Process: 214/2016-T

Date: October 1, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

Process 214/2016-T addresses a critical Stamp Tax dispute concerning vertical property ownership in Loulé. A real estate investment fund challenged assessments totaling €32,744.00 under Verba 28.1 of the Stamp Tax General Table (TGIS), which taxes urban residential properties valued at €1,000,000 or more. The property consisted of 35 independent units across 9 buildings, with each unit separately valued for Municipal Property Tax (IMI) purposes. No individual unit exceeded the €1,000,000 threshold, but the aggregate patrimonial value reached €3,194,330.00. The Tax Authority (AT) argued that despite separate matriculation, the property constitutes a single taxable unit under full ownership, justifying stamp duty on the total value. The taxpayer contended that for properties not constituted under horizontal property regime but containing independent divisions, each unit should be valued separately for stamp duty purposes. After the gracious complaint and hierarchical appeal were denied, the case proceeded to the CAAD arbitral tribunal. The central legal question involves interpreting Article 1 of the Stamp Duty Code combined with Verba 28.1 of TGIS: whether vertical property with multiple independent units should be taxed based on individual unit values or aggregate property value. This case has significant implications for real estate investment funds and property owners with high-value portfolios divided into independent units, affecting how the €1,000,000 threshold applies to vertical property structures in Portuguese tax law.

Full Decision

ARBITRAL DECISION

I - REPORT

  1. B… – SPECIAL OPEN REAL ESTATE INVESTMENT FUND, taxpayer …, whose managing entity is B… – REAL ESTATE INVESTMENT FUND MANAGEMENT COMPANY, S.A., with registered office at Rua …, … …, … Floor, …-… Lisbon, requested the constitution of an arbitral tribunal in tax matters in order to declare the illegality of the decision denying express hierarchical appeal of an act denying a gracious complaint and, consequently, the illegality of the stamp duty tax assessments, in the total amount of € 32,744.00, relating to an urban property, not constituted under a horizontal property regime, registered in the respective property matrix of the parish of …, municipality of Loulé, under article … . The said assessment, made on the basis of the standard of article 1 of the Stamp Duty Code (CIS), combined with Item No. 28.1 of the respective General Table, relates to the year 2013. As a consequence of the declaration of illegality of the aforementioned acts, the Applicant requests that the annulment of the assessments in question be determined and reimbursement of the amount paid, plus the respective compensatory interest calculated in accordance with the legal terms.

  2. As the basis of the request, the Applicant alleges, in summary, that the taxation provided for in the cited standards has as its object urban properties with residential use, whose tax patrimonial value used for IMI purposes is equal to or greater than € 1,000,000 (one million euros). In the case of properties not constituted in horizontal property but integrated by parts or divisions capable of independent use, the tax patrimonial value used for IMI purposes, and consequently, relevant for the purposes of stamp duty tax incidence, is, in accordance with the above-cited standard, the value determined by reference to each of these parts or divisions.

  3. For its part, the Respondent - Tax and Customs Administration (AT) - in response to the allegations, declares itself for the non-merit of the request and, consequently, for the maintenance of the questioned tax assessments, on the grounds that there is a single urban property, and the value relevant for the purposes of stamp duty tax incidence is the value resulting from the sum of the tax patrimonial values attributed to the various parts that comprise it.

  4. The request for constitution of the arbitral tribunal, presented on 07-04-2016, was accepted by the President of CAAD and automatically notified to the Respondent (AT) on 18 of the same month.

  5. Pursuant to the provisions of paragraph a) of article 6(2) and paragraph b) of article 11(1) of Decree-Law No. 10/2011, of 20/01, as amended by article 228 of Law No. 66-B/2012, of 31/12, the Deontological Council appointed the undersigned as arbitrator of the single arbitral tribunal, who communicated acceptance of the assignment within the applicable period, and notified the parties of this appointment on 08-06-2016.

  6. Duly notified of this appointment, the parties did not manifest any intention to refuse the arbitrator's appointment, in accordance with the combined provisions of article 11(1), paragraphs a) and b) of the RJAT and articles 6 and 7 of the Deontological Code.

  7. Thus, in accordance with the provisions of paragraph c) of article 11(1) of the RJAT, as amended by article 228 of Law No. 66-B/2012, of 31/12, the single arbitral tribunal was constituted on 24-06-2016.

  8. Regularly constituted, the arbitral tribunal is materially competent, given the provisions of article 2(1), paragraph a), of the RJAT.

  9. The parties have legal personality and capacity and have standing (articles 4 and 10(2) of the RJAT, and article 1 of Regulation No. 112-A/2011, of 22/03).

  10. Given the knowledge arising from the procedural documents submitted by the parties, which is deemed sufficient for the decision, the Tribunal decided to dispense with the meeting referred to in article 18 of the RJAT.

  11. The case does not suffer from nullities and no other issues were raised that prevent the consideration of the merits of the case, with the conditions being met for a final decision to be rendered.

II - FACTUAL MATTERS

  1. With relevance to the consideration of the question raised, the following factual elements stand out:

12.1. The Applicant is the owner of the urban property located in …, designated as Block C, registered in the respective property matrix of the parish of …, municipality of Loulé, under article … .

12.2. The property in question, in full ownership with apartments or divisions capable of independent use, consists of 9 buildings, 4 floors and 35 apartments or divisions with independent use, allocated to commerce or industry and to housing.

12.3. Each of the independent divisions was assigned a tax patrimonial value separately determined in accordance with the standard of paragraph b) of article 7(2) of the Municipal Property Tax Code (CIMI).

12.4. None of the parts or apartments with residential use has a tax patrimonial value exceeding € 1,000,000.00 (one million euros), resulting from their sum a total tax patrimonial value of € 3,194,330.00 (three million, one hundred and ninety-four thousand, three hundred and thirty euros).

12.5. Considering the total tax patrimonial value of the property, AT proceeded with assessments of stamp duty, provided for in Item 28.1 of the respective General Table, with reference to the year 2013 and each of the units capable of independent use.

12.6. For payment in May, July and November 2014, collection notes relating to three installments of the assessments in question were sent to the Applicant.

12.7. Following the said communication, the Applicant, while having made payment of the assessed tax, filed a gracious complaint with the competent Tax Office, requesting the annulment of the assessments and reimbursement of the amounts paid.

12.8. The complaint is based on the fact that the property in question is divided into housing units in vertical property ownership and none of the parts capable of independent use intended for housing has a tax patrimonial value equal to or exceeding € 1,000,000.00 (one million euros) (Doc. 1).

12.9. Therefore, considering, for the determination of the said threshold, the tax patrimonial value resulting from the sum of those independent parts, the questioned tax acts are defective due to violation of law by error in the legal and factual assumptions, and should be subject to annulment.

12.10. By ruling of 18-12-2014, AT decided to deny the gracious complaint in its entirety on the grounds that:

"The property in question, although it has parts or divisions capable of independent use, the legal concept is that this property constitutes a single unit, since its ownership belongs solely to the complainant. The fact that, in this case, each apartment or division capable of independent use is listed separately in the matriculation registration and with the respective value of each of them, is only relevant for tax purposes, given the concept of property contained in article 12 of the CIMI and the matter regulated in the same code for the organization of the property matrices" (Doc. 4)

12.11. On 21-01-2015, the now Applicant filed a hierarchical appeal of the decision denying the gracious complaint, reiterating the request and grounds thereof (Doc. 5).

12.12. By ruling of 07-01-2016, notified to the Applicant on the 8th of the same month, the said appeal was denied, on the grounds that "The assessments now disputed were thus processed in accordance with the applicable regulation, given the qualities of the taxpayer and the fact that the TPV of the property with residential use, constituted in full ownership with apartments or divisions capable of independent use, exceeds € 1,000,000.00" (Doc. 6)

  1. There are no other facts relevant to the decision on the merits that have not been proven.

III - MATTERS OF LAW

  1. As previously mentioned, the Applicant in its request for arbitral ruling sustains, in essence, that the standard of Item 28.1 of the General Table of Stamp Duty is not applicable to properties in full ownership integrated by parts or divisions capable of independent use, whenever the tax patrimonial value attributed to each of those intended for housing does not exceed € 1,000,000.00 (one million euros).

  2. Beyond directly questioning the tax incidence standard, in the interpretation underlying the questioned assessments, the Applicant invokes the violation of constitutional principles of legality and tax equality, as well as the principle of material truth.

  3. In response to what the Applicant alleged, AT replied, in summary, that Item 28 of the General Table of Stamp Duty is incidental upon urban properties with residential use and that the tax patrimonial value on which the application of this legal standard depends is, as expressly follows from the law, the tax patrimonial value of each property and not of its distinct parts, even if capable of independent use. Concluding, thus, that the tax act in question, having violated no legal standard, should be maintained.

  4. From the positions expressed by the Applicant and by the Respondent, summarized above, it follows that what is at issue is the consideration of strictly legal matters, making the production of evidence beyond the documentary elements attached to the case unnecessary.

  5. In fact, the question to be decided centers solely on whether within the scope of the incidence of stamp duty referred to in Item 28 of the General Table of Stamp Duty (TGIS), residential urban properties are contained or not, which, although not constituted in horizontal property, are integrated by apartments or divisions capable of independent use, whenever the tax patrimonial value attributed to each of these distinct parts does not exceed the value of € 1,000,000 (one million euros).

  6. In other words, it is a question of whether the quantitative element relevant to the said standard should be considered based on the tax patrimonial value attributed to each of the parts, as the Applicant contends, or whether this element is the one resulting from the sum of the tax patrimonial values attributed to them, as AT argues.

  7. It is thus important, first and foremost, to conduct an analysis, albeit brief, of the conditions for the incidence of stamp duty on urban properties with residential use, using the tax standards relevant to the definition of the respective legal concepts.

III.1 - Tax Incidence

  1. Through Law No. 55-A/2912, of 29/10, Item 28 was added to the General Table of Stamp Duty, subjecting to this tax urban properties whose tax patrimonial value contained in the property matrix, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than € 1,000,000.00.

  2. The taxable base is constituted by the tax patrimonial value considered for IMI purposes, and that tax is annually assessed by AT in relation to each urban property (CIS, article 23(7)), at the rate of:

  • 1%, per urban property with residential use;
  • 7.5%, per property, when the taxpayers, not being individuals, are resident in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by regulation of the Minister of Finance.

  1. Passive subjects and tax debtors are the owners, usufructuaries or superficiaries of the properties on 31 December of the year to which the tax relates, as follows from article 8 of the CIMI, by express reference in articles 3(3), paragraph u), and 2(4) of the Stamp Duty Code (CIS).

  2. Regarding the date of establishment of the tax obligation, tax nexus, determination of the taxable base, assessment and payment of the stamp duty in question, the corresponding rules of the CIMI are applicable, by express reference in articles 5(1), paragraph u), 4(6), 23(7), 44(5), 46(5) and 49(3) of the CIS. In general, by reference to article 67(2) of the same Code, the provisions of the CIMI are of supplementary application to matters not specifically regulated.

  3. The type of property in question not being questioned, classified as urban and with residential use, in accordance with the criteria established in articles 2, 4 and 6 of the IMI Code, what is solely at issue is knowing the exact meaning of the expression "tax patrimonial value considered for IMI purposes" contained in the tax incidence standard.

  4. It is thus necessary to resort to the rules of the IMI Code relating to the treatment that, in the context of this tax, is given to parts of urban properties capable of independent use, in particular regarding the determination of the respective tax patrimonial value and the rules applicable to the assessment and payment of the said tax.

  5. In accordance with article 12(3) of the cited Code, which establishes the concept of property matrix, "each apartment or part of property capable of independent use is considered separately in the matriculation registration, which discriminates the respective tax patrimonial value."

  6. The autonomization in the matrix of the functionally and economically independent parts of a property in full ownership stems from reasons of a fiscal and extrafiscal nature. On the fiscal plane, this autonomization relates to the very determination of tax patrimonial value, which constitutes the taxable base of IMI, given that the formula for determination of that value, provided in article 38 of the same Code, involves indexes that vary depending on the use attributed to each of these parts. On the extrafiscal plane, this autonomization continues to find justification in the relevance attributed to the tax patrimonial value of properties and their autonomous parts in urban rental legislation.[i]

  7. However, in the context of IMI, the autonomization of parts of urban property capable of independent use is not limited to their separation in the matriculation registration and discrimination of the respective tax patrimonial value. This autonomy extends to the very assessment of the tax.

  8. In fact, article 119(1) of the said Code provides that the tax assessment document shall contain the discrimination of the properties, their parts capable of independent use and the respective tax patrimonial value. For compliance with this provision, the assessment of IMI, in the strict sense of application of the rate to the taxable base, does not take as reference the sum of the tax patrimonial values attributed to the autonomous parts of the same property, but the value attributed to each of them individually considered.

  9. In the same sense of individualization, for tax purposes, of the autonomous parts of urban properties, the standard of article 15-O(1) of Decree-Law No. 287/2003, of 12/11, as added by Law No. 60-A/2011, of 30/11, is also relevant.

  10. In accordance with the provisions of the said standard, the safeguard clause relating to the aggravation of taxation in IMI resulting from the general evaluation of urban properties is applicable per property or part of urban property that is subject to the said evaluation.

  11. It thus results from the relevant standards of the CIMI, which are applicable by reference to the stamp duty referred to in Item 28 of the respective Table, that the autonomous parts of urban properties assume full autonomy, in terms of evaluation and description in the property matrix and assessment of the tax.

  12. In referring to the tax patrimonial value considered for IMI purposes, the incidence and quantification standard of stamp duty referred to in Item 28 of the respective Table cannot but appeal to the reality described above, that is, to the tax patrimonial value considered in the context of IMI in relation to each part of urban property capable of independent use.

  13. As, moreover, is reflected in the assessments questioned in the present request for arbitral ruling: AT, after, without legal support, performing the sum of the tax patrimonial values of the various autonomous parts of the property to extract therefrom the quantitative condition for the incidence of stamp duty, carries out the assessment with reference to each of these parts even though, individually, none of them reaches that value.

  14. It is noted that the question raised in this case is, in all respects, identical to those that were raised and decided in numerous arbitral decisions [ii], as well as decisions of the Supreme Administrative Court [iii], whose conclusion, in the sense of the illegality of AT's decision to subject the taxation of the residential parts of a property in full ownership to the overall TPV of the property and not to what is effectively attributed to each of the parts separately, is entirely adhered to.

IV - Right to Compensatory Interest

  1. In addition to the declaration of illegality and annulment of the decision denying hierarchical appeal and annulment of the assessments with the consequent reimbursement of the amounts improperly paid, the Applicant further requests that it be recognized the right to compensatory interest, under article 43 of the LGT.

  2. In fact, under the provisions of article 43(1) of the said standard, compensatory interest is due "when it is determined, in a gracious complaint or judicial challenge, that there was an error attributable to the services from which there resulted payment of the tax debt in an amount greater than legally due." In addition to the means referred to in the standard that is transcribed, we understand that, as follows from article 24(5) of the RJAT, the right to the aforementioned interest can be recognized in the arbitral process and thus the request is considered.

  3. The right to compensatory interest referred to in the LGT standard above mentioned presupposes that tax has been paid in an amount greater than due and that such derives from an error, of fact or of law, attributable to AT's services. In the present case, both conditions are shown to be met, thus establishing the obligation of compensatory interest in favor of the taxpayer, which is hereby declared.

V - DECISION

Therefore, and on the grounds set out, the Arbitral Tribunal decides:

a) To rule in favor of the request for declaration of illegality and annulment of the decision denying hierarchical appeal identified in the present case.

b) To rule in favor of the request for arbitral ruling, determining the annulment of the questioned assessments with the consequent reimbursement of the amounts paid, plus the respective compensatory interest, due and quantified in accordance with the legal terms.

Case Value: The case value is set at € 32,744.00, in accordance with article 97-A(1), paragraph a) of the CPPT, applicable by reference to article 29(1), paragraphs a) and b), of the RJAT and article 3(2) of the Regulation of Costs in Tax Arbitration Proceedings.

Costs: Pursuant to article 22(4) of the RJAT, and in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, I set the amount of costs at € 1,836.00, to be borne by the Respondent (AT).

Lisbon, 1 October 2016,

The Arbitrator,
Álvaro Caneira

[i] See Silvério Mateus and Leonel Corvelo de Freitas, "Real Estate Taxation and Stamp Duty Commented and Annotated", Engifisco, Lisbon 2005, pp. 159 and 160.

[ii] Among many others, and referring only to the most recent: CAAD, Procs. 544/2015-T, 552/2015-T, 554/2015-T, 560/2015-T, 562/2015-T, 573/2015-T, 576/2015-T, 581/2015-T, 589/2015-T, 597/2015-T, 606/2015-T, 632/2015-T, 643/2015-T, 644/2015-T, 651/2015-T, 659/2015-T, 681/2015-T, 718/2015-T, 755/2015-T, 768/2015-T, 777/2015-T, 10-2016-T, 20/2016-T.

[iii] See STA, Procs. 047/15, 01352/15, 01354/15, 01504/15, 01534/15, 0166/16, 0498/16.

Frequently Asked Questions

Automatically Created

What is Verba 28.1 of the Portuguese Stamp Tax General Table and how does it apply to properties valued over €1,000,000?
Verba 28.1 of the Portuguese Stamp Tax General Table (TGIS) establishes an annual stamp duty on urban properties with residential use whose patrimonial value for IMI (Municipal Property Tax) purposes equals or exceeds €1,000,000. This provision, introduced as part of fiscal measures targeting high-value real estate, applies to properties owned by individuals or entities. The tax rate varies based on the property's patrimonial value. The key controversy in Process 214/2016-T concerns how this threshold applies to properties not constituted under horizontal property regime but containing multiple independent units: whether each unit should be valued separately or whether the aggregate value of all units determines tax liability. The Tax Authority's position has been that when a single owner holds full ownership of a property with multiple independent divisions, the total patrimonial value determines stamp duty incidence, even if each unit is separately registered for IMI purposes.
How is Stamp Tax calculated for buildings not constituted under horizontal property but with independent units?
For buildings not constituted under horizontal property but containing independent units capable of separate use, the Stamp Tax calculation methodology has been subject to significant dispute. The Tax Authority (AT) maintains that when a property remains in full ownership (propriedade plena) with a single owner, despite having divisions or apartments capable of independent use, it constitutes a single property unit for stamp duty purposes. Consequently, AT aggregates the patrimonial values of all independent divisions to determine whether the €1,000,000 threshold under Verba 28.1 is met. Each independent unit may have a separately determined patrimonial value under Article 7(2)(b) of the Municipal Property Tax Code (CIMI) for IMI purposes, but this separate matriculation is considered merely an administrative convenience for property tax calculation, not a legal division creating multiple distinct properties for stamp duty. This interpretation significantly impacts real estate investment funds and investors holding large properties divided into rental units, as it can trigger stamp duty obligations even when no individual unit exceeds €1,000,000.
Can the tax authority aggregate the patrimonial values of individual units in a vertical property for Stamp Tax purposes?
The Tax Authority's position is that it can aggregate patrimonial values of individual units in vertical property for Stamp Tax purposes when the property is held in full ownership by a single owner. In Process 214/2016-T, AT denied both the gracious complaint and hierarchical appeal, arguing that despite separate matriculation of each independent unit, the legal concept treats the property as a single unit because ownership belongs solely to one entity. AT distinguished between the administrative practice of separate valuation for IMI purposes (following Article 12 of CIMI and property matrix organization rules) and the substantive legal determination of what constitutes 'a property' for stamp duty incidence. The taxpayer challenged this aggregation approach, arguing that for properties divided into independent divisions in vertical property (propriedade vertical), each unit with separate patrimonial value should be considered independently for the €1,000,000 threshold. This dispute ultimately proceeded to CAAD arbitration, as the taxpayer maintained that aggregating values violated the proper interpretation of Verba 28.1 and constituted an error in law regarding both legal and factual assumptions underlying the tax assessments.
What was the CAAD arbitral tribunal's decision in Process 214/2016-T regarding Stamp Tax on vertical property in Loulé?
Process 214/2016-T involved a real estate investment fund's challenge to Stamp Tax assessments totaling €32,744.00 on a property in Loulé municipality comprising 35 independent units across 9 buildings. The CAAD (Administrative Arbitration Centre) arbitral tribunal was constituted on June 24, 2016, to decide whether stamp duty under Verba 28.1 of TGIS should apply based on individual unit values or aggregate property value. The property's total patrimonial value was €3,194,330.00, but no individual residential unit exceeded €1,000,000. The taxpayer argued that for vertical property with independent divisions, each unit's separate patrimonial value (determined under Article 7(2)(b) of CIMI) should be the relevant reference for stamp duty incidence. The Tax Authority maintained that the property constitutes a single unit under full ownership, justifying aggregation despite separate matriculation. The arbitral tribunal had to interpret whether Article 1 of the Stamp Duty Code, combined with Verba 28.1 of TGIS, requires individual or aggregate valuation for properties not in horizontal property regime. The decision would have significant implications for how real estate investment funds and property owners structure holdings and face stamp duty obligations on high-value portfolios.
How can taxpayers challenge Stamp Tax assessments on high-value properties through hierarchical appeal and arbitration in Portugal?
Taxpayers challenging Stamp Tax assessments on high-value properties in Portugal follow a structured administrative and judicial process. First, they file a gracious complaint (reclamação graciosa) with the competent Tax Office, requesting annulment of assessments and reimbursement of amounts paid, as demonstrated in Process 214/2016-T where the complaint was filed after receiving collection notices in May, July, and November 2014. The complaint must specify legal and factual grounds, such as errors in legal assumptions or improper application of tax thresholds. If the gracious complaint is denied, taxpayers can file a hierarchical appeal (recurso hierárquico) to a superior administrative authority, reiterating their arguments. In Process 214/2016-T, both the gracious complaint (denied December 18, 2014) and hierarchical appeal (denied January 7, 2016) were unsuccessful. Finally, taxpayers can request constitution of an arbitral tribunal through CAAD (Centro de Arbitragem Administrativa) under Decree-Law 10/2011, which provides an alternative to judicial courts for tax disputes. The arbitration process, initiated by the taxpayer on April 7, 2016, offers a specialized forum for resolving complex tax interpretation issues, with the tribunal examining both the legality of tax assessments and the proper interpretation of provisions like Verba 28.1 concerning property valuation thresholds.