the rules foreseen in the Municipal Property Tax Code in reference to the year 2011;

d. The assessment of the tax by the Tax and Customs Authority must be carried out by the end of November 2012;

e. The tax is to be paid, in a single installment, by the taxpayers by 20 December 2012;

f. The applicable rates are the following:

i) Properties with housing purpose evaluated in accordance with the Municipal Property Tax Code: 0.5%;

ii) Properties with housing purpose not yet evaluated in accordance with the Municipal Property Tax Code: 0.8%;

iii) Urban properties when the taxpayers who are not individuals are resident 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%.

2 – In 2013, the assessment of the Stamp Tax foreseen in Item No. 28 of the respective General Table should focus on the same tax patrimonial value used for purposes of assessment of municipal property tax to be effected in that year.

3 – The failure to deliver, in whole or in part, within the indicated time frame, of the amounts assessed as Stamp Tax constitutes a tax infraction, punished in accordance with law."

According to the amendments to the Stamp Tax Code, introduced by Article 3 of Law No. 55-A/2012, of 29 October, the Stamp Tax foreseen in Item 28 of the General Stamp Tax Table incides on a legal situation (paragraph 1 of Article 1 and paragraph 4 of Article 2 of the Stamp Tax Code), in which the respective taxpayers are those referred to in Article 8 of the IMI Code (paragraph 4 of Article 2 of the Stamp Tax Code), to whom the burden of the tax falls (letter u) of paragraph 3 of Article 3 of the Stamp Tax Code).

The provision in the Stamp Tax Code (Stamp Tax Code), as amended by Law No. 55-A/2012, whether in Article 4/6 or in Article 23/7 ("In the case of tax due for the situations foreseen 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 IMI Code"), together with Article 1 of the IMI Code, consider the property itself as the tax event insofar as it achieves the value foreseen in Item 28 of the General Stamp Tax Table, independently of the number of taxpayers, holders (as owners, usufructuaries, or superficies holders) of the goods in question.

B – THE CONCEPT OF PROPERTY USED IN ITEM 28 OF THE GENERAL STAMP TAX TABLE

The concept of "properties with housing purpose" used in Item 28.1 is not expressly defined in any provision of the Stamp Tax Code, nor in the IMI Code, the diploma to which paragraph 2 of Article 67 of the Stamp Tax Code refers.

Thus, beginning with the concept of "property", it is necessary to resort to the concepts of properties used in the IMI Code, in which the species of properties are enumerated in Articles 2 to 6, which are transcribed:

Article 2 - Concept of Property

1 – For purposes of this Code, property is any fraction of territory, including waters, plants, buildings and constructions of any nature incorporated or based therein, with a character of permanence, provided that it forms part of the assets of an individual or legal entity and, in normal circumstances, has economic value, as well as waters, plants, buildings or constructions, in the circumstances above, endowed with economic autonomy in relation to the land where they are located, although situated in a fraction of territory that constitutes an integral part of different assets or does not have a patrimonial nature.

2 – Buildings or constructions, although movable by nature, are deemed to have a character of permanence when destined for non-transitory purposes.

3 – The character of permanence is presumed when buildings or constructions are based in the same place for a period exceeding one year.

4 – For purposes of this tax, each autonomous fraction, under a horizontal property regime, is deemed to constitute a property.

Article 6 - Species of Urban Properties

1 - Urban properties are divided into:

Residential;

Commercial, industrial or service;

Land for construction;

Others.

2 – Residential, commercial, industrial or service are buildings or constructions licensed for such purposes or, in the absence of a license, that have as their normal purpose each of these ends.

3 – Land for construction is deemed to be land located inside or outside an urban area for which a license or authorization has been granted, admitted prior notice or issued favorable prior information for a subdivision or construction operation, and also those that have been declared as such in the acquisition title, except for land on which the competent entities prohibit any of those operations, namely those located in green areas, protected areas or that, in accordance with municipal territorial planning plans, are destined for public spaces, infrastructure or facilities. (As amended by Law No. 64-A/08, of 31 December)

4 – Those falling within the provision of letter d) of paragraph 1 are land located within an urban area that are neither land for construction nor are covered by paragraph 2 of Article 3, and also buildings and constructions licensed or, in the absence of a license, that have as their normal purpose ends other than those referred to in paragraph 2, and also those under the exception of paragraph 3.

Given the legal grounds already set out and, taking into account the legal provisions transcribed and set forth, the following emerge as hypotheses for interpreting the concept of "property with housing purpose":

  1. The concept of "property with housing purpose" referring to residential properties;

  2. The concept of "property with housing purpose" as a concept distinct from residential properties.

In the case before us, whether the entire property (building) of the Claimant held under vertical property be taken into account or each of its respective autonomous divisions, it is, as is not contested, a property classified as urban and residential in accordance with the criteria established in Articles 2, 4, and 6 of the Municipal Property Tax Code, applicable by referral from Article 67 of the Stamp Tax Code.

As explained above and, as has been repeatedly invoked and admitted, the Municipal Property Tax Code establishes, both as to the property registration and discrimination of its respective tax patrimonial value, and as to the assessment of the tax, the autonomization of parts of urban property capable of independent use and the segregation/individualization of the TPV relating to each floor or part of property capable of independent use.

Thus, what is set out, is, in itself, sufficiently clear to demonstrate that, to each property corresponds a single article in the matrix (paragraph 2 of Article 82 of the IMI Code), but, according to paragraph 3 of Article 12 of the same Code, concerning the concept of property matrix (registration of the property, its characterization, location, TPV and titleholder), "each floor or part of property capable of independent use is considered separately in the property registration, which discriminates its respective tax patrimonial value", not taking as reference the sum of the tax patrimonial values attributed to the autonomous parts of the same property, but the value attributed to each of them individually considered.

That is, the rule is autonomization, characterization as "property" of each part of a building, provided it is functionally and economically independent, capable of independent use, in accordance with the concept of property defined in paragraph 1 of Article 2 of the IMI Code.

It is considered that the thesis defended by the TA cannot prevail. The TA defends that "the unity of property held under vertical property composed of various floors of divisions is, however, not affected by the fact that all, or part, of those floors or divisions are capable of independent economic use." (point 36 of the Response)

It reinforces its position by noting that "Now, tax law contains no lacuna. The IMI Code, to which the aforementioned item refers, determines that in the horizontal property regime the fractions constitute properties. Not being the property submitted to this regime, legally the fractions are parts capable of independent use, without there being common parts." (point 28 of the Response)

The argumentation of the Respondent, that although the assessment of Stamp Tax, in the situations foreseen in Item No. 28.1 of the General Stamp Tax Table, proceeds in accordance with the rules of the IMI Code, the legislator provides for aspects that require appropriate adaptations, such is the case of properties held under full ownership, even though with floors or divisions capable of independent use, is not convincing.

Although IMI is assessed for each part capable of independent use, for purposes of Stamp Tax, what is relevant is the property in its entirety, since the divisions capable of independent use are not deemed to be property, only the autonomous fractions in a horizontal property regime being so, in accordance with Article 2/4 of the IMI Code.

The question is, precisely, that the reason why the "adaptations" to the rules of the IMI Code, advocated by the TA, must be accepted lacks demonstration.

All things considered, there is no reason to, regarding the incidence of Stamp Tax foreseen in Item 28.1 of the General Stamp Tax Table, give to fractions of properties in "vertical property", endowed with autonomy, treatment different from that given to properties in a horizontal property regime, when in either of these situations IMI is applied to the tax patrimonial value shown in the matrix for each of the autonomous units.

C – THE RATIO LEGIS OF ITEMS 28 AND 28.1 OF THE GENERAL STAMP TAX TABLE

The interpretation above sustained, arising from the analysis of the letter of the law and its insertion in the set of other applicable tax rules, is the most consonant with the spirit of the legislative changes introduced by Law No. 55-A/2012, of 29 October.

On the fundamental question at issue, it should be said that the first limit of interpretation is the letter of the law. It is unequivocal that the Stamp Tax Code refers to the application of the principles in force for purposes of IMI, which means that the incidence for purposes of Stamp Tax, namely Items 28 and 28.1 of the General Stamp Tax Table, should fall on each floor or division capable of independent use (similar to what happens to properties in a horizontal property regime), just as it does for purposes of IMI. There is a direct, express and unequivocal referral to the IMI Code that seems to leave little doubt. The TPV is the same, the individual one, of each independent part or division.

But the literal element is not the only one to be taken into consideration. The interpretative task requires other elements, that is, from the text of the rule, it is necessary to discover the underlying ratio legis, "a task of interrelation and evaluation that escapes the literal domain".[1]

On the interpretation of tax rules in general and for the case at issue, Article 11 of the General Tax Law establishes essential rules for the interpretation of tax laws:

Article 11 - Interpretation

1 - In determining the meaning of tax rules and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are observed.

2 - Whenever tax rules employ terms proper to other branches of law, these should be interpreted in the same sense as they have there, unless otherwise directly results from law.

3 - If doubt persists about the meaning of the rules of incidence to be applied, account should be taken of the economic substance of the tax facts. (In bold in the original)

4 - Gaps resulting from tax rules covered by the reservation of law of the Assembly of the Republic are not susceptible to analogical integration.

We consider that the delimitation of the scope of the rule of incidence of this tax must follow the orientation of the letter, spirit and purpose of the law! Now, using the various elements of interpretation, one arrives at the conclusion that, for the legislator, the situation of property under vertical or horizontal property was not relevant. What is relevant is the principle of material truth underlying.

It is thus understood that the interpretation advanced by the Claimant appears correct: "In the case at issue only the material truth underlying the property and its respective use can be relevant. There would be Stamp Tax assessment only if one of the parts or floors with independent use presented a TPV exceeding €1,000,000.00." (points 20 and 22 of the Gracious Reclamation)

Therefore, we adhere to the position sustained in the Decision of CAAD Process No. 295/2014-T, which explains, "As has been highlighted in other arbitral decisions, the legislator, in introducing this legislative innovation, considered as the determining element of contributive capacity urban properties, with housing purpose, of high value (luxury), more rigorously, of value equal to or exceeding €1,000,000.00 on which a special rate of Stamp Tax came to incide, intending to introduce a principle of taxation on wealth evidenced in the ownership, usufruct or right of superficies of urban properties of luxury with housing purpose. Therefore, the criterion was the application of the new rate to urban properties with housing purpose, whose TPV is equal to or exceeding €1,000,000.00. (...) The justification for the measure called 'special rate on urban properties with housing purpose of higher value' is based on the invocation of the principles of social equity and tax justice, calling upon to contribute in a more intense manner the holders of properties of high value intended for housing, making the new special rate incide on 'houses of value equal to or exceeding 1 million euros.' Clearly the legislator understood that this value, when imputed to a housing unit (house, autonomous fraction or floor with independent use) expresses a contributive capacity above average and, as such, capable of determining a special contribution to ensure fair distribution of the tax burden."

Now, it is totally lacking adherence to reality to defend the thesis that the possession of fractions devoid of the status of autonomous fraction, in the context of horizontal property, denotes greater contributive capacity than if they were endowed with such nature....

Thus, it is considered correct the interpretation that Item 28 of the General Stamp Tax Table does not encompass each of the floors, divisions or parts capable of independent use when only from their sum results a TPV exceeding that foreseen in that item.

Therefore, the thesis of the TA cannot be accepted that "a type of incidence in accordance with which the tax patrimonial value of urban properties on which the application of Item 28.1 of the General Table depends is the tax patrimonial value of each floor or division capable of independent use and not the global tax patrimonial value of urban property with housing purpose certainly has no expression whatsoever in law." (point 44 of the Response)

It is concluded by citing the Decision of CAAD, of Process No. 413/2015-T, particularly explicit on this point, "To all that has been said, only this is to be added: even if, hypothetically, it were concedible that in cases of property held under full (or vertical) property, constituted by divisions capable of independent use, Stamp Tax could be required for the entirety of the property, if the value fixed in Item 28.1 of the General Stamp Tax Table were reached, such value would always have to be fixed autonomously, through its own assessment, and not through the sum of the values in which each of the parts capable of independent use was autonomously assessed. Effectively, and as is easy to see, the "market value" of the whole will not necessarily – and will not, by rule – equal the sum of the parts, being knowingly easier and more profitable (which will even constitute part of the economic foundation of the horizontal property institute) to sell "in parts" than to sell the whole globally, beginning with the expansion of the market, which the substantially lower price of the parts in relation to the whole brings. (…)

In other words, the partition of property always entails an increase in the value of the whole, since the "market value" of the whole will be, (at least) by rule, lower than the "market value" of the parts, separately. Therefore, in the final analysis, if the TA intended, legitimately, to apply Item 28.1 of the General Stamp Tax Table to property held under full (or vertical) property, constituted by divisions capable of independent use, it would always be obliged to assess the same as a whole (which was a credible approximation to its "market value" by "bulk") and not as a sum of the parts (by "retail"), beginning with the fact that these are not susceptible to being validly placed on the "market" separately."

In the case sub iudice, the property in question is held under vertical property and contains floors and divisions with independent use, intended for housing, as was proven above.

Since none of the divisions intended for housing has a tax patrimonial value equal to or exceeding €1,000,000.00, as results from the documents attached to the case file, it is concluded that the legal prerequisite for incidence of Stamp Tax foreseen in Item 28.1 of the General Stamp Tax Table is not met.

Furthermore, not discerning officiously any reason to substantively diverge from the arbitral case law cited, as well as from the Supreme Administrative Court case law aforementioned, nor having the TA presented arguments for such, it appears to us that the Stamp Tax assessments challenged suffer from a defect of violation of law due to error in the legal prerequisites underlying, deeming the arbitral petition filed substantiated with the consequent annulment of the Stamp Tax assessments on the property in question, with reference to the third installment of the year 2014, in the amount of €3,846.14 (three thousand eight hundred and forty-six euros and fourteen cents).

Despite what has already been decided, it is necessary to refer nonetheless, regarding the principles underlying invoked by the parties, the following:

The Claimant states that "it is illegal and unconstitutional to consider as the reference value the sum of the tax patrimonial values attributed to each of the floors, in that it constitutes a clear violation of the principle of equality and tax proportionality. The tax legislator cannot treat equal situations in a differentiated manner, since if it were a property submitted to the horizontal property regime, none of the fractions would be subject to the new Stamp Tax. In summary, material truth is what should prevail as the criterion for contributive capacity and not a merely formal reality of the property." (points 26, 27, and 28 of the Gracious Reclamation)

Whereas the TA defends that "it is, thus, unconstitutional, as offensive to the principle of tax legality, the interpretation of Item 28.1 of the General Table, to the effect that the tax patrimonial value upon which its incidence depends is determined globally and not floor by floor or division by division. On the other hand, it is not apparent how the taxation in question could have violated the Principle of Equality referred to by the claimants." (points 45 and 46 of the Response)

Beginning with the principle of legality, in the tax arena, this is one of the most important principles among those that condition the activity of the Tax Administration.[2] There must be a clear binding of administrative power to the Constitution (cf. Article 266/2) and to law (cf. Article 8 of the General Tax Law), thereby contributing to the realization of a Rule of Law state, which is a guarantee for the citizen taxpayers.

This principle of legality must be reconciled with the principle of equality and proportionality. It falls to the State to promote real equality among citizens. "In the Tax arena, the notoriety of this Principle is manifest in two aspects, on the one hand, through personal income tax (PIT) (…) and, on the other, the assessment of a tax by the tax administration is an operation bound to the compliance with the rules of tax law, which are objectively applied to the tax facts. Thus, the legal relationship established between the taxpayer and the administration will have, as a result, solely and exclusively, that which is aimed at by the application of the tax rules to those facts."[3]

This is because, "Within the scope of tax impositions, their distribution must obey the Principle of Tax, Fiscal or Contributive Equality, which is realized in the generality and uniformity of taxes. (…) It means that the distribution of taxes among citizens must obey an identical criterion for all, which is that of contributive capacity." (Decision of Constitutional Court No. 96-0063, of 29 April 1997)

In view of the principle of proportionality, the bodies and agents of public administration and, namely of tax administration, are required to, in the exercise of the powers with which they have been invested, proceed within a perspective of balance between the proposed ends and the sacrifices that will have repercussions in the sphere of those administered.

"In the tax arena, any action violating this principle will be deemed an arbitrariness and a reflection of excess of power"[4], which will constitute not only an illegality (See Article 55 of the General Tax Law) as an unconstitutionality (See Article 18 of the Constitution of the Portuguese Republic). "In the specific case of tax inspection, its action should be prudent and appropriate to the achievement of the ends that determine it."[5]

"(…) The Principle of Proportionality, which imposes that the normative solution prove to be suitable for the pursuit of the ends sought by law, appear necessary in that these ends are not viable or required to be obtained by means less onerous for citizens, and present itself as a reasonable measure."[6]

Or from another perspective, as the STA Decision states, Proc. No. 023102/02, of 17 March 1999, "The Constitutional Principle of Proportionality prevents the powers conferred on the Tax Administration to remedy deficiencies in the record-keeping of taxpayers resulting in negative effects for the Public Treasury from being used to permit the collection of taxes in quantities higher than those that would presumably result from the application of the rules of incidence and determination of the taxable matter."

Emerged, now recently, in the Decision of CAAD Process No. 507/2015-T, the analysis of constitutionality, centering on questions related to the violation of the Principles of Equality and Certainty and determinability of tax laws.

As regards the violation of the Principle of Equality, the decision unfolds in the analysis, first, of the taxation of property destined for housing in the face of the non-taxation of property with different purposes, and secondly, of the negative tax discrimination given to land for construction with housing purpose in relation to properties that are constituted under a horizontal or vertical property regime, whose autonomous fractions have a tax patrimonial value below €1,000,000.00 (one million euros).

The decision of unconstitutionality emerges because, the Arbitral Tribunal understands, Item 28.1, as set out below, violates the Principle of Tax Equality.

In fact, regarding this Principle, the Tribunal sustains (following the understanding of the STA) that, "when buildings are constituted by fractions capable of independent use, it is the value of each one that is relevant (…), independently of whether or not horizontal property is constituted." It then states, "in relation to land for construction regarding which only building with residential units of value below €1,000,000.00 is foreseen or authorized, there is no justification to tax the land, since the fact that the land has value equal to or exceeding such value does not permit identifying a taxpayer with a contributive capacity at the level of the higher standards of Portuguese society. It even denotes less contributive capacity than the titleholder of already built property, so a rational justification cannot be found to be taxed the titleholder of rights over the land (…), and not the titleholder of rights of the same taxpayer over already built property, when all the fractions have values below such value."

Regarding the unconstitutionality invoked of the rule of Item 28.1 of the General Stamp Tax Table, the form of property ownership of the property (horizontal or vertical) cannot be determinant of the incidence of the tax. This would entail that taxpayers having properties in a horizontal property regime, in which the tax patrimonial values are below 1,000,000.00 euros each, and those having various divisions of a property but without horizontal property being constituted would be treated unequally. Therefore, the interpretation carried into practice by the TA, of Items 28 and 28.1 of the General Stamp Tax Table, in the assessments now in question, violate the principle of equality enshrined in Article 13 of the Constitution of the Portuguese Republic.

We consider that there is, also, violation of the principle of proportionality because there would exist discrimination between properties in horizontal property regime and properties held under full property with floors or divisions capable of independent use, or between properties with housing purpose and properties with other purposes.

Since Item 28.1 of the General Stamp Tax Table is a general and abstract rule, applicable indiscriminately to the cases foreseen therein. The different assessment and taxation of property held under full property compared to property held under a horizontal property regime results from the different legal effects inherent in these two figures, as we shall see below.

IV. COMPENSATORY 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".

As is stated in the Decision of CAAD of Process No. 30/2014-T, "Although letters a) and b) of paragraph 1 of Article 2 of the RJAT use the expression 'declaration of illegality' to define the competence of the arbitral tribunals functioning in CAAD and do not make reference to constitutive (annulling) and condemnatory decisions, it should be understood, in harmony with the aforementioned legislative authorization, that the powers that in the challenge process are attributed to tax tribunals in relation to acts whose examination of legality falls within their competences are comprised therein."

Whereby a condemnation of the tax administration can be issued here for the payment of compensatory interest, even if there were not an autonomous petition for the same. It results implicitly from the petition of the Claimant, "(…) The present challenge should succeed, annulling the tax acts relating to the third installment of the year 2014, as they are manifestly illegal, relating to the property identified above, all with the legal consequences." (in bold in the original)

Given the substantiation of the petition for compensatory interest, the amounts which, in relation to the tax acts annulled, are verified as paid by the Claimant should be restituted, if necessary in execution of the decision. In the case at issue, the illegality of the assessment acts is manifest, the amount of which the Claimant paid and is attributable to the TA, which, on its own initiative, carried out without legal support.

Article 43 of the General Tax Law "does nothing more than establish an expedite means and, so to speak, automatic means of indemnifying the injured party. Independently of any allegation and proof of damages suffered, it has the right to the indemnification stated therein, translated into compensatory interest in cases included in the provision (…)", as referred to in the STA Decision of 2 November 2006, case 604/06.

This regime of right to compensatory interest in favor of the taxpayer constitutes a form of indemnification by the TA "resulting from the forced unproductivity of the amounts disbursed by the taxpayer."[7]

Consequently, the Claimant has the right to compensatory interest, in accordance with Articles 43 of the General Tax Law and 61 of the Tax and Administrative Court Procedure Code. Compensatory interest is owed, from the date of the payments shown to have been made and calculated based on the respective value, until its return to the Claimant, in the period for voluntary execution of the decision, at the legal rate, in accordance with Articles 43/1 and paragraph 4 and 35/10 of the General Tax Law, Article 61 of the Tax and Administrative Court Procedure Code.

"This imputability of errors to the Administration is independent of proof of the existence of concrete fault of any of its bodies, officials or agents, or even of proof of global fault of the services. And account is taken of the service globally considered, 'independently of the fault of any of the persons or entities that comprise it, any illegality not resulting from an action of the liable party will be fault of the services themselves'"[8]

It should be added that, in accordance with the provisions of Article 24, letter b) of the RJAT, the arbitral decision on the merits of the claim which is not subject to appeal or judicial challenge binds the tax administration from the end of the period set for appeal or challenge to restore the situation that would exist if the tax act object of the arbitral decision had not been carried out, adopting all acts and operations necessary for such purpose, as is also reinforced by Article 100 of the General Tax Law.

It is also considered that Article 24, paragraph 5 of the RJAT, when stating that "payment of interest, independently of its nature, is due, in accordance with the provisions of the general tax law and the Code of Administrative Procedure and Process", should be understood as permitting the recognition of the right to compensatory interest in an arbitral process.

In this manner, the TA must give execution to the present Decision, as referred to in Article 24, paragraph 1 of the RJAT, determining the amount to be restituted to the Claimant and calculating the respective compensatory interest, owed from the dates of payments made until the date of processing of the credit note, at the legal supplementary rate of civil debts, in accordance with Articles 35/10 and 43/1 and 4 of the General Tax Law, Article 61 of the Tax and Administrative Court Procedure Code, Article 559 of the Civil Code and Ordinance 291/2003, of 8 April.

V. DECISION

A – CONCLUSION

The present arbitral tribunal concludes that the assessments of Stamp Tax, effected on the basis of Items 28/28.1 of the General Stamp Tax Table, in relation to each of the floors or parts capable of independent use, property of the Claimant, object of the present case, are tainted with illegality, because the aforementioned provisions cannot be interpreted to the effect of their application to floors or parts capable of independent use of property held under vertical property, when only from the sum of each of those floors or parts is a TPV equal to or exceeding €1,000,000.00 (one million Euros) obtained, not exceeding the TPV of each of the aforementioned floors or parts that legal threshold.

As results from the facts established, that none of the floors intended for housing, of the property held under vertical property object of this process, has a tax patrimonial value equal to or exceeding €1,000,000.00, it is concluded that the legal prerequisite for incidence of Stamp Tax foreseen in Item 28 of the General Stamp Tax Table is not met.

And, for the reasons set out in the preceding number, compensatory interest is owed.

B – DECISION

In terms of which they agree in this Singular Tribunal:

a) To deem substantiated the arbitral petition filed and, in consequence, to annul the tax acts object of the present case with respect to the amount of €3,846.14 and to condemn the TA to reimburse to the Claimant the amounts of the tax that have been paid, plus compensatory interest, counting from the date on which payment was made.

b) To condemn the TA in the costs of the process, in the amount of €612.00 (six hundred and twelve euros).

VALUE OF THE PROCEEDING

In harmony with the provision of paragraph 2 of Article 315 of the Civil Procedure Code, letter a) of paragraph 1 of Article 97-A of the Tax and Administrative Court Procedure Code and also paragraph 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings, the proceeding is fixed at the value of €3,846.14 (three thousand eight hundred and forty-six euros and fourteen cents).

COSTS

For the purposes of the provision of paragraph 2 of Article 12 and paragraph 4 of Article 22 of the RJAT and paragraph 4 of Article 4 of the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at €612.00 (six hundred and twelve euros), in accordance with Table I annexed to the aforementioned Regulation, to be borne entirely by the Respondent.

Let it be notified.

Lisbon, 31 October 2016

The Arbitrator

(Jorge Carita)

Text prepared on computer in accordance with the provision in Article 138, paragraph 5, of the Civil Procedure Code, applicable by referral from Article 29 of the RJAT.

The drafting of the present decision is governed by the orthography prior to the Orthographic Agreement of 1990.

[1] Quoted from Machado, João Baptista, Introduction to Law and the Legitimizing Discourse, Almedina, Coimbra, 1983, p. 181.

[2] See Paiva, Carlos and Janeiro, Mário, Tax Benefits in Taxes on Patrimony, Almedina, 2014, p. 54

[3] See Paiva, Carlos and Janeiro, Mário, Ibid., p. 55

[4] Quoted from Paiva, Carlos and Janeiro, Mário, Ibid., p. 56

[5] Quoted from Paiva, Carlos and Janeiro, Mário, Ibid., Almedina, 2014, p. 56

[6] Quoted from Canotilho, Gomes and Moreira, Vital Moreira, Constitution of the Portuguese Republic Annotated, Vol I, 4th Edition, Almedina p. 392 and 393.

[7] Quoted from Guerreiro, António Lima, Annotated General Tax Law, Ed. Rei dos Livros, Almedina, 2001, p. 205.

[8] See Sousa, Jorge Lopes de, Annotated Code of Administrative Procedure and Process, Ed. VISLIS, note to Article 61.

Frequently Asked Questions

Automatically Created

What is Verba 28.1 of the Tabela Geral do Imposto do Selo (TGIS) and how does it apply to high-value properties?
Item 28.1 of the General Stamp Tax Table (Verba 28.1 TGIS) is a provision that levies annual Stamp Tax on residential property with a tax patrimonial value (VPT) exceeding €1,000,000. This tax applies at progressive rates and was introduced as part of Portugal's fiscal consolidation measures. In Process 86/2016-T, the central issue was whether this threshold applies to each individual unit within a vertical property regime or to the aggregate value of all units in a building. The Tax Authority assessed Stamp Tax on a Lisbon property by summing the values of seven independent residential units (totaling €1,153,830), even though no single unit exceeded €1,000,000. The taxpayer contested this interpretation, arguing that each division capable of independent use should be evaluated separately, consistent with IMI taxation methodology under Article 12(3) of the IMI Code, where each fraction is individually assessed.
Can Imposto do Selo (Stamp Tax) under Verba 28.1 be levied on individual units within a vertical property (propriedade vertical)?
The core dispute in Process 86/2016-T concerns whether Stamp Tax under Item 28.1 TGIS can be levied on individual units within vertical property (propriedade vertical) or only on the aggregate value. The taxpayer argued that applying Stamp Tax to the sum of independently assessed units constitutes an error in legal prerequisites and violates proportionality principles. Each of the seven residential units had individual tax patrimonial values ranging from €98,640 to €194,050—none exceeding the €1,000,000 threshold. The claimant contended that vertical property consists of separate legal units, each evaluated independently for IMI purposes, and the same logic should apply to Stamp Tax. The Tax Authority's position treated the entire building as a single taxable object. The case raises questions about whether legislative intent under Item 28.1 TGIS was to tax high-value individual dwellings or to capture aggregate wealth in multi-unit buildings under single ownership.
What grounds can taxpayers use to challenge Stamp Tax liquidations before the CAAD arbitral tribunal?
Taxpayers challenging Stamp Tax liquidations before CAAD can invoke several grounds, as illustrated in Process 86/2016-T. The claimant alleged: (1) error in legal prerequisites (erro sobre os pressupostos de direito), arguing incorrect classification of vertical property units as a single property exceeding €1,000,000; (2) violation of the principle of proportionality, contending the tax burden was disproportionate when assessed on aggregate rather than individual unit values; (3) violation of the principle of material truth; (4) violation of the constitutional principle of equality under Article 13 of the Portuguese Constitution, suggesting unequal treatment compared to owners of separate properties; and (5) unconstitutionality of Item 28.1 TGIS as interpreted by the Tax Authority. The taxpayer requested annulment of the third installment assessments and compensatory interest. The CAAD arbitral procedure allows challenges to tax assessments through arbitration, providing an alternative to administrative and judicial courts under the RJAT (Regime Jurídico da Arbitragem Tributária).
Are compensatory interest (juros indemnizatórios) awarded when Stamp Tax assessments under Verba 28.1 TGIS are annulled?
Compensatory interest (juros indemnizatórios) are payments due to taxpayers when tax assessments are annulled and amounts previously paid must be refunded. In Process 86/2016-T, the claimant explicitly requested reimbursement of amounts paid plus compensatory interest if the Stamp Tax assessments under Item 28.1 TGIS were annulled. Portuguese tax law provides for juros indemnizatórios when the State has unlawfully collected taxes, compensating taxpayers for the time value of money and loss of use of funds. The legal basis is found in the Tax Procedure and Process Code (CPPT) and General Tax Law (LGT). When CAAD arbitral tribunals declare tax assessments illegal and order annulment, they typically also award compensatory interest calculated from the date of payment until reimbursement. The rate and calculation method are statutorily defined. This mechanism ensures taxpayers are made whole when tax authorities err in assessments, providing a financial remedy beyond mere principal refund.
How does the CAAD arbitral procedure work when no additional evidence or hearing is required under Article 18 of the RJAT?
The CAAD arbitral procedure under Article 18 of the RJAT (Regime Jurídico da Arbitragem Tributária) includes a meeting phase where parties can present evidence and arguments. However, Process 86/2016-T demonstrates that this hearing can be waived when unnecessary. On August 31, 2016, the arbitrator issued an order dispensing with the Article 18 meeting because: (1) no procedural exceptions were raised; (2) no additional evidence beyond the documentary record was needed; (3) the case file contained all necessary elements for decision; and (4) principles of procedural economy, expedition, and prohibition of unnecessary acts supported waiver. The parties were notified and neither objected, so no meeting was held and no oral arguments presented. This streamlined approach is consistent with RJAT's efficiency goals, allowing arbitrators to decide cases based on written submissions when factual and legal issues are sufficiently clear. The decision followed directly from documentary analysis, demonstrating CAAD's flexibility in adapting procedures to case complexity and avoiding formalistic requirements when substance permits direct resolution.