Process: 134/2016-T

Date: October 20, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Process 134/2016-T addresses whether Stamp Tax under item 28.1 TGIS applies to urban properties in full vertical ownership (propriedade vertical total) with independent divisions not constituted under horizontal property regime. Four co-owners challenged the Tax Authority's collection of 1% Stamp Tax on their Lisbon building comprising 10 independent residential divisions. The Tax Authority summed all divisional patrimonial values (totaling €1,284,960) to calculate the tax, despite no individual division exceeding the €1,000,000 threshold. Claimants argued that vertical property divisions should receive the same tax treatment as horizontal property autonomous fractions under CIMI, with tax incidence determined individually per division rather than collectively. The Tax Authority contended that only horizontal property fractions qualify as separate properties under Article 2(4) CIMI, while vertical property constitutes a single legal-tax reality requiring aggregate valuation. The arbitral tribunal examined whether Portuguese tax law distinguishes between horizontal and vertical property regimes for Stamp Tax purposes, and whether independent divisions registered separately in the property matrix warrant individual tax assessment. The case involves tacit rejection of a gracious complaint and claims for restitution of unduly collected amounts plus compensatory interest.

Full Decision

CAAD: Tax Arbitration

Process No.: 134/2016-T

Subject: Corporate Income Tax - divisions of urban property in full property regime.

Arbitral Decision

I – REPORT

Claim

A…, taxpayer No…, resident at Rua …, No…, …, …, B…, taxpayer No…, resident at Rua…, No…, …, …, C…, taxpayer No…, resident at Rua…, No…, …, …, and D…, taxpayer No…, resident at Rua…, No…, …, …, represented by C…, hereinafter referred to as Claimants, submitted, on 07-03-2016, pursuant to the provisions of paragraph a) of No. 1 of Article 2 and Article 10 of Decree-Law No. 10/2011, of 20 January, which approves the Legal Regime of Arbitration in Tax Matters (RJAT), a request for an arbitral ruling, in which the Respondent is the AT - Tax and Customs Authority, with a view to:

- The declaration of illegality and annulment of the act of tacit rejection of the gracious complaint for ex officio revision submitted on 10-08-2015, and consequent annulment of the acts of collection of Stamp Tax, carried out under item 28.1 of the General Table of Stamp Tax (TGIS), relating to divisions with independent use and residential allocation of the urban property located at Av. … Nos. … to … in Lisbon, registered in the property register with No…, of the parish …, Lisbon;

- The restitution of the amounts unduly collected plus the corresponding compensatory interest.

The Claimants allege, essentially and with relevance to the decision of the case, the following:

- The urban property located at Av. … Nos. … to … in Lisbon, registered in the property register with No…, of the parish …, Lisbon is in a co-ownership regime, the Claimants being co-owners;

- The property, not constituted in horizontal property regime during the tax period in question, comprises 10 storeys and divisions with independent use, with residential allocation, whose tax patrimonial value was determined separately;

- Each of the storeys and independent divisions has a tax patrimonial value between 121,490.00 euros and 130,280.00 euros, with the sum of the tax patrimonial values of all storeys and divisions being 1,284,960.00 euros;

- The AT - Tax and Customs Authority collected stamp tax on the tax patrimonial values of the storeys or parts susceptible to independent use at the rate of 1% by application of the provisions of item 28.1 of the General Table of Stamp Tax (TGIS) for the year 2014;

- Such acts are vitiated by violation of law, as the tax legislator gives no relevance to the fact that a property is constituted in a horizontal property regime or not, and there is nothing in the law that allows one to conclude that the tax patrimonial value of property in full property regime is obtained by the sum of those attributed separately to the parts that constitute it;

- Having the Claimants filed a gracious complaint against these collection acts on 10.8.2015, they have not received an answer up to the moment of presentation of the request for arbitral ruling;

- The Claimants understand that the impugned collections are illegal due to an error in the legal prerequisites, as for the purposes of determining the incidence, the sum of the tax patrimonial values of the divisions should not be considered but rather the tax patrimonial value of each division;

- Because if the registration in the property matrix of properties in vertical property, constituted by parts susceptible to independent use, in accordance with the CIMI, follows the same registration rules as properties in horizontal property regime, with their respective IMI; as well as the new Stamp Tax, being collected individually in relation to each of the parts, leaves no doubt that the legal criterion to define the incidence of the new tax must be the same;

Response of the Respondent

In its Response, the Respondent alleges, briefly, the following:

- Although IMI is collected in relation to each part susceptible to independent use, for the purposes of Stamp Tax the property as a whole should be relevant since the divisions are not considered as properties, but only autonomous fractions in properties under a horizontal property regime;

- Article 2, No. 4 of the CIMI, when expressly referring to autonomous fractions determining that they be treated as properties, reaffirms the importance recognized to the horizontal property regime for tax purposes;

- The differentiated tax treatment of properties in vertical property and in horizontal property does not violate the constitutional principle of equality because the different valuation of a property in full property regime in relation to a property in horizontal property regime derives from the different legal effects inherent to these figures; since horizontal property determines the division of full property and the independence of fractions, whereas a property in full property regime constitutes a single legal-tax reality.

Subsequent Procedure

By order of 28 September 2016, after obtaining the consent of the Parties, the Tribunal determined the waiver of holding the meeting provided for in Article 18 of the RJAT, as well as a phase of final submissions.

II – SANITATION OF PROCEEDINGS

The singular Arbitral Tribunal was regularly constituted on 19-05-2016, the arbitrator having been designated by the Deontological Council of CAAD, with the respective legal and regulatory formalities duly complied with (Articles 11, No. 1, paragraphs a) and b) of the RJAT and 6 and 7 of the Deontological Code of CAAD).

The parties have legal personality and capacity, are legitimate and are regularly represented, pursuant to Articles 4 and 10 of the RJAT and Article 1 of Ordinance No. 112-A/2011, of 22 March.

The Claimant D…, interdicted, is regularly represented in court by C….

This Tribunal understands that we are dealing with four independent acts of stamp tax collection, with four distinct taxpayers, which could have been impugned separately, therefore we are facing a situation of coalition of plaintiffs, pursuant to Article 36 of the Code of Civil Procedure. This coalition is admissible, under Article 3, No. 1 of the RJAT and Article 36 of the Code of Civil Procedure, applicable by virtue of Article 29, No. 1, paragraph e) of the RJAT.

No procedural nullities were identified.

III – QUESTIONS TO BE DECIDED

The only question raised is that of the incidence of the tax of item 28.1 of the General Table of Stamp Tax on divisions of urban property in full property regime, with residential allocation and susceptible to independent use and as such considered in the tax property matrix.

IV – ESTABLISHED FACTS

The following are the established facts considered relevant for the decision:

- The Claimants were, at the date of the alleged tax facts, co-owners of the urban property located at Avenue …, Nos. … to …, in Lisbon, registered in the tax property matrix under Article … of the parish … –…, of Lisbon;

- The property is described in the tax property matrix as property in full property regime and composed by parts susceptible to independent use, all with residential allocation;

- The sum of the tax patrimonial values of all divisions with independent use amounts to a total of 1,284,960.00 euros;

- No part with dependent use has a tax patrimonial value equal to or greater than 1,000,000.00 euros;

- The AT - Tax and Customs Authority collected stamp tax on the tax patrimonial values of the storeys or parts susceptible to independent use, to each co-owner separately, at the rate of 1%, under the provisions of item 28.1 of the General Table of Stamp Tax (TGIS) for the year 2014;

- The summed value of the tax collected from each co-owner in all the impugned collections is 3,212.41 euros;

- The Claimants made partial payment of these amounts;

- On 10-8-2015, the Claimants filed a gracious complaint against the collection acts;

- The Claimants were not notified of a decision on the revision request up to the moment of presentation of the request for arbitral ruling.

V - REASONING

The substantive question that must be examined and decided is whether the tax of item 28.1 of the General Table of Stamp Tax incides on divisions of urban property in full property regime, with residential allocation susceptible to independent use and as such considered in the tax property matrix.

On this same question, the Supreme Administrative Court has already ruled several times, with established doctrine finding that, when dealing with a property constituted in vertical property regime, the objective incidence of Stamp Tax should be determined, not by the tax patrimonial value resulting from the sum of the tax patrimonial values of all divisions or storeys susceptible to independent use (individualized in the matrix article), but by the tax patrimonial value attributed to each of those storeys or divisions intended for housing.

The basis for this doctrine can be found in one of the first rulings that the Supreme Administrative Court issued on this matter, on 09-09-2015, in process No. 47/15. In this judgment, which we take as the basis for our decision in the present case, the SAC states:

"The concept of 'property (urban) with residential allocation' was not defined by the legislator. Neither in Law No. 55-A/2012, which introduced it, nor in the IMI Code, to which No. 2 of Article 67 of the Stamp Tax Code (likewise introduced by that Law) refers in a subsidiary capacity. And it is a concept that, probably due to its imprecision – a fact all the more serious given that it is in function of it that the scope of objective incidence of the new taxation is determined –, had a short life, as it was abandoned upon the entry into force of the State Budget Law for 2014 (Law No. 83-C/2013, of 31 December), which gave new wording to that item No. 28 of the General Table, and which now determines its scope of objective incidence through the use of concepts that are legally defined in Article 6 of the IMI Code.

Nothing unequivocal results from the letter of the law, indeed, as it itself, by using a concept that it did not define and which was also not defined in the statute to which it referred in a subsidiary capacity, unnecessarily lent itself to ambiguities, in a matter – of tax incidence – in which certainty and legal security should also be paramount concerns of the legislator."

And the Court continues:

"(…) The present subject matter is, already because of Article 67, No. 2 of the Stamp Tax Code, subject to the rules of the IMI Code, – 'to matters not regulated in the present code relating to item 28 of the General Table, the CIMI applies subsidiarily'.

As such, and as has been mentioned so many times, in the understanding of the present court, the mechanism for determining the tax patrimonial value relevant for the purposes of the aforementioned item is that which is established in the IMI Code.

Now, Article 12, No. 3 of the IMI Code establishes that 'each storey or part of a property susceptible to independent use is considered separately in the matrix registration, which also discriminates its respective tax patrimonial value'.

The legislator thus devaluing any prior constitution of horizontal or vertical property regime.

Indeed, for the legislator, what is relevant is the material truth underlying its existence as an urban property and its use.

It should be noted that the ATA itself seems to agree with the criterion set out, which is why the collections that the ATA itself issues are very clear in their essential elements, from which it results that the value of incidence is that corresponding to the tax patrimonial value of each of the storeys and the collections are individualized.

Therefore, if the legal criterion imposes the issuance of individualized collections for the autonomous parts of properties in vertical property regime, in the same manner as it establishes for properties in horizontal property regime, it has clearly established the criterion, which must be unique and unequivocal, for defining the rule of incidence of the new tax.

Thus, there would only be grounds for Stamp Tax incidence (within Item No. 28 of the TGIS) if any of the parts, storeys or divisions with independent use presented a tax patrimonial value exceeding € 1,000,000.00.

The ATA cannot consider as the reference value for the incidence of the new tax the total value of the property, when the legislator itself established a different rule in the context of IMI (and, as mentioned earlier, this is the code applicable to matters not regulated with regard to Item No. 28 of the TGIS).

In conclusion, the current legal regime does not impose the obligation to constitute a horizontal property regime, therefore the action of the ATA translates into an arbitrary and illegal discrimination.

In fact, the ATA cannot distinguish where the legislator itself chose not to do so, under penalty of violating the coherence of the tax system, as well as the principle of tax legality provided for in Article 103 of the Constitution of the Portuguese Republic, and also the principles of tax justice, equality and proportionality.

In the case in question, the property/properties in question were, at the relevant date of the facts, constituted in full property regime and had […] fractions with independent use, as results from the documents […].

Given that none of these fractions has a tax patrimonial value equal to or greater than € 1,000,000.00, as results from the documents attached to the case file, it is concluded that the legal prerequisite for incidence is not met."

We consider that the jurisprudence of the Supreme Administrative Court is based on correct grounds, therefore we understand that we must apply it to the case sub judice, without any modification.

In the context of Municipal Real Estate Tax (IMI), the legislator clearly established, in Article 12, No. 2 of the CIMI, that parts of property with independent use are evaluated separately, with such value being taken as the basis for tax collection.

In the context of Stamp Tax, Article 13, No. 1 of its respective code provides that "the value of real estate is the tax patrimonial value contained in the matrix in accordance with the CIMI".

Therefore, it seems clear that the legislator intended that the tax patrimonial value of parts with independent use be considered for the purposes of delimiting the objective incidence of the tax.

The AT - Tax and Customs Authority appears to conform its action with this understanding, by issuing acts of Stamp Tax collection individualized in relation to each part with independent use.

Furthermore, in accordance with Article 9, No. 1 of the Civil Code, interpretation should not be limited to the letter of the law, but should reconstruct from the texts the legislative intent, taking especially into account the unity of the legal system, the circumstances in which the law was drafted and the specific conditions of the time in which it is applied. Now, the subjective element of interpretation, to be drawn from the historical elements that are well known in this matter, and which are partially reproduced in the SAC judgment cited, clearly indicates the legislator's intention to subject to taxation residential units ("residential dwellings") of high value. Residential units are the parts susceptible to independent use and not the property as a whole.

In accordance with all the interpretative elements mentioned, it should be considered that, when dealing with a property in full property regime formed by parts susceptible to independent use, there is only grounds for stamp tax incidence (within Item No. 28 of the TGIS) if any of the parts, storeys or divisions with independent use presents a tax patrimonial value equal to or greater than 1,000,000.00 euros.

For all the foregoing, it must be concluded that the impugned stamp tax collections are illegal, by violation of tax law, by inciding on independent parts of properties in full property regime but taking as their basis the tax patrimonial value of the sum of such parts and when none of these parts has a tax patrimonial value equal to or greater than 1,000,000.00 euros.

VII - DECISION

For the reasons set out, it is decided:

1. To declare the illegality and annul the silent act impugned, of tacit rejection of the gracious complaint filed by the Claimants against the collections of Stamp Tax on the divisions with residential allocation of the urban property located at Avenue …, Nos. … to …, in Lisbon, registered in the tax property matrix under Article … of the parish … –…, of Lisbon;

2. To declare the illegality and annul the collections of Stamp Tax, for the year 2014, relating to the ten parts with independent use of the urban property located at Avenue …, Nos. … to …, in Lisbon, registered in the tax property matrix under Article … of the parish … –…, of Lisbon, in which D… appears as the taxpayer;

3. To declare the illegality and annul the collections of Stamp Tax, for the year 2014, relating to the ten parts with independent use of the urban property located at Avenue …, Nos. … to …, in Lisbon, registered in the tax property matrix under Article … of the parish … –…, of Lisbon, in which C… appears as the taxpayer;

4. To declare the illegality and annul the collections of Stamp Tax, for the year 2014, relating to the ten parts with independent use of the urban property located at Avenue …, Nos. … to …, in Lisbon, registered in the tax property matrix under Article … of the parish … –…, of Lisbon, in which A… appears as the taxpayer;

5. To declare the illegality and annul the collections of Stamp Tax, for the year 2014, relating to the ten parts with independent use of the urban property located at Avenue …, Nos. … to …, in Lisbon, registered in the tax property matrix under Article … of the parish … –…, of Lisbon, in which B… appears as the taxpayer;

6. To order the Respondent AT – Tax and Customs Authority to refund to the four taxpayers D…, C…, A… and B… the unduly paid tax, plus the respective compensatory interest, in accordance with Article 43 of the General Tax Law.

Value of the economic utility of the case: The value of the economic utility of the case is set at 19,455.40 euros.

Costs: Pursuant to Article 22, No. 4, of the RJAT, the amount of costs is set at 1,224.00 euros, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Respondent.

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

Lisbon, Administrative Arbitration Centre, 20 October 2016

The Arbitrator

(Nina Aguiar)

Frequently Asked Questions

Automatically Created

Is Stamp Tax (Imposto do Selo) under verba 28.1 TGIS applicable to individual divisions of a building not constituted in horizontal property?
Under Portuguese tax law, the application of Stamp Tax under item 28.1 TGIS to divisions not constituted in horizontal property depends on whether the property is treated as a single legal-tax unit or separate taxable units. The Tax Authority maintains that only autonomous fractions in horizontal property regime (propriedade horizontal) qualify as independent properties under Article 2(4) CIMI, while buildings in full vertical ownership constitute a single taxable reality requiring aggregate valuation of all divisions for Stamp Tax purposes, even when divisions have independent use and separate patrimonial values in the property matrix.
How is the taxable patrimonial value determined for urban properties in total vertical ownership under Portuguese Stamp Tax law?
For urban properties in total vertical ownership, the Tax Authority determines taxable patrimonial value by summing the individual tax patrimonial values assigned to all divisions with independent use registered in the property matrix. In CAAD Process 134/2016-T, although each of the 10 residential divisions had values between €121,490-€130,280 (none exceeding €1,000,000 individually), the Authority aggregated them to €1,284,960 for applying the 1% Stamp Tax rate. Claimants contested this methodology, arguing that divisions in vertical property should be valued individually like horizontal property fractions, with tax incidence based on each division's separate patrimonial value rather than the collective sum.
Can taxpayers challenge Stamp Tax assessments on independent housing divisions through CAAD tax arbitration?
Yes, co-owners can challenge Stamp Tax assessments on independent housing divisions through CAAD tax arbitration under Article 2(1)(a) and Article 10 of Decree-Law 10/2011 (RJAT). Process 134/2016-T demonstrates this remedy, where four co-owners jointly challenged the Tax Authority's collection acts after tacit rejection of their gracious complaint. The arbitral tribunal confirmed coalition of plaintiffs is admissible under Article 3(1) RJAT and Article 36 CPC for independent collection acts affecting multiple taxpayers. Claimants sought declaration of illegality, annulment of collection acts, and restitution of unduly collected amounts plus compensatory interest.
Does Portuguese tax law distinguish between horizontal and vertical property regimes for Stamp Tax purposes under verba 28.1 TGIS?
Portuguese tax law's distinction between horizontal and vertical property regimes for Stamp Tax purposes under item 28.1 TGIS is disputed. The Tax Authority argues that Article 2(4) CIMI explicitly recognizes only autonomous fractions in horizontal property (propriedade horizontal) as independent properties for tax purposes, giving this regime special legal significance. Conversely, properties in full vertical ownership lack this statutory recognition and constitute a single legal-tax reality despite having divisions with independent use. Taxpayers contend this differential treatment violates equality principles since both regimes involve independent divisions registered separately in the property matrix with individual patrimonial values and IMI assessments.
What remedies are available to co-owners for refund of unlawfully charged Stamp Tax including compensatory interest?
Co-owners who successfully challenge unlawful Stamp Tax collection acts are entitled to restitution of unduly paid amounts plus compensatory interest (juros indemnizatórios) calculated from the payment date until reimbursement. This remedy follows from general tax procedure principles requiring reversal of illegal taxation. The arbitral request must specifically demand both restitution and interest. In Process 134/2016-T, claimants sought annulment of collection acts based on verba 28.1 TGIS, arguing error in legal prerequisites regarding property valuation methodology, plus full restitution with compensatory interest for the €3,212.41 collected across all co-owners. The remedy depends on proving the Tax Authority incorrectly applied the law by aggregating divisional values rather than assessing each division independently.