Process: 254/2014-T

Date: September 15, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitral decision addresses the application of Stamp Tax under item 28.1 of the General Stamp Tax List (GSTL) to properties with independent units. The Claimant owned a building in full ownership with 17 floors or divisions capable of independent use, 13 residential, with a total Tax Asset Value (VPT) of €1,915,770. Each individual residential unit had a VPT below €139,750, well under the €1,000,000 threshold. The Tax Authority assessed €7,966.75 in Stamp Tax for 2012, calculating the tax based on the aggregate VPT of all residential units. The Claimant challenged this assessment on three grounds: first, arguing that the relevant VPT should be each independent unit's individual value rather than the cumulative total, meaning no tax was due since no single unit exceeded €1,000,000; second, contending that Law 55-A/2012 violated constitutional non-retroactivity principles by applying to 2012 when enacted on October 29, 2012; and third, claiming violation of the equality principle by treating properties in full ownership differently from horizontal property ownership. The Tax Authority defended its position that item 28.1 applies to the total VPT of the urban property regardless of internal divisions, that no retroactivity exists since the taxable event occurred on December 31, 2012 (after the law's enactment), and that the interpretation was legally sound. The case involves fundamental questions about tax base determination for properties with independent units not constituted as horizontal property, the temporal application of tax legislation, and constitutional principles governing tax equality. This decision has significant implications for owners of buildings with multiple independent residential units worth collectively over €1,000,000 but individually below that threshold.

Full Decision

ARBITRAL DECISION

Claimant – A...

Respondent – Tax and Customs Authority

Subject Matter – Stamp Tax

  1. REPORT

1.1. A..., taxpayer no. …, domiciled at Rua …, Porto, hereby, pursuant to Article 10 of Decree-Law No. 10/2011, of 20 January ("RJAT"), requests the constitution of an Arbitral Tribunal.

The Claimant requests a decision with a view to declaring illegal, with all legal consequences, namely, with recognition of the right to compensatory interest, the tax acts assessing Stamp Tax issued by the Tax and Customs Authority, in the amount of € 7,966.75 ("Contested tax acts").

The Claimant considers that the tax acts assessing Stamp Tax, underlying the aforementioned notifications, should be annulled in as much as they are vitiated by error in legal prerequisites, since the Tax Asset Value ("TAV") relating to each of the floors or divisions capable of independent use, with residential use, which constitute the property registered in article … of the urban property register of the parish of ..., municipality of Porto, is less than € 1,000,000.

The Claimant further contends that the Contested tax acts violate the principle of non-retroactivity of taxes, enshrined in Article 103, paragraph 3 of the Constitution of the Portuguese Republic.

Finally, the Claimant considers that the interpretation made by the Tax and Customs Authority is inconsistent with the principle of equality, constitutionally enshrined, by conferring different treatment on properties that have been constituted as horizontal property ownership and properties in full ownership with floors or divisions capable of independent use.

1.2. The Tax and Customs Authority replied, raising no preliminary issues and contending, as to the merits of the Claimant's claim, that the request made should not succeed.

The Tax and Customs Authority contests the Claimant's position since, in its opinion, the property value relevant for purposes of tax incidence is the total TAV of the urban property and not the TAV of each of the parts that compose it, even if capable of independent use.

The Tax and Customs Authority likewise contends that the principle of non-retroactivity of taxes is not verified in the present case, since the taxable event for Stamp Tax in 2012 occurred on 31 December 2012 and Law No. 55-A/2012 is prior to this taxable event.

1.3. After the Parties were heard, it was decided not to hold the meeting provided for in Article 18 of the RJAT, and it was also agreed that there was no need for the parties to submit written submissions.

  1. ASSESSMENT OF ADMISSIBILITY

The tribunal was regularly constituted and is competent ratione materiae, in accordance with Article 2 of the RJAT.

The parties have legal personality and capacity, show themselves to be legitimate and are regularly represented (cf. Articles 4 and 10, paragraph 2 of the RJAT and Article 1 of Regulation No. 112-A/2011, of 22 March).

No procedural defects were identified in the proceedings.

  1. SUBJECT MATTER OF THE ARBITRAL DECISION

The following are disputed in the present proceedings:

a) whether the TAV relevant for purposes of tax incidence of Stamp Tax provided for in item 28.1 of the GSTL, when a property not constituted as horizontal property ownership is involved, is that corresponding to the sum of the TAV of the areas with residential use of urban property in full ownership or the individual TAV of each floor or division capable of independent use, with residential use;

b) recognition of the right to compensatory interest on the amount of tax paid.

  1. GROUNDS FOR DECISION

4.1. Factual Matters

4.1.1. Facts Deemed Proven

a) The Claimant is owner of the urban property in full ownership with floors or divisions capable of independent use, registered in article ... of the urban property register of the parish of ...;

b) The property in question is composed of seventeen floors or divisions capable of independent use and has a total TAV of € 1,915,770.00 (documents no. 1 and 7, attached with the request for arbitral decision, the contents of which are reproduced);

c) Of the aforementioned floors or divisions capable of independent use, thirteen areas or divisions (namely, the areas or divisions 1st D, 1st E, 2nd D, 2nd E, 3rd D, 3rd E, 4th D, 4th E, 5th D and 5th E, 6th D, 6th E and 7th D) are designated for residential use and have, individually, a TAV not exceeding € 139,750.00 (documents no. 1 and 7, attached with the request for arbitral decision, the contents of which are reproduced);

d) On 7 November 2012, the Tax and Customs Authority issued assessments of Stamp Tax relating to 2012, totalling € 7,966.75, levied on the divisions capable of independent use, mentioned in the preceding point, belonging to the property registered in article ... of the urban property register of the parish of ..., made pursuant to Article 6, paragraph 1, subparagraph f), sub-item i) of Law No. 55-A/2012, of 29 October (document no. 1, attached with the request for arbitral decision, the contents of which are reproduced);

e) On an undetermined date, the Claimant was notified of the tax acts assessing Stamp Tax nos. 2012 ..., 2012 ..., 2012 ..., 2012 ..., 2012 ..., 2012 ..., 2012 ..., 2012 ..., 2012 ..., 2012 ..., 2012 ..., 2012 ..., 2012 ..., relating to the year 2012, in the total amount of € 7,966.75;

f) On 20 December 2012, the Claimant made payment of the Contested tax acts (document no. 5, attached with the request for arbitral decision, the contents of which are reproduced);

g) On 15 April 2013, the Claimant filed a request for administrative review of the Contested tax acts, which was wholly dismissed by order dated 31 December 2013 (documents no. 2 and 3, attached with the request for arbitral decision, the contents of which are reproduced).

4.1.2. Facts Deemed Not Proven

There are no facts relevant to the decision that are deemed not proven.

4.1.3. Substantiation of the Proven Factual Matters

The facts deemed proven are based on the documents indicated in point 4.1.1. above, whose authenticity and correspondence to reality were not questioned.

4.2. On the Law

4.2.1. With respect to the merits of the case, the issues which are the subject of the present proceedings are whether (i) the Contested tax acts suffer from the defect of violation of law due to error in legal prerequisites by considering the sum of the TAV of the areas with residential use of urban property in full ownership, to the detriment of the individual TAV of each floor or division capable of independent use, with residential use, for purposes of tax incidence of Stamp Tax provided for in item 28.1 of the GSTL, and if (ii) the same acts violate the principle of non-retroactivity of tax law and the principle of tax equality.

4.2.2. Paragraph 1 of Article 1 of the Stamp Tax Code provides that "Stamp tax is levied on all acts, contracts, documents, titles, papers and other legal facts or situations provided for in the General Table, including gratuitous transfers of property."

Item 28.1 of the GSTL, introduced by Article 4 of Law No. 55-A/2012, of 29 October, has, at the date of the facts, the following wording:

"Ownership, usufruct or right of superficies of urban properties whose tax asset value recorded in the register, pursuant to the Urban Real Estate Tax Code (URET), is equal to or greater than (euro) 1,000,000 - on the tax asset value used for IMI purposes:

28.1 Per property with residential use: 1%"

Article 6 of Law No. 55-A/2012 provides for the rules applicable to the assessment of Stamp Tax to the factual situation provided for in item 28.1, and in particular:

"Article 6

Transitional Provisions

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

a) The taxable event occurs on 31 October 2012;

b) The taxpayer is the one mentioned in paragraph 4 of Article 2 of the Stamp Tax Code on the date referred to in the preceding subparagraph;

c) The tax asset value to be used in the assessment of the tax corresponds to that resulting from the rules provided for in the Urban Real Estate Tax Code by reference to the year 2011;

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

e) The tax must be paid, in a single instalment, by taxpayers by 20 December 2012;

f) The applicable rates are as follows:

i) Properties with residential use assessed pursuant to the Urban Real Estate Tax Code: 0.5%;

ii) Properties with residential use not yet assessed pursuant to the Urban Real Estate Tax Code: 0.8%;

iii) Urban properties when the taxpayers who are not natural persons are resident in a country, territory or region subject to a clearly more favourable tax regime, listed in the list approved by order of the Minister of Finance: 7.5%.

2 - In 2013, the assessment of stamp tax provided for in item no. 28 of the respective General Table must be based on the same tax asset value used for purposes of assessment of urban real estate tax to be made in that year.

3 - The failure to deliver, in whole or in part, within the time limit indicated, of the amounts assessed under stamp tax constitutes a tax infraction, punished pursuant to law."

From the above it results that urban properties (that is, "all those that should not be classified as rural"[1]), with residential use, whose TAV recorded in the register is equal to or greater than € 1,000,000.00 are subject to Stamp Tax. The applicable rate is, generically, 1% (exceptionally, 0.5% for 2012) and must be levied "on the tax asset value used for urban real estate tax purposes."

In the situation under analysis, there is no doubt that we are dealing with an urban property, within the terms provided for in Article 6 of the Urban Real Estate Tax Code ("URET"). Specifically, it is a property composed of seventeen floors or divisions capable of independent use, thirteen of which with residential use, which has a total TAV – that is, resulting from the sum of the TAV relating to each autonomous unit – of € 1,915,770.00.

The Tax Authority considered that there was tax incidence of Stamp Tax under item 28.1 of the GSTL, applicable in accordance with Article 6, paragraph 1, subparagraph f), sub-item i) of Law No. 55-A/2012, of 29 October, with reference to the thirteen floors or divisions capable of independent use with residential use, because, although each individual TAV does not exceed € 139,750.00, the sum of their respective TAV exceeds the threshold of € 1,000,000.00.

In this context, it is necessary to determine whether, in the case of properties in full ownership with floors or divisions capable of independent use, as occurs in the concrete situation under analysis, the TAV to be considered for purposes of tax incidence of Stamp Tax in light of item 28.1 of the GSTL should correspond to the TAV of each floor or division with residential use or, differently, to the total TAV of the property, or still, as per the procedure adopted by the Tax Authority, to the sum of the TAV corresponding to each floor or division capable of independent use with residential use.

Article 9 of the Stamp Tax Code provides that the taxable value to be considered is that which results from the GSTL.

In turn, item 28.1 of the GSTL states that the TAV to be used in the assessment of Stamp Tax corresponds to that resulting from the rules provided for in the Urban Real Estate Tax Code ("on the tax asset value used for urban real estate tax purposes").

Furthermore, paragraph 2 of Article 67 of the Stamp Tax Code expressly provides that "Matters not regulated in this Code relating to item no. 28 of the General Table are subject, subsidiarily, to the provisions of the URET Code".

Therefore, it is necessary to take into account the rules provided for in the Urban Real Estate Tax Code.

This tax code provides in its Article 7 that:

"1 – The tax asset value of properties is determined pursuant to this Code.

2 – The tax asset value of urban properties with parts that can be classified in more than one of the classifications in paragraph 1 of the preceding article is determined:

(...)

b) If the different parts are economically independent, each part is assessed by application of the corresponding rules, and the value of the property is the sum of the values of its parts."

The above-mentioned provisions enshrine the principle of autonomization of independent parts of an urban property, even when not constituted as horizontal property ownership. That is, each part capable of independent use must be, for urban real estate tax purposes, valued in light of its specificities and use, resulting in an autonomous TAV, individualizable and corresponding to each part capable of independent use.

In turn, paragraph 3 of Article 12 of the Urban Real Estate Tax Code provides that "Each floor or part of a property capable of independent use is considered separately in the property register entry, which also itemizes its respective tax asset value."

Once again, the Urban Real Estate Tax Code enshrines the principle of autonomization of independent parts of an urban property and highlights the segregation/individualization of the TAV relating to each floor or part of property capable of independent use.

On the other hand, it is important to bring to attention the principle of universality of TAV, according to which the assessment carried out pursuant to the Urban Real Estate Tax Code has full application in the remaining taxes, including in Stamp Tax. There is thus a harmonization of TAV for purposes of taxation of income and wealth in the various taxes, in the sense that the TAV determined in accordance with the rules enshrined in the Urban Real Estate Tax Code prevails for purposes of the remaining taxes, namely, in IMT, in income taxes and in Stamp Tax, without prejudice to applicable special rules.

Therefore, in light of the Urban Real Estate Tax Code, each autonomous part of the property has its own TAV, constituting the taxable value for purposes of this tax, and therefore this should be the taxable value for purposes of Stamp Tax, namely, in the domain of application of item 28.1 of the GSTL which, moreover, expressly requires it by mentioning that the value to be considered is the "tax asset value used for urban real estate tax purposes."

With respect to Article 2, paragraph 4 of the Urban Real Estate Tax Code invoked by the Tax Authority to argue that Stamp Tax is levied on the property in its entirety, since floors or divisions capable of independent use are not considered as property (in contrast to what happens with autonomous fractions), we consider that the same should not merit acceptance.

In effect, the rationale for the aforementioned provision lies in the fact that the autonomous fraction may belong to a single owner, whereby in light of the provisions contained in the aforementioned tax code, it must be treated as property. This does not mean that, by opposition, floors or divisions capable of independent use have a completely distinct tax treatment.

It is important to note that floors or divisions capable of independent use and autonomous fractions are, in substance, identical realities.

Indeed, both realities – floors or divisions capable of independent use and autonomous fractions – meet the requirements provided for in Article 1415 of the Civil Code, namely, (i) are independent units, (ii) distinct and isolated from each other and (iii) with their own exit to a common part of the property or to public way.

These realities differ only because, in the first case, the constitution of the property as horizontal property ownership has not been formalized, in which case there cannot be different owners for the different areas, except in a regime of co-ownership.

Furthermore, the Tax Authority's position is incoherent and lacks legal foundation, since it does not consider the individual TAV of each floor or division capable of independent use but takes into account its use (namely, residential use) to levy Stamp Tax.

Accordingly, the Tax Authority's position does not merit acceptance.

Given the foregoing, it is to be concluded that for purposes of assessment of Stamp Tax provided for in item 28.1 of the GSTL, the TAV determined in accordance with the Urban Real Estate Tax Code must be taken into consideration, that is, in the specific case of properties in full ownership with floors or divisions capable of independent use, the individual TAV of each of the floors or divisions capable of independent use.

For the reasons stated, none of the floors or divisions capable of independent use of the urban property registered in article ... of the urban property register of the parish of ..., property of the Claimant, has a TAV equal to or greater than € 1,000,000.00, and therefore no Stamp Tax is levied under item 28.1 of the GSTL.

In light of the foregoing, the assessments whose declaration of illegality is requested by the Claimant are defective due to violation of law, by error in legal prerequisites, which justifies the declaration of their illegality and annulment.

4.2.3. In view of the declaration of illegality of the assessments which are the subject of the present proceedings, due to defect of violation of law by error in legal prerequisites, the examination of unconstitutionality due to violation of the principle of non-retroactivity of tax law and the principle of equality invoked, in the alternative, by the Claimant is rendered moot.

In effect, in light of Article 124 of the Tax Procedure and Process Code ("TPPC"), applicable by operation of Article 29, paragraph 1 of the RJAT, by establishing an order of examination of defects, it presupposes that, once a defect that ensures effective legal protection of the rights of the challengers is found to be well-founded, there is no need to examine the others.

4.2.4. The second issue to be decided concerns recognition of the right to compensatory interest.

In accordance with the provisions of Article 43 of the General Tax Law ("GTL"), compensatory interest is due when in the course of administrative review or judicial challenge proceedings it is determined that there was error attributable to the Tax and Customs Authority from which results payment in excess of the tax liability.

Being the arbitral process an alternative process to judicial challenge proceedings, the tribunal understands that in view of the illegality of the Contested tax acts, there is entitlement to reimbursement of the tax paid and to payment of compensatory interest under paragraph 1 of Article 43 of the GTL and Article 61 of the TPPC.

  1. DISPOSITION

Given the foregoing, the Claimant's request is found to be well-founded and, in consequence:

a) the Contested tax acts are annulled, on the ground of violation of law, by error in legal prerequisites, with legal consequences, namely, condemning the Tax Authority to the reimbursement of the amounts paid; and,

b) the Claimant's right to compensatory interest is recognized, condemning the Tax Authority to payment of compensatory interest, pursuant to paragraph 1 of Article 43 of the GTL and Article 61 of the TPPC.

Value of the case: fixed at € 7,966.75 (seven thousand, nine hundred and sixty-six euros and seventy-five cents), in accordance with the provision of Article 3, paragraph 2 of the Regulation of Costs in Tax Arbitration Proceedings ("RCTAP"), in Article 97-A, paragraph 1 of the Tax Procedure and Process Code and in Article 306, paragraph 2 of the Civil Procedure Code.

Costs: the value of costs is fixed at € 612.00 (six hundred and twelve euros), in accordance with Table I attached to the RCTAP, at the expense of the Tax Authority.

Notify.

Lisbon, 15 September 2014.

The Arbitrator,

Lina Ramalho

Text prepared by computer, pursuant to paragraph 5 of Article 131 of the CPC, applicable by referral of subparagraph e) of paragraph 1 of Article 29 of Decree-Law No. 10/2011, of 20/01.

The drafting of this decision is governed by traditional orthography.

[1] Cf. Article 4 of the Urban Real Estate Tax Code.

Frequently Asked Questions

Automatically Created

How is the Patrimonial Tax Value (VPT) calculated for Stamp Tax on properties with independent units worth over €1,000,000?
For Stamp Tax purposes under item 28.1 of the GSTL, the Tax Asset Value (VPT) calculation for properties with independent units worth over €1,000,000 depends on whether the property is constituted as horizontal property ownership. The central dispute in this case was whether the relevant VPT should be the total aggregate value of the entire urban property (€1,915,770 in this case) or the individual VPT of each floor or division capable of independent use with residential use (each under €139,750). The Tax Authority's position was that the property value relevant for tax incidence is the total VPT of the urban property registered in the property registry, not the VPT of each independent unit that composes it. This interpretation means that even if individual units are below the €1,000,000 threshold, if their combined VPT exceeds this amount, the 1% Stamp Tax applies to the total value. The Claimant argued this interpretation was erroneous, contending each independent unit should be assessed separately, which would have resulted in no tax liability since no individual unit exceeded the threshold.
Does Stamp Tax apply to the total VPT of a building or to each independent unit separately under Verba 28 of the Stamp Tax Code?
Under item 28.1 of the General Stamp Tax List (GSTL), the Tax Authority's position is that Stamp Tax applies to the total VPT of the entire building, not to each independent unit separately, when the property is in full ownership (not constituted as horizontal property ownership). In this case, although the building contained 17 floors or divisions capable of independent use, with 13 residential units each valued individually below €139,750, the Tax Authority assessed Stamp Tax based on the aggregate total VPT of €1,915,770. The critical legal issue was the interpretation of 'property' (prédio) in item 28.1: does it refer to the property as registered in the urban property registry (the building as a whole), or does it refer to each autonomous fraction or independent unit? The Tax Authority maintained that the taxable unit is the property as registered in the property registry, meaning the entire building. This interpretation creates a distinction between properties constituted as horizontal property ownership (where each fraction is separately registered and individually assessed) and properties in full ownership with independent divisions (where the entire property is assessed as one unit). The Claimant challenged this interpretation as violating legal prerequisites and the equality principle.
Is the 2012 Stamp Tax on high-value residential properties retroactive under Article 103(3) of the Portuguese Constitution?
The principle of non-retroactivity of taxes under Article 103(3) of the Portuguese Constitution prohibits the retroactive application of tax laws. In this case, the Claimant argued that Law No. 55-A/2012, enacted on October 29, 2012, violated this constitutional principle when applied to Stamp Tax for the year 2012. However, the Tax Authority contested this position, arguing that no retroactivity existed because the taxable event for Stamp Tax occurred on December 31, 2012, according to the transitional provisions in Article 6 of Law 55-A/2012. The law itself explicitly established that for 2012, the taxable event would occur on October 31, 2012 (later amended to December 31, 2012), which was after the law's enactment on October 29, 2012. The critical legal analysis involves distinguishing between retroactivity (applying a law to past events that occurred before the law's existence) and immediate application (applying a new law to events occurring after its enactment, even if within the same calendar year). Since the taxable event was defined to occur after the law came into force, the Tax Authority argued this represented immediate application rather than retroactive application, thus complying with constitutional requirements.
Does different Stamp Tax treatment of horizontal property vs total property with independent units violate the constitutional principle of equality?
The constitutional principle of equality, enshrined in the Portuguese Constitution, requires that similar situations be treated similarly and different situations be treated differently to the extent of their differences. The Claimant argued that the Tax Authority's interpretation of item 28.1 violated this principle by conferring different treatment on properties constituted as horizontal property ownership versus properties in full ownership with floors or divisions capable of independent use. Specifically, in horizontal property ownership, each autonomous fraction is separately registered and individually assessed for Stamp Tax purposes—meaning the €1,000,000 threshold applies to each fraction separately. However, for properties in full ownership with multiple independent units not formally constituted as horizontal property, the Tax Authority applied the threshold to the total aggregate VPT of the entire property. This creates a situation where two substantially similar properties (both containing multiple independent residential units of similar individual values) receive different tax treatment based solely on their legal structure: one escapes taxation because each fraction is below the threshold, while the other is taxed because the aggregate exceeds the threshold. The Claimant contended this distinction lacks objective justification and constitutes arbitrary discrimination. The Tax Authority would need to demonstrate that this differential treatment serves a legitimate purpose and is proportionate to achieve that purpose.
What is the CAAD arbitral procedure for challenging Stamp Tax assessments issued by the Portuguese Tax Authority?
The CAAD (Centro de Arbitragem Administrativa) arbitral procedure for challenging Stamp Tax assessments begins with filing a request for constitution of an arbitral tribunal under Article 10 of Decree-Law No. 10/2011 (RJAT - Legal Regime for Administrative Arbitration in Tax Matters). In this case, the procedural steps were: (1) The Claimant received Stamp Tax assessments totaling €7,966.75 for 2012, issued on November 7, 2012; (2) The Claimant paid the assessed tax on December 20, 2012; (3) On April 15, 2013, the Claimant filed an administrative review request (reclamação graciosa), which was dismissed on December 31, 2013; (4) After exhausting administrative remedies, the Claimant filed a request for arbitration with CAAD, requesting declaration of illegality of the tax acts with recognition of the right to compensatory interest. The procedure involves: constitution of the arbitral tribunal with proper competence ratione materiae under Article 2 RJAT; verification of parties' legal personality, capacity, legitimacy and proper representation; the Tax Authority filing a reply; determination whether an oral hearing under Article 18 RJAT is necessary (here it was deemed unnecessary); and issuance of the arbitral decision addressing admissibility and merits. CAAD arbitration provides an alternative to judicial tax courts for resolving tax disputes, offering a potentially faster resolution mechanism.