Process: 192/2014-T

Date: November 3, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

Process 192/2014-T addresses a critical dispute regarding Stamp Tax (Imposto do Selo) under Item 28 of the General Stamp Tax Schedule (Tabela Geral do Imposto do Selo - TGIS) on high-value properties in Portugal. The case involves stamp tax assessments of €13,225.80 each for 2012 and 2013 on an urban property in vertical ownership with both residential and commercial use. The central legal question concerns whether the Portuguese Tax Authority can aggregate the patrimonial tax values (Valor Patrimonial Tributário - VPT) of independent units within a vertically owned property to meet the €1,000,000 threshold triggering Stamp Tax liability under Item 28 TGIS.

Introduced by Law 55-A/2012, Item 28 imposes an annual Stamp Tax on ownership, usufruct, or superficies rights of urban properties with VPT equal to or exceeding €1,000,000, at rates ranging from 0.5% to 1% depending on residential use and assessment status. The Estate challenged the assessments arguing that: (1) none of the individual floors or divisions capable of independent use exceeded €1,000,000 in VPT; (2) the property lacks exclusive residential use; (3) aggregating values violates the legal framework applicable to vertical ownership; and (4) the Tax Authority's interpretation breaches the constitutional principle of equality by treating vertical ownership differently from horizontal ownership (propriedade horizontal).

The Tax Authority contended that for properties in full ownership with independent divisions, the entire property's value is relevant for Stamp Tax purposes, distinguishing this from horizontal ownership where autonomous units are treated separately under Article 2-4 of the Municipal Property Tax Code (CIMI). This arbitral decision represents one of several CAAD rulings addressing the scope and application of Item 28 TGIS, with significant implications for property owners holding vertically divided real estate portfolios in Portugal.

Full Decision

ARBITRAL AWARD

Claimant: Estate of A...

Respondent: Tax and Customs Authority

Stamp Tax ("ST")

The arbitrator Dr. Maria Antónia Torres, appointed by the Ethics Council of the Administrative Arbitration Centre ("CAAD") to form the Single Arbitral Tribunal, constituted on 5 May 2014, decides as follows:

  1. REPORT

1.1. The Estate of A..., tax identification number …, represented by the Head of Household B..., hereinafter referred to as the "Claimant", resident at Street ..., requested the constitution of an arbitral tribunal, pursuant to article 2, paragraph 1, subparagraph a), and article 10, both of Decree-Law no. 10/2011, of 20 January (hereinafter "LTAR"[1]).

1.2. The petition for arbitral decision and the subsequent petition for extension of the scope of the dispute concern the illegality, and consequent annulment, of the stamp tax assessment acts under item 28 of the GSTS, in the amount of €13,225.80, relating to the year 2012, and in the same amount, €13,225.80, relating to the year 2013 (as per documents submitted by the Claimant and the Respondent), issued by the Tax Office …, relating to the real property registered under the current urban matrix number …, of the Parish Union of ... (..., ..., ... and ...), with the due consequences.

1.3. To substantiate its petition, the Claimant argues that the Stamp Tax assessments relating to the real property described above for the years 2012 and 2013 are illegal by violation of the scope of application of item 28 of the GSTS. The Claimant considers that not only does the property not have an exclusively residential use, but it is divided in vertical ownership, and the Tax Authority cannot, as it did, sum the patrimonial values of the floors and divisions capable of independent use, none of which, individually, has a PTValue equal to or exceeding €1,000,000. And that the scope of application rule, in the interpretation carried out by the Tax Authority, is unconstitutional by violation of the principle of equality.

1.4. The Tax and Customs Authority contends that the petition for declaration of illegality and consequent annulment of the disputed assessments should be judged unfounded given that it argues that although the Stamp Tax assessment, under the conditions provided for in item 28 of the GSTS, is processed in accordance with the rules of the MPTC, the truth is that the legislator reserves the aspects that require the necessary adaptations.

The Tax Authority understands that such is the case with properties in full ownership, even though with floors or divisions capable of independent use, since although the MPT is assessed for each part capable of independent use, for the purposes of Stamp Tax the property in its entirety is relevant, since divisions capable of independent use are not considered as property, but only as autonomous units under the horizontal ownership regime, as per article 2-4 of the MPTC.

Thus arguing for the legality of the tax acts because they constitute a correct application of law to the facts.

1.5. It was further agreed by the parties to waive the holding of the arbitral tribunal meeting provided for in article 18 of the LTAR and of submissions.

  1. PRELIMINARY RULING

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

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

No procedural nullities were identified.

  1. ISSUES FOR DECISION

It constitutes an issue for decision in the present proceedings whether and to what extent item 28 of the General Stamp Tax Schedule (GSTS) is applicable to the real property in vertical ownership that was the object of the Stamp Tax assessments referred to above, for the years 2012 and 2013, in the wording existing on the date to which the assessments relate.

  1. ESTABLISHED FACTS

With relevance to the assessment and decision on the merits, the following facts are established:

4.1 The Claimant is the owner of the urban real property registered in the urban property matrix under number ..., of the Parish Union of ... (..., ..., ... and ...);

4.2 The property is an urban property consisting of vertical ownership, with use both residential and commercial, and none of the floors or divisions capable of independent use has a PTValue exceeding €1,000,000.

4.3 The Claimant was notified of the Stamp Tax assessments listed below, relating to the years 2012 and 2013, relating to the real property referred to above, which are part of the present proceedings.

4.4 All as per documents attached with the arbitral petition and in the response presented by the Respondent;

4.5 On 3 March 2014, the petition for constitution of the Arbitral Tribunal filed by the Claimant was accepted.

  1. UNESTABLISHED FACTS

There are no facts relevant to the decision on the merits that have not been established, the matter of fact being consensually established by both parties.

  1. REASONING ON MATTERS OF FACT

The Tribunal's conviction was based on a critical analysis of the documents indicated with respect to each point of the factual matter, the dispute relating solely to questions of law.

  1. ON THE LAW

First and foremost, it is incumbent upon the Arbitral Tribunal to decide on the extension of the petition. Then, the questions that arise before the Tribunal concern only the interpretation and application of legal rules.

The Claimant initially filed a petition for arbitral decision at the CAAD contesting the Stamp Tax assessments of item 28 of the STC that the Tax Authority carried out for the year 2012 and relating to the urban real property in full ownership with floors or divisions capable of independent use, registered under the current urban matrix number ..., of the Parish Union of ... (..., ..., ... and ...).

Pending this proceeding, it was notified of the Stamp Tax assessments on the same property for the year 2013, whereby it came to request the extension of the petition.

We consider that the legal prerequisites for extension of the petition are met, and thus we admit the extension of the initial petition, including in it the Stamp Tax assessments relating to the year 2013.

As to the interpretation and application of the rules, the CAAD has already pronounced itself, in various decisions, on this same substantive question: the scope of the scope of application rule of item 28 of the GSTS.

Law no. 55-A/2012, of 29 October, added item 28 to the General Stamp Tax Schedule (GSTS), with the following wording:

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

28.1 – For property with residential use – 1% (...);

In the transitional provisions contained in article 6 of said Law no. 55-A/2012, the following rules were established:

c) The patrimonial tax value to be used in the assessment of the tax corresponds to what results from the rules provided for in the Municipal Property Tax Code with reference to the year 2011; (...)

f) The applicable rates are as follows:

i) Properties with residential use assessed under the Municipal Property Tax Code: 0.5%;

ii) Properties with residential use not yet assessed under the Municipal Property Tax Code: 0.8%;

It is important here to analyse whether the rule stated above, as drafted, supports or does not support the understanding that as to properties in vertical ownership, with floors or divisions capable of independent use, held by an entity, the PTValue on which the rate will apply should be considered the individual PTValue of each floor or division capable of independent use, similar to what happens with properties under the horizontal ownership regime, or the sum of all.

In the case at hand, the property has mixed use, commercial and residential. Bearing in mind that the STC refers to the MPTC for regulation of the concept of property, in articles 3 and 4 of the same statute the legislator established the concept of urban properties by the negative as being all those properties that should not be classified as rural.

In paragraph 2 of article 5 of the same Code, mixed properties are those in which there exist distinct rural and urban economic realities and there is no subordination of one to the other. Finally, in article 6 of the MPTC urban properties are classified into: residential, commercial, industrial or service properties, building land and others.

Now, as referred to above, in the case at hand we are faced with urban property with parts or divisions capable of independent use, some with residential use and others with commercial use, being a property with parts classifiable in the residential division of subparagraph a) of paragraph 1 of article 6 and with parts classifiable in subparagraph b) of the same paragraph and article, but in no way will it be a mixed property in the concept established in the aforementioned article 5 of the MPTC given that it has no rural component whatsoever.

Each of the parts or divisions capable of independent use that make up the property in question fulfills the concept of property established in article 2 of the MPTC, and they are physically and economically independent.

The Tax Authority, by removing the PTValue of the parts or divisions with use other than residential, for purposes of Stamp Tax assessment, did nothing more than use the criterion defined in paragraph 4 of article 2 of the MPTC for properties under the horizontal ownership regime. That is, it considered that the parts or divisions capable of independent use were true autonomous parts of property in vertical ownership fulfilling the concept of property.

This also follows from paragraph 3 of article 12 of the MPTC: "each floor or part of property capable of independent use is considered separately in the matrix registration, which also distinguishes its respective patrimonial tax value", whereby assessment for MPT purposes is done by separately assessing the PTValue of each of the parts or divisions capable of independent use.

Now, given what is provided in paragraph 7 of article 23 of the STC, the tax is applied following, with the necessary adaptations, the rules contained in the MPTC.

However, the Tax Authority understood in the case in question, being an urban property in vertical ownership, with floors or divisions capable of independent use, to sum the PTValues of each floor or independent division allocated to residential purposes (separated from the PTValue of the floors or divisions intended for other purposes), creating a new legal reality, without legal support, which is a global PTValue of urban properties in vertical ownership, with residential use.

Now we understand that such violates the literal element of item 28 of the GSTS, which states that this tax applies to "the patrimonial tax value used for MPT purposes", as results from paragraph 3 of article 12 of the MPTC. Both for the MPT and for this Stamp Tax.

The law does not determine the existence of a PTValue for urban properties in vertical ownership, as a whole, but rather that the PTValue is attributed to each floor or part of the property separately. The sum of the individual PTValues of each part of the property is creating a new legal reality for purposes of Stamp Tax assessment, which we understand does not fall within the "necessary adaptations" referred to in paragraph 7 of article 23 of the STC.

Thus, the new stamp tax would only apply if any of the parts, floors or divisions with independent use presented a PTValue exceeding €1,000,000.

The Tax Authority cannot thus consider as the reference value for application of the tax the total PTValue of the property, when the legislator itself established a different rule for purposes of the MPTC, and this is the code applicable to matters not regulated regarding item 28 of the GSTS.

The criterion sought by the Tax Authority, to consider the value of the sum of the PTValues attributed to the parts, floors or divisions with independent use, with the argument that the property is not constituted under the horizontal ownership regime, finds no legal support and is contrary to the criterion that applies for purposes of the MPTC and, by referral, for purposes of Stamp Tax.

The issue does not require, in our understanding, to be raised at the level of violation of the Constitution, it being sufficient to be analysed as to compliance with paragraph 7 of article 23 of the STC and the other articles referred to above.

Thus, and in light of the foregoing, it is determined that the Stamp Tax assessment acts that are the object of the present petition are declared illegal and annulled, all with the legal consequences.

The value of the case is set at €26,451.60 in accordance with the provisions of articles 3, paragraph 2 of the Rules of Costs in Tax Arbitration Proceedings ("RCPAT"), 97-A, paragraph 1, subparagraph a) of the Code of Administrative Court Procedure and 306, paragraph 2 of the Code of Civil Procedure.

The amount of costs is fixed at €1,530 to be borne by the Tax and Customs Authority, in accordance with the provisions of articles 12, paragraph 2 of the LTAR and 4, paragraph 4 of the RCPAT.

Let notification be made.

Lisbon, 3 November 2014

Text prepared by computer, pursuant to article 131, paragraph 5 of the Code of Civil Procedure (CCP), applicable by referral of article 29, paragraph 1, subparagraph e) of the LTAR, with blank verses.

The present arbitral award is written in accordance with old spelling.

The arbitrator,

Maria Antónia Torres

[1] Acronym for Legal Framework for Tax Arbitration.

Frequently Asked Questions

Automatically Created

What is Verba 28 of the Tabela Geral do Imposto do Selo (TGIS) and how does it apply to high-value residential properties?
Verba 28 of the Tabela Geral do Imposto do Selo (TGIS), introduced by Law 55-A/2012 of October 29, applies to the ownership, usufruct, or right of superficies of urban properties whose patrimonial tax value (Valor Patrimonial Tributário - VPT) recorded in the property matrix equals or exceeds €1,000,000. For properties with residential use, the tax rate is 1% of the VPT used for Municipal Property Tax (IMI) purposes. Transitional provisions in Article 6 of Law 55-A/2012 established reduced rates: 0.5% for residential properties assessed under the Municipal Property Tax Code and 0.8% for those not yet assessed, with the VPT corresponding to 2011 values. This annual Stamp Tax represents an additional wealth tax on high-value real estate, primarily targeting luxury residential properties in Portugal.
Can the Tax Authority aggregate the taxable patrimony values (VPT) of independent units in a vertically owned property to meet the €1,000,000 Stamp Tax threshold?
The Tax Authority's position is that it can aggregate the VPT of independent units in vertically owned property to meet the €1,000,000 threshold under Item 28 TGIS. The Tax Authority argues that although Municipal Property Tax (IMI) is assessed separately for each independent unit, Stamp Tax applies different rules requiring necessary adaptations. For properties in full ownership (propriedade plena) with floors or divisions capable of independent use, the entire property is relevant for Stamp Tax purposes, not the individual units. The Tax Authority distinguishes this from horizontal ownership (propriedade horizontal), where autonomous units under Articles 2-4 of the Municipal Property Tax Code are treated as separate properties. However, the Claimant contested this interpretation, arguing that independent divisions in vertical ownership should be treated similarly to horizontal ownership units, and that aggregation is an incorrect application of law violating the principle of equality.
How does the distinction between vertical ownership and horizontal ownership (propriedade horizontal) affect Stamp Tax liability under Portuguese law?
The distinction between vertical ownership and horizontal ownership (propriedade horizontal) is crucial for Stamp Tax liability under Item 28 TGIS. In horizontal ownership, autonomous fractions are legally recognized as independent properties under Article 2-4 of the Municipal Property Tax Code (CIMI), each with separate matrix registration and individual VPT assessment. For Stamp Tax purposes, each horizontal property unit is evaluated independently, meaning the €1,000,000 threshold applies to each autonomous fraction separately. In contrast, vertical ownership involves a single property with floors or divisions capable of independent use but without the formal legal separation of horizontal ownership. The Tax Authority's interpretation treats vertically owned properties as single units for Stamp Tax, aggregating the VPT of all divisions to determine if the €1,000,000 threshold is met. This creates significantly different tax consequences: owners of horizontal property units below €1,000,000 each avoid Item 28 Stamp Tax entirely, while vertical ownership allows aggregation, potentially triggering tax liability even when no individual division reaches the threshold.
Is the Stamp Tax liquidation on properties without exclusive residential use legal under Verba 28 of the TGIS?
The legality of Stamp Tax liquidation on properties without exclusive residential use under Verba 28 TGIS is a key issue in this arbitration. Item 28.1 specifically refers to 'property with residential use' and establishes a 1% rate for such properties. The Claimant argued that the property in question has mixed residential and commercial use, not exclusively residential use, and therefore should not be subject to Item 28 Stamp Tax as applied. This argument challenges whether mixed-use properties fall within the scope of Item 28, which distinguishes between residential and other uses. The Tax Authority's position on this specific point is not fully detailed in the excerpt, but the dispute raises important questions about the interpretation of 'residential use' - whether it requires exclusive residential character or whether any residential component suffices. This issue has significant practical implications for Portugal's commercial real estate sector, where mixed-use developments combining residential, retail, and office spaces are common, particularly in urban centers.
What role does the constitutional principle of equality play in challenging Stamp Tax assessments on high-value properties in Portugal?
The constitutional principle of equality (princípio da igualdade) plays a central role in challenging Stamp Tax assessments under Item 28 TGIS. The Claimant argued that the Tax Authority's interpretation violates this constitutional principle by treating vertical ownership differently from horizontal ownership (propriedade horizontal) without objective justification. Under horizontal ownership, autonomous units are assessed individually for Stamp Tax purposes, with the €1,000,000 threshold applying to each separate fraction. However, under the Tax Authority's interpretation of vertical ownership, values are aggregated across all independent divisions within a single property title. This differential treatment means two economically identical situations - multiple units each valued below €1,000,000 - produce different tax consequences based solely on the formal ownership structure. The equality principle, enshrined in Article 13 of the Portuguese Constitution, requires that taxpayers in materially similar situations receive equal tax treatment. The Claimant's constitutional challenge argues that aggregating VPT for vertical ownership while treating horizontal ownership units separately creates arbitrary discrimination without reasonable justification, particularly when both structures involve independent units capable of separate use and assessment for Municipal Property Tax purposes.