Process: 108/2017-T

Date: December 19, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 108/2017-T) addresses a fundamental dispute regarding the application of Stamp Tax under Item 28.1 of the General Stamp Duty Table (TGIS) to high-value urban properties. The claimant challenged ten Stamp Duty assessments issued for 2015, totaling over €10,000, relating to multiple property fractions in Lisbon. The central legal question concerns whether Verba 28.1 TGIS—which imposes Stamp Tax on residential urban properties with patrimonial values equal to or exceeding €1,000,000—applies to each individual autonomous fraction or to the aggregate value of all fractions within a single building under total ownership. The claimant argued that the Tax Authority (AT) illegally aggregated the patrimonial values of all ten fractions (totaling €1,040,130) and applied the tax to each fraction individually, despite none exceeding €1,000,000 alone. The claimant contended that the correct interpretation, supported by Supreme Administrative Court jurisprudence, treats each autonomous fraction as a separate 'urban property' for tax purposes. Additionally, the claimant challenged the inclusion of a commercial fraction (designated for services, not residential use) in the calculation and argued the AT incorrectly used 2016 patrimonial values instead of the applicable 2015 values. The AT defended its position by asserting that under the total ownership regime, the entire property should be considered as a single taxable unit. This case exemplifies critical interpretative issues in Portuguese tax law regarding property taxation, the definition of taxable units under horizontal property regimes, and taxpayers' rights to challenge administrative tax assessments through CAAD arbitration.

Full Decision

ARBITRAL DECISION

I. REPORT

  1. A..., taxpayer no. ..., resident at ..., ..., ..., Lisbon (hereinafter also referred to as the "Claimant"), hereby, pursuant to the provisions of Articles 2, no. 1, paragraph a) and 10, no. 1, paragraph a), of Decree-Law no. 10/2011, of 20 January, which approved the Legal Regime of Tax Arbitration (hereinafter only "LRTA"), submits a request for constitution of an arbitral tribunal, in which the Tax and Customs Authority (hereinafter only "Respondent" or "TA") is the respondent.

  2. The request for arbitral pronouncement was submitted on 10/02/2017.

  3. In the respective request, the Claimant requested the Deontological Council of CAAD to designate an Arbitrator, in accordance with the provisions of Articles 6, no. 1 and 11, both of the LRTA.

  4. The request for constitution of the arbitral tribunal was accepted by the esteemed President of CAAD and automatically notified to the TA on 17/02/2017, with the Parties being notified, on 03/04/2017, of the arbitrator designated by the Deontological Council of CAAD, the undersigned herein.

  5. Following acceptance by the designated arbitrator, the present Arbitral Tribunal was constituted on 19/04/2017, in accordance with the provisions of Articles 2, no. 1, paragraph a), 5, 6, no. 1, and 11, no. 1, all of the LRTA (as amended by Article 228 of Law no. 66-B/2012, of 31 December).

  6. Within the scope of the arbitral pronouncement request submitted by them, the Claimants petitioned for a declaration of illegality of the Stamp Duty assessment acts (hereinafter only "SD") therein identified, namely the following:

a) SD Assessment no. 2016..., relating to the year 2015, in the amount of € 1,099.10, issued by reference to fraction 1st D of the urban property corresponding to Article ..., of the parish of ..., municipality of Lisbon;

b) SD Assessment no. 2016..., relating to the year 2015, in the amount of € 1,109.60, issued by reference to fraction ... of the urban property corresponding to Article ..., of the parish of ..., municipality of Lisbon;

c) SD Assessment no. 2016..., relating to the year 2015, in the amount of € 1,120.20, issued by reference to fraction 3rd E of the urban property corresponding to Article ..., of the parish of ..., municipality of Lisbon;

d) SD Assessment no. 2016..., relating to the year 2015, in the amount of € 1,130.80, issued by reference to fraction 4th E of the urban property corresponding to Article ..., of the parish of ..., municipality of Lisbon;

e) SD Assessment no. 2016..., relating to the year 2015, in the amount of € 1,120.20, issued by reference to fraction 3rd D of the urban property corresponding to Article ..., of the parish of ..., municipality of Lisbon;

f) SD Assessment no. 2016..., relating to the year 2015, in the amount of € 1,130.80, issued by reference to fraction 4th D of the urban property corresponding to Article ..., of the parish of ..., municipality of Lisbon;

g) SD Assessment no. 2016..., relating to the year 2015, in the amount of € 1,141.30, issued by reference to fraction 5th D of the urban property corresponding to Article ..., of the parish of ..., municipality of Lisbon;

h) SD Assessment no. 2016..., relating to the year 2015, in the amount of € 1,141.30, issued by reference to fraction 5th E of the urban property corresponding to Article ..., of the parish of ..., municipality of Lisbon;

i) SD Assessment no. 2016..., relating to the year 2015, in the amount of € 704.30, issued by reference to fraction 6th D of the urban property corresponding to Article ..., of the parish of ..., municipality of Lisbon;

j) SD Assessment no. 2016..., relating to the year 2015, in the amount of € 704.30, issued by reference to fraction 6th E of the urban property corresponding to Article ..., of the parish of ..., municipality of Lisbon.

  1. The Claimant attached 32 documents to the arbitral request.

  2. Having analysed the arguments invoked by the Claimant in the arbitral request and in the written submissions presented by her, we may summarize them as follows:

i) The assessment acts in question are drafted "in rather obscure terms", making it impossible for an ordinary citizen to "know from reading them what the exact taxable fact to which they refer is and what the norms are that frame it";

ii) After visiting the Lisbon Finance Service—..., the Claimant was informed that the assessment acts concerned SD due by virtue of holding the right of full ownership over the urban property, in full ownership, registered in the urban property matrix of the parish of ..., municipality of Lisbon, under number ..., in accordance with Item no. 28.1 of the General Table of SD;

iii) The TA unlawfully decided, adding up the Patrimonial Value (PV) of all fractions capable of independent use and, in the case of SD Assessment no. 2016..., it is further stated that it is a fraction capable of independent use designated for services;

iv) The TA applied Item no. 28.1 of the SD Table to the PV of each one of the fractions in question, despite none individually having a value exceeding € 1,000,000.00;

v) The TA's understanding is illegal, as the only interpretation that is legally and constitutionally possible, regarding the concept of urban property for the purposes of applying that Item, is the one that makes that concept correspond to a fraction capable of independent use, under penalty of different treatment for equal situations, which the TA appears to recognize by sending an individualized assessment for each fraction;

vi) The TA could only apply that Item to any of the fractions capable of independent use that compose the property, if such fractions had, each by itself, a PV exceeding € 1,000,000.00, which is not the case;

vii) The interpretation of the Respondent has been adopted by the Supreme Administrative Court, as evidenced by the judgment of 09/09/2015, delivered in case no. 047/15 or by the judgment of 02/03/2016, delivered in case no. 01354/15;

viii) The TA should never have assessed SD, as not all fractions capable of independent use have residential use as their sole purpose;

ix) Indeed, the fraction designated 1st D is today, and was in 2015, dedicated to services, to which the TA attributes a PV of € 109,910.00;

x) Thus, even if the TA's understanding were recognized as correct, the value of that fraction could not be calculated for ascertainment of the property's PV and, for that reason, this value, for purposes of applying Item no. 28.1 of the SD Table, would be only € 930,220.00 and not € 1,040,130.00;

xi) Furthermore, the TA uses the PVs of 2016, when it should use the value existing in 2015, which would be € 893,920.00, even if the fraction designated 1st D were included;

xii) In accordance with the provisions of no. 1 of Article 113 of the Property Tax Code, applicable ex vi of Article 67 of the SD Code, the value to be used, for purposes of applying the item in question, would be that relating to the year 2015 and not 2016, as the taxable facts at issue occurred in 2015.

  1. In its request, the Respondent petitioned for the annulment of the SD assessment acts, as well as the restitution of the amounts unduly paid, plus legally due compensatory interest.

  2. Notified to do so, the TA, now Respondent, presented its defence, in which it defended itself by objection, invoking, in summary, the following:

i) Subjection to stamp duty under item 28.1 of the General Table attached to the SD Code results from the conjunction of two facts: residential use and the patrimonial value of the urban property registered in the matrix being equal to or exceeding € 1,000,000.00;

ii) The concept of property is defined in Article 2, no. 1 of the Property Tax Code, with its no. 4 providing that under the horizontal property regime each autonomous fraction is deemed to constitute a property;

iii) The property in question is described in the matrix under the total ownership regime;

iv) It follows from the analysis of Article 6 of the Property Tax Code that a "property in total ownership with storeys or divisions capable of independent use" is, unequivocally, distinct from a property in horizontal ownership regime, constituted by autonomous fractions, that is, several properties;

v) Article 12 of the Property Tax Code provides the concept of property matrix and, regarding property tax assessment, for properties in total ownership, the PV that serves as the basis for its calculation will undoubtedly be the PV that the now Claimant defines as "global value of the property";

vi) At the time, the Claimant held full ownership of the urban property in question, evaluated in accordance with the Property Tax Code, in the course of general evaluation of urban properties, described as "property in total ownership with storeys or divisions capable of independent use", with PV exceeding € 1,000,000.00;

vii) With reference to the year 2015 and in compliance with the provisions of Article 6, no. 2 of Law no. 55-A/2012, of 29/10, which added item no. 28 to the General Table of SD (with the amendment made by Law no. 83-C/2013 of 31/12 and whose respective rule of incidence refers to urban properties evaluated in accordance with the Property Tax Code with PV equal to or exceeding € 1,000,000.00) and in accordance with its no. 28.1, residential use, the TA proceeded with the notification of collection documents for payment of the assessments in question;

viii) What is at issue here are collection notices that result from the direct application of the legal norm, which translates into objective elements, without any subjective or discretionary appraisal;

ix) Although assessment of SD, in the situations provided for in item no. 28.1 of the General Table of SD, proceeds according to the rules of the Property Tax Code, the truth is that the legislator reserves the aspects that require appropriate adaptations—as is the case with properties in total ownership, even if with storeys or divisions capable of independent use;

x) What expressly results from the letter of the law is that the legislator intended to tax under item 28.1 in question properties as a single legal-tax reality;

xi) Based on this matrix information, the Stamp Duty assessment in question was made by the Tax Administration in accordance with Article 23, no. 7 of the SD Code, taking into account the nature of the urban property, namely its divisions dedicated to residential use, as of the date of the taxable fact, applying, with necessary adaptations, the rules contained in the Property Tax Code;

xii) In accordance with these rules, specifically Article 113, no. 1, assessment is made on the basis of the patrimonial values of properties and in relation to taxpayers appearing in the matrices on 31 December of the year to which they relate;

xiii) Regarding properties in total ownership regime, which do not have autonomous fractions, to which tax law assigns the qualification of property (no. 4 of Article 2 of the Property Tax Code), the PV is that of the property as a whole;

xiv) Item 28.1 thus applies to ownership, usufruct or surface right of urban properties with residential use, whose patrimonial value shown in the matrix, in accordance with the Property Tax Code, is equal to or exceeding € 1,000,000.00;

xv) Taxation under stamp duty complies with the criterion of adequacy, to the extent that it aims at taxing the wealth embodied in ownership of properties of high value, arising in a context of economic crisis;

xvi) This measure is applicable uniformly to all holders of residential properties with value exceeding € 1,000,000.00, and this understanding was the subject of binding information from the TA, with a decision of agreement dated 11.2.2013 of the Substitute Legal Representative of the Director-General of the TA;

xvii) The Arbitral Tribunal, in case no. 668/2015-T, decided to judge an identical arbitral pronouncement request as unfounded, maintaining in the legal order the SD assessments from the application of Item 28.1;

xviii) The defect of violation of law by error regarding the assumptions of law should be judged unfounded, maintaining in the legal order the SD assessments at issue, as they constitute a correct application of law to the facts, and Item 28 is a norm in accordance with the Constitution of the Portuguese Republic;

xix) The legislator defined an economic assumption, constitutionally valid, as a manifestation of the capacity to contribute (whose recipients effectively have special capacity to contribute in light of the criterion adopted) required for payment of this tax;

xx) The reduction of inequalities that presided over the submission of Draft Law no. 96/XII, aimed to distribute the sacrifices imposed by austerity among all, allowing discrimination of assets, without offending constitutional provisions, namely the principle of equality, either in itself or in its aspect of capacity to contribute, as no unjustified differences in treatment between taxpayers result from this, since different situations are treated differently;

xxi) Such item is a norm of general and abstract character, applicable uniformly to all cases in which its respective factual and legal assumptions are met;

xxii) In ultimate analysis, any and all rule of tax incidence would be unconstitutional by violation of the principle of equality, by reason of taxing, or failing to tax, that tax reality whose value differs by +/- € 0.01 from the legally, generally and abstractly defined value;

xxiii) The fact that the legislator establishes a value (€ 1,000,000.00) as a delimiting criterion for the incidence of the tax, below which the provision of the tax rule is not met, constitutes a legitimate choice regarding the determination of the scope of "luxury residential properties" that it is intended to tax more heavily;

xxiv) Indeed, the different valuation and taxation of a property with residential use as opposed to a property designated for commerce, industry or services, or even a rural property, results from the different aptitude of the properties in question, which supports the different treatment given by the legislator which, for economic and social reasons, decided, within its margin of discretion, to exclude from the incidence of the tax properties designated for purposes other than residential;

xxv) It follows from the statements of the esteemed State Secretary for Fiscal Affairs and the Report accompanying the Draft State Budget for 2013 the unequivocal intention of the legislator to integrate into the collective effort to combat budget deficit and compliance with the adjustment program, the sectors of Portuguese society that revealed wealth through ownership of properties whose PV was equal to or exceeding € 1,000,000, thus broadly encompassing a wide range of sectors of Portuguese society;

xxvi) We believe the option for this mechanism of obtaining revenue to be justified, since such measure is applicable uniformly to any and all holders of residential properties with value exceeding € 1,000,000.00, applying to the wealth embodied and manifested in the value of properties;

xxvii) When the question of the unconstitutionality of item 28 of the General Table of SD, added by Law no. 55-A/2012, of 29 October and its no. 1 (item 28.1), specifically the violation of the principles of tax equality, capacity to contribute and proportionality, was raised, the Constitutional Court understood that: "given that the violation of the constitutionality parameters invoked by the appellant is not verified, nor of any others, the appeal is, accordingly, dismissed";

xxviii) For all the foregoing, the assessments now at issue constitute a correct interpretation and application of law to the facts, not suffering from any illegality by error regarding the assumptions of law, nor from any unconstitutionality, by violation of the principle of equality;

xxix) The arbitral pronouncement request should be judged unfounded, given the legality of the assessment acts issued, with the Respondent entity being absolved of the request.

  1. Having been notified, through an arbitral order issued on 06/06/2017, to make pronouncements on the exceptions invoked by the TA in its defence, the Claimants said nothing.

  2. Through an arbitral order of 10/10/2017, the Tribunal determined the extension of the deadline for delivering the arbitral decision, for a period of 2 (two) months, pursuant to the provisions of no. 2 of Article 21 of the LRTA.

  3. In the above-mentioned order, the holding of the meeting referred to in Article 18 of the LRTA was also dispensed with, as no request for production of additional evidence was made or exceptions were invoked, with the Parties being notified to submit written submissions, if they wished.

  4. Following the delivery of that order, both Parties came to submit submissions, produced successively, within which they reproduced, in essence, the arguments previously advanced.

II. PROCEDURAL MATTERS

The tribunal is competent and regularly constituted.

The parties have legal standing and capacity, being properly represented.

The procedural means is the proper one.

No exceptions or preliminary issues susceptible of preventing the examination of the merits of the case were invoked by the Respondent.

III. FINDINGS OF FACT

In light of the evidence brought before the tribunal and the facts accepted by both Parties and not contested, the Tribunal deems the following facts proven, with relevance for the final decision:

A) The following SD Assessments were issued by the TA, in the name of the now Claimant and dated 18/11/2016 (cf. Docs. nos. 1 to 10 of the arbitral request):

i) Assessment no. 2016..., in the amount of € 1,099.10, referring to fraction 1st D of the urban property corresponding to Article ..., of the parish of ..., municipality of Lisbon, considering a PV of € 109,910.00;

ii) Assessment no. 2016..., in the amount of € 1,109.60, referring to fraction 2nd D of the urban property corresponding to Article ..., of the parish of ..., municipality of Lisbon, considering a PV of € 110,960.00;

iii) Assessment no. 2016..., in the amount of € 1,120.20, referring to fraction 3rd E of the urban property corresponding to Article ..., of the parish of ..., municipality of Lisbon, considering a PV of € 112,020.00;

iv) Assessment no. 2016..., in the amount of € 1,130.80, referring to fraction 4th E of the urban property corresponding to Article ..., of the parish of ..., municipality of Lisbon, considering a PV of € 113,080.00;

v) Assessment no. 2016..., in the amount of € 1,120.20, referring to fraction 3rd D of the urban property corresponding to Article ..., of the parish of ..., municipality of Lisbon, considering a PV of € 112,020.00;

vi) Assessment no. 2016..., in the amount of € 1,130.80, referring to fraction 4th D of the urban property corresponding to Article ..., of the parish of ..., municipality of Lisbon, considering a PV of € 113,080.00;

vii) Assessment no. 2016..., in the amount of € 1,141.30, referring to fraction 5th D of the urban property corresponding to Article ..., of the parish of ..., municipality of Lisbon, considering a PV of € 114,130.00;

viii) Assessment no. 2016..., in the amount of € 1,141.30, referring to fraction 5th E of the urban property corresponding to Article ..., of the parish of ..., municipality of Lisbon, considering a PV of € 114,130.00;

ix) Assessment no. 2016..., in the amount of € 704.30, referring to fraction 6th D of the urban property corresponding to Article ..., of the parish of ..., municipality of Lisbon, considering a PV of € 70,400.00;

x) Assessment no. 2016..., in the amount of € 704.30, referring to fraction 6th E of the urban property corresponding to Article ..., of the parish of ..., municipality of Lisbon, considering a PV of € 70,400.00.

B) The assessment acts identified in the preceding point were issued in accordance with Item 28.1 of the General Table of SD, making reference to the fact that the Claimant is the holder of the right of ownership over each one of the fractions in question and that the total PV of the property in question exceeds € 1,000,000.00—in this case, the stated value is € 1,040,130.00 (cf. Docs. nos. 1 to 10 of the arbitral request).

C) Furthermore, such assessment acts refer to 2015 as "Tax Year" (cf. Docs. nos. 1 to 10 of the arbitral request).

D) As results from the Urban Property Deed, attached to the arbitral request as Doc. no. 11 and dated 12/11/2015, the property in question is constituted in total ownership with storeys or divisions capable of independent use, being composed of "warehouses, shops, ground floors and 6 storeys" (cf. Doc. no. 11 of the arbitral request).

E) From the analysis of the Urban Property Deed in question it appears, with reference to 12/11/2015: i) the total PV of the property's fractions designated for residential use was € 909,820.00; ii) the total PV of the fractions designated for Services was € 165,249.00; iii) the total PV of the fractions designated for Storage and Attics was € 196,780.00 and iv) the total PV designated for Commerce was € 24,820.00, as better detailed in the following table:

[Table content preserved as in original]

F) On 28/12/2016, the Claimant proceeded to voluntary payment of the SD assessment acts that are the subject of this arbitral request, in the total amount of € 10,401.30 (cf. Docs. nos. 12 to 21 of the arbitral request).

G) Through orders dated 06/04/2016, the fractions above identified were subject to evaluation, in accordance with the provisions of Article 38 and following of the Property Tax Code (cf. Docs. nos. 22 to 31 of the arbitral request).

No other facts with relevance for the final decision were identified.

V. REASONING OF THE DECISION

In the first place, the courts, including here Arbitral Tribunals, are not required to examine all the arguments presented by the parties, as evidenced by way of example in the Judgment of the Plenary of the 2nd Section of the Supreme Administrative Court, of 07/06/1995, delivered in case no. 5239.

As tersely stated in that judgment: "Given that the concept of 'questions' should not be confused with that of 'arguments' or 'grounds', the court, although it must 'resolve all questions that the parties have submitted for its examination', is not bound to examine all the arguments used by the parties, just as, obviously, it is not prevented from, in the decision, using considerations not produced by them."

Indeed, the questions invoked by the parties are not confused with the arguments, grounds or considerations produced. Questions, namely for the purposes of the provisions of no. 2 of Article 608 of the Civil Procedure Code, are only those of substance and that integrate the decision-making material, that is, those that relate to the claim, the cause of action and the exceptions (see in this sense the Judgment of the Supreme Court of Justice, of 29/11/2005, delivered in case no. 05S2137 or the Judgment of the Central Administrative Court South, of 25/09/2012, delivered in case no. 05073/11).

And not only is the Tribunal not bound to pronounce on all the arguments presented by the Parties, whether factual or legal, but it is also not, nor could it be in light of the principle of inquisitorial power, enslaved to those same arguments or questions. The Tribunal equally enjoys freedom as to the course and the cognitive process to use for rendering the decision on the merits.

Thus, having regard to the foregoing, what the Parties brought before the tribunal and the core of the argument used, both in connection with the arbitral request and the corresponding defence presented by the Respondent, and regarding final written submissions, the Tribunal considers that the legal question to be decided concerns solely the possible illegality of the SD assessment acts of 2015 that are the subject of this arbitral request, in light and on the basis, namely, of the norm contained in Item 28.1 of the General Table of SD.

VI. ON THE LAW

Summarizing the position of the Respondent, we can say that its understanding rests on the illegality of the SD assessment acts at issue, by violation of Items 28 and 28.1 of the General Table of SD, in force at the date of the taxable facts (2015), in considering that the ascertainment of the PV, for purposes of taxation under Item 28.1 of the General Table of SD, must take into account the total PV of the property—ascertained by adding the individual PVs of the various fractions of independent use that compose it—or, on the contrary, such ascertainment is made individually, in which case there will only be taxation if the PV of the respective fraction exceeds € 1,000,000.

Let us see then.

As to the question stated in i), this Tribunal is in agreement, in part, with the arbitral decision delivered in case no. 668/2015-T.

In fact, the legislator intended, with the introduction of Item 28.1, to additionally tax properties that had residential use and a PV exceeding € 1,000,000. This concern met the legislator's desire, embodied in the Explanatory Statement relative to Draft Law no. 96/XII/2nd, to tax more heavily the owners of those properties, requiring that they contribute to the effort that all taxpayers were called to make, regarding budget consolidation, in the year 2012.

The ratio underlying these legislative changes seems to suggest that the legislator's intention was to impose that, in the case of properties in total ownership, the total assets of its owner be taken into account rather than the fractions individually considered.

Under penalty of, through a different understanding, the taxpayer being able not to see all fractions of its property taxed, because they have an individual PV of, for example and absurdly, € 950,000. Which could undermine the objective of raising additional tax revenue that underlay the creation of this more burdensome rate.

This conclusion also has some support in the norms that define the concept of "property" and which, by virtue of the application of the provisions of Article 67, no. 2, of the SD Code, are those provided for in the Property Tax Code. In fact, this provision of the SD Code establishes that, regarding matters not regulated therein and relating to Item 28, the rules set out in the Property Tax Code will apply, namely, for purposes of ascertaining the PV.

Thus, and by virtue of the provisions of Article 11 of the General Tax Law and Article 9 of the Civil Code, it is found that Article 2 of the Property Tax Code defines the concept of property and determines, in its no. 4, that each autonomous fraction, in the horizontal ownership regime, is deemed to constitute a property. Making no reference as to properties in total ownership or parts of properties capable of independent use. So it seems that the legislator may have left out these latter situations.

Hence it is understood what is referred to in the aforementioned arbitral decision, delivered in case no. 668/2015-T, when it understood the following:

"To the contrary, the literal interpretation of the norm allows concluding in the opposite sense: the value of the property is the sum of the values of its parts. It is reiterated then: the Property Tax Code does not equate, for determination of the patrimonial value, parts of properties capable of independent use to properties. Rather, it clearly separates the concepts of 'property' and 'part of property'. Now, returning to Article 2 of the Property Tax Code, 'parts of property' are not deemed to be properties (precisely the opposite of what specifically is stated regarding autonomous fractions, those which are indeed equated to properties). In the concrete case, the urban property is composed of parts (independent) residential and parts (independent) commercial. Therefore, the value of the property is, in accordance with the rules indicated, the sum of the values of its parts.

There is, then, no equality of treatment in the Property Tax Code between properties in horizontal ownership and properties in total ownership with parts that can be classified in more than one of the classifications assigned to urban properties. As to the former, the respective autonomous fractions are unequivocally properties for purposes of Property Tax; as to the latter, their independent parts do not fall within that concept. The parts compose, as a whole, the property.

Consequently, if the parts of properties, for purposes of Property Tax, are not properties, then they will not be for purposes of SD either. Therefore, the taxable fact is the ownership of the property, as a whole, as follows from the concept contained in Article 2 of the Property Tax Code."

So the Tribunal would initially be convinced that the TA's understanding, expressed in the assessment acts at issue and also in the position itself assumed in the defence presented in these proceedings, has support in the legal norms that define the terms of calculation of PV for purposes of applying Item 28.1 of the General Table of SD.

It happens, however, and bringing to bear the second question stated above—which constitutes the Claimant's subsidiary request—that this assessment can never be made apart from the effective destination of the property and, specifically, from the analysis of the various classificatory categories into which the fractions of independent use that compose that same property fall.

Put another way, even if it can be understood that the legislator intended, through evident objectives of extraordinary revenue raising, which remain valid even today through the rate designated "Additional to Property Tax" ("Additional IMI"), the truth is that we cannot ignore that the property in question, even though it is constituted in vertical ownership, is composed by fractions that are designated for purposes other than residential. Or, at least, that were designated for other purposes in 2015, the year when the taxable facts now in issue occurred.

Such was the case, for example, of the fraction corresponding to 1st D of the property in question and which integrates the batch of properties or fractions that were now subject to assessment by the TA and which, as results from the evidence attached to the arbitral request, was designated for "Services" in the year 2015 (cf. Section E) of the evidence section).

Indeed, as can be seen from the table below, the fractions that, individually, gave rise to the SD assessment now contested by the Claimant were the following:

[Table content preserved as in original]

That is, the question also cannot be viewed solely from a qualitative perspective, but also from a quantitative (or arithmetic, if preferred) one.

And the truth is, as the Respondent correctly states, that, even if one considers that the PV to be taken into account for this purpose corresponds to the individual sum of the PVs of the respective fractions, fractions that are designated, for example, to "Services" or "Commerce" cannot be taken into consideration, as this would directly contradict Item 28.1 itself and the principles that underlay its creation.

That is, even if one takes as a reference the total PV of the property, fractions restricted to purposes other than residential cannot be included, as if they were identical, for purposes of applying Item 28.1. This would be a distortion of this legal regime.

In the case at hand, whether we focus only on the values stated in the SD assessments now contested, or whether we take into account what was derived from the Urban Property Deed issued in 2015, it is always concluded that the total PV of the fractions designated for residential use was, in that year, lower than € 1,000,000.

In fact, given that the fraction corresponding to 1st D cannot count for purposes of applying Item 28.1, the PV of the part designated for "Residential Use" amounted to only € 930,220 (= € 1,040,130 - € 109,910).

Similarly, from the said Urban Property Deed, it is concluded that the total designation of the property was distributed as follows:

[Table content preserved as in original]

Also from this perspective, the total PV of the fractions designated for "Residential Use" (€ 909,820) was, therefore, insufficient for the situation to fall under the norm contained in Item 28.1. The fractions designated for "Storage and Attics", "Services" and "Commerce" are therefore irrelevant for this purpose.

In this regard, it should be noted that the category "Storage and Attics" must necessarily fall within the classification of "Other", as it is provided for in paragraph d) of no. 1 of Article 6 of the Property Tax Code, not integrating the concept of residential properties or properties for residential purposes. Moreover, to prove that these are distinct realities, it suffices to note that Article 41 of the Property Tax Code expressly provides a specific Designation Coefficient for properties classified as "Storage and Attics".

So the TA could not have assessed tax on the basis that all fractions in question were designated for residential purposes, as, as established, at least regarding the independent fraction 1st D, that was not its purpose. Which invalidates its subjection to Item 28.1.

Moreover, the Tribunal finds that the TA did not rebut in its defence this argument, nor did it make any reference whatsoever to this fraction and its actual designation, bringing to the proceedings, if it thus justified itself, any possible evidence that would contradict what was invoked to this effect by the Claimant in its arbitral request.

Two final observations, to emphasize that the taxable facts in question occurred in the year 2015—as the assessments themselves unequivocally state—so it could never be taken into account any possible changes to the designation of certain fractions that may have occurred as a result of the evaluation that would have been conducted in 2016. The Tribunal is of the view that the TA failed to take this aspect into account and proceeded with the issuance of the assessment acts without first confirming whether, in the year 2015, they were actually designated for residential use.

Also, no reference was made to this aspect by the Respondent TA.

Finally, an indicator that the TA itself had some difficulty in dissociating the ascertainment of the property's global PV from the concrete designation and restriction of each one of the fractions in question is, precisely, the fact that it issued as many additional assessments as there were fractions in existence, despite the Urban Property Deed corresponding to the unified description of the property and its fractions.

That is, the TA itself took into account, for purposes of issuing the SD assessment acts, the fact that there exists an individualized and autonomous description of each one of the fractions.

In light of all the foregoing, the Claimant's request, for a declaration of nullity of the SD assessments at issue, must proceed, on the grounds of the non-existence of the taxable fact sustaining them, that is, ownership of an urban residential property or property designated for residential purposes with PV exceeding, in that part, € 1,000,000.

VII. DECISION

In light of the foregoing, it is decided that the arbitral pronouncement request is well-founded and granted, and consequently:

i) Declare the illegality of the SD assessment acts at issue, issued with reference to the year 2015 and Item 28.1 of the General Table of SD, for the reasons and on the grounds invoked above;

ii) From the granting of the request, there should result the reimbursement to the Claimant of the amounts unduly paid, accompanied by the respective compensatory interest, computed in accordance with Article 43 of the General Tax Law;

iii) Order the Respondent to pay the costs of the present proceedings.

VIII. VALUE OF THE CASE

The value of the case is set at € 10,401.30, in accordance with the provisions of Article 97-A, no. 1, paragraph a), of the Code of Procedure and Tax Process, applicable by virtue of the provisions of paragraphs a) and b), of no. 1, of Article 29 of the LRTA and of no. 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

IX. COSTS

The costs of the proceedings are set at € 918.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Respondent, given complete loss in the present action.

Let it be notified.

Lisbon, 19 December 2017

The Arbitrator

(Diogo Bonifácio)

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 in Portugal?
Verba 28.1 of the Tabela Geral do Imposto do Selo (TGIS) establishes Stamp Tax on residential urban properties with a patrimonial value equal to or exceeding €1,000,000. This provision was introduced to tax high-value real estate holdings annually. The key interpretative dispute concerns whether 'urban property' refers to each autonomous fraction under the horizontal property regime or to the aggregate value of all fractions within a building held under total ownership. According to the claimant's position, supported by Supreme Administrative Court precedent, each autonomous fraction constitutes a separate property for tax purposes, meaning only individual fractions exceeding the €1,000,000 threshold should be taxed. The Tax Authority, however, interprets the provision as applying to the total aggregate value when properties are held under total ownership regimes, assessing tax on each fraction proportionally even when individually they fall below the threshold.
Can property owners challenge Stamp Tax (Imposto do Selo) liquidations on individual apartment fractions through tax arbitration at CAAD?
Yes, property owners can challenge Stamp Tax liquidations on individual apartment fractions through tax arbitration at CAAD (Centro de Arbitragem Administrativa). The Legal Regime of Tax Arbitration (LRTA), established by Decree-Law 10/2011 of 20 January, grants taxpayers the right to submit arbitration requests against tax assessments, including Stamp Duty under Verba 28.1 TGIS. The process involves filing a request for constitution of an arbitral tribunal within the legal deadline, identifying the contested assessment acts, and presenting legal grounds for challenging the liquidations. In this case, the claimant successfully initiated arbitration proceedings to contest ten Stamp Duty assessments, demonstrating that CAAD provides an effective alternative dispute resolution mechanism for property tax controversies. The arbitral tribunal has jurisdiction to review the legality of tax assessments and can order their annulment and restitution of amounts unduly paid plus compensatory interest.
How is Stamp Tax calculated on urban property fractions valued above one million euros under Portuguese tax law?
Under Portuguese tax law, Stamp Tax calculation on urban property fractions valued above one million euros follows Verba 28.1 of the TGIS. The patrimonial value used is the valor patrimonial tributário (VPT) registered in the property matrix maintained by the Tax Authority. According to Article 113(1) of the Property Tax Code (Código do IMI), applicable via Article 67 of the Stamp Duty Code, the relevant valuation is that corresponding to the tax year when the taxable event occurred. For annual Stamp Tax on property holdings, the taxable event occurs on December 31st of each year. The contested issue in this arbitration is whether the calculation should consider: (1) each autonomous fraction individually, applying the tax only to those fractions exceeding €1,000,000; or (2) the aggregate value of all fractions, proportionally assessing tax on each fraction. The claimant also disputed the Tax Authority's use of 2016 values for 2015 tax assessments and the inclusion of non-residential fractions in the calculation basis.
What is the procedure for filing a tax arbitration request (pedido de pronúncia arbitral) against the Portuguese Tax Authority (AT)?
Filing a tax arbitration request (pedido de pronúncia arbitral) against the Portuguese Tax Authority involves several procedural steps under the LRTA (Regime Jurídico da Arbitragem em Matéria Tributária). First, the taxpayer must submit a written request to CAAD identifying the contested tax acts, stating the legal grounds for the challenge, and specifying the relief sought (typically annulment and restitution). The request must be filed within the legal deadlines established for challenging administrative acts. The taxpayer may request the CAAD Deontological Council to designate an arbitrator or propose arbitrators themselves. Once accepted, the Tax Authority is automatically notified, and upon arbitrator designation and acceptance, the arbitral tribunal is formally constituted. The tribunal then proceeds with the case, allowing both parties to present written submissions and evidence. Unlike judicial proceedings, tax arbitration typically offers faster resolution and specialized expertise in tax matters. The arbitral decision has the same legal force as a court judgment and may be appealed to the Central Administrative Court on limited grounds.
Does Stamp Tax under Verba 28.1 apply to each individual property fraction or to the aggregate value of the entire building?
The central legal dispute in this case concerns whether Stamp Tax under Verba 28.1 applies to individual property fractions or to the aggregate value of an entire building. The claimant argues that the only legally and constitutionally acceptable interpretation treats each autonomous fraction as a separate 'urban property' for tax purposes, particularly under the horizontal property regime defined in the Property Tax Code. This interpretation means Stamp Tax should only apply to individual fractions with patrimonial values exceeding €1,000,000, not to fractions whose combined value exceeds this threshold. The claimant cites Supreme Administrative Court jurisprudence supporting this position. Conversely, the Tax Authority contends that when property is held under a total ownership regime, the aggregate value of all fractions constitutes the taxable base, even if individual fractions fall below the €1,000,000 threshold. This interpretative difference has significant practical implications: under the claimant's interpretation, the property would not be subject to Stamp Tax (as no individual fraction exceeds €1,000,000); under the AT's interpretation, all fractions are taxable. The arbitral tribunal must determine which interpretation correctly applies Portuguese tax law principles.