Process: 12/2016-T

Date: June 27, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitration decision (Process 12/2016-T) addresses a critical question regarding Stamp Tax (Imposto do Selo) under Verba 28.1 of the General Table: whether the €1,000,000 threshold applies to the total property value or to each co-owner's individual share. The case involves A... S.A., a company holding 50% co-ownership of building land in Aveiro with a total taxable property value of €1,870,420. The Portuguese Tax Authority assessed Stamp Tax on the full property value, while the taxpayer argued that since their 50% share (€935,210) falls below the €1,000,000 threshold, no tax should be due. The taxpayer challenged both the assessment and the partial approval of their administrative complaint through tax arbitration under the Legal Framework for Arbitration in Tax Matters (RJAT - Decree-Law 10/2011). The core legal argument centers on constitutional principles of equality and tax capacity. The taxpayer contends that co-owners should be treated identically to sole owners with equivalent property values, as tax capacity manifests through the individual share held, not the collective property value. To impose tax on a co-owner whose share is below the threshold would violate the principle of equality, creating disparate treatment between a co-owner holding €935,210 and a sole owner of property valued at the same amount. The Tax Authority defends its interpretation, arguing that the €1,000,000 threshold represents a legitimate legislative choice for defining luxury properties subject to heavier taxation, and that different property allocation scenarios justify different tax treatment. This case has significant implications for interpreting Verba 28.1 TGIS in co-ownership situations and establishing whether tax capacity assessment should focus on individual participation or collective property characteristics.

Full Decision

ARBITRAL DECISION

I. REPORT

A…, S.A., NIPC…, with headquarters at Rua…, no.…, …, …-… Aveiro (hereinafter referred to only as the Applicant), filed, on 14-01-2016, a request for constitution of a single arbitral tribunal, under the terms of articles 2.º and 10.º of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as RJAT), in conjunction with subsection a) of article 99.º of the CPPT, in which the Tax and Customs Authority is the Respondent (hereinafter referred to only as the Respondent).

The Applicant requests the declaration of illegality of (i) the ruling on partial approval of the administrative complaint filed against the assessment acts for Stamp Tax under item 28.1 of the General Table of Stamp Tax ("TGIS") for the year 2014, with reference to land for construction registered in the matrix of urban property of the union of parishes of … and …, municipality of Aveiro, under articles … and…, as well as (ii) of the assessment acts complained of.

The request for constitution of the arbitral tribunal was accepted by the Honorable President of CAAD on 15-01-2016 and notified to the Tax and Customs Authority on that same date.

In accordance with the provision of subsection a) of paragraph 2 of article 6.º and subsection b) of paragraph 1 of article 11.º of the RJAT, the Ethics Council appointed the undersigned as arbitrator of the single arbitral tribunal, who communicated acceptance of the engagement within the applicable period.

On 11-03-2016 the Parties were duly notified of this appointment, having not manifested the intention to refuse the appointment of the arbitrators, in accordance with the combined provision of article 11.º paragraph 1, subsections a) and b) of the RJAT and articles 6.º and 7.º of the Ethics Code.

In accordance with the provision of subsection c) of paragraph 1 of article 11.º of the RJAT, the single arbitral tribunal was constituted on 29-03-2016.

Notified to present its position, the Respondent filed a petition in which it supports the legality of the challenged acts, thus arguing for the dismissal of the request filed by the Applicant.

By ruling of 05-05-2016 the meeting provided for in article 18.º of the RJAT was dispensed with, and the parties were granted a period to present successive written submissions, both parties having opted not to do so.

II. ON THE REQUEST FOR ARBITRAL PRONOUNCEMENT

The Applicant supports its request alleging that the assessments carried out are illegal due to violation of item 28.1 of the TGIS since the Tax Authority disregarded the quality of co-owner of the Applicant and the fact that the share held by it, in each of the properties at issue, has a value below the minimum threshold of incidence, namely €1,000,000.

In the view of the Applicant, in situations of co-ownership, for purposes of determining subjection to item 28 of the TGIS, the minimum threshold referred to therein should be assessed, specifically, according to the share of the right of the co-owner (and not solely and only based on the tax property value of the property) because it is through this that the increased tax capacity that the legislator intended to target when instituting this tax will be revealed. To that extent, regardless of the tax property value of the property, there will only be taxation in relation to co-owners whose share has a value exceeding €1,000,000.

This is the interpretation and application of item 28.1 of the TGIS that allows full compliance with the constitutional principles of equality and tax capacity, since, "In truth, the principle of equality imposes the so-called positive discrimination, i.e., it obliges to treat in an identical manner citizens/taxpayers who are in similar situations and to apply different treatment to those who find themselves in a substantially different situation" – see article 24.º of the initial petition.

Now, in situations of co-ownership of properties typified in item 28 of the TGIS, "the manifestation of increased tax capacity and which corresponds to the intention underlying the taxation, depends on the concrete share of the right of the co-owner, under penalty of manifest inequality of co-owners in relation to single owners" – see articles 26.º and 27.º of the initial petition.

"The tax capacity of the Applicant is equivalent to that of a sole owner of land for construction under the same conditions and with the same tax property value, which is why the Applicant cannot fail to be subject to taxation in the same manner, under penalty of violation of the principle of equality and tax capacity" – see article 23.º of the initial petition.

In the case at hand, since the contested assessments were not carried out based on a concrete assessment of the Applicant's share - which is below the minimum incidence threshold set by the legislator at €1,000,000 - they will be illegal for being based on an interpretation of item 28.1 of the TGIS that is unconstitutional.

For this same reason, the ruling on partial approval of the administrative complaint filed against such assessment acts is also illegal.

III. THE RESPONDENT'S ANSWER

In the answer presented, as a preliminary matter, the Respondent requests the correction of the economic value of the request, which should be reduced to €14,589.28, since the administrative complaint filed by the Applicant was partially approved. To that extent, the tax assessed based on the tax property value corresponding to the area allocated to services was annulled, as illegal, and the contested assessment acts were maintained only for the remaining value, referring to the area allocated to housing.

With regard to the specific allegations of the Applicant, the Respondent argues for the constitutional conformity of the interpretation and application of item 28 of the TGIS made at the time of the assessment of the contested tax, with the consequent dismissal of the request filed by the Applicant.

In the view of the Respondent, "the fact that the legislator establishes a value 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 of the legislator as to the determination of the material scope of the 'luxury residential properties' that it is intended to tax more heavily, especially since any other value of analogous magnitude would, in the same way, assume an artificial character that is inherent to any quantitative fixing of a level or limit" (see point 32 of the Answer).

If the allocation of the property and its respective function are different, the situation can and should be treated differently as the principle of equality itself demands. In this way, if there is sufficient material justification for the differentiated treatment, the principle of equality is respected, in the same way that the principle of tax capacity is respected, and even the principle of protection of legitimate expectations.

To that extent, the Applicant's request should be dismissed, and the contested assessments should be maintained.

IV. PROCEDURAL SANITATION

The Arbitral Tribunal was regularly constituted and is competent.

The parties have legal personality and capacity and are properly party to the proceedings (articles 4.º and 10.º, paragraph 2, of the same Act and article 1.º of Order no. 112-A/2011, of 22 March).

The proceedings do not suffer from any procedural defects and no obstacle arises to the examination of the merits of the case.

V. FACTUAL MATTERS

A. Proven Facts

The following facts are considered proven:

  1. The Applicant is a co-owner of half of the urban property situated at …, of the union of parishes of … and …, municipality of Aveiro, registered in the matrix of urban property of the said parish under article…, with tax property value of €1,870,420.00.

  2. The property is described in the matrix as "land for construction".

  3. The assessment carried out by the Tax Authority took into account two types of allocation, having assigned to the area allocated to housing the value of €1,453,480.64, and to the area allocated to services the value of €416,938.93.

  4. The Applicant is a co-owner of half of the urban property situated at …, of the union of parishes of … and …, municipality of Aveiro, registered in the matrix of urban property of the said parish under article…, with tax property value of €1,870,420.00.

  5. The property is described in the matrix as "land for construction".

  6. The assessment carried out by the Tax Authority took into account two types of allocation, having assigned to the area allocated to housing the value of €1,453,480.64, and to the area allocated to services the value of €416,938.93.

  7. On 20-03-2015 the Tax Authority proceeded to assess Stamp Tax under item 28.1 of the TGIS for the year 2014, with reference to the properties indicated (on the share held by the Applicant), in a total of €18,704.20, corresponding to €9,352.10 per property.

  8. The Applicant filed an administrative complaint against the Stamp Tax assessments referred to.

  9. By ruling of 21-10-2015, of the Financial Directorate of …, the administrative complaint filed was partially approved, having been reduced the amount of tax due, per property, from €9,352.10 to €7,267.40, thus corresponding to a total of €14,453.80.

B. Unproven Facts

No other facts with relevance to the arbitral decision were proven.

C. Justification of Factual Matters

The factual matters given as proven are based on documentary evidence presented and not contested.

VI. LEGAL MATTERS

A) On the value of the request for arbitral pronouncement

In March 2015, the Respondent proceeded to assess Stamp Tax under item 28 of the TGIS, for the year 2014, in the name of the Applicant, with regard to the two properties identified in points 1 and 4 of the Proven Facts, in the individual value of €9,352.10 (in a total of €18,704.20).

The tax had been calculated on the basis of the tax property value of each property (€1,870,420.00), and the Applicant's share corresponds to the value of €935,210.00.

Under the administrative complaint procedure, the Respondent approved the request for annulment of the assessments in respect of the tax set on the basis of the tax property value corresponding to the area allocated to services, whereby it reduced the basis of incidence to €1,453,480.64, per property, corresponding to half of the Applicant to €726,740.32. After the reduction of the basis of incidence, the tax due by the Applicant and not annulled under the administrative complaint procedure, in the proportion of its respective share of each property, amounts to €7,267.40, per property.

In light of the foregoing, and considering that part of the Applicant's request was already approved under the administrative complaint procedure, the economic value of the present request should be reduced to the total amount of assessments not annulled: €14,534.80.

B) On the request for declaration of illegality

The question at issue in the present proceedings is, thus, whether the incidence of item 28.1 of the TGIS is delimited only by the tax property value of the property or whether, in situations of co-ownership, the basis of incidence should be fixed according to the tax property value of the share that each co-owner holds in that same property, under penalty of unconstitutionality thereof due to violation of the principles of equality and tax capacity.

If the second interpretation were to prevail, the tax acts contested by the Applicant would be illegal and should, consequently, be annulled with the other legal effects.

At the time of the facts, item 28.1 of the TGIS had the following wording:

"28. Ownership, usufruct or right of surface of urban properties whose tax property value as shown in the matrix, under the terms of the Code on Municipal Tax on Real Estate (CIMI), is equal to or exceeding (euro) 1,000,000 - on the tax property value used for the purposes of IMI:

28.1 For residential property or for land for construction whose construction, authorized or foreseen, is for housing, in accordance with the provision of the IMI Code: 1%

28.2 For property, when the taxpayers that are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, as shown in the list approved by order of the Minister of Finance: 7.5%."

Under paragraph 4 of article 3.º of the Stamp Tax Code, in conjunction with article 8.º of the IMI Code, the taxpayers of the tax shall be the owners, usufructuaries or surface rights holders of properties that meet the objective conditions described in the said item 28.1 of the TGIS, that is, of properties built with residential allocation or of land for construction whose authorized or foreseen construction is intended for housing, provided that they have tax property value exceeding €1,000,000.

In terms of objective incidence, the delimitation is, thus, made according to a certain allocation of the property and its respective tax property value registered in the matrix and used for purposes of IMI.

Now, it follows from article 82.º of the IMI Code – applicable by reference from paragraph 2 of article 67.º of the Stamp Tax Code - that co-ownership does not imply any decomposition of the tax property value of the property, which remains, thus, single, without any individualization per co-owner. In these situations, the law determines only that the matrix include the identity of all co-owners and the respective fraction of the tax property value, as can be verified in the present case (according to matrix records attached by the Applicant).

This form of registration in the matrix does not alter in any way the tax property value or the tax classification of the property, having no impact on collection procedures. The tax will, thus, be assessed in the name of each co-owner, in the proportion of their respective share.

In light of the foregoing, this tribunal would be led to conclude that if the tax property value as per IMI – one of the essential elements for determining subjection to item 28.1 of the TGIS – does not undergo any alteration, whether in sole ownership or in co-ownership, then, for purposes of incidence of this tax, it would not be necessary, in situations of co-ownership, to assess, in concrete terms, whether the share of each co-owner exceeds or not the said minimum subjection threshold of €1,000,000. If, in practice, the situation of co-ownership does not alter or affect the tax classification and the tax property value of the property for purposes of IMI, then there would be no reason to attribute any legal-tax relevance to the fact that, in the concrete case, the property is held by the Applicant in co-ownership.

In a literal interpretation of item 28.1 of the TGIS, the tax will, thus, incide on the urban properties typified therein with tax property value exceeding €1,000,000, regardless of whether, in cases of co-ownership, the share corresponding to the concrete co-owner may be below the said minimum threshold, as is the case at hand. The share of each co-owner will only be relevant to determine, in concrete terms, the payment obligation of each co-owner (such as is the case under IMI), given that subjection to item 28.1 of the TGIS will have already been fixed according to the total tax property value of the property.

This is the understanding of the Respondent and was the interpretation upheld in the arbitral decision of 11 July 2014, handed down in proc. no. 4/2014-T.

This interpretation was subsequently questioned by the arbitral decision of 17 November 2014, handed down in proc. 259/2014-T, in which the single arbitrator in charge of the proceedings considered that "It is clear from the foregoing that a merely literal interpretation of the rule would not be constitutionally acceptable, thus requiring an interpretation in conformity with the Constitution, so as to accommodate in the realization of the new item 28.1 of the TGIS the full compliance with the principles of equality and tax capacity, to which the tax legislator is bound. (...) In this case the increased tax capacity envisaged by the legislator corresponds to the holding of real estate property, intended for housing, of particularly high value. Now, the co-owner does not hold, or does not necessarily hold, real estate property intended for housing of particularly high value, whenever it is a co-owner of a property intended for housing with TPV equal to or exceeding one million euros. It is sufficient, as has been seen, that his share in that right is such that the tax property value that proportionally corresponds to his right does not reach this minimum threshold of tax relevance, of minimum manifestation of an increased tax capacity, as foreseen by the legislator". Whereby it concluded, in the concrete case, that the contested tax acts were illegal since the share of the co-owner applicant therein had a tax property value below €1,000,000.

In the face of these two contrary positions, this tribunal decides to follow the argumentation of the Applicant as validated in the said arbitral decision handed down in proc. 259/2014-T.

In fact, with the introduction of item 28 of the TGIS, the legislator negatively discriminated against owners of so-called luxury goods and who, by virtue of the holding of residential properties of value equal to or exceeding €1,000,000, revealed an increased tax capacity that justified a higher contribution to the effort of fiscal consolidation. The additional effort required had, thus, as its measure, the own and individual tax capacity revealed by the ownership of properties considered luxury by having tax property value exceeding €1,000,000.

Now, at this point, the own tax capacity of each taxpayer should be assessed according to the value of their respective individual property. This means that, in situations of co-ownership, account must be taken of the share of the asset of which one is a holder, it being evident that it is not the same thing to be the sole owner of a property with tax property value exceeding €1,000,000 or to be a co-owner of that same property. The tax capacities revealed in the two situations are necessarily different, stemming, moreover, from the very legal and economic differences that govern the respective ownership right over the asset.

The co-owner of half of a residential property with tax property value exceeding €1,000,000 does not reveal the same tax capacity (not even in proportional terms) for purposes of subjection to tax as the sole owner of that same residential property.

The difference in the situations is, for this tribunal, evident, and should, therefore, be considered and taken into account in the interpretation and application of item 28 of the TGIS.

In the view of this tribunal, the Applicant, in its quality as a co-owner, reveals an individual tax capacity below the minimum taxation threshold set by law and equivalent to that of any sole owner of property with tax property value equal to that of the share held by it. Thus, subjecting the Applicant to a tax to which the said sole owner would not be subject is, in the eyes of this tribunal, a flagrant violation of the principle of equality and tax capacity, and was certainly not the intention of the legislator.

As José Casalta Nabais refers[1], "(…) the principle of equality of taxation, based on the principle of tax capacity, tells us that persons are taxed in accordance with their respective tax capacity, which means, on the one hand, that those persons who do not have this capacity will be excluded from the field of incidence of taxes and, on the other hand, that faced with holders of tax capacity, taxpayers with the same capacity will pay the same tax(es) (horizontal equality) and taxpayers with different capacities will pay different taxes, either in qualitative or quantitative terms (vertical equality)."

This tribunal therefore understands that a strict and literal interpretation of item 28.1 of the TGIS will lead to constitutionally inadmissible results, thus requiring an interpretation in conformity with the constitutional text, in light of the said principles, as argued by the Applicant.

Thus, it is concluded that, for purposes of determining the scope of incidence of item 28.1 of the TGIS, account must be taken not only of the tax property value of the property, but also of the concrete proportion of the right of its co-owners. Otherwise, and as mentioned above, we would have a manifest inequality of co-owners vis-à-vis sole owners of properties with value equivalent to the value of the share of co-owners, if this were below the minimum subjection threshold referred to.

Thus, as in the case at hand, if the tax property value of the co-owner's share is below the minimum incidence threshold of €1,000,000, there will be no subjection to item 28 of the TGIS, even if the total tax property value of the property in question is above that threshold.

It remains, thus, to conclude the illegality of the challenged acts which should, therefore, be annulled, with the other legal consequences, as requested by the Applicant.

VII. DECISION

In accordance with the foregoing, this Arbitral Tribunal decides to judge the request filed by the Applicant as well-founded and, consequently, to declare illegal, for violation of item 28.1 of the TGIS, the ruling on partial approval of the administrative complaint and the assessment acts for Stamp Tax for the year 2014, with reference to the properties above identified, with the consequent refund to the Applicant of the amounts it may have eventually paid.

Value of the proceedings: In accordance with the provision of article 306.º, paragraph 2, of the CPC and 97.º-A, paragraph 1, subsection a), of the CPPT and 3.º, paragraph 2, of the Rules on Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at €14,534.80, corresponding to the total value of the contested assessments.

Costs: In accordance with paragraph 4 of article 22.º of the RJAT, the amount of costs is fixed at €918.00, in accordance with Table I attached to the Rules on Costs in Tax Arbitration Proceedings, charged to the Respondent.

Let this arbitral decision be recorded and notified to the parties.

Lisbon, 27-06-2016

The Single Arbitrator

(Maria Forte Vaz)

[1] The Fundamental Duty to Pay Taxes, Almedina, 2004, p. 443.

Frequently Asked Questions

Automatically Created

Does the €1,000,000 threshold under Verba 28.1 of the Stamp Tax General Table apply to the full property value or each co-owner's share?
Based on this arbitration case, there are two competing interpretations: The taxpayer argues the €1,000,000 threshold under Verba 28.1 TGIS should apply to each co-owner's individual share, meaning a co-owner holding 50% of property valued at €1,870,420 (share worth €935,210) should not be taxed as their portion is below the threshold. The Tax Authority maintains the threshold applies to the total property value, regardless of ownership structure. The taxpayer's position is grounded in constitutional principles of equality and tax capacity, arguing co-owners must be treated like sole owners with equivalent values. The Tax Authority defends this as a legitimate legislative choice for defining taxable luxury properties. The case was submitted to CAAD arbitration precisely to resolve this interpretative conflict.
How is Stamp Tax (Imposto do Selo) calculated on co-owned urban properties classified as building land in Portugal?
Stamp Tax on co-owned urban building land under Verba 28.1 TGIS is calculated based on the taxable property value (valor patrimonial tributário - VPT). According to the Tax Authority's interpretation in this case, the tax applies when the total property VPT exceeds €1,000,000, with each co-owner being assessed their proportional share of the tax liability. In this case, property valued at €1,870,420 triggered taxation, with each 50% co-owner assessed on their ownership percentage. However, this methodology is disputed - the taxpayer argues taxation should only occur when an individual co-owner's share value exceeds €1,000,000. Additionally, the case shows that different property uses (residential versus services/commercial) are treated separately, as the Tax Authority partially approved the complaint by canceling tax on the services-allocated portion.
Can a co-owner challenge Stamp Tax assessments through tax arbitration (CAAD) when their share is below the taxable threshold?
Yes, a co-owner can challenge Stamp Tax assessments through tax arbitration at CAAD (Centro de Arbitragem Administrativa) when their ownership share is below the €1,000,000 threshold, as demonstrated in this case. The challenge is filed under Article 2 and Article 10 of the RJAT (Decree-Law 10/2011) in conjunction with Article 99(a) of the Tax Procedure Code (CPPT). The taxpayer requests a single arbitrator tribunal to declare the illegality of both the assessment acts and the ruling on their administrative complaint. The arbitration process allows taxpayers to contest the Tax Authority's interpretation of tax law, including constitutional challenges based on equality and tax capacity principles. The CAAD accepted this case on procedural grounds, with the tribunal constituted on March 29, 2016, demonstrating that disputes over threshold application methodology are admissible in tax arbitration.
What is the legal basis for filing a tax arbitration claim under Decree-Law 10/2011 (RJAT) against Stamp Tax assessments?
The legal basis for filing tax arbitration against Stamp Tax assessments is established in Decree-Law 10/2011 (RJAT - Regime Jurídico da Arbitragem em Matéria Tributária). Specifically, Article 2 and Article 10 of RJAT provide the framework for requesting constitution of an arbitral tribunal, in conjunction with Article 99(a) of the Tax Procedure Code (CPPT). The taxpayer must file a written request with CAAD, which in this case was accepted by the President on January 15, 2016. The process involves: (1) filing the arbitration request challenging the assessment acts and/or administrative complaint decisions; (2) appointment of an arbitrator by the Ethics Council under Article 6(2)(a) and Article 11(1)(b) of RJAT; (3) notification to parties who can refuse the appointment under Articles 6 and 7 of the Ethics Code; (4) tribunal constitution; and (5) the Tax Authority presenting its defense. This framework provides an alternative dispute resolution mechanism to judicial courts for tax matters.
How does the Portuguese Tax Authority treat co-ownership when applying Verba 28.1 of the Stamp Tax General Table to building plots?
The Portuguese Tax Authority treats co-ownership under Verba 28.1 TGIS by applying the €1,000,000 threshold to the total property value rather than to each co-owner's individual share. When building land (terrenos para construção) has a taxable property value exceeding €1,000,000, the Tax Authority assesses Stamp Tax proportionally to each co-owner's ownership percentage, regardless of whether their individual share value falls below the threshold. In this case, with total property value of €1,870,420, each 50% co-owner was taxed on their portion even though individual shares (€935,210 each) were below €1,000,000. The Tax Authority justifies this interpretation as a legitimate legislative choice for identifying luxury properties subject to heavier taxation. However, it does distinguish between different property uses - the partial approval of the administrative complaint shows the Tax Authority canceled tax on portions allocated to services while maintaining tax on residential-allocated areas, indicating functional differentiation within the same property is recognized.