Process: 160/2014-T

Date: September 15, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitration decision (Process 160/2014-T) addresses the application of Verba 28.1 of the Portuguese General Stamp Tax Table (TGIS), introduced by Law 55-A/2012, which imposed Stamp Tax on properties with patrimonial values equal to or exceeding €1,000,000. The claimant, owner of a building in full vertical ownership comprising 9 floors and 18 independent units with a total registered value of €1,385,630, challenged the 2012 Stamp Tax assessments issued by the Tax Authority. The core dispute centered on whether properties held in vertical ownership with multiple independent units should be taxed as a single property or as separate units for Stamp Tax purposes. The claimant argued that the law intended to target luxury homes with high individual values, not multi-unit buildings where individual units had lower values. He contended that each independent unit should be assessed separately, as occurs with Municipal Property Tax under MPTC Article 12(3). The Tax Authority countered that under full ownership, the property must be treated as a unitary whole, not as separate autonomous units, and that the law requires literal interpretation without analogical application of horizontal property rules. The Authority calculated the taxable value at €1,323,920 by summing individual unit values (excluding basements). The case was brought before the Administrative Arbitration Center (CAAD) following proper procedural steps, including timely filing after payment under protest in December 2013. The arbitral tribunal, constituted in April 2014 under Decree-Law 10/2011, found itself materially competent to decide the matter. This case highlights critical interpretative questions regarding the scope of Verba 28.1 TGIS and whether its application to vertically-owned multi-unit properties aligns with the legislator's apparent intent to tax high-value single residences.

Full Decision

ARBITRATION DECISION[1]

  1. Report

A - General

1.1. ..., widower, resident at Rua..., in Lisbon, taxpayer number ... (hereinafter referred to as "Claimant"), filed, on 21.02.2014, a request for constitution of a single arbitration tribunal in tax matters, which was accepted, seeking the declaration of illegality of the tax acts assessing Stamp Tax for the year 2012 with the date of 14.07.2013, relating to item 28.1 of the General Table of Stamp Tax (hereinafter "GTST"), relating to a property of which he is the owner, as will be better seen below.

1.2. Pursuant to the provisions of subparagraph a) of paragraph 2 of article 6 and subparagraph b) of paragraph 1 of article 11 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council of the Administrative Arbitration Center (CAAD) appointed as arbitrator Nuno Pombo, and the parties, after being duly notified, raised no objection to this appointment.

1.3. By order dated 28.02.2014, the Tax and Customs Authority (hereinafter referred to as "Respondent") proceeded to appoint the Ladies ... to intervene in the present arbitration proceedings, in the name and representation of the Respondent.

1.4. In accordance with the provisions of subparagraph c) of paragraph 1 of article 11 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the arbitration tribunal was constituted on 29.04.2014.

1.5. On 02.05.2014, the senior head of the Respondent's service was notified to, if so desired, within the period of 30 days, submit a reply and request the production of additional evidence.

1.6. On 02.06.2014, the Respondent submitted its reply.

B – Position of the Claimant

1.7. The Claimant is the owner of a property (hereinafter referred to as "Property") in full or vertical ownership, located at Av. ..., municipality of ..., with property record number ..., of the Union of the civil parishes of ..., ... and ..., with 9 (nine) floors and 18 (eighteen) units with independent use, with a total patrimonial value of € 1,385,630.00 (one million three hundred and eighty-five thousand six hundred and thirty euros), to which corresponds the property register that the Claimant annexes to its request as document no. 1, the content of which is deemed to be reproduced.

1.8. The Claimant was notified of the Stamp Tax assessments (hereinafter referred to as "ST") which are referred to in article 11 of the request for arbitration decision (attached as documents nos. 2 to 17 of said request, the content of which is deemed to be reproduced), which were based on article 1 of the Stamp Tax Code (hereinafter "STC"), on item 28.1 of the GTST, added by article 4 of Law no. 55-A/2012, of 29 October, and on sub-subparagraph i) of subparagraph f) of paragraph 1 of article 6 of the same Law, whose payment deadline refers to the end of December 2013.

1.9. The Claimant on 20.12.2013 proceeded to payment of the tax required under the terms of said assessments, as evidenced by the documents attached to the request for arbitration decision with numbers 18 to 33, the content of which is deemed to be reproduced.

1.10. The Claimant bases its request on the circumstance that it does not result from the law the correspondence between the tax patrimonial value (hereinafter referred to as "TPV") of a property composed of several independent units to the sum of the TPV of the floors or units capable of independent use, particularly since, pursuant to paragraph 3 of article 12 of the Municipal Property Tax Code (MPTC), "each floor or part of property capable of independent use is considered separately in the property record registration, which also identifies the respective tax patrimonial value", and the respective Municipal Property Tax (MPT) is assessed individually in relation to each of these parts.

1.11. The Respondent, however, to determine the TPV of the Property in full or vertical ownership, proceeded to the arithmetical sum of the TPV of each of its parts capable of independent use, with the exception of the basements, thus determining a "patrimonial value of the property – total subject to tax" of € 1,323,920.00 (one million three hundred and twenty-three thousand nine hundred and twenty euros).

1.12. The Claimant also notes that "the legislator, when introducing this legislative innovation, clearly sought to tax 'luxury homes', with patrimonial value equal to or greater than € 1,000,000.00", by understanding "that this value, when attributed to a home (house, autonomous unit or floor with independent use) reflects an above-average contributive capacity", which is not the case with the Property.

C – Position of the Respondent

1.13. The Respondent, in its reply, manifests the understanding that the situation of the Property literally falls within the scope of the item in question, adding that in properties under the full ownership regime there are no autonomous units to which the tax law can attribute the qualification of property, and the Claimant is, consequently, the owner of a single property considered unitarily, and not of each of the parts or units capable of independent use of which it is composed.

1.14. The Respondent further contends that it is precluded from applying, by analogy, to the full ownership regime the regime established for horizontal ownership, considering that any interpretation different from the one assumed in said assessments is abusive and illegal and would violate "the letter and spirit of item 28.1 of the General Table and the principle of legality of the essential elements of the tax provided for in article 103, paragraph 2, of the Constitution of the Portuguese Republic", since "it is incumbent upon the law – Law of the Assembly of the Republic and authorized Decree-Law – to establish the essential elements of the incidence of taxes".

D – Conclusion of the Report

1.15. On 26.06.2014, the arbitrator issued an order by which he considered the conditions to be met for the pronouncement of the decision, thus making unnecessary both the hearing provided for in article 18 of the Legal Regime of Arbitration in Tax Matters (LRATM) and the examination of the witnesses listed by the Claimant, a step that the Respondent had already considered unnecessary. As neither of the parties objected within the period granted to them, the arbitrator, by order dated 17.07.2014, scheduled the pronouncement of the decision for 15.09.2014.

1.16. The arbitration tribunal is materially competent, pursuant to the provisions of articles 2, paragraph 1, subparagraph a) of the LRATM.

1.17. The parties enjoy legal personality and capacity and have standing pursuant to article 4 and paragraph 2 of article 10 of the LRATM, and article 1 of Ordinance no. 112-A/2011, of 22 March.

1.18. The cumulation of claims made in the present request for arbitration decision, in homage to the principle of procedural economy, is justified since the contested assessment acts are based on the same factual basis and call for the application of the same rules of law.

1.19. The proceedings are not vitiated by any nullity, nor have the parties raised any exceptions that prevent the examination of the merits of the case, whereby the conditions are met for the pronouncement of the arbitration decision.

  1. Factual Matters

2.1. Proven Facts

2.1.1. The Claimant is the sole owner of the Property (doc. no. 1, attached with the request for arbitration decision).

2.1.2. The Property is constituted in full or vertical ownership, with floors or units capable of independent use (doc. no. 1, attached with the request for arbitration decision).

2.1.3. The Property has two floors or units not designated for residential use, namely the two basements, one registered as warehouses and for industrial activity and the other for parking (doc. no. 1, attached with the request for arbitration decision).

2.1.4. The Respondent, for purposes of applying item 28.1 of the GTST, proceeded to the arithmetical sum of the patrimonial values of each of the floors or units which in the respective property records were listed as being designated for residential use (docs. nos. 2 to 17, attached with the request for arbitration decision).

2.1.5. Thus, the Respondent attributed to the Property, for purposes of applying item 28.1 of the GTST, the TPV of € 1,323,920.00 (one million three hundred and twenty-three thousand nine hundred and twenty euros) and not what, apparently due to error, is referred to in articles 4 and 5 of its reply – (docs. nos. 2 to 17, attached with the request for arbitration decision).

2.1.6. The Claimant was notified of the ST assessments referred to in article 12 of the request for arbitration decision – (docs. nos. 2 to 17, attached with the request for arbitration decision).

2.1.7. The Claimant, on 20.12.2013, proceeded to payment of the tax required under the terms of said assessments, in the amount of € 13,239.20 (thirteen thousand two hundred and thirty-nine euros and twenty cents) – (docs. nos. 18 to 33, attached with the request for arbitration decision).

2.2. Unproven Facts

There are no material facts for the examination of the merits of the case that should be considered unproven.

  1. Legal Matters

3.1.1. Questions to be Decided

It results from what has been stated above that the question to be decided is, fundamentally, whether a property constituted in full or vertical ownership, but with floors or units with independent use, is a "property with residential use" for purposes of applying article 1 of the STC and item 28.1 of the GTST, added by article 4 of Law no. 55-A/2012, of 29 October.

3.1.2. Item 28.1 of the GTST

Law no. 55-A/2012, of 29 October, among several amendments it made to the STC, added, by its article 4, item 28 to the GTST, which reads as follows:

"28 - Ownership, usufruct or right of superficies of urban properties whose tax patrimonial value contained in the matrix, pursuant to the Municipal Property Tax Code (MPTC), is equal to or greater than € 1,000,000 - on the tax patrimonial value used for purposes of MPT:

28.1 - For property with residential use - 1%;

28.2 - For property, when the taxable persons who are not natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by ordinance of the Minister of Finance - 7.5%."

With the heading "transitional provisions", article 6 of Law no. 55-A/2012, of 29 October, and with relevance to what must be decided, established the following:

1 — In 2012, the following rules shall be observed by reference to the assessment of stamp tax provided for in item no. 28 of the respective General Table:

a) The taxable event occurs on 31 October 2012;

b) The taxable person of the tax is the one mentioned in paragraph 4 of article 2 of the Stamp Tax Code on the date referred to in the previous subparagraph;

c) The tax patrimonial value to be used in the assessment of the tax corresponds to that which results from the rules provided for in the Municipal Property Tax Code by reference to the year 2011;

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

e) The tax shall be paid, in a single installment, by taxable persons by 20 December 2012;

f) The applicable rates are the following:

i) Properties with residential use assessed pursuant to the MPT Code: 0.5%;

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

iii) Urban properties when the taxable persons who are not natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by ordinance of the Minister of Finance: 7.5%.

As can be seen, item 28.1 refers to "properties with residential use". However, not only is this concept not defined in any provision of the STC, but it is also not used in the MPTC, the diploma to which article 67, paragraph 2 of the STC expressly refers when matters not regulated in the STC regarding item 28 are at issue.

3.1.3. "Vertical ownership" and the application of item 28.1 of the GTST

Without prejudice to the interest, not only dogmatic, of establishing the meaning and scope of the concept of "property with residential use", it is necessary, first and foremost, to answer the question of whether, for purposes of applying item 28.1 of the GTST, the TPV of each of the floors or units with independent use of a given building can be added together, as the Respondent did with respect to the Property.

a) The property record of immovables in full or vertical ownership and the assessment of Municipal Property Tax

It is important to clarify from the start that "each floor or part of property capable of independent use is considered separately in the property record registration, which also identifies the respective tax patrimonial value", as can be read in paragraph 2 of article 12 of the MPTC. Also, the MPT, in properties subject to the full ownership regime, gives typical relevance to each floor or part of property capable of independent use (article 119, paragraph 1 of the MPTC).

That is, it is clear that the legislator, in the MPTC, did not intend to adhere to the rigor of the legal form of the real rights affecting the properties, but rather to the use made of them, namely in cases where a property, legally speaking, is composed of different floors or parts capable of independent use.

It may be said, not without reason, that the legislator, for purposes of taxation under the MPT regime, chose to confer autonomy, independence, to each of the parts or to each of the floors of a single property, provided that each one of them shows independent use, to the point of providing for individual registration in the property record of each of these independent parts and imposing on taxation under the MPT regime an assessment that is also autonomous. Notwithstanding the legal existence of a single property, it is the legislator itself who not only recommends but requires the autonomous consideration of each of the independent parts, for purposes of taxation of the patrimony.

b) The application of item 28.1 of the GTST to each of the independent parts

If this is the case for the MPT, as has been endeavored to be demonstrated, it cannot be otherwise for the ST, namely for purposes of applying item 28.1 of the GTST.

Moreover, this problem, were the tax, MPT or ST, purely proportional, would not exist or would be innocuous, since the sum of the parts would necessarily have to correspond to the whole. This is not, however, the case in the present matter.

As has been seen, the ST to which item 28.1 of the GTST appeals is only due in relation to properties with residential use and, in these, only to those presenting a TPV equal to or greater than € 1,000,000.00 (one million euros).

The Respondent, in an exercise that is understandable, perceived the absurdity that would result from the application of the tax rate to the TPV of a property, if this were calculated on the basis of the sum of all the independent parts of which it is composed. It thus purged, in the case under analysis, the parts that were registered as being designated for purposes other than residential, managing to achieve, for purposes of item 28.1, a TPV different from that which results from the application of the criteria for determining the taxable matter for purposes of taxation under the MPT regime.

Saying that the exercise carried out by the Respondent is understood, however, does not mean concluding that it is correct, since it seems improper to disregard the autonomy of each of the parts capable of independent use of the Property, requiring, for purposes of applying item 28.1 of the GTST, a unity that, while indisputable in terms of real rights, is not so in the taxation of immovable property.

Considering the letter and spirit of the law, it is not envisioned that it is the intention of the legislator to apply item 28.1 of the GTST to each of the parts of a property when only from the sum of all of them does a TPV greater than that of the legal standard result.

c) The ratio legis of item 28.1 of the GTST

What has been stated above does not ignore the avowed purpose of the proponent of the aforementioned legislative amendment, which the Claimant moreover recalls. The interpretation adopted here is in harmony with what appears to have been the unequivocal intention of the Government, author of the proposal that resulted in this legislative intervention.

When presenting and discussing, in Parliament, Bill no. 96/XII (2nd), the State Secretary for Tax Affairs expressly stated[2]:

"The Government proposes the creation of a special tax on high-value residential urban properties. This is the first time that Portugal has created a special taxation on high-value properties intended for housing. This tax will be 0.5% to 0.8% in 2012 and 1% in 2013, and will apply to houses with a value equal to or greater than 1 million euros."

Now, the State Secretary for Tax Affairs presents this bill referring, without equivocation, to the expression "houses". "Houses with a value equal to or greater than 1 million euros", note well.

Thus, notwithstanding the deficiency of the legislative technique adopted, it results with meridian clarity that item 28.1 of the GTST cannot be interpreted in the sense that it comprises each of the floors, units or parts capable of independent use when only from the respective sum does a TPV equal to or greater than that provided for by the same item result. In truth, none of the "houses" of the Property to which we have been referring presents, per se, "value equal to or greater than 1 million euros".

d) Conclusion

As set forth above, it is the finding of the arbitration tribunal that the assessment of ST based on item 28.1 of the GTST is vitiated with illegality in relation to each of the floors or parts capable of independent use of the Property, because the aforementioned item cannot be interpreted in the sense that it can be applied to floors or parts capable of independent use of a property in full or vertical ownership, when only from the sum of each of these floors or parts can a TPV equal to or greater than € 1,000,000.00 (one million euros) be obtained, with the TPV of each of the said floors or parts not exceeding this legal threshold.

The finding of the arbitration tribunal rejects the judgment of unconstitutionality suggested by the Respondent. It is well known that it is incumbent upon the law – the law of the Assembly of the Republic or authorized Decree-Law – to establish the essential elements of the incidence of taxes. However, the finding adopted by this arbitration tribunal does not neglect the principle of legality provided for in paragraph 2 of article 103 of the Constitution of the Portuguese Republic, because, as has been endeavored to be demonstrated through the arguments presented above, the solution advocated results from normative provisions that are not vitiated by any organic unconstitutionality.

  1. Decision

Based on the grounds and reasons stated above, the arbitration tribunal decides to judge the request for arbitration decision as well-founded with the consequent annulment of the contested assessments, with all legal consequences.

  1. Value of the Proceedings

In accordance with the provisions of paragraph 2 of article 315 of the CPC, subparagraph a) of paragraph 1 of article 97-A of the CPTC and also paragraph 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is set at € 13,239.20 (thirteen thousand two hundred and thirty-nine euros and twenty cents).

  1. Costs

For the purposes of the provisions of paragraph 2 of article 12 and paragraph 4 of article 22 of the LRATM and paragraph 4 of article 4 of the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is set at € 918.00 (nine hundred and eighteen euros), pursuant to Table I attached to said Regulation, to be borne entirely by the Respondent.

Lisbon, 15 September 2014

The Arbitrator

(Nuno Pombo)

[1] The drafting of this arbitration decision follows the spelling prior to the 1990 Orthographic Agreement.

[2] See DAR I Series no. 9/XII -2, of 11 October, page 32.

Frequently Asked Questions

Automatically Created

What is Verba 28.1 of the Portuguese Stamp Tax General Table (TGIS) and how does it apply to high-value properties?
Verba 28.1 of the Portuguese Stamp Tax General Table (TGIS) was introduced by Article 4 of Law 55-A/2012 of October 29, 2012, establishing an annual Stamp Tax on real property with a tax patrimonial value equal to or exceeding €1,000,000. The provision was designed to tax high-value or 'luxury' properties, targeting owners with above-average contributive capacity. The tax applies to properties registered for tax purposes with patrimonial values at or above this threshold, regardless of whether they are used for residential or other purposes. The rate and specific application depend on the property's registered tax patrimonial value as determined by the tax authorities.
Can a property owner challenge Stamp Tax assessments on vertically-owned buildings with independent units through CAAD arbitration?
Yes, property owners can challenge Stamp Tax assessments through CAAD (Centro de Arbitragem Administrativa) arbitration. In this case, the claimant filed a request for constitution of a single arbitration tribunal on February 21, 2014, which was accepted. Under Decree-Law 10/2011 as amended, taxpayers have standing to contest tax assessment acts through administrative arbitration. The procedure involves filing a formal request, appointment of an arbitrator by CAAD's Deontological Council, constitution of the tribunal, submission of the Tax Authority's reply, and issuance of an arbitration decision. Parties must have legal personality, capacity, and standing under Article 4 and Article 10(2) of the Legal Regime of Arbitration in Tax Matters (LRATM), with CAAD having material competence under Article 2(1)(a) of LRATM for such disputes.
How is the taxable value determined under Verba 28.1 TGIS for properties with multiple independent divisions?
The determination of taxable value under Verba 28.1 TGIS for properties with multiple independent divisions is disputed. The Tax Authority's position is that for properties held in full or vertical ownership, the taxable value is calculated by summing the tax patrimonial values of all floors or units capable of independent use (in this case totaling €1,323,920, excluding basements). The Authority argues that under full ownership, the property constitutes a single unitary asset, not separate autonomous units. The claimant contested this approach, arguing that each independent unit should be assessed separately as occurs with Municipal Property Tax under MPTC Article 12(3), where each floor or independent unit has its own separate tax patrimonial value. This interpretative conflict addresses whether vertical ownership properties should be treated differently from horizontal property ownership for Stamp Tax purposes.
What was the legal basis for the 2012 Stamp Tax liquidation under Law 55-A/2012 on properties exceeding €1,000,000?
The legal basis for the 2012 Stamp Tax liquidation was Article 1 of the Stamp Tax Code (Código do Imposto do Selo), Verba 28.1 of the General Stamp Tax Table as added by Article 4 of Law 55-A/2012 of October 29, 2012, and sub-subparagraph i) of subparagraph f) of paragraph 1 of Article 6 of the same Law. Law 55-A/2012 introduced this new tax on high-value properties as part of the State Budget measures. Properties with tax patrimonial values equal to or exceeding €1,000,000 became subject to annual Stamp Tax. The assessments were issued on July 14, 2013, with payment deadline at the end of December 2013. The legislation reflected the government's policy to increase taxation on luxury assets and high-value real estate holdings as a revenue measure during Portugal's economic adjustment period.
What procedural steps are required to file an arbitral tribunal request against Stamp Tax assessments at CAAD?
The procedural steps to file an arbitral tribunal request against Stamp Tax assessments at CAAD include: (1) Payment of the contested tax under protest or securing suspension of enforcement; (2) Filing a formal request for constitution of arbitration tribunal within the legal deadline, identifying the contested acts and legal grounds; (3) Submitting supporting documentation including assessment notices, payment proof, and property records; (4) CAAD's Deontological Council appoints an arbitrator pursuant to Article 6(2)(a) and Article 11(1)(b) of Decree-Law 10/2011; (5) Parties are notified and may object to the arbitrator appointment; (6) The Tax Authority appoints representatives to intervene; (7) The tribunal is formally constituted under Article 11(1)(c); (8) The Tax Authority is notified to submit a reply within 30 days if desired; (9) The tribunal may order additional evidence or schedule hearings; (10) The tribunal issues its decision within the statutory timeframe. Taxpayers must have proper legal standing under Ordinance 112-A/2011.