Process: 245/2014-T

Date: November 14, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

Process 245/2014-T addresses the controversial application of Stamp Tax under Verba 28.1 of the General Table of Stamp Tax (TGIS) to urban properties held in vertical property regime. The claimant, representing an undivided estate, challenged 17 Stamp Tax assessments issued in 2013 for the 2012 tax period concerning an urban property in Lisbon with a global taxable patrimonial value (TPV) exceeding €1,000,000. The central legal issue revolves around whether properties in vertical property regime should be assessed as a single unit or whether each independent part should be taxed separately, similar to horizontal property fractions. The claimant argued that Verba 28.1 TGIS, introduced by Law 55-A/2012, targets luxury housing units individually valued at €1,000,000 or more, not the aggregate value of multiple independent units within vertical property. Key arguments included: (1) individual units all had TPV below €1,000,000 threshold; (2) treating vertical property differently from horizontal property violates constitutional equality principles; (3) the correct TPV for assessment should reference December 31 of the tax year per CMPT rules; (4) the tax rate applied was 1% instead of the legally prescribed 0.5% for 2012; and (5) assessing based on global TPV while enforcing against individual units creates contradictory treatment. The claimant filed the arbitration petition under RJAT provisions and suspended tax enforcement through bank guarantee presentation. This case highlights fundamental questions about wealth taxation criteria and equal treatment of different property ownership structures under Portuguese tax law.

Full Decision

ARBITRATION AWARD

I. Report

  1. A, as head of the undivided estate opened by the death of B, Tax Identification Number …, resident at Rua … Lisbon (hereinafter referred to as "Claimant"), submitted, pursuant to Article 10 of Decree-Law No. 10/2011, of 20 January (RJAT), in the wording given thereto by Law No. 66-B/2012, of 31 December, a petition for the constitution of an arbitral tribunal in order to examine and declare the illegality of the tax acts assessing Stamp Tax regarding the application of item 28.1 of the General Table of Stamp Tax (GTST) to real properties of which she is the owner, for the year 2012, and contained in the Assessment Documents numbered 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; and 2013…. With the initial petition, she attached various documents numbered 1 to 26 and 18 (eighteen) collection documents.

  2. The petition having been admitted, and the Claimant having chosen not to appoint an arbitrator, the undersigned was appointed as sole arbitrator, by decision of the President of the Deontological Council, pursuant to Article 6(1) of the RJAT, and accepted the office within the legally prescribed time limit.

  3. The singular arbitral tribunal was constituted on 16 May 2014.

  4. The head of the Tax and Customs Authority service (also designated AT or Respondent) was notified pursuant to Article 17 of the RJAT, and filed its Response on 17 June 2014, by designated legal representatives.

  5. On 18 June 2014, the Respondent filed a motion proposing the dispensation with the meeting required by Article 18 of the RJAT, which was notified to the Claimant for its opinion, but it made no response.

  6. On 23 April and 30 June 2014, the Claimant requested the attachment to the file of documents relating to the presentation at the Lisbon Tax Service of a bank guarantee aimed at suspending the tax execution proceedings instituted thereat for the collection of the debts in question.

  7. By arbitral order of 12 September 2014, the parties were notified that, absent any manifestation of contrary will, the tribunal understood that they waived arguments, setting as the deadline for rendering the decision 16 November 2014.

8. The petition for arbitral determination

Summarizing, the grounds presented by the Claimant are as follows:

  • The Stamp Tax assessments in question, issued on 14 July 2013 for payment by the end of December 2013, relate to the urban property located at …, facing towards …, registered in the urban property register of the parish of …, in Lisbon, under property article …, and concern the tax period of the year 2012.

  • In accordance with Article 6(1)(c) of Law No. 55-A/2012, of 29 October, "the taxable property value to be used in the assessment of the tax corresponds to that resulting from the rules provided for in the Code of Municipal Property Tax by reference to the year 2011" and, pursuant to Article 113(1) of the CMPT, "The tax shall be assessed annually, in relation to each municipality, by the central services of the Tax Directorate-General, based on the taxable property values of the properties and in relation to the taxable persons appearing in the registers on 31 December of the year to which it refers", whereby "the taxable property value that serves as the basis for the assessment of the tax corresponding to item 28.1 of the GTST, by cross-reference to the CMPT, is the taxable property value in force on 31 December of the year to which it refers".

  • On 31 December 2012, and still in April 2013, the taxable property value of the said property was € 131,320.03, therefore less than € 1,000,000.00, whereas item 28.1 of the GTST applies to the "ownership, usufruct or right of superficies of urban properties whose taxable property value entered in the register, in accordance with the Code of Municipal Property Tax (CMPT), is equal to or greater than € 1,000,000", and therefore the tax assessments suffer from manifest error as to the factual assumptions, with gross violation of the legal provisions in force, and are affected by nullity.

  • The Claimant was notified on 19 February 2013 to claim against the assessment made, as demonstrated by documents 3 to 25 attached.

  • The property, composed of 2 blocks, one with 4 storeys and establishments on the ground floor and another with five storeys, is held in vertical property and contains 8 storeys and units with independent use of which a large part is intended for housing, but none of the units exceeds the value fixed in the scope provision - Article 28 of the GTST, in accordance with Article 4 of Law No. 65-A/2012.

  • The legislator in this legislative innovation considered as a determining element of tax capacity urban properties with housing use, of high value (luxury), more precisely, of value equal to or greater than € 1,000,000.00, on which a special rate of Stamp Tax was applied, intending to introduce a principle of taxation of wealth expressed in the ownership, usufruct, or right of superficies of luxury urban properties with housing use, that is, with TPV greater than that amount.

  • Registration in the property register in vertical property, consisting of parts, storeys or units with independent use, in accordance with the CMPT, follows the same rules of registration of property constituted in horizontal property, and the respective CMPT, as well as the new Stamp Tax, are assessed individually in relation to each of the parts, whereby the legal criterion for defining the incidence of the tax must be the same.

  • The legislator considered that the imputation of a value of € 1,000,000.00 to a housing unit (house, fraction, or storey) expresses a tax capacity above average, capable of determining a special contribution to ensure a fair distribution of the tax burden, and therefore it would be illegal and unconstitutional to consider as a reference, in this case, the sum of the TPVs attributed to each part or unit.

  • It would constitute arbitrary discrimination, a violation of the constitutional principles of equality and proportionality, because if the property were in horizontal property regime none of the fractions would be subject to tax.

  • The taxation of the housing parts of a property in vertical property, based on the global TPV, is not consistent with the consecration in Article 12(3) of the CMPT, similarly to Article 232 of the General Code of Tax Procedure, as relevant for the purposes of registration in the property register of the autonomy that, within the same property, can be attributed to each of the parts, economically and functionally independent.

  • The position of the Tax Authority is totally contradictory in considering for the purposes of assessment the value of the property as a whole and instituting execution proceedings for each unit valued as an autonomous unit.

  • Nothing in the law imposes the obligation to constitute horizontal property, and the discrimination between the two types of property is arbitrary and illegal (with violation of the principle of tax legality – Art. 103(2) of the Constitution) especially when it is known that many properties in vertical property are old with undeniable social utility because they house residents with modest and more accessible rents, and this property was initially subject to the controlled rent regime.

  • The tax rate for the year 2012 is 0.5% (Art. 7 of Law No. 55-A/2012) but in the assessments subject to examination the rate applied for the year 2012 was 1%, constituting double collection and application of a rate not provided for in law.

  • The assessments suffer from nullity and if this is not accepted, the tax acts should be annulled for breach of legal formalities, error as to the assumptions and lack of substantiation.

  • The tax execution proceedings stemming from the assessments should also be annulled and the Tax Authority should be ordered to bear all expenses with guarantees requested by the claimant to suspend the 18 tax execution proceedings that meanwhile exist due to non-payment of the assessments whose legality is subject to examination in these proceedings.

8. The response of the Tax and Customs Authority

The Respondent responded, in summary:

  • The thesis defended by the Claimant lacks legal support because, although the assessment of Stamp Tax, in the situations provided for in item 28.1 of the GTST, is carried out in accordance with the rules of the CMPT, the legislator makes allowances for aspects that require the necessary adaptations, as is the case of properties in full ownership, even though with storeys or units susceptible of independent use.

  • Although the Municipal Property Tax is assessed in relation to each unit susceptible of independent use, for the purposes of Stamp Tax what is relevant is the property in its entirety; units susceptible of independent use are not regarded as property, except for autonomous fractions under the horizontal property regime, as per Article 2(4) of the CMPT.

  • The entry into force of the horizontal property regime (Civil Code of 1966), and its express reference in the delimitation of the concept of "property" provided for in Article 2(4) of the CMPT determines the relevance of such figure in matters of tax incidence and Article 2 of the CMPT constitutes a reaffirmation of the importance attributed to the horizontal property regime in the classification of property, for the purposes of taxation, in the context of Municipal Property Tax and Stamp Tax.

  • What expressly results from the letter of the law is that the legislator intended to tax with item 28.1 of the GTST the properties as a single legal-tax reality.

  • The provision of item 28.1 of the GTST does not constitute any violation of the constitutional principle of equality nor any discrimination in the taxation of properties constituted in horizontal property and properties in full ownership with storeys or units susceptible of independent use, or between properties with housing use and properties with other uses.

  • Item 28.1 which applies to the ownership, usufruct or right of superficies of urban properties with housing use, whose taxable property value entered in the register, in accordance with the CMPT, is equal to or greater than € 1,000,000.00, is a general and abstract norm, applicable indiscriminately to all cases in which the respective factual and legal assumptions are met.

  • The different valuation and taxation of a property in full ownership as opposed to a property constituted in horizontal property also results from the different legal effects inherent in these two figures.

  • Constitution in horizontal property results in the division/splitting of full ownership and the independence or autonomy of each of the fractions constituting it in accordance with Article 4(2) of the CMPT and Articles 1414 et seq. of the Civil Code, whereas a property in full ownership constitutes, for all purposes, a single legal-tax reality, and there is no violation of the principle of equality because these are distinct realities, valued by the legislator in different ways.

  • Finally, the different aptitude of the properties (housing/services/commerce) supports the different treatment, having constituted a legislative choice, for political and economic reasons, to exclude from the incidence of Stamp Tax properties intended for purposes other than housing.

  • Taxation under Stamp Tax follows the criterion of suitability, to the exact extent that it aims at the taxation of wealth embodied in the ownership of high-value real properties, emerging in a context of economic crisis that cannot be entirely disregarded.

  • The measure seeks to achieve maximum efficiency with regard to the objective to be reached, with minimum harm to other interests considered relevant, and the option for this mechanism of revenue collection is legitimate; it would only be censurable, in light of the principle of proportionality, if it resulted in manifestly indefensible consequences, but this is not the case since such measure is applicable indiscriminately to all holders of properties with housing use of value exceeding € 1,000,000.00.

  • The defects of lack of incidence and unconstitutionality should be judged unfounded, and the contested assessments should remain in the legal order, as they constitute a correct application of the law to the facts.

  • Furthermore, the stamp tax assessments in question were made under the provisions of Article 6(2) of Law 55-A/2012 of 29.10 and not, as invoked, under the transitional regime provided for in Article 6(1) of the cited statute.

  • Thus, it is a stamp tax assessment made in 2013, which applied to the same taxable property value used for the purposes of Municipal Property Tax to be assessed in 2013, and whose taxable event occurred on 31.12.2012, applying the rate provided for in item 28 of the GTST annexed to the Stamp Tax Code.

  • As for the request for compensation, in addition to the confusion between indemnificatory interest (Article 43 of the General Tax Law) and compensation for provision of guarantee (Article 53 of the General Tax Law), the Claimant has not presented the calculation and/or value of the compensation sought for the tribunal to decide whether it is the correct amount or not and what the amount that should be paid as compensation is, and in the formulation of the request only does it request that the tribunal "declare the nullity of the tax acts that constitute its object, relating to the assessment of Stamp Tax on Item 28 of the General Table, for the year 2012", and the tribunal cannot go beyond that request.

9. Object of the petition

The questions that the Claimant intends to have decided, all relating to the interpretation and application of item 28.1 of the GTST (added by Article 4 of Law No. 55-A/2012, of 29 October), are:

  • Nullity of the Stamp Tax assessments due to error as to the factual assumptions regarding the TPV of the properties on 31 December 2012.

  • Legality of the assessments of Stamp Tax regarding the global taxable property value of a building, corresponding to the sum of the taxable property values of various storeys or units susceptible of independent use.

  • Illegality in the application of the tax rate and double collection.

10. Sanitation

The collective arbitral tribunal is materially competent, in accordance with Article 2(1)(a) of the Tax Arbitration Legal Regime.

The parties have legal capacity and standing in accordance with Article 4 and Article 10(2) of the Tax Arbitration Legal Regime (RJAT), and Article 1 of Ordinance No. 112-A/2011, of 22 March.

The proceedings are not affected by any nullity and the parties have not raised any exceptions that would prevent examination of the merits of the case, and therefore the conditions are met for the rendering of the arbitral award.

II. SUBSTANTIATION

11. Proven facts

On the basis of the documents attached by the Claimant (Petition for arbitral determination, Documents numbered 1 to 26 and eighteen assessment certificates, attached with that petition, as well as documents subsequently brought to the proceedings, on 24 April and 2 July 2014) and by the Respondent (Response), the following facts are established, whereby the proven facts are sufficient for the issuance of a determination:

11.1. The Claimant, widow of B, is head of the estate of B, who died on 1 January 2010, whose heirs are the Claimant herself, who was married to the deceased under the regime of total community of property, and her children, C, D and E (Document No. 1, attached with the petition for arbitral determination, whose content is deemed reproduced).

11.2. Part of the estate is the property located in the parish of …, municipality of Lisbon, with property article … (formerly …, article …[1]), located at …, facing towards … (Property record, document no. 2 attached with the petition, and the 18 assessment certificates attached with the Petition).

11.3. The property that is the subject of these proceedings is held in full ownership with storeys or units susceptible of independent use, composed of shops, ground floor and 4 storeys, with caretaker's housing, for a total of 22 units with independent use: Shop 12C; Shop 12D, Shop 12E; 1st Floor D; 1st Floor E-12; 2nd Floor E; 2nd Floor D-12; 3rd Floor E-12; 3rd Floor D-12; 4th Floor E;-12; 4th Floor D-12; Ground Floor D; Ground Floor E; 1st Floor D-13; 4th Floor E-13; 4th Floor D-13; 3rd Floor E-13; 3rd Floor D-13; 2nd Floor E-13; 2nd Floor D-13; 1st Floor E-13; Shop 12B (Property record, document no. 2 attached with the petition, and the 18 assessment certificates attached with the Petition).

11.4. The property in question was registered in the property register in 2006 and the taxable property value as of 2012 in the property record issued by the Lisbon tax service … were, respectively, € 8,381.05; € 11,933.21; € 6,256.85; € 6,818.33; € 6,700.83; € 6,503.41; € 1,429.41; € 6,306.19; € 4,776.41; € 1,348.75; € 6,227.73; € 6,585.19; € 2,940.21; € 6,700.83; € 6,227.74, € 5,110.44; € 6,425.15; € 1,392.21; € 6,622.57; € 6,503.41; € 6,951.64; € 8,148.47, making the total of the 22 units the amount of € 131,320.03 (values determined in 2012, in accordance with the General Code of Tax Procedure, according to doc. no. 2, attached to the proceedings with the Petition, "obtained via Internet on 02-04-2013).

11.5. The Claimant received the assessments issued on 14 July 2013, for payment by the end of December 2013, concerning the tax period of the year 2012, relating to the 18 units susceptible of independent use as housing: with the assessment certificate numbers 2013 …; 2013 …; 2013 …; 2013 …; 2013 …; 2013 …; 2013 …; 2013 …; 2013 …; 2013 …; 2013 …; 2013 …; 2013 …; 2013 …; 2013 …; 2013 …; 2013 …; 2013 …, respectively (Assessment documents attached to the proceedings with the Petition).

11.6. The taxable property values indicated for the fractions in question and the tax assessments calculated were respectively: 1st Floor D-12- TPV € 65,190.00, tax € 651.90; 1st Floor E-12 – TPV € 60,300.00, tax € 603.00; 2nd Floor E– TPV € 60,300.00 and tax € 603.00; 2nd Floor D-12-TPV € 65,190.00, tax € 651.90; 3rd Floor D-12–TPV € 65,840.00, tax € 658.40; 3rd Floor E-12–TPV € 60,910.00, tax € 609.10; 4th Floor D-12– TPV € 65,840.00, tax € 658.40; 4th Floor E-12 - € 60,910.00, tax € 609.10 ; Ground Floor D – € 48,240.00, tax € 482.40; Ground Floor E– € 57,650.00, tax € 576.50; 1st Floor E-13 - TPV € 65,190.00, tax € 651.90; 1st Floor D-13-TPV € 60,300.00 and tax € 603.00; 2nd Floor E-13-TPV € 65,190.00, tax € 651.90; 2nd Floor D-13, TPV € 60,300.00, tax € 603.00; 3rd Floor D-13-TPV € 60,910.00, tax € 609.10; 3rd Floor E-13-TPV € 65,840.00, tax € 658.40; 4th Floor D-13-TPV € 60,910.00, tax € 609.10; 4th Floor E-13-TPV € 65,840.00, tax € 658.40, always indicating the "property value - total subject to tax: € 1,114,850.00" (Assessment documents attached to the proceedings with the Petition).

11.7. Eighteen tax execution proceedings were instituted corresponding to the assessments described in the previous numbers, the proceedings …2014…; …2014…; …2014…; …2014…; …2014…; …2014…; …2014…; …2014…; …2014…; …2014…; …2014…; …2014…; …2014…; …2014…; …2014…; …2014…; …2014…; …2014…; (Petition, art. 56, and documents 3 to 25, attached with the petition).

11.8. The petition for arbitral determination was filed with the CAAD on 10 March 2014.

11.9. On 17 April 2014, the Claimant addressed to the Lisbon Tax Service …, a motion requesting the acceptance of a bank guarantee issued by F and suspension of the collection of the amounts assessed as owed, subject to the proceedings referred to in the previous number (Document attached by the Claimant to the proceedings).

11.10. With the document referred to in the previous number, a document designated "bank guarantee No. …", dated 15 April 2014, was attached, in which F declares "to provide in favor of the Directorate-General of Contributions and Taxes" (...) "a bank guarantee up to the amount of € 15,153.48 (fifteen thousand one hundred and fifty-three euros and forty-eight cents) intended to guarantee the proper performance of the challenge process No. …2014… and related proceedings", with the issuing entity committing to pay up to the guaranteed amount (...) any amount that the beneficiary claims with the allegation of breach of contract by the Head of the Estate of B in the said contract (...), with the request in writing to be submitted "by the beneficiary within a maximum of thirty days after the date on which performance of the contractual obligation should have been performed, a limit beyond which the claim for payment cannot be accepted". The "guarantee is valid for three months, from the date of its issue, automatically renewable for equal and successive periods, and can be terminated by CEMG, with thirty days' notice before the end of the term or of its renewals, and no responsibility will be required after that date even if referring to obligations that matured before it, and can also be terminated at any time by the beneficiary (…)".

11.11. In a communication addressed to the Head of the Estate of B, … informed that the costs inherent to the issue and management of bank guarantee No. … amount to an annual charge of € 633.63 (€ 23.64 of issue expenses; € 63.71 of engagement and € 546.28 of commission).

11.12. By arbitral order of 12 September 2014, the parties were notified that, absent any manifestation of contrary will, the tribunal understood that they waived arguments, setting as the deadline for rendering the decision 16 November 2014.

12. Unproven facts

12.1. Not proven that in December 2012 the taxable property values of the properties covered by the assessments issued were those indicated in the respective assessment certificates. This conclusion is based on Doc. No. 2 attached to the proceedings by the Claimant with the Petition.

12.2. Not proven that the Claimant was notified on 19 February 2013 to claim against the assessment made (documents 3 to 25 referred to in the petition and attached thereto refer to notification of the tax executions).

12.3. Not proven that the storeys of the property in vertical property were subject to a controlled rent regime (the "certificates" referred to in the petition were not attached).

In any event, given the interpretation of the law adopted in this decision, the proof of these facts became irrelevant.

13. Applicable law

13.1. Preliminary issue: the order of examination of the defects invoked

Regarding the alleged error as to the factual assumptions, it does not constitute a defect generating nullity but voidability[2].

Regarding the mentioned error, as far as the TPV entered in the property record attached to the proceedings, allegedly obtained in 2013, it is indeed the case that the situation was not the subject of clarifying response by the Tax Authority.

However, and regardless of whether the taxable property value is or is not the one invoked by the Claimant, the tribunal considers that the examination of the second question identified corresponds to a more effective protection of the Claimant's legal position) and will therefore proceed to its examination (Articles 29(1)(a) of the RJAT and 124 of the General Code of Tax Procedure).

13.2. The scope of incidence of item 28 of the General Table of Stamp Tax

The fundamental question of law in dispute in these proceedings is whether in the case of properties in full ownership, with storeys or units of independent use but not constituted under the horizontal property regime, the TPV to be considered for the purposes of incidence of Stamp Tax provided for in item 28.1 of the GTST should correspond to the TPV of each storey or unit with housing use and independent use or to the sum of the TPVs corresponding to the storeys or units of independent use with housing use. That is, to know whether the TPV relevant as the criterion for incidence of the tax is that corresponding to the sum of the taxable property values attributed to the different parts or storeys (global TPV) or, instead, the TPV attributed to each one of the housing parts or storeys.

This question has already been examined in various proceedings in the context of Tax Arbitration[3], and no arguments have been identified so far that would break the unanimity that has been achieved in the awards issued[4].

Item 28 of the General Table of Stamp Tax, annexed to the Stamp Tax Code, was added by Article 4 of Law No. 55-A/2012, of 29 October, with the following content:

"28 – Ownership, usufruct or right of superficies of urban properties whose taxable property value entered in the register, in accordance with the Code of Municipal Property Tax (CMPT), is equal to or greater than € 1,000,000 – on the taxable property value for the purpose of Municipal Property Tax:

28-1 – Per property with housing use – 1%;

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

According to the amendments to the Stamp Tax Code, introduced by Article 3 of Law No. 55-A/2012, of 29/10, the Stamp Tax provided for in item 28 of the GTST applies to a legal situation (Article 1(1) and Article 2(4) of the Stamp Tax Code), in which the respective taxable persons are those referred to in Article 8 of the CMPT (Article 2(4) of the Stamp Tax Code), upon whom the tax burden falls (Article 3(3)(u) of the Stamp Tax Code).

The provisions of the Stamp Tax Code, in the wording given by Law No. 55-A/2012, both in Article 4(6) ("In the situations provided for in item 28 of the General Table, the tax is owed whenever the properties are located in Portuguese territory"), and in Article 23(7) ("In the case of tax owed for the situations provided for in item 28 of the General Table, the tax is assessed annually, in relation to each urban property, by the central services of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in the CMPT"), read in conjunction with Article 1 of the CMPT, consider the property itself as the taxable event (the situation that triggers taxation) provided that it reaches the value provided for in item 28 of the General Table of Stamp Tax, regardless of the number of taxable persons, owners (as owners, usufructuaries or superficiaries) of the goods in question.

The provisions of Law No. 55-A/2012, of 29 October, regarding the new item 28 of the General Table of Stamp Tax, entered into force on the day following publication of the law, namely 30 October 2012. Article 6 of Law No. 55-A/2012 provides transitional provisions by virtue of which, in that first year of validity, namely 2012: the taxable event occurs on 31 October (when, in accordance with Article 8 of the CMPT, applicable by cross-reference from Article 2(4) of the Stamp Tax Code, it would be on 31 December); the taxable person of the tax is the owner of the property (Article 2(4) of the Stamp Tax Code) also on that 31 October; the taxable property value to be used in the assessment of the tax corresponds to that resulting from the rules provided in the CMPT by reference to the year 2011; the assessment of the tax by the Tax Authority is made by the end of November 2012; the tax is to be paid in a single installment, by the taxable persons, by 20 December of that year 2012.

As for the rates, Article 6(1)(f) of Law No. 55-A/2012 provides for the application in 2012 of a rate lower than the 1% rate provided for in item 28.1 of the GTST for properties with housing use, distinguishing further between properties valued in accordance with the Municipal Property Tax Code (rate of 0.5%) and properties with housing use not yet valued in accordance with the Municipal Property Tax Code (rate of 0.8%).

13.2. The concept of property used in item 28 of the GTST

The concept of "properties with housing use" used in item 28.1[5] is not expressly defined in any provision of the Stamp Tax Code nor in the CMPT, statute to which Article 67(2) of the Stamp Tax Code refers.

In the case of these proceedings, whether one considers the entire property (building) of the Claimant in vertical property or each of the respective autonomous units, it is (not contested) property classified as urban and housing in accordance with the criteria established in Articles 2, 4 and 6 of the Municipal Property Tax Code, applicable by cross-reference from Article 67 of the Stamp Tax Code.

Thus, only at issue is the exact meaning of the segment "taxable property value considered for the purposes of Municipal Property Tax", contained in the incidence provision of stamp tax in item 28 of the GTST: in the case of properties in full ownership but with storeys or units susceptible of independent use, with housing use, the TPV relevant corresponds to the sum of the TPV of the various units/storeys, as the Tax Authority contends, or what must be taken into account is the TPV of each of the respective storeys or autonomous units, as the Claimant argues?

Now that segment is integrated in a text that defines as the object of incidence of stamp tax "Ownership, usufruct or right of superficies of urban properties whose taxable property value entered in the register, in accordance with the Code of Municipal Property Tax (CMPT), is equal to or greater than € 1,000,000 – on the taxable property value for the purpose of Municipal Property Tax" (emphasis ours).

As has been repeatedly invoked and admitted, the Municipal Property Tax Code consecrates, both with respect to property register entry and discrimination of the respective taxable property value, and with respect to the assessment of the tax, the autonomization of parts of urban property susceptible of independent use and the segregation/individualization of the TPV relating to each storey or part of property susceptible of independent use[6].

Thus, each property corresponds to a single entry in the register (Article 82(2) of the CMPT) but, according to Article 12(3) of the same Code, referring to the concept of property register (record of the property, its characterization, location, TPV and ownership), "each storey or part of property susceptible of independent use is considered separately in the property register entry, which discriminates the respective taxable property value", not taking as reference the sum of the values attributed to the autonomous parts of the same property, but the value attributed to each of them individually considered.

As for the assessment of Municipal Property Tax - application of the rate to the tax base - Article 119(1) provides that "the competent collection document" contains the "discrimination of the properties, their parts susceptible of independent use, respective taxable property value and the tax assessment (…)".

That is, the rule is autonomization, characterization as "property" of each part of a building, provided that it is functionally and economically independent, susceptible of independent use[7], in accordance with the concept of property defined at the outset in Article 2(1) of the CMPT: property is any fraction (of territory, encompassing waters, plantations, buildings and constructions of any nature incorporated therein or erected thereon, with a character of permanence) provided it forms part of the assets of a natural or legal person and, under normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, under the preceding circumstances, endowed with economic autonomy (presentation and emphasis ours).[8]

Thus, when Article 2(4) provides that "For the purposes of this tax, each autonomous fraction, under the horizontal property regime, is regarded as constituting a property", it does not actually establish a regime that is exceptional or special for properties in horizontal property.

After all, each building in horizontal property (Article 92) has only one property register entry (No. 1), generically describing the building and mentioning the fact that it is under the horizontal property regime (No. 2) and the property register autonomy is realized in the attribution to each of the autonomous fractions, described in detail and individualized, of a capital letter, according to alphabetical order (No. 3). This appears to be the specificity of buildings in horizontal property; in other cases, of properties in vertical property or full ownership, units or storeys with autonomy but without the status of horizontal property, the register also consecrates autonomy but highlighting the units with indication of the type of floor/storey.

Nor does the reasoning that has been presented by the Tax Authority based on the importance of horizontal property and legislative incentive to its development appear acceptable. Indeed, no elements of interpretation are identified in Law No. 55-A/2012, of 29 October, that would allow identification and legitimation of a purpose (extra-fiscal) in the sense defended by the Respondent. Rather, it appears that such discrimination, unexpected, would risk violating the principle of legitimate expectation...

Nor does the existence of the financial crisis, also invoked, appear capable of substantiating by itself a different treatment of properties in horizontal and vertical property regimes. A different incidence for realities that are largely identical would hardly escape the accusation of arbitrariness, especially since there is, indeed, the risk that situations generally related to lower tax capacity (they are the older properties, related to rents more difficult to update, those that generally maintain the form of full or vertical property ownership) would be those covered by more onerous tax treatment.

Nor is the Tax Authority's reasoning convincing (point 6 of the Response) that although the assessment of Stamp Tax, in the situations provided for in item 28.1 of the GTST, is carried out in accordance with the rules of the CMPT, the legislator makes allowances for aspects that require the necessary adaptations, as is the case of properties in full ownership, even though with storeys or units susceptible of independent use (emphasis ours), in which despite Municipal Property Tax being assessed in relation to each unit susceptible of independent use "for the purposes of Stamp Tax what is relevant is the property in its entirety since the units susceptible of independent use are not regarded as property, but only autonomous fractions under the horizontal property regime, in accordance with Article 2(4) of the CMPT." (point 8 of the Response). The question is that, precisely, the reason why the "adaptations" to the CMPT rules, advocated by the Tax Authority, should be accepted requires demonstration.

All considered, no reason is found to, in matters of incidence of Stamp Tax provided for in item 28.1 of the GTST, give to fractions of properties in "vertical property", endowed with autonomy, treatment different from that granted to properties in horizontal property, when in any of those situations Municipal Property Tax is applied to the taxable property value evidenced in the register for each of the autonomous units.

13.3. The ratio legis of items 28 and 28.1 of the GTST

The interpretation above sustained, stemming from the analysis of the letter of the law and its insertion in the set of other applicable tax rules, is the most consonant with the spirit of the legislative amendments introduced by Law No. 55-A/2012, of 29 October.

As has already been evidenced in other arbitral awards, "the legislator in introducing this legislative innovation considered as a determining element of tax capacity urban properties, with housing use, of high value (luxury), more precisely, of value equal to or greater than €1,000,000.00 on which was applied a special rate of stamp tax, intending to introduce a principle of taxation of wealth expressed in the ownership, usufruct or right of superficies of luxury urban properties with housing use. For this reason, the criterion was the application of the new rate to urban properties with housing use, whose TPV is equal to or greater than € 1,000,000.00". (...) "The substantiation of the measure designated as 'special rate on residential urban properties of the highest value' is based on the invocation of the principles of social equity and fiscal justice, calling to contribute in a more intense manner the holders of high-value properties intended for housing, bringing about the new special rate on 'houses of value equal to or greater than 1 million euros. Clearly the legislator understood that this value, when attributed to a housing unit (house, autonomous fraction or storey with independent use) expresses a tax capacity above average and, as such, capable of determining a special contribution to ensure the fair distribution of the tax burden."[9]

And, as already mentioned, it appears to entirely lack adherence to reality the sustenance of the thesis that the holding of fractions devoid of the status of horizontal property denotes greater tax capacity than if they are provided with such a nature….

On the contrary, in the majority of cases, as evidenced by Arbitral Decision No. 50/2013, "many of the properties existing in vertical property are old, with undeniable social utility, for in many cases they house residents with modest and more accessible rents, factors that must necessarily be taken into account."

Thus, it is considered correct the interpretation that item 28 of the GTST does not encompass each of the storeys, units or parts susceptible of independent use when only from the sum thereof results a TPV greater than that provided for by the same item.

As decided in other arbitral proceedings, this tribunal considers that regarding the date of constitution of the tax obligation, tax connection, determination of the tax base, assessment and payment of the stamp tax in question, the corresponding rules of the CMPT are applicable, by express cross-reference from Articles 5(1)(u), 4(6), 23(7), 44(5), 46(5) and 49(3) of the Stamp Tax Code.

To subject to the new stamp tax autonomous parts without the legal status of horizontal property and not subject any of the housing fractions if the property were under the horizontal property regime would constitute a violation of the constitutional principle of equality, treating equal situations in different ways.

Nor can one ignore the incoherence, in terms of taxation of assets, of the different treatment given to holders of fractions concentrated in the same property or dispersed among different properties….

In the case of these proceedings, inasmuch as none of the "fractions" of any of the buildings in question presents, per se, "value equal to or greater than 1 million euros", there is no place for the incidence of item 28 provided in the General Table of Stamp Tax.

14. Other issues: non-existence of the TPV assumption, double collection, error in application of rate and annulment of execution proceedings

Having the arbitral tribunal decided on the non-applicability of item 28.1 of the GTST to the present case, the examination of the remaining defects that may affect the contested assessments becomes moot for procedural purposes.

As for the execution proceedings (whose annulment the Claimant requests at the end of the arbitral petition) stemming from the assessments subject to examination in the present decision, account shall be taken of the provisions of Articles 24 of the RJAT, 176(1)(b) and 270 of the General Code of Tax Procedure, and 142 of the Code of Administrative Procedure[10].

15. Conclusion

Thus, the present arbitral tribunal concludes that the assessments of Stamp Tax, based on items 28/28.1 of the GTST, relating to each of the storeys or parts susceptible of independent use, property of the Claimant, subject to these proceedings, are affected by illegality, because the said provisions cannot be interpreted in the sense of their application to storeys or parts susceptible of independent use of a property in vertical property, when only from the sum of each of those storeys or parts is a TPV equal to or greater than € 1,000,000.00 (one million Euros) achieved, not exceeding the TPV of each of the said storeys or parts that legal threshold.

And, as results from the facts established, none of the storeys intended for housing, of the property in vertical property subject to these proceedings, has taxable property value equal to or greater than €1,000,000.00, and the legal assumption for incidence of Stamp Tax provided for in Item 28 of the GTST is not met with consequent illegality of the assessments subject to the petition for arbitral determination.

16. Compensation for undue guarantee

The Claimant, despite some ambiguity at the end of the initial petition, requested condemnation to the payment of compensation for the provision of an undue guarantee. Article 171 of the General Code of Tax Procedure establishes that "compensation in case of undue bank guarantee or equivalent shall be requested in the proceedings in which the legality of the debt being executed is disputed" and that "compensation must be requested in the claim, challenge or appeal or in case its substantiation is subsequent within 30 days after its occurrence".

As has been decided in many proceedings in the context of the CAAD[11], when the legality of the debt being executed is disputed in arbitral proceedings, these proceedings are appropriate for examining the request for compensation for undue guarantee[12], under Articles 53 of the General Tax Law and 171 of the General Code of Tax Procedure.

Given that the assessments in question in these proceedings were made solely on the initiative of the Tax Administration, with the Claimant in no way contributing to their execution, the Claimant is entitled to compensation for the expenses actually incurred with the provision of the guarantee, pursuant to Article 53(2) of the General Tax Law, from the date on which they were constituted until the day they are released, with the limit provided for in Article 53(3) of the same statute, namely, "the amount resulting from the application to the guaranteed value of the rate of indemnificatory interest".

The Claimant submitted, at the Lisbon Tax Service …, a request for suspension of the execution proceedings of the amounts owed (proven facts, 11.8), attaching a declaration, dated 15 April 2014, by F of the provision of a bank guarantee in favor of the Directorate-General of Contributions and Taxes up to the amount of € 15,153.48, valid for three months renewable.

These elements as well as the statement of the issuing bank entity also attached to the proceedings allow verification of aspects of the guarantee regime and inclusively its annual cost but, beyond the fact that no data exist on the evolution of the situation at the Tax Service, it is not properly proven what the expense actually incurred by the Claimant with the provision of guarantee was.

With no elements that would allow determination of the amount of compensation, the condemnation will have to be made with reference to what shall be assessed in execution of this award (Articles 609 of the Code of Civil Procedure of 2013 and 565 of the Civil Code).

17. Decision

With the grounds stated, the arbitral tribunal decides:

a) Judge the petition for arbitral determination well-founded and, consequently, declare illegal the assessments of Stamp Tax contained in the Assessment Documents numbered 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…, with all legal consequences.

b) Judge the request for recognition of the Claimant's right to compensation for undue guarantee well-founded and order the Tax and Customs Authority to pay to the Claimant the compensation that shall be assessed in execution of this award, relating to the expenses with the guarantee provided to suspend execution relating to the assessments referred to.

c) Order the Tax Authority to bear the costs.

18. Value of the case

In accordance with Article 315(2) of the Code of Civil Procedure, Article 97-A(1)(a) of the General Code of Tax Procedure and Article 3(2) of the Costs Regulation in Tax Arbitration Proceedings, the case is assigned the value of € 11,542.45 (eleven thousand, five hundred and forty-two euros and forty-five cents)[13].

19. Costs

For the purposes of Article 12(2) and Article 22(4) of the RJAT and Article 4(4) of the Costs Regulation in Tax Arbitration Proceedings, the amount of costs is fixed at € 918.00 (nine hundred and eighteen euros), in accordance with Table I attached to said Regulation, to be borne entirely by the Respondent.

Notify.

Lisbon, 14 November 2014.

The Arbitrator

(Maria Manuela Roseiro)

[Text prepared by computer, in accordance with Article 131(5) of the Code of Civil Procedure (CCP), applicable by cross-reference from Article 29(1)(e) of the Tax Arbitration Legal Regime. The drafting of this decision follows the spelling prior to the 1990 Orthographic Agreement]

[1] There is a discrepancy with the reference in No. 6 of the arbitral petition (parish of … and property article …), repeated in No. 2 of the Response.

[2] Cf., by all, Award of the Supreme Administrative Court of 07/05/2014, in proc. 01412 « (...) as is known and has been affirmed repeatedly and uniformly by the jurisprudence of this section, in the field of tax contentious matters, as a rule the defects of tax acts are grounds for their voidability, only implying their nullity when there is a lack of any of the essential elements of the act or when there is a law that expressly provides for this form of invalidity (Articles 133 and 135 of the Code of Administrative Procedure) – cf. in this sense, among many others, the Awards of this Section of 23.11.2005, appeal 612/05, of 13.02.2008, appeal 886/07, of 21.05.2008, appeal 220/08, of 25.05.2011, appeal 91/11, of 21.09.2011, appeal 63/11, of 2.11.2011, appeal 158/11, and of 6.06.2012, appeal 611/11, all in www.dgsi.pt. Also Mário de Aroso de Almeida and Carlos Alberto Fernandes Cadilha mention in their Commentary on the Code of Procedure in Administrative Courts, vol. I, p. 247, "nullity constitutes the regime of exception, whereas voidability is the regime of rule. This is what is inferred from the provisions of Article 135 of the Code of Administrative Procedure, according to which are voidable "administrative acts performed with violation of the principles or legal norms applicable for whose violation another sanction is not provided." Article 133 Nos. 1 and 2 (d) of the Code of Administrative Procedure provides that null are acts lacking any of the essential elements or for which the law expressly provides that form of invalidity, namely acts that violate the essential content of a fundamental right. However, such acts must be those that contend with the rights, freedoms and guarantees of citizens. But not those that contend with the principle of legality, as is the case of the present proceedings." See also, regarding the concept of nullity in administrative law, Marcelo Rebelo de Sousa, considering that nullity corresponds to the lack of any of the essential elements of the act, where the cases of minimum organic non-identifiability fall, and the cases of minimum material non-identifiability (Legal Non-existence, DJAP, volume V, page 242, cited namely by Award of the Supreme Administrative Court of 21/09/2011, proc. 063/11).

[3] Regarding the application of item 28 of the GTST in the case of properties in vertical property, awards are already published on the CAAD website, namely, in proceedings Nos. 50/2013-T; 132/2013-T; 181/2013-T; 182/2013-T;183/2013-T; 185/2013-T; 240/2014-T; 248/2013-T; 268/2014-T; 280/2014-T.

[4] We shall reproduce, in large part, the text of the award issued in the context of the CAAD, in proceedings No. 194/2014-T decided by a panel with the participation of the undersigned.

[5] The wording of this provision was amended by Law No. 83-C/2013, of 31 December, proceeding to use the concept "residential property", but the assessments subject to these proceedings have reference to the year 2012.

[6] "Another aspect that should be evidenced in the register has to do with the need to make relevant the autonomy that, within the same property, can be attributed to each of its parts, functionally and economically independent. In these cases, the property register entry not only must make reference to each of the parts but must make express reference to the taxable property value corresponding to each one of them" (Silvério Mateus and Freitas Corvelo, "Real Property Taxes and Stamp Tax, Commented and Annotated", Engifisco, Lisbon 2005, pages 159 and 160). And the same authors further stated (ibidem, p. 160): "This autonomization of the autonomous parts of a property, applicable especially to urban properties, was justified in the context of the former Property Contribution in which the taxable income corresponded to the rent or rental value of each of those components, continued to be justified in the case of Municipal Contribution in which the taxable property value had underlying the actual or potential rent and continues to be relevant in Municipal Property Tax, given that the appreciation factors provided for in Articles 38 et seq. may not be the same for all those components (...) the fact that a property is or is not rented continues to be relevant for the purposes of determining the taxable property value both for Municipal Property Tax purposes and for Municipal Transfer Tax purposes (see Article 17 of Decree-Law 287/2003)" (they referred to the original wording "transitional regime for rented urban properties", a rule to be reviewed, according to its No. 5, when the law on urban leasing was revised, which happened with Law No. 6/2006, of 27/02).

[7] On this aspect, and in the line of the comment cited in the previous note, see the reasoning contained in decision No. 248/2013-T: "The autonomization in the register of the parts functionally and economically independent of a property in full ownership relates to reasons of fiscal and extra-fiscal nature. On the fiscal plane, such autonomization has to do with the very determination of the taxable property value, which constitutes the tax base of Municipal Property Tax, given that the formula for determining that value, provided for in Article 38 of the same Code, includes indices that vary depending on the use attributed to each of those parts. On the extra-fiscal plane, such autonomization continues to find justification in the relevance attributed to the taxable property value of properties and their autonomous parts in the legislation on urban leasing." It also mentions Article 15-O(1) of Decree-Law No. 287/2003, of 12/11, added by Law No. 60-A/2011, of 30/11 (providing that the safeguard clause relating to the worsening of taxation in Municipal Property Tax resulting from the general assessment of urban properties is applicable per property or part of urban property that is the subject of said assessment) as confirming the individualization, for tax purposes, of the autonomous parts of urban properties.

[8] As noted in Proc. 132/2013: "The norms (...) listed consecrate the principle of autonomization of the independent parts of an urban property, even when it is not constituted in horizontal property. That is, each part susceptible of independent use must be, for the purposes of Municipal Property Tax, valued in light of its specificities and use, resulting in an autonomous TPV, identifiable and corresponding to each part susceptible of independent use."

[9] Excerpts from the Award in proceedings No. 50/2014-T, also referring to the Arbitral Award in proceedings No. 48/2013-T, regarding the analysis of the Discussion of the legislative proposal in the National Assembly.

[10] Regarding the extinction of execution proceedings as an example of tasks to be performed to eliminate acts consequent to annulled assessments as well as the voluntary performance by the Administration and other eventual diligences, cf. Jorge Lopes de Sousa, Guide to Tax Arbitration, Almedina 2013, pp. 213/214.

[11] Cf., for example, proceedings issued in the context of the CAAD, Nos. 28/2013-T; 69/2013-T; 224/2013-T; 202/2014-T.

[12] As in the judicial challenge proceedings, essentially a proceedings of mere annulment (Articles 99 and 124 of the General Code of Tax Procedure), condemnation of the tax administration to the payment of indemnificatory interest and compensation for undue guarantee may be issued. Article 53(3) of the General Code of Tax Procedure provides that "The compensation referred to in No. 1 has as its maximum limit the amount resulting from the application to the guaranteed value of the rate of indemnificatory interest provided for in the present law and can be requested in the complaint or judicial challenge proceedings itself, or autonomously."

[13] Value also indicated in the Response of the Tax Authority (point 1) as corresponding to the amount of the assessments made.

Frequently Asked Questions

Automatically Created

How does Verba 28.1 of the TGIS apply to vertical property (propriedade vertical) for Stamp Tax purposes?
Verba 28.1 of the TGIS applies to ownership, usufruct, or superficies rights over urban properties with taxable patrimonial value equal to or exceeding €1,000,000 as registered under the Municipal Property Tax Code (CMPT). The key controversy in vertical property cases is whether the €1,000,000 threshold applies to the property as a whole or to each independent unit separately. Claimants argue that vertical property, like horizontal property, consists of economically and functionally independent parts registered separately under Article 12(3) of the CMPT, and therefore each unit should be assessed individually. If individual units are all valued below €1,000,000, they should not be subject to Stamp Tax under Verba 28.1, even if the aggregate property value exceeds this threshold. The Tax Authority's position of assessing based on global value while enforcing against individual units has been challenged as contradictory and discriminatory treatment compared to horizontal property regime.
Can Imposto do Selo be challenged through CAAD arbitration when applied to inherited urban properties?
Yes, Stamp Tax (Imposto do Selo) assessments can be challenged through CAAD (Centro de Arbitragem Administrativa) arbitration proceedings, including when applied to inherited urban properties. Under Article 10 of Decree-Law 10/2011 (RJAT - Tax Arbitration Legal Regime), taxpayers may submit petitions for arbitral tribunal constitution to examine the legality of tax acts, including Stamp Tax assessments under Verba 28 TGIS. In inheritance contexts, the head of the undivided estate has standing to file the arbitration petition on behalf of the estate. The arbitration process involves: petition filing with supporting documentation and assessment documents, appointment of arbitrator(s), notification of the Tax Authority to file a response, optional hearings, and issuance of an arbitration award. Taxpayers can request suspension of tax enforcement proceedings during arbitration by presenting bank guarantees or other acceptable securities to the relevant tax service, as documented in the case file through formal requests.
What is the correct taxable patrimonial value for Stamp Tax liquidation under Law 55-A/2012?
Under Law 55-A/2012, Article 6(1)(c), the correct taxable patrimonial value for Stamp Tax assessment under Verba 28.1 TGIS is determined by reference to the Municipal Property Tax Code (CMPT) rules for the prior year (2011 for 2012 tax period). Specifically, pursuant to Article 113(1) of the CMPT, the taxable property value to be used is that appearing in the registers on December 31 of the year to which the tax refers. For 2012 assessments, this means the TPV in force on December 31, 2012 should be applied. Importantly, when property is registered in vertical property regime with independent parts, storeys or units, the CMPT assessment rules require individual valuation of each autonomous unit, similar to horizontal property fractions. Therefore, the relevant TPV for each unit should be its individual registered value, not the sum of all units. The €1,000,000 threshold applies to each housing unit individually to determine luxury property status warranting the special Stamp Tax rate.
Are individual units in a vertical property subject to separate Stamp Tax assessments under Verba 28 TGIS?
Individual units in vertical property should be subject to separate Stamp Tax assessments under Verba 28 TGIS, following the same principles applicable to horizontal property fractions. Article 12(3) of the CMPT establishes that parts within the same property that are economically and functionally independent are relevant for property register purposes, requiring individual registration and assessment. When property is constituted in vertical property regime consisting of parts, storeys or units with independent use, the Municipal Property Tax (IMI) is assessed individually for each part. Consequently, Stamp Tax under Verba 28.1 should follow the same criterion, applying the €1,000,000 threshold to each autonomous unit rather than the aggregate property value. Assessing based on global TPV while the Tax Authority institutes separate enforcement proceedings for each individual unit creates a legal contradiction. This interpretation aligns with the legislative intent of Law 55-A/2012 to tax luxury housing units individually valued at €1,000,000 or more, reflecting exceptional tax capacity, rather than penalizing properties with multiple modest-value units simply because their aggregate exceeds the threshold.
What procedural steps are required to suspend tax enforcement during CAAD arbitration proceedings?
To suspend tax enforcement during CAAD arbitration proceedings, taxpayers must present adequate guarantees to the competent tax service. The procedural steps include: (1) filing the arbitration petition at CAAD identifying the contested tax assessments and amounts; (2) obtaining or arranging appropriate securities, typically bank guarantees issued by financial institutions covering the disputed tax debt plus potential interest and costs; (3) presenting the guarantee documents formally to the relevant Tax Service (Serviço de Finanças) with explicit request for suspension of enforcement proceedings pursuant to tax procedure rules; (4) requesting that evidence of guarantee presentation be attached to the CAAD arbitration case file through formal motions to the arbitral tribunal; and (5) monitoring that enforcement proceedings are actually suspended by the Tax Authority upon guarantee acceptance. In Process 245/2014-T, the claimant submitted requests on April 23 and June 30, 2014 to attach to the arbitration file documents evidencing presentation of a bank guarantee at the Lisbon Tax Service for suspension of enforcement instituted for collection of the disputed debts. The guarantee must remain in force throughout the arbitration proceedings and until final resolution of the tax dispute.