Process: 201/2016-T

Date: December 14, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration decision (Process 201/2016-T) addresses whether the Portuguese Tax Authority can aggregate the patrimonial values of independent residential divisions in a vertical property to meet the €1,000,000 threshold for Stamp Tax under Verba 28.1 of the TGIS. The applicant challenged stamp duty assessments on a Lisbon property comprising 17 independent divisions (15 residential), arguing that since no individual division exceeded €1,000,000, the tax should not apply. The Tax Authority countered that vertical properties in full ownership constitute a single legal-tax entity, unlike horizontal property regimes where each autonomous unit is deemed a separate property under Article 2(4) of the MPTC. The applicant invoked the tax equality principle, claiming unjustified differential treatment between horizontal and vertical property regimes, and argued that the MPTC's individual assessment methodology for property tax should extend to stamp duty. The AT maintained that the €1,000,000 threshold applies to the property's total patrimonial value when residential divisions collectively exceed this amount, based on literal interpretation of the law and the property register showing a single registered property. The case hinges on whether 'urban property' in Verba 28.1 refers to each independent division or the property as a whole, with significant implications for owners of high-value buildings not constituted under horizontal property regimes.

Full Decision

ARBITRATION DECISION

Applicant: A…, S.A.
Respondent: AT - TAX AND CUSTOMS AUTHORITY

I – REPORT

Application

A…, S.A., taxpayer no. …, with registered office at …, no. …, …, …-…, Lisbon, presented, on 31-03-2016, pursuant to the provisions of sub-paragraph a) of paragraph 1 of article 2 and article 10 of Decree-Law no. 10/2011, of 20 January, which approves the Legal Framework for Arbitration in Tax Matters (RJAT), an application for arbitration, in which the AT - TAX AND CUSTOMS AUTHORITY is the respondent, with a view to:

  • The declaration of illegality and annulment of the decision dismissing the administrative review filed against the stamp duty assessment acts, carried out under item 28.1 of the General Table of Stamp Duty (GTSD), relating to the divisions with independent use and residential designation of the urban property located at …, nos. … and …, in Lisbon, registered in the urban property register with the article …, in the parish of … – Lisbon;

  • The declaration of illegality and annulment of the same assessment acts;

  • The restitution of the amounts unduly collected through such assessments, together with the corresponding compensation interest.

The Applicant alleges, in essence and with relevance to the decision of the case, the following:

  • The urban property located at …, nos. … and …, in Lisbon, registered in the urban property register with the article …, in the parish of … – Lisbon, and described in the property registry of Lisbon with no. …, is described as a property in full ownership with storeys or divisions capable of independent use, and is therefore not constituted under a horizontal property regime;

  • The property comprises seventeen independent divisions, fifteen of which are designated for residential use, and none of the independent divisions has a value equal to or exceeding €1,000,000.00;

  • Notwithstanding this, the Tax Authority assessed stamp duty, under item 28.1 of the General Table of Stamp Duty, on each of the divisions with residential designation, because the sum of the property values of the divisions with residential designation amounts to €1,393,180.00;

  • The Respondent errs in so proceeding, since, as the Municipal Property Tax Code (applicable to stamp duty under item 28.1 of the GTSD) provides that each division of a property capable of independent use has its own property value and that the assessment of tax is carried out individually on each independent division, the same criterion must be used for the assessment of stamp duty under item 28.1 of the GTSD;

  • The Tax Authority uses a dual criterion, considering, for certain purposes, the property as a whole, and for others, each of the divisions as if it were a separate property;

  • The historical and subjective elements of interpretation – namely the Discussion of Bill no. 96/XII – show that the legislator intended to tax residential units ("houses") of high property value, which also militates against the interpretation adopted by the tax administration;

  • The understanding of the tax administration further leads to a difference of treatment between properties in horizontal property regime and properties composed of parts with independent use that is not justified, and for that reason the action of the tax administration, embodied in the assessments challenged, violates the principle of tax equality;

  • The assessments challenged thus suffer from error regarding the material and legal factual premises.

  • The decision dismissing the administrative review filed against these assessments is equally illegal for the same reasons.

  • Having the Applicant proceeded to payment of the tax unduly assessed, it is entitled to restitution of the corresponding amount together with the respective compensation interest.

Response of the Respondent

In its Response, the Respondent alleges, in summary, the following:

  • In compliance with the provisions of article 6, paragraph 2 of Law no. 55-A/2012, of 29 October, which added item 28 to the GTSD, with the amendment effected by Law no. 83-C/2013 of 31 December, and whose respective provision of incidence refers to urban properties, valued in accordance with the MPTC, with TPV equal to or exceeding €1,000,000 and, under item 28.1, with residential designation, the AT proceeded to the assessments, which are the subject of this application;

  • What is at issue here are assessments that result from the direct application of the legal norm, and are expressed in objective elements, without any subjective or discretionary assessment.

  • The concept of property is defined in article 2, paragraph 1 of the MPTC, and it is established in paragraph 4 thereof that in the horizontal property regime, each autonomous unit is deemed to constitute a property. It follows from the analysis of the normative provision that "a property in full ownership with storeys or divisions capable of independent use" is, unequivocally, different from a property in horizontal property regime, constituted by autonomous units, that is, several properties.

  • Article 12 of the MPTC establishes the concept of property register, and its paragraph 3 concerns, exclusively, the manner of recording registration data.

  • As regards the assessment of property tax, where it is a property in full ownership, the TPV that serves as the basis for its calculation will, unquestionably, be the global value of the property, although, in compliance with the provisions of article 119, paragraph 1 of the MPTC, the assessment document is sent to the taxable person with a breakdown of the parts capable of independent use, the respective taxable property value and the tax amount.

  • Although the assessment of stamp duty, in the situations provided for in item 28.1 of the GTSD, is effected in accordance with the rules of the MPTC, the truth is that the legislator reserves those aspects that require appropriate adaptations, namely those in which, as is the case with properties in full ownership, even with storeys or divisions capable of independent use (although property tax is assessed in relation to each part capable of independent use), for purposes of stamp duty the property in its entirety is relevant, since the divisions capable of independent use are not deemed to be a property, but only the autonomous units in the horizontal property regime, as provided in paragraph 4 of article 2 of the MPTC.

  • What expressly results from the letter of the law is that the legislator wished to tax under item 28.1 properties as a single legal-tax entity.

  • The subjection to stamp duty under item 28.1 of the General Table attached to the Tax Code results from the combination of two factors: residential designation and the taxable property value of the urban property registered in the property register being equal to or exceeding €1,000,000.00.

  • The property being in the full ownership regime, it does not have autonomous units, to which the tax law attributes the qualification of property, because from the concept of property in article 2 of the MPTC, only the autonomous units of property in the horizontal property regime are deemed to be properties – paragraph 4 of the cited article.

  • As to the alleged violation of the principle of tax equality, this does not occur, inasmuch as the tax is applicable in the same manner to all holders of properties with residential designation of value exceeding €1,000,000.00.

  • As to the Applicant's claim for compensation interest, given that the assessment effected was made on the basis of applicable law, to which the Administration is bound, and the tax administration, in accordance with article 55 of the GTL and following the principle set out in article 266, paragraphs 1 and 2 of the Portuguese Constitution, pursues "the advancement of public interest, with respect for the rights and legally protected interests of citizens" and its "organs and administrative agents are subject to the Constitution and the law" and must "act, in the exercise of their functions, with respect for the principles of equality, proportionality, justice, impartiality and good faith", one cannot speak of error on the part of the service within the meaning of article 43 of the GTL.

Subsequent Proceedings

By order of 27 October 2016, after obtaining the consent of the Parties, the Court determined that the meeting provided for in article 18 of the RJAT was not necessary, and granted a period for written submissions.

In their written submissions, the Parties added nothing of substance to the arguments presented in the initial application and the response.

II – SANEAMENTO (PRELIMINARY EXAMINATION)

The singular Arbitration Court was properly constituted on 14-06-2016, with the arbitrator being appointed by the Deontological Council of the CAAD, all respective legal and regulatory formalities being observed (articles 11, paragraph 1, sub-paragraphs a) and b) of the RJAT and 6 and 7 of the Deontological Code of the CAAD).

The Parties have legal personality and capacity, are entitled to participate, and are duly represented, in accordance with articles 4 and 10 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March.

No procedural defects were identified.

III – QUESTIONS TO BE DECIDED

The sole substantive question raised is whether stamp duty under item 28.1 of the General Table of Stamp Duty is incidenced on divisions of an urban property in full ownership, with residential designation and capable of independent use and as such registered in the tax property register.

IV – PROVEN FACTS

The following facts are considered proven and relevant to the decision:

  • The Applicant was the registered owner, as of the date of the taxable facts, of the urban property located at …, nos. … and …, in Lisbon, registered in the urban property register with the article …, in the parish of … – Lisbon;

  • The property is described in the tax property register as a property in full ownership and composed of seventeen parts capable of independent use, fifteen of which have residential designation;

  • No part with independent use has a taxable property value equal to or exceeding €1,000,000.00;

  • The AT - Tax and Customs Authority assessed stamp duty on the taxable property values of the storeys or parts capable of independent use with residential use, at the rate of 1%, under the provisions of item 28.1 of the General Table of Stamp Duty (GTSD) for the year 2014;

  • The total amount of stamp duty assessed is €13,931.80;

  • The Applicant paid this amount;

  • The Applicant filed an administrative review against the assessment acts, based on the same arguments with which it challenged the stamp duty assessments in the present proceedings;

  • The administrative review referred to above received a decision of dismissal notified on 30-12-2015.

V – REASONING

The substantive question to be examined and decided is whether stamp duty under item 28.1 of the General Table of Stamp Duty is incidenced on divisions of an urban property in full ownership, with residential designation and capable of independent use and as such registered in the tax property register.

It is to be noted that, although the Tax Authority claims that it interprets the provision of incidence contained in item 28.1 of the GTSD to the effect that the tax is incidenced on the "property in full ownership" and that it considers, for purposes of incidence, the property as a whole, this is not true, as the Tax Authority excludes from incidence those parts of the property that are not designated for residential use.

On this same question the Supreme Administrative Court has pronounced itself on several occasions, with settled jurisprudence to the effect that, where a property is constituted in full ownership, the incidence of stamp duty must be determined, not by the taxable property value resulting from the sum of the taxable property value of all divisions or storeys capable of independent use (individualized in the registration article), but by the taxable property value assigned to each of those storeys or divisions designated for residential use.

The basis for this jurisprudence can be found in one of the early decisions of the Supreme Court on this matter, dated 09-09-2015, in case no. 47/15. In this judgment, which we take as the basis of our decision in the present proceedings, the Supreme Administrative Court held:

"The concept of 'property (urban) with residential designation' was not defined by the legislator. Neither in Law no. 55-A/2012, which introduced it, nor in the Municipal Property Tax Code, to which paragraph 2 of article 67 of the Stamp Tax Code (also introduced by that Law) refers on a subsidiary basis. And it is a concept which, probably due to its imprecision – a fact all the more serious given that it is on the basis thereof that the objective scope of the new taxation is defined – had a brief 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 item no. 28 of the General Table, and which now defines its objective scope through the use of concepts that are legally defined in article 6 of the Municipal Property Tax Code.

Nothing unequivocal follows from the letter of the law, moreover, as it itself, by using a concept which it did not define and which was also not defined in the statute to which it referred on a subsidiary basis, 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, from the outset by virtue of article 67, paragraph 2 of the Stamp Tax Code, subject to the provisions of the Municipal Property Tax Code, – 'to matters not regulated in this Code relating to item 28 of the General Table, the provisions of the MPTC apply subsidiarily'.

As such, and as has been mentioned so many times, in the understanding of this court, the mechanism for determining the TPV relevant for purposes of the aforementioned item, is that which is established in the Municipal Property Tax Code.

Now, article 12, paragraph 3 of the Municipal Property Tax Code establishes that 'each storey or part of a property capable of independent use is considered separately in the registration, which also indicates the respective taxable property value'.

The legislator thus disvaluing, in the terms previously mentioned, any prior constitution of horizontal or vertical property regime.

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

It is to be noted that the Tax Authority itself appears to agree with the criterion set out, which is why the assessments it itself issues are very clear in their essential elements, from which it results that the value of incidence is that corresponding to the TPV of each of the storeys and the assessments are individualized.

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

Thus, there would only be incidence of stamp duty (under item no. 28 of the GTSD) if one of the parts, storeys or divisions with independent use presented a TPV exceeding €1,000,000.00.

The Tax Authority 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 under property tax (and, as previously mentioned, this is the code applicable to matters not regulated regarding item no. 28 of the GTSD).

In conclusion, the current legal regime does not impose an obligation to constitute horizontal property, so that the action of the Tax Authority translates into an arbitrary and illegal discrimination.

In fact, the Tax Authority cannot distinguish where the legislator itself understood 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 Portuguese Constitution, and also the principles of tax justice, equality and proportionality.

In the case in question, the property or properties in question were, as of the relevant date of the taxable facts, constituted in full ownership and had [...] units with independent use, as results from the documents [...].

Given that none of these units has a taxable property value equal to or exceeding €1,000,000.00, as results from the documents attached to the proceedings, it is concluded that the legal requirement for incidence is not met."

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

In the scope of Property Tax, the legislator clearly established, in article 12, paragraph 2 of the MPTC, that the parts of property capable of independent use are valued separately, and this value is taken as the basis for the assessment of tax.

In the scope of Stamp Duty, article 13, paragraph 1 of the respective Code provides that "the value of real property is the taxable property value recorded in the register in accordance with the MPTC".

Therefore, it appears clear that the legislator intended that the taxable property value of the parts capable of independent use be considered.

The AT - Tax and Customs Authority appears to conform its action with this understanding, by issuing stamp duty assessment acts individualized in relation to each part.

The AT - Tax and Customs Authority, contrary to what it alleges, does not consider, for purposes of incidence, the property as a whole, but only the independent parts with residential designation. Therefore, it considers the parts, and not the whole, as the object of the tax.

Furthermore, in accordance with article 9, paragraph 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 particularly 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 decision of the Supreme Court cited, clearly indicates the intention of the legislator to subject to taxation residential units ("houses") of high value.

In consonance with all the interpretive elements mentioned, it should be considered that, where one is dealing with a property in full ownership formed by parts capable of independent use, there is only incidence of stamp duty (under item no. 28 of the GTSD) if one of the parts, storeys or divisions with independent use presents a taxable property value equal to or exceeding €1,000,000.00.

For all the reasons stated, it must be concluded that the stamp duty assessments challenged are illegal, by violation of tax law, as they are incidenced on independent parts of properties in full ownership but taking as a basis the taxable property value of the sum of the same parts and when none of these parts has a taxable property value equal to or exceeding €1,000,000.00.

Similarly, it must be concluded that the order dismissing the administrative review filed by the Applicant against the assessment acts challenged is defective by reason of violation of law.

VI – DECISION

We therefore decide that the Court:

  1. Declares the illegality and annuls the decision dismissing the administrative review filed against the stamp duty assessments challenged;

  2. Declares the illegality and annuls the stamp duty assessments on the divisions with residential designation of the urban property located at …, nos. … and …, in Lisbon, registered in the urban property register with the article …, in the parish of … – Lisbon, and described in the property registry of Lisbon with no. …, relating to the year 2014;

  3. Condemns the Respondent AT – Tax and Customs Authority to refund the tax unduly paid in accordance with such assessments, together with the respective compensation interest, in accordance with article 43 of the General Tax Law.

Economic value of the case: The economic value of the case is fixed at €13,931.80.

Costs: In accordance with article 22, paragraph 4, of the RJAT, the amount of costs is fixed at €918.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Respondent.

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

Lisbon, Administrative Arbitration Center, 14 December 2016

The Arbitrator

(Nina Aguiar)

Frequently Asked Questions

Automatically Created

How is Stamp Tax under Verba 28.1 of the TGIS applied to buildings in vertical property with independent divisions?
Stamp Tax under Verba 28.1 of the TGIS is applied to vertical properties with independent divisions by considering the property as a single legal-tax entity. The Portuguese Tax Authority aggregates the patrimonial values of all residential divisions to determine if the €1,000,000 threshold is met. Unlike horizontal property regimes where each autonomous unit is deemed a separate property under Article 2(4) of the MPTC, vertical properties in full ownership are treated as one property for stamp duty purposes, even when comprising multiple divisions capable of independent use. The tax applies when the total patrimonial value of residential divisions equals or exceeds €1,000,000, regardless of individual division values.
Can the Portuguese Tax Authority sum the patrimonial values of independent divisions to meet the €1,000,000 threshold for Imposto do Selo?
Yes, the Portuguese Tax Authority can sum the patrimonial values of independent residential divisions to meet the €1,000,000 threshold for Imposto do Selo under Verba 28.1. The AT's position is that vertical properties not constituted under horizontal property regime represent a single property in the property register, and therefore the aggregate value determines stamp duty liability. This contrasts with the applicant's argument that each division should be assessed individually following MPTC criteria. The dispute centers on whether the concept of 'urban property' in Verba 28.1 encompasses the entire building or each independent division separately, with the Tax Authority maintaining that only autonomous units in horizontal property regimes are deemed separate properties under Article 2(4) of the MPTC.
What is the difference between horizontal and vertical property for Stamp Tax purposes under Verba 28.1 da TGIS?
The fundamental difference between horizontal and vertical property for Stamp Tax purposes under Verba 28.1 lies in how they are treated as taxable units. Under Article 2(4) of the MPTC, autonomous units in horizontal property (propriedade horizontal) are each deemed a separate property, meaning stamp duty applies individually when each unit's value reaches €1,000,000. In contrast, vertical properties (propriedade vertical) in full ownership with independent divisions are treated as a single property, with the Tax Authority aggregating all residential division values to determine the €1,000,000 threshold. This creates potential differential treatment: a horizontal property with multiple units under €1,000,000 each escapes the tax, while an identical vertical property with the same divisions may be taxed if their combined value exceeds the threshold.
How do you challenge an unlawful Stamp Tax assessment through tax arbitration (CAAD) in Portugal?
To challenge an unlawful Stamp Tax assessment through tax arbitration (CAAD) in Portugal, taxpayers must file an application under Article 2(1)(a) and Article 10 of Decree-Law 10/2011 (RJAT - Legal Framework for Arbitration in Tax Matters). The process involves: (1) filing a prior administrative review (reclamação graciosa) with the Tax Authority; (2) after dismissal, submitting an arbitration request to the CAAD within the legal deadline; (3) clearly identifying the contested assessments and legal grounds (such as error in material/legal premises, violation of tax equality principle); (4) specifying the relief sought (annulment of assessments, restitution of amounts paid, compensatory interest). The application must detail why the assessment is illegal, supported by relevant legal provisions, case law, and legislative history where applicable.
Are compensatory interest (juros indemnizatórios) available when Stamp Tax liquidations on independent housing units are annulled?
Yes, compensatory interest (juros indemnizatórios) are available when Stamp Tax liquidations on independent housing units are annulled, provided the taxpayer paid the tax before the annulment. Under Portuguese tax law, when tax assessments are declared illegal and annulled, taxpayers who made payment are entitled to restitution of the unduly collected amounts together with compensatory interest. The interest compensates for the State's use of funds that were unlawfully collected. In this case, the applicant specifically requested restitution of amounts paid through the contested assessments plus corresponding compensatory interest, which is a standard remedy in successful tax arbitration proceedings where the taxpayer has already satisfied the illegal tax obligation before obtaining a favorable ruling.