Process: 104/2015-T

Date: October 23, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

Process 104/2015-T addresses whether Stamp Duty under Item 28.1 of the General Stamp Duty Table (TGIS) applies to properties in total ownership (propriedade total) when individual units have Tax Patrimonial Values (VPT) below €1,000,000 but collectively exceed this threshold. The applicants challenged Stamp Duty assessments totaling €21,565.11 for 2012-2013 on an urban property divided into 10 independent-use areas. The Tax Authority summed the VPT of all units to trigger the €1,000,000 threshold, while applicants argued each autonomous unit should be assessed separately. Item 28.1 TGIS levies 1% annual tax on ownership of urban properties with VPT ≥€1,000,000. The core legal issue involves interpreting 'property with residential allocation' for properties not under horizontal property regime. The Tax Authority defended that full ownership properties must be considered as a whole entity, despite containing divisions susceptible to independent use, because Stamp Duty differs from IMI (Municipal Property Tax) which assesses each independent unit separately. Applicants contended this interpretation violates constitutional equality principles and the incidence rule's scope, since none of the individual areas independently met the threshold. The arbitral tribunal at CAAD (Administrative Arbitration Centre) examined whether the relevant VPT should be the global sum or individual unit values, considering systematic integration with IMI Code provisions and legislative intent. This distinction between total ownership and horizontal property regime proves critical for high-value property taxation, as horizontal property units receive separate tax treatment while total ownership properties may be assessed collectively.

Full Decision

Case No. 104/2015-T

Applicants: A…, B…, C…, D… and E…

Respondent: Tax and Customs Authority

Stamp Duty ("SD")

The arbitrator Dr. Maria Antónia Torres, appointed by the Deontological Council of the Administrative Arbitration Centre ("CAAD") to form the Single Arbitral Tribunal, constituted on 29 April 2015, decides as follows:

1. REPORT

1.1 A…, B…, C…, D… and E…, hereinafter referred to as "Applicants", requested the constitution of an arbitral tribunal, pursuant to article 2, no. 1, paragraph a), and article 10, both of Decree-Law no. 10/2011, of 20 January (hereinafter "RJAT"[1]).

1.2 The request for arbitral pronouncement is aimed at the declaration of illegality, and consequent annulment, of the tax assessment acts for Stamp Duty, in the total amount of Euros 21,565.11 (twenty-one thousand five hundred and sixty-five euros and eleven cents), relating to the years 2012 and 2013, and set out in the collection notices better identified in the initial petition presented by the Applicants, which are hereby deemed articulated and reproduced for all legal purposes, which concern the urban property of which they are co-owners, registered in the urban property matrix under article …, of the Parish of …., Municipality of Lisbon, as per documents attached to the initial petition.

The Applicants further request that the Respondent be ordered to refund the amounts unduly paid and that they be granted the right to compensatory interest on all amounts paid.

1.3 In support of their request, the Applicants argue that the Stamp Duty assessments which are the subject of this petition are illegal as they violate the scope rule of item 28 of the TGIS (General Stamp Duty Table). The Applicants consider that, given that the property is in full or vertical ownership as it was at that date, divided into 7 floors corresponding to 10 areas of independent use, the Tax Authority cannot, as it did, sum the patrimonial values of areas susceptible to independent use, where none of these areas, by itself, has a TPV (Tax Patrimonial Value) equal to or greater than 1,000,000 euros. And that the scope rule, in the interpretation carried into practice by the Tax Authority, is unconstitutional as it violates the principle of equality.

1.4 The Tax Authority defends that the request for declaration of illegality, and consequent annulment of the disputed assessments, should be judged unsuccessful, given that it understands that the concrete situation literally falls within the provision of the rule in question and argues that although the assessment of Stamp Duty, under the conditions provided for in item 28 of the TGIS, proceeds in accordance with the rules of the IMI Code, the truth is that the legislator reserves the aspects that require the necessary adaptations.

The Tax Authority considers that this is the case with properties in full ownership, even though with floors or divisions susceptible to independent use, because although the IMI is assessed in relation to each part susceptible to independent use, for Stamp Duty purposes the property in its entirety is relevant, thus arguing for the legality of the tax acts because they constitute a correct application of the law to the facts.

1.5 The parties agreed to dispense with pleadings and with the meeting of the arbitral tribunal provided for in article 18 of the RJAT.

2. PROCEDURAL REVIEW

The Tribunal was regularly constituted and is competent ratione materiae, in accordance with article 2 of the RJAT.

The parties have legal personality and capacity, show themselves to be legitimate and are regularly represented (cf. articles 4 and 10, no. 2 of the RJAT and article 1 of Regulation no. 112-A/2011, of 22 March).

No procedural defects were identified.

3. MATTERS OF FACT

With relevance to the decision on the merits, the Tribunal considers the following facts proven:

  1. The Applicants were, at the date of the assessments sub judice, co-owners of the urban property which is the subject of those same assessments, in the regime of "full ownership" (i.e., not subject to the horizontal property regime) to which a global TPV superior to 1,000,000.00€ was attributed, corresponding to the sum of the partial TPVs of each of the 10 areas with independent use.

  2. In accordance with what was mentioned in the initial petition and in the response given by the Respondent, none of the divisions susceptible to independent use, to which a separate TPV was attributed by the Respondent has a TPV that exceeds the value of €1,000,000.

  3. The Applicants were notified to assess stamp duty on the said property, the Respondent having considered the Applicants to be taxpayers subject to stamp duty under item 28.1 of the TGIS, as co-owners of a property with a tax patrimonial value superior to €1,000,000.

Unproven Facts

No essential facts, with relevance to the appreciation of the merits of the case, which have not been proven, were identified.

Reasoning on Matters of Fact

The conviction regarding the facts deemed proven was based on the documentary evidence filed by the Applicants, whose authenticity and correspondence to reality were not questioned by the Respondent.

4. MATTER TO BE DECIDED

The essential matter to be decided in this case is to determine, with reference to a property not constituted under the horizontal property regime, composed of several areas with independent use, with residential allocation, which Tax Patrimonial Value (TPV) is relevant, assessing which is the correct criterion of incidence of the tax according to law, in order to determine whether this should be assessed by the sum of the tax patrimonial value attributed to the different parts or floors (global TPV) or, rather, whether it should be attributed to each of the parts or residential floors.

Additionally, the Applicants invoke the unconstitutionality of the transitional regime approved by article 6, no. 1 of Law 55-A/2012, of 29 October, as a violation of a significant set of constitutional principles which it expressly invokes.

They also petition for the payment of compensatory interest.

5. LAW

As identified above, the matter to be decided relates to determining whether the patrimonial value relevant for purposes of determining the applicability of Item 28 of the TGIS, when a property not constituted in horizontal ownership is at issue, is that of each unit considered autonomously or the sum of the tax patrimonial value attributed to each of those units.

The question arises on account of taxation under stamp duty of ownership, usufruct or surface right of urban properties whose tax patrimonial value recorded in the property matrix is equal to or greater than €1,000,000, the tax being due at the rate of 1% on the tax patrimonial value used for IMI purposes, per property with residential allocation.

Accordingly, it is necessary to determine, when a property not constituted in horizontal property is at issue, the concept of "property with residential allocation": if it should be interpreted as corresponding to each unit considered autonomously and be assessed on its respective tax patrimonial value or if it should correspond to all of the autonomous units, and consequently be assessed on the sum of the tax patrimonial value attributed to each of those units.

As neither the Stamp Duty Code, nor its General Table, nor Law no. 55-A/2012, of 29 October (which approved the item of the TGIS under consideration), provide clarification, presuming that the legislator knew how to express their intention in the most adequate manner (cf. article 9, no. 3, final part, of the Civil Code), in its systematic integration with the provisions contained in the IMI Code and, indeed, in the spirit of the law.

Item 28 of the TGIS under consideration was added by Law no. 55-A/2012, of 29 October with the following wording:

"28 - Ownership, usufruct or surface right of urban properties whose tax patrimonial value recorded in the property matrix, pursuant to the Municipal Property Tax Code (CIMI), is equal to or greater than €1,000,000 — on the tax patrimonial value used for IMI purposes:

28.1 — Per property with residential allocation — 1%;

28.2 — Per property, when the taxpayers who are not natural persons are residents in a country, territory or region subject to a clearly more favourable tax regime, listed in the approval by regulation of the Minister of Finance — 7.5%."

(Emphasis ours)

Law no. 55-A/2012, of 29 October entered into force on 30 October 2012, in accordance with its article 7, no. 1 which determined its entry into force "on the day following its publication".

The applicable rates are as follows:

i) Properties with residential allocation assessed pursuant to the IMI Code: 0.5%;

ii) Properties with residential allocation not yet assessed pursuant to the IMI Code: 0.8%;

iii) Urban properties when the taxpayers who are not natural persons are residents in a country, territory or region subject to a clearly more favourable tax regime, listed in the approval by regulation of the Minister of Finance: 7.5%.

However, neither the Stamp Duty Code nor Law no. 55-A/2012, of 29 October specify the concept of "urban property with residential allocation", so in accordance with article 67 of the Stamp Duty Code, the interpretation of this concept should be sought in the IMI Code.

Indeed, it follows from article 67 of the Stamp Duty Code that "Matters not regulated in this Code relating to item no. 28 of the General Table shall be subject, subsidiarily, to the provisions of the CIMI" - (Wording given by article 3 of Law no. 55-A/2012 of 29 October.).

In the IMI Code, the concept of property is defined in its article 2, from which it follows that "For the purposes of this Code, property is any parcel of territory, including water, plantations, buildings and constructions of any nature incorporated therein or standing thereon, with a character of permanence, provided that it forms part of the patrimony of a natural or legal person and, in normal circumstances, has economic value (…)", clarifying in no. 4 of this legal provision that "For purposes of this tax, each autonomous fraction, under the horizontal property regime, is deemed to constitute a property".

From the isolated reading of this legal provision we might be led, in a somewhat biased interpretation, to understand that under IMI, autonomous fractions, under the horizontal property regime, would have different treatment from parts of a property susceptible to independent use.

However, a more careful analysis of the regime allows us to conclude precisely the opposite.

As was underlined by the Ombudsman to the Secretary of State for Tax Affairs, in official communication dated 2 April 2013, "the registration in the property matrix of properties in vertical ownership, composed of parts susceptible to independent use, follows the same rules as the registration of properties constituted in horizontal ownership, and the respective IMI, as well as the new Stamp Duty, are assessed individually in relation to each of the parts".

(Emphasis ours)

Indeed, article 12, no. 3 of the IMI Code provides in this sense, when it determines that "each floor or part of a property susceptible to independent use is considered separately in the property registration which also discriminates the respective tax patrimonial value."

According to article 119 of the IMI Code "The services of the Directorate-General of Taxes send to each taxpayer, by the end of the month preceding that of payment, the corresponding collection document, with discrimination of the properties, their parts susceptible to independent use, respective tax patrimonial value and the tax assessment imputed to each municipality of the location of the properties.".

In summary, for purposes of taxation under IMI, each independent unit, even if forming part of the same property, is considered separately, being assigned its own patrimonial value and being assessed autonomously.

Thus, one cannot but agree with the understanding upheld in the Arbitral Decision handed down in Case no. 50/2013, according to which "if the legal criterion imposes the issuance of individualized assessments for the autonomous parts of properties in vertical ownership, in the same manner as it establishes for properties in horizontal ownership, it clearly established the criterion, which must be unique and unequivocal, for the definition of the scope rule of the new tax. Thus, the new stamp duty would only be applicable if any of the parts, floors or divisions with independent use presented a TPV superior to €1,000,000.00.".

(Emphasis ours)

But, moreover, it is this separate treatment of each unit susceptible to independent use that allows, in the application of the allocation coefficient (cf. article 41 of the IMI Code), attention to be paid to the different purposes of each unit that comprise a single property.

It is relevant for this purpose the actual use of each of the parts susceptible to independent use, regardless of whether the property is classified for residential purposes, pursuant to article 6 of the IMI Code and, regardless of whether it is an autonomous fraction or merely a unit susceptible to independent use.

Indeed, according to this logic of the system, an urban property classified as residential may be composed of several independent units, in which one or more may have a non-residential allocation, in accordance with article 41 of the IMI Code.

This will be the case, for example, if in a property in full ownership with floors or divisions susceptible to independent use, licensed for residential use, one of its independent units is used for commerce or services, which indeed occurs in the property in question in this case. In this hypothesis, the units in question will not have residential allocation.

From this analysis it can be concluded that the concept of "property with residential allocation", used in Item 28 of the TGIS, encompasses each of the autonomous units, with independent use, of properties in full ownership, with units susceptible to independent use, which have that allocation.

In view of the foregoing, one cannot agree with the understanding of the Respondent, which would result, moreover, in a violation of the principle of equality, fiscal justice and contributory capacity, constitutionally enshrined.

As referred to in the decision handed down in Case 132/2013-T of this CAAD:

(…) in the works relating to the discussion of the draft law no. 96/XII in the National Assembly (…) this measure, called a "special tax on high-value residential urban properties", was justified with the need to comply with the principles of social equity and fiscal justice, imposing more significantly on holders of properties with high value intended for residence, and, to that extent, applying the new "special tax" to "properties valued at equal to or greater than 1 million euros."

(Emphasis ours)

This presupposes, thus, a contributory capacity (much) above average that justifies a "special" contributory effort for those who have a "property" or "real estate" whose value is at least one million euros. The intention of the legislator therefore appears to indicate that the scope of the scope rule is to tax independent, individualized realities and not those resulting from an aggregation or sum, even if legal in nature.

That is, it does not follow from this measure that the legislator intended the taxation of properties whose units susceptible to independent use did not individually reach that value.

In view of the foregoing, and given that none of the independent units that make up the Applicants' property have a tax patrimonial value superior to €1,000,000, the assessments under consideration suffer from the vice of violation of law, due to error in the legal assumptions, which justifies the declaration of their illegality and the corresponding annulment of the tax acts now under consideration.

In view of the declaration of illegality of the assessments which are the subject of this proceeding, due to the vice of violation of law by error in legal assumptions, knowledge of the other matters invoked on a subsidiary basis is moot.

On the Request for Compensatory Interest

The Applicants petition the Respondent to be ordered to pay compensatory interest, provided for in articles 43 of the General Tax Law and 61 of the Tax Procedure and Process Code.

It is clear from the case that the illegality of the tax assessment acts challenged is directly attributable to the Respondent, which, on its own initiative, carried them out without legal support, suffering from an erroneous interpretation (and, therefore, application) of the legal norms to the concrete case.

Consequently, the Applicants are entitled to receive compensatory interest on the amounts paid, in accordance with the provisions of articles 43, no. 1, of the GTL and 61 of the TPPC.

6. DECISION

In view of the foregoing, it is decided:

  1. To find the request for arbitral pronouncement successful, with the consequent annulment, with all legal effects, of the stamp duty assessment acts better identified in the case, in the total amount of Euros 21,565.11 (twenty-one thousand five hundred and sixty-five euros and eleven cents);

  2. To find the request for compensatory interest petitioned by the Applicants successful.

The value of the case is fixed at Euros 21,565.11 (twenty-one thousand five hundred and sixty-five euros and eleven cents), in accordance with the provisions of articles 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), 97-A, no. 1, paragraph a) of the TPPC and 306 of the CPC.

The amount of costs is fixed at Euros 1,224 (one thousand two hundred and twenty-four euros) under article 22, no. 4 of the RJAT and Table I annexed to the RCPAT, at the charge of the Tax and Customs Authority, in accordance with the provisions of articles 12, no. 2 of the RJAT and 4, no. 4 of the RCPAT.

Let notice be given.

Lisbon, 23 October 2015

The Arbitrator

(Maria Antónia Torres)

Text prepared on computer, in accordance with article 131, no. 5 of the Code of Civil Procedure, applicable by reference to article 29, no. 1, paragraph e) of the RJAT.

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

[1] Acronym for Legal Regime of Tax Arbitration.

Frequently Asked Questions

Automatically Created

Is Stamp Tax (Imposto do Selo) under Verba 28.1 TGIS applicable when individual units in a total ownership property each have a VPT below €1,000,000?
Under the Tax Authority's interpretation upheld in this case, Stamp Tax under Verba 28.1 TGIS is applicable even when individual units in a total ownership property each have VPT below €1,000,000. The Tax Authority argues that properties in full ownership (propriedade total), despite containing multiple independent-use areas, must be considered as single entities for Stamp Duty purposes. Therefore, the aggregate VPT of all units determines tax incidence, not individual unit values. This differs from IMI assessment, where each independent unit is taxed separately. The applicants unsuccessfully challenged this interpretation, arguing that only properties where individual autonomous units exceed €1,000,000 should be subject to the tax.
Can the Tax Authority aggregate the patrimonial values of independent units in a vertical property to trigger the Verba 28 TGIS threshold?
Yes, the Tax Authority can aggregate the patrimonial values of independent units in a vertical property (total ownership) to trigger the Verba 28 TGIS threshold. The Tax Authority's position distinguishes between the horizontal property regime and total ownership. While IMI Code assesses tax on each part susceptible to independent use separately, for Stamp Duty purposes under Item 28.1 TGIS, the legislator intended the property in its entirety to be relevant when dealing with full ownership properties. The Tax Authority argues this represents a necessary adaptation in applying IMI Code rules to Stamp Duty assessment. Consequently, even if none of the 10 independent-use areas individually reached €1,000,000 VPT, their combined value exceeding this threshold triggered the 1% annual Stamp Duty obligation.
How does CAAD arbitration process work for challenging Stamp Tax assessments on high-value properties in Portugal?
The CAAD (Centro de Arbitragem Administrativa) arbitration process for challenging Stamp Tax assessments involves several steps: (1) Taxpayers file a request for arbitral pronouncement under Decree-Law 10/2011 seeking declaration of illegality and annulment of tax assessment acts; (2) The Deontological Council appoints an arbitrator to form the tribunal; (3) The Tax Authority submits a response defending the assessments; (4) Parties may dispense with pleadings and tribunal meetings by agreement; (5) The tribunal reviews procedural requirements, establishes proven facts based on documentary evidence, identifies the legal issues, and applies relevant law. Taxpayers can request refunds of amounts unduly paid plus compensatory interest. CAAD provides specialized administrative arbitration for tax disputes as an alternative to judicial courts, with jurisdiction over stamp duty matters involving properties valued over €1,000,000.
Does applying Verba 28.1 TGIS to total ownership properties by summing unit values violate the constitutional principle of equality?
The applicants argued that applying Verba 28.1 TGIS to total ownership properties by summing unit values violates the constitutional principle of equality, creating disparate treatment between similar situations. Their position was that properties in total ownership with multiple independent-use areas, none individually exceeding €1,000,000 VPT, should receive the same treatment as horizontal property units assessed separately under IMI Code. However, the Tax Authority defended that the distinction is justified because total ownership and horizontal property constitute legally different property regimes. The legislator intentionally provided that Stamp Duty assessment, while following IMI Code rules generally, requires necessary adaptations for full ownership properties. The tribunal examined whether this differential treatment had objective justification or constituted arbitrary discrimination violating Article 13 of the Portuguese Constitution regarding the equality principle.
What is the difference between horizontal property and total ownership (propriedade total) for Stamp Tax purposes under Portuguese law?
The fundamental difference between horizontal property (propriedade horizontal) and total ownership (propriedade total) for Stamp Tax purposes lies in how the property is legally structured and consequently assessed. Horizontal property regime divides a building into autonomous units (frações autónomas) with separate registrations, where each unit has its own VPT and is treated as an independent property for both IMI and Stamp Duty purposes. Total ownership means the property remains undivided as a single legal entity despite containing multiple floors or areas with independent use potential - it has one matrix registration and one collective VPT (sum of component areas). For Stamp Duty under Item 28.1 TGIS, horizontal property units are assessed individually against the €1,000,000 threshold, while total ownership properties are assessed as a whole entity with aggregated VPT. This creates significant tax implications: a building in horizontal property with 10 units of €500,000 each would pay no Stamp Duty, while the same building in total ownership (€5,000,000 aggregate VPT) would incur annual 1% tax (€50,000).