Process: 272/2016-T

Date: January 25, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD arbitration process 272/2016-T addressed a critical Stamp Tax dispute concerning the application of Item 28.1 of the General Stamp Duty Table (TGIS) to properties in vertical ownership with independently usable floors or divisions. The taxpayers challenged Stamp Tax assessments totaling €10,750.92 for the 2015 tax year on an urban property in Lisbon comprising multiple storeys with independent use. The central legal controversy focused on whether the €1,000,000 threshold triggering Item 28.1 should apply to the aggregate taxable patrimonial value (VPT) of the entire building or separately to each autonomous floor or division. The applicants argued that Municipal Property Tax Code (CIMI) rules, applicable by reference under article 67(2) of the Stamp Duty Code, mandate individual assessment of each unit with independent economic use. They contended that aggregating VPTs violates equality and legality principles, particularly since horizontal property units receive separate assessment. The Tax Authority maintained that Item 28.1 targets the global property value of urban properties, not individual components, and that vertical and horizontal ownership constitute distinct legal regimes justifying differentiated tax treatment. This arbitration highlights fundamental interpretive tensions in Portuguese tax law regarding property classification, the material versus formal approach to property taxation, and constitutional equality principles in assessing comparable properties under different ownership structures. The case references precedents (processes 50/2013-T and 132/2013-T) supporting unit-by-unit assessment, reflecting ongoing jurisprudential development in CAAD arbitration concerning high-value real estate taxation under the RJAT framework established by Decree-Law 10/2011.

Full Decision

ARBITRAL DECISION

I – REPORT

1. On 18 May 2016, the taxpayers A… and B…, holders of tax identification numbers … and …, respectively (hereinafter referred to as the "Applicants"), submitted a request to the Administrative Arbitration Centre (CAAD) for the constitution of an arbitral tribunal with a view to obtaining an arbitral decision, in accordance with the provisions of articles 2, no. 1, paragraph a) and 10 of Decree-Law no. 10/2011 of 20 January (hereinafter referred to as RJAT), following the tax assessment acts regarding Stamp Duty (IS) for the year 2015, corresponding to the 1st instalment, dated 05 April 2016, of each of the storeys with independent use that make up the urban property registered under article…, in the urban property register of the parish of…, in the municipality of Lisbon, in the total amount of € 10,750.92 (ten thousand, seven hundred and fifty euros and ninety-two cents).

2. In the request for an arbitral decision, the Applicants chose not to appoint an arbitrator.

3. In accordance with article 6, no. 1 and paragraph b) of no. 1 of article 11 of RJAT, as amended by article 228 of Law no. 66-B/2012 of 31 December, the Deontological Council appointed the undersigned as sole arbitrator, who accepted the position within the legally prescribed time period.

4. The arbitral tribunal was constituted on 25 July 2016.

5. On 29 September 2016, the Respondent, duly notified for this purpose, filed a response.

6. The meeting provided for in article 18 of RJAT, as well as the arguments, were dispensed with for reasons of procedural economy and expedition and the prohibition on the practice of futile acts.

7. The position of the Applicants, expressed in the request for an arbitral decision, is, in summary, as follows:

7.1. The assessment acts subject to this arbitral decision are vitiated by errors regarding the legal requirements, errors regarding the factual requirements, and defects of violation of law.

7.2. The Applicants do not accept the understanding of the AT according to which the criterion for determining the incidence of Stamp Duty concerning property in vertical ownership (or not established under a horizontal property regime) is the global TPN of the storeys and divisions intended for housing.

7.3. Since it is tax due under the situation provided for in Item 28 of the Stamp Duty Table, the rules contained in the Municipal Property Tax Code apply, in accordance with article 67, no. 2 of the Stamp Duty Code.

7.4. From the legislator's perspective, what matters is not the legal-formal rigor of the actual situation of the property but rather its normal use, the purpose to which the property is intended. For the legislator, the situation of the property (in vertical or horizontal ownership) is not relevant, as no reference or distinction is made between one and the other (see article 2 and 38 et seq., both of the Municipal Property Tax Code).

7.5. In fact, it follows from the assessments issued that the value of incidence is the one corresponding to the TPN of each division and the individualised assessment on the part of the property corresponding to that same division. Therefore, taking into account the Municipal Property Tax Code rules applicable by reference from the Stamp Duty Code, this criterion must also be taken into account for defining the rule of incidence of Stamp Duty. Stamp Duty taxation regarding Item 28 would only apply if any of the parts, storeys or divisions with independent use had a TPN exceeding € 1,000,000.00.

7.6. Therefore, the Respondent cannot make the taxable property value of a property composed of several storeys or divisions with independent use correspond to the sum of the taxable property values of the various storeys or divisions capable of independent use, thus causing Item 28.1 of the Stamp Duty Code to apply to the Applicants' property, contrary to the principles of legality and tax equality, as well as the prevalence of material truth over legal-formal reality.

7.7. Moreover, the Applicants emphasize that this understanding has been widely followed by this Tribunal (see case no. 50/2013-T and 132/2013-T).

7.8. Furthermore, the Applicants consider that the distinction made by the AT between properties that have been established under horizontal ownership and properties in full ownership with storeys or divisions capable of independent use is illegal and unconstitutional as it violates the principle of equality and proportionality in tax matters, representing a completely arbitrary distinction.

7.9. For all the above reasons, the Stamp Duty assessments relating to the year 2015, in the total amount of € 10,750.92, corresponding to the aforementioned property, should be annulled, with all legal consequences.

8. The position of the Respondent expressed in the response is, in brief summary, as follows:

8.1. The taxable fact of Stamp Duty under Item 28.1 consists of the ownership, usufruct or right of superficies of urban properties whose taxable property value entered in the register, in accordance with the Municipal Property Tax Code, is equal to or exceeds € 1,000,000.00 (see item 28.1 of TGIS, articles 2, no. 4 of the Stamp Duty Code and 8 of the Municipal Property Tax Code). Thus, the property value relevant for the purposes of the incidence of the tax is the global property value of the urban property and not the property value of each of the independent parts that make it up, even when capable of independent use.

8.2. The fact that the Municipal Property Tax was calculated on the basis of the taxable property value of each part of the property with independent economic use, the Respondent believes, does not affect the application of Item 28.1 of TGIS, since this is aimed at the total property value of the property and not separately at that of each of its parcels.

8.3. Moreover, any other interpretation would violate the principle of legality constitutionally enshrined.

8.4. However, horizontal property and vertical property are differentiated legal institutions, and therefore, there is no arbitrary discrimination when the legislator chooses to grant differentiated tax treatment to two also different realities.

8.5. On this basis, the Respondent concludes that the request for an arbitral decision should be entirely dismissed, as the legal compliance of the act subject to these proceedings is evident.

II – QUESTIONS TO BE DECIDED

9. In light of the above, the main question to be decided is as follows:

− Are the tax assessment acts of Stamp Duty under Item 28.1 of the General Table, annexed to the Stamp Duty Code, relating to the year 2015, 1st instalment, dated 05 April 2016, on each of the storeys with independent use that make up the urban property registered under article…, in the urban property register of the parish of…, in the municipality of Lisbon, in the total amount of € 10,750.92 (ten thousand, seven hundred and fifty euros and ninety-two cents), issued by the Tax and Customs Authority, vitiated by errors regarding the factual and legal requirements and also by a defect of violation of law?

III – PROCEDURAL SANITY CHECK

10. The Tribunal is regularly constituted and is materially competent, in accordance with articles 2, no. 1, paragraph a), 5, no. 2, and 6, no. 1, of RJAT.

The request for an arbitral decision is timely, in accordance with no. 1 of article 10 of RJAT.

The parties have legal personality and capacity, are legitimate and are duly represented, in accordance with articles 4 and 10, no. 2, of RJAT and article 1 of Order no. 112-A/2011 of 22 March.

The proceedings are not vitiated by any defects that would invalidate them.

All things considered, it is appropriate to issue a decision.

IV – FACTUAL FINDINGS

11. Taking into account the tax administration proceedings and the documentary evidence filed with the record, it is now appropriate to present the factual matters relevant to the understanding of the decision, which are established as follows:

The Applicants are the legitimate owners of the urban property registered under article…, in the urban property register of the parish of…, in the municipality of Lisbon, established as full ownership with storeys or divisions capable of independent use (see document filed with this record as doc. no. 1 attached to the Arbitral Petition).

The AT attributed to the aforementioned property, for purposes of applying Item 28.1 of TGIS, the "property value – total subject to tax" of € 1,369,380.00 (one million, three hundred and sixty-nine thousand, three hundred and eighty euros) – (see document filed with this record as doc. no. 1 attached to the Arbitral Petition, of which € 1,075,080.00 corresponds to the residential portion).

In accordance with the taxable property value attributed to the aforementioned property, the AT carried out the respective Stamp Duty assessments based on Item 28.1 of the General Table of Stamp Duty, corresponding to the 1st instalment, dated 05 April 2016, notified to the Applicants, in the total amount of € 10,750.92 (ten thousand, seven hundred and fifty euros and ninety-two cents) – (see document filed with this record as doc. no. 2 attached to the Arbitral Petition).

The assessments referenced in the preceding paragraph were fully paid by the Applicants in the month of April 2016 (see document filed with this record as doc. no. 2 attached to the Arbitral Petition).

12. The facts set out in the preceding paragraph constitute uncontested matters and are documentarily proven in the record.

13. There are no facts found to be unproven, because all facts relevant to the assessment of the request have been found to be proven.

V – LEGAL REASONING

14. Let us now determine the law applicable to the underlying facts, in accordance with the question already stated (see, above no. 9).

15. Thus, the question that arises is whether the interpretation according to which Item 28.1 of TGIS should be interpreted (or not) as providing, within its scope, properties in full ownership with parts or divisions capable of independent use, with residential use, which are characterized by the fact that none of these parts or divisions has been assigned a TPN equal to or exceeding € 1,000,000.00, is lawful.

16. The subjection to Stamp Duty of properties with residential use resulted from the addition of Item 28 to TGIS, carried out by article 4 of Law 55-A/2012 of 29 October, which defined the following taxable facts:

"28 – Ownership, usufruct or right of superficies of urban properties whose taxable property value entered in the register, in accordance with the Municipal Property Tax Code (CIMI), is equal to or exceeds € 1,000,000.00 – on the property value for purposes of Municipal Property Tax:

28.1 – For property with residential use – 1%

28.2 – For property, when the taxpayers that are not natural persons are residents of a country, territory or region subject to a clearly more favorable tax regime, as listed in the order approved by the Minister of Finance – 7.5%."

This law entered into force on the day following its publication, namely on 30 October 2012.

17. However, Law 55-A/2012 says nothing about the definition of the concepts at issue, namely the concept of "property with residential use" contained in Item 28.1.

18. In this regard, its true meaning must be determined in accordance with the interpretive techniques and elements generally accepted by legal doctrine, in accordance with article 9 of the Civil Code and article 11 of the General Tax Law.

19. In this regard, attention must be paid to the concept of property as defined in article 2 of the Municipal Property Tax Code – "any portion of territory, comprising waters, plantations, buildings and constructions of any nature incorporated therein or situated thereon, of a permanent character, provided that 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, in the circumstances above, endowed with economic autonomy in relation to the land where they are located, although situated in a portion of territory that constitutes an integral part of different assets or does not have the nature of property" – by reference from article 67, no. 2 of the Stamp Duty Code, as amended by the aforementioned Law, which provides that "for matters not regulated in this code concerning Item 28 of the General Table, the Municipal Property Tax Code shall apply subsidiarily," thus, the determination of TPN is governed by the provisions of article 38 and following of the same code.

20. In the Municipal Property Tax Code, reference must also be made to article 6, which indicates the different types of urban properties, among which it mentions residential properties in paragraph a) of its no. 1, clarifying in its no. 2 that "residential, commercial, industrial or for services are buildings or constructions so licensed or, in the absence of a license, that have as their normal purpose each of these uses."

21. On a first analysis, we can already conclude that the legislator was concerned with the normal use of the property, the purpose for which it is intended, and not with the rigour of the concept per se.

22. We can add further that "(...) for the legislator, the situation of the property in vertical or horizontal ownership was not relevant, as no reference or distinction is made between one and the other. What matters is the material truth underlying its existence as an urban property and its use." An understanding expressed, which we agree with, in the Arbitral Decision rendered in case no. 50/2013-T.

23. Therefore, the legislator, in the rule of incidence of Item 28.1 of TGIS, did not consider it relevant to distinguish between properties in horizontal ownership and properties in vertical ownership. For this reason, we already advance that the argument put forward by the Respondent as set out in article 23 of its Response does not hold, when it states that "The urban property was not established under a horizontal property regime on the date of the taxable fact of stamp duty – 31 December 2015 – in which case each of the autonomous units would have been regarded as an urban property, including for purposes of the stamp duty tax on Item 28.1 of the General Table, but under a vertical property regime."

24. It is also important to note article 12, no. 3, of the Municipal Property Tax Code, which provides that "each storey or part of a property capable of independent use is considered separately in the property register entry, which also discriminates the respective taxable property value."

25. And also article 119, no. 1 of the Municipal Property Tax Code, which provides that "the General Tax Administration sends to each taxpayer, by the end of the month preceding the payment month, the appropriate collection document, with discrimination of the properties, their parts capable of independent use, respective taxable property value and the collection attributed to each municipality of the location of the properties."

26. Now, considering that the entry in the register of properties in vertical ownership, consisting of different parts, storeys or divisions with independent use, under the terms of the Municipal Property Tax Code, using the criterion already mentioned in article 67, no. 2 of the Stamp Duty Code – "for matters not regulated in this code concerning Item 28 of the General Table, the Municipal Property Tax Code shall apply subsidiarily" – follows the same rules for entry of properties constituted in horizontal ownership, with the respective Municipal Property Tax as well as the Stamp Duty of Item 28.1 being assessed individually in relation to each of the parts, it is clear that if the legal criterion requires the issuance of individualized assessments for the autonomous parts of properties in vertical ownership, in the same manner as it establishes for properties in horizontal ownership, the same must be observed for defining the rule of incidence of Stamp Duty under Item 28.1.

27. Considering the foregoing, Stamp Duty applies only if one of the parts, storeys or divisions with independent use has a TPN exceeding € 1,000,000.00, which does not happen in the present case, as shown in the urban property record of the aforementioned property (see point A of no. 11).

28. Therefore, the AT can never consider the total value of the property as the reference value for the incidence of stamp duty when the legislator itself established a different rule under the Municipal Property Tax Code. As stated, under that code, there is no difference between a building in horizontal ownership and a building in vertical or full ownership consisting of parts or divisions capable of independent use – this being the code applicable to matters not regulated with respect to Item 28 of TGIS (see article 67, no. 2 of Law 55-A/2012 of 29/10).

29. This equal treatment that the legislator did not include in the rule of incidence contained in Item 28.1 of TGIS, it also did in article 119 of the Municipal Property Tax Code, when it establishes that the tax should be assessed individually on each part or division capable of independent use, taking into account the TPN of each of those parts or divisions capable of independent use, individually considered. From which it follows that the TPN that must be considered in the application of Item 28.1 of TGIS is that which results from the letter and ratio of articles 2, 6 no. 1 paragraph a), 12 and 119, all of the Municipal Property Tax Code.

30. Let it be clear that this conclusion is in line with the overwhelming majority of the known jurisprudence of CAAD (see among many, cases 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.).

31. In light of what we have just said, we cannot support, with all due respect, the position of the Respondent, because it is not acceptable that the intended criterion of considering the sum of the TPN attributed to the parts, storeys or divisions with independent use, on the grounds that the property is not constituted under a horizontal property regime, has no legal basis and is contrary to the criterion applicable under the Municipal Property Tax Code and, by reference, under the Stamp Duty Code.

32. In the case at hand, the property in question is in full ownership and contains 5 storeys and/or divisions with independent use, as proven by document no. 1 attached to the Request for Arbitral Decision, and none of these storeys has a property value equal to or exceeding € 1,000,000.00, as results from the documents filed with the record, for which reason we conclude that the legal requirement for the incidence of Stamp Duty provided for in Item 28.1 of TGIS is not met.

33. Since the Arbitral Tribunal did not accept the understanding of the Respondent, in light of the illegality of the assessment acts subject to this decision, the Tribunal is excused from analyzing issues relating to the possible unconstitutionality of the application of the rule in question.

VI – COMPENSATORY INTEREST

34. Finally, in addition to the annulment of the assessments and consequent refund of the amounts improperly paid, the Applicants also petition for payment of the corresponding compensatory interest.

35. In accordance with article 24, no. 5 of RJAT, "payment of interest is due, regardless of its nature, in accordance with the terms provided for in the general tax law and in the Tax Procedure and Process Code." This rule allows for the recognition of the right to compensatory interest in arbitral proceedings. Thus, the request is admitted.

36. In accordance with article 43, no. 1 of the General Tax Law, compensatory interest is due when it is determined, in an administrative objection or judicial challenge, that there has been an error attributable to the tax authority resulting in payment of the tax debt in an amount exceeding what is legally due.

37. The right to compensatory interest referred to in the aforementioned rule of the General Tax Law presupposes that tax has been paid in an amount exceeding the amount due and that this derives from an error, of fact or of law, attributable to the services of the AT (see Decision of the Supreme Administrative Court, case no. 01215/12, of 10.04.2013). In the present case, both conditions are met, thus constituting the obligation of compensatory interest in favor of the taxpayer, which is hereby declared.

VII – DECISION

On these terms, this Arbitral Tribunal decides:

a) The request of the Applicants is granted, finding the Stamp Duty assessment acts referred to herein to be illegal, due to errors regarding the factual and legal requirements and violation of article 1, no. 1 of the Stamp Duty Code and Item 28.1 of TGIS, and the aforementioned acts should be annulled, given the fact that none of the parts or divisions capable of independent use, subject to the assessment acts which are the subject of this arbitral decision, has a taxable property value exceeding € 1,000,000.00, as has been demonstrated in this record.

b) Condemn the Respondent to refund the improperly assessed and paid amount of € 10,750.92 (ten thousand, seven hundred and fifty euros and ninety-two cents).

c) Further condemn the Respondent, since we are dealing with a defect concerning the tax legal relationship, as the existence of this defect resulted in injury to a subjective legal situation, embodied in the imposition on the Applicants of an economic performance contrary to law, to payment of compensatory interest, in accordance with the terms and conditions provided for in the law (see articles 43 and 100 of the General Tax Law and article 61 of the Tax Procedure and Process Code).

The amount of the claim is set at € 10,750.92, in accordance with article 97-A, no. 1, a), of the Tax Procedure and Process Code, applicable by virtue of paragraphs a) and b) of no. 1 of article 29 of RJAT and no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

The amount of costs is set at € 918.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Tax and Customs Authority, since the request was entirely upheld, in accordance with articles 12, no. 2, and 22, no. 4, both of RJAT, and article 4, no. 4, of the aforementioned Regulation.

Let notice be given.

Lisbon, 25 January 2017.

The Arbitrator

(Jorge Carita)

Frequently Asked Questions

Automatically Created

What is Verba 28.1 of the Portuguese Stamp Tax General Table and how does it apply to high-value residential properties?
Item 28.1 of the Portuguese Stamp Tax General Table (Verba 28.1 da TGIS) imposes Stamp Duty on ownership, usufruct, or surface rights over urban properties with taxable patrimonial value (VPT) equal to or exceeding €1,000,000, as determined under the Municipal Property Tax Code (CIMI). This provision targets high-value residential and commercial properties, creating an annual tax obligation distinct from Municipal Property Tax (IMI). The application involves assessing whether a property's registered VPT meets the threshold, with tax calculated at 1% annually on the portion exceeding €1,000,000 for the first instalment and additional amounts for subsequent instalments.
How is Stamp Tax calculated for buildings in vertical ownership with independently usable floors or divisions?
For buildings in vertical ownership (propriedade vertical) with independently usable floors or divisions, Stamp Tax calculation under Item 28.1 presents interpretive challenges. The Tax Authority's position aggregates the taxable patrimonial values of all autonomous units to determine whether the €1,000,000 threshold is met, applying the tax to the global property value. Conversely, taxpayers argue that each floor or division with independent economic use should be assessed separately, with Item 28.1 applying only to individual units exceeding the threshold. This interpretation aligns with Municipal Property Tax assessment practices where each autonomous unit receives individual VPT registration, even within properties not formally constituted under horizontal property regimes.
Does the total taxable patrimonial value (VPT) of a vertical property building determine Stamp Tax liability, or is each unit assessed separately?
The determination of Stamp Tax liability for vertical property buildings hinges on whether the total VPT or individual unit VPTs control. The Tax Authority maintains that Item 28.1 applies to the aggregate taxable patrimonial value of the entire urban property, regardless of internal divisions capable of independent use. This approach treats the building as a single taxable unit. Taxpayers challenge this interpretation, asserting that article 67(2) of the Stamp Duty Code incorporates CIMI principles requiring separate assessment of autonomous parts with independent economic use. Under this view, each unit's VPT determines Item 28.1 applicability independently, preventing taxation where no single unit exceeds €1,000,000 despite the aggregate value surpassing this threshold. CAAD arbitration precedents have supported both interpretations, creating uncertainty in application.
What was the outcome of CAAD arbitration process 272/2016-T regarding Stamp Tax on a Lisbon urban property?
CAAD arbitration process 272/2016-T involved taxpayers contesting €10,750.92 in Stamp Tax assessments for 2015 on a Lisbon urban property comprising multiple independently usable storeys registered under a single property article. The arbitral tribunal, constituted under Decree-Law 10/2011 (RJAT), examined whether Item 28.1 of TGIS should apply based on aggregate or individual VPTs. The applicants invoked previous CAAD decisions (processes 50/2013-T and 132/2013-T) supporting unit-by-unit assessment and argued that aggregating VPTs violated equality and legality principles by treating vertical property differently from horizontal property without substantive justification. While the full decision outcome is not provided in the available excerpt, the case exemplifies critical interpretive disputes in Portuguese Stamp Tax law concerning high-value properties with complex ownership structures.
Can property owners challenge Stamp Tax assessments through CAAD arbitration under the RJAT framework?
Yes, property owners can challenge Stamp Tax assessments through CAAD (Centro de Arbitragem Administrativa) arbitration under the RJAT framework established by Decree-Law 10/2011. Article 2(1)(a) and article 10 of RJAT provide jurisdiction for arbitral tribunals to review tax assessment acts, including Stamp Duty determinations under Item 28.1 of TGIS. Taxpayers must submit arbitration requests within the legally prescribed timeframe following assessment notification. The CAAD process offers an alternative to judicial court proceedings, providing specialized tax arbitration with potentially faster resolution. Process 272/2016-T demonstrates this mechanism, where taxpayers contested assessments alleging errors in legal and factual requirements and law violations. The arbitral tribunal's jurisdiction extends to annulling unlawful tax acts and determining correct tax liability under Portuguese tax legislation.