Process: 277/2013-T

Date: May 16, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Case 277/2013-T addresses the critical issue of how Stamp Duty (Imposto do Selo) under Item 28.1 of the General Table applies to properties in full ownership with multiple divisions capable of independent use. Item 28.1 imposes annual Stamp Duty on urban properties for residential use with a taxable patrimonial value exceeding €1,000,000. The claimant owned an urban property in vertical ownership comprising several independent units, each valued below €1,000,000 individually, but exceeding €1,000,000 in aggregate (€1,198,360). The Tax Authority assessed €11,983.60 in Stamp Duty based on the combined value. The claimant challenged this assessment through tax arbitration, arguing that each independent unit should be treated as a separate 'property' under Article 2(1) of the Municipal Real Estate Tax Code (CIMI), similar to autonomous units under horizontal ownership. The claimant contended that since each unit's individual value fell below the €1,000,000 threshold, Item 28.1 was inapplicable. The claimant further alleged violations of constitutional principles of tax legality and equality under Articles 103(2) and 104(3) of the Portuguese Constitution. The Tax Authority countered that properties in full ownership with independent divisions are legally distinct from horizontal ownership condominiums. Citing Articles 2(1), 2(4), and 4(2) of CIMI, the Respondent argued that only autonomous units under horizontal ownership regime qualify as separate properties for tax purposes. For vertical ownership, the property as a whole determines Stamp Duty liability, regardless of internal divisions. The Authority emphasized that Article 12(3) CIMI merely governs cadastral registration procedures and does not redefine the concept of property. This case establishes important precedent on whether taxpayers can avoid Item 28.1 Stamp Duty by structuring property ownership to keep individual unit values below statutory thresholds while maintaining full ownership of high-value buildings.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Case No. 277/2013-T

Claimant: A

Respondent: Tax and Customs Authority

Subject Matter: Stamp Duty – Scope of application of Item 28.1 of the General Table of Stamp Duty – properties in full ownership with divisions capable of independent use

The Arbitrator Judge Francisco de Carvalho Furtado, designated by the Deontological Council of the Administrative Arbitration Centre (CAAD), to constitute the Arbitral Tribunal constituted on 5 February 2014, decides as follows:

A) Report

  1. On 3 December 2013, A, taxpayer no. …, hereinafter identified as Claimant, filed a request for 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 (Legal Regime for Arbitration in Tax Matters, hereinafter designated as RJAT), in conjunction with paragraph a) of article 99 and paragraph d) of no. 1 of article 102 of the Code of Tax Procedure and Process (CPPT), applicable pursuant to article 10, no. 1, paragraph a) of Decree-Law no. 10/2011, of 20 January.

  2. In the aforementioned request for arbitral decision, the Claimant seeks to have the Arbitral Tribunal declare:

a) the illegality of the Stamp Duty assessment acts issued by the tax administration with reference to the year 2012 in the total amount of €11,983.60; and,

b) the condemnation of the Tax and Customs Authority to reimburse the amount of Stamp Duty paid, plus compensatory interest, in accordance with the provisions of articles 43, no. 1 and 100, both of the General Tax Law.

  1. The request for constitution of the arbitral tribunal was accepted on 4 December 2013, by His Excellency the President of CAAD and was notified to the Tax and Customs Authority (hereinafter identified as Respondent), on the same date.

  2. The Claimant did not proceed to appoint an arbitrator, whereupon, pursuant to the provisions of article 6, no. 1 of the RJAT, the signatory was designated by the President of the Deontological Council of CAAD to be part of this Singular Arbitral Tribunal, with the appointment having been accepted in accordance with legal provisions. The Tribunal was constituted, pursuant to the provisions of article 11 of the RJAT, on 5 February 2014.

  3. On 10 March 2014, the Respondent submitted its Reply.

  4. On 3 April 2014, and in accordance with the terms and for the purposes provided for in article 18 of the RJAT, the first meeting of the Arbitral Tribunal was held, with minutes being drawn up, which are attached to the file.

  5. At that meeting, the Claimant's distinguished counsel waived the examination of the witness listed and likewise the submission of arguments. The distinguished counsel for the Respondent also waived the submission of arguments.

The Claimant sustains its claim, in summary, as follows:

a) The Claimant is the owner of an urban property, in vertical ownership, consisting of several units with independent use;

b) The Taxable Patrimonial Value of each of the units with independent use individually considered is less than €1,000,000.00 (one million euros);

c) The aggregate value of said units is greater than €1,000,000.00 (one million euros);

d) For purposes of Municipal Real Estate Tax, each of the units with independent use was evaluated individually;

e) The Stamp Duty assessment acts were also practiced individually in relation to each of the units with independent use;

f) Thus, the Claimant considers that the tax acts were practiced in error, as they had as their premise the consideration of the Taxable Patrimonial Value of €1,198,360.00 (one million one hundred ninety-eight thousand three hundred sixty euros) resulting from the sum of the Taxable Patrimonial Values of all the units with residential use of the urban property identified above;

g) The Claimant considers, therefore, that, being the Taxable Patrimonial Value of each of the units with independent use, individually considered, less than €1,000,000.00 (one million euros), Item 28.1 of the General Table of Stamp Duty is not applicable;

h) Being units with independent use, they will be subsumable in the concept of "urban property" for purposes of application of Item 28.1 of the General Table of Stamp Duty;

i) The Claimant further sustains that the relevant concept of property is that which results from article 2, no. 1 of the Code of Municipal Real Estate Tax;

j) Thus, whenever we are dealing with a property composed of independent units under vertical ownership regime, it is on the Taxable Patrimonial Value of each unit that the Municipal Real Estate Tax is levied, and this is also the value relevant for purposes of the applicability of Item 28.1 of the General Table of Stamp Duty (and not the sum of the Taxable Patrimonial Values of all of them);

k) The Claimant further considers that the Stamp Duty assessments in question violate the constitutional principles of fiscal legality and tax equality, inherent in articles 103, no. 2 and 104, no. 3 of the Constitution of the Portuguese Republic;

l) Similarly, the Claimant considers the principles of tax equality and taxpaying capacity to be compromised;

m) The Claimant concludes that the Stamp Duty assessment acts in question are vitiated by a violation of law, through violation of article 1, no. 1 of the Code of Stamp Duty, as well as Item no. 28 of the General Table of Stamp Duty, read in conjunction with articles 2, no. 1 and 12, no. 3 of the Code of Municipal Real Estate Tax and articles 58 of the General Tax Law, 13 and 103, nos. 1 and 2 and 104, no. 3 of the Constitution of the Portuguese Republic, for which reason the same should be annulled;

n) Finally, given the payment of the tax, the Claimant petitions the condemnation of the tax administration to payment of compensatory interest, considering that the illegalities affecting the assessment acts in question are only attributable to error of the services – cf. article 43 of the General Tax Law.

In its Reply, the Respondent invoked, in summary, the following:

a) The assessments in question result from the direct application of Item 28.1 of the General Table of Stamp Duty, which translates into objective elements without any subjective or discretionary appraisal;

b) For purposes of the concretization of the concept of property, it is important to consider articles 2, nos. 1 and 4 of the Code of Municipal Real Estate Tax;

c) Thus, a property in full ownership with stories or divisions capable of independent use is distinct from a property under horizontal ownership regime, composed of autonomous units;

d) No. 3 of article 12 of the Code of Municipal Real Estate Tax refers exclusively to the form of registering the cadastral data;

e) The collection document for Municipal Real Estate Tax identifies the parts capable of independent use, their respective value and the tax allocation attributable to each municipality in compliance with article 119, no. 1 of the Code of Municipal Real Estate Tax;

f) Although Municipal Real Estate Tax is assessed in relation to each part capable of independent use, for purposes of Stamp Duty, the property as a whole is relevant, given that the units are not regarded as property;

g) In fact, only autonomous units under the horizontal ownership regime are so regarded – cf. article 4, no. 2 of the Code of Municipal Real Estate Tax;

h) The applicability of Item 28.1 of the General Table of Stamp Duty results from the combination of the following facts: the property having residential use and the taxable patrimonial value being greater than €1,000,000.00 (one million euros) – which is verified in the case in question;

i) In this manner, the tax administration merely applied the provisions of article 23, no. 7 of the Code of Stamp Duty, in conjunction with articles 2, nos. 1 and 4 and 113, no. 1 of the Code of Municipal Real Estate Tax;

j) The invoked violation of the principle of equality is without merit, insofar as horizontal ownership and vertical ownership are differentiated legal institutions, subject to distinct legal-tax treatment;

k) The legal provision pursuant to which the assessment acts were practiced aims at the taxation of wealth, embodied in the ownership of high-value real property, in a context of economic crisis;

l) It is thus legitimated by this option for this mechanism of revenue generation, which is not censurable in light of the principle of proportionality as it is not manifestly indefensible;

m) As the assessments whose declaration of illegality is sought are legal, the request for condemnation of the Respondent to payment of compensatory interest should be dismissed;

n) Even if the assessment acts were not legal, the tax administration, bound by the principle of legality, merely gave full compliance to the applicable normative provisions, so that, there being no defective appraisal of factual matters or erroneous application of legal norms, there is no situation of error attributable to the services.

B) Preliminary Ruling

The Tribunal is competent and is regularly constituted, in accordance with articles 2, no. 1, paragraph a), 5 and 6, all of the RJAT. The parties have legal standing and capacity, are legitimate and are represented, in accordance with articles 4 and 10 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March.

No nullities or preliminary issues affecting the entire process are present, wherefore it is necessary to now consider the merits of the claim.

C) Object of the Arbitral Decision

The following questions are placed before the Tribunal, in accordance with the description above:

a) Should Item 28.1 of the General Table of Stamp Duty be interpreted as including within its scope properties, with residential use, in full ownership with units capable of independent use, which are characterized by the fact that none of the divisions capable of independent use has a Taxable Patrimonial Value greater than €1,000,000.00 (one million euros), but the sum of the individual Taxable Patrimonial Values is greater than the indicated value of €1,000,000.00 (one million euros)?

b) In the present case, are the prerequisites upon which the law makes the Claimant's right to compensatory interest dependent satisfied?

D) Matter of Fact

D.1 – Proven Facts

The following facts with relevance to the decision are considered proven, based on the documentary evidence attached to the file:

a) The Claimant is the owner of the urban property in vertical ownership situated at …, facing …, registered in the cadastre under article ... of the parish of ... and described in the Land Registry Office of … under number ..., with the following units capable of independent use: …, …, …, 1st floor right, 1st floor left, 2nd floor right, 2nd floor left, 3rd floor right, 3rd floor left, 4th floor right, 4th floor left, 5th floor right, 5th floor left and 6th floor – cf. documents 2 and 3 attached to the "initial petition";

b) The units with residential use corresponding to 1st floor right, 1st floor left, 2nd floor right, 2nd floor left, 3rd floor right, 3rd floor left, 4th floor right, 4th floor left, 5th floor right and 5th floor left were subject to residential lease contracts – cf. document 2 attached to document 4 joined to the initial petition;

c) The urban property was subject to general evaluation in accordance with article 38 and following of the CIMI and article 15-D of Decree-Law 287/2003 of 12/11, with each of its units being individually considered and evaluated in that procedure, with the Taxable Patrimonial Value determined separately – cf. Document no. 5 attached to Document 4, joined to the initial petition)

d) The cadastral registration of the property, no. ..., separately identifies each of the divisions capable of independent use – cf. document no. 3, joined to the initial petition,

e) The cadastral registration of the property, no. ..., specifies the Taxable Patrimonial Value of each of the divisions capable of independent use, with none being equal to or greater than €1,000,000.00 (one million euros) (cf. document no. 3, joined to the initial petition);

f) The Claimant was notified of the Stamp Duty assessment acts for the year 2012 identified in collection documents no. 2013 000...8, no. 2013 000...1, no. 2013 000...4, no. 2013 000...7, no. 2013 000...0, no. 2013 000...3, no. 2013 000...6, no. 2013 000...9, no. 2013 000...2, no. 2013 000...5 and no. 2013 000...8 practiced on 22 March 2013 by the Lisbon 7 Tax Office, assessed in accordance with Item 28.1 of the General Table of Stamp Duty ("TGIS") individually, in relation to each division capable of independent use, in the amounts of €1,079.60 (one thousand seventy-nine euros and sixty cents) in the collection documents relating to the 1st and 2nd right and 1st and 2nd left floors), €1,090.40 (one thousand ninety euros and forty cents) (in the collection documents relating to the 3rd and 4th right and 3rd and 4th left floors), and €1,101.20 (one thousand one hundred one euros and twenty cents) (in the collection documents relating to the 5th right and left floors and 6th floor), collection documents relating to the 1st installment of the aforementioned Stamp Duty assessments, in the amounts of €359.88 (in the collection documents relating to the 1st and 2nd right and 1st and 2nd left floors), €363.48 (three hundred sixty-three euros and forty-eight cents) (in the collection documents relating to the 3rd and 4th right and 3rd and 4th left floors) and €367.08 (three hundred sixty-seven euros and eight cents) (in the collection documents relating to the 5th right and left floors and 6th floor), payable in April 2013 – Cf. document 1 attached to document 4, joined to the initial petition);

g) On 30 April 2013, the Claimant proceeded to pay the 1st installment of the assessed tax – Cf. document 6 attached to document 4, joined to the initial petition;

h) On 18 July 2013, the Claimant proceeded to pay the 2nd installment of the assessed tax – Cf. document 8;

i) On 7 November 2013, the Claimant proceeded to pay the 3rd installment of the assessed tax – Cf. document 9 joined to the initial petition.

As to the proven facts, the Tribunal's conviction was based on the documentary evidence referred to, attached to the file and in the attached administrative proceedings.

No other facts capable of affecting the decision on the merits, in light of the possible legal solutions, and which would therefore be important to register as not proven, were proven.

E) On the Law

As results from the pertinent procedural documents, the question to be decided concerns the interpretation of Item 28.1 of the General Table of Stamp Duty, specifically on the question of whether it is intended to apply to properties with residential use, in full ownership, with divisions capable of independent use, which are characterized by the fact that none of those divisions has a Taxable Patrimonial Value greater than €1,000,000.00 (one million euros), but the sum of the individual Taxable Patrimonial Values is greater than the indicated value of €1,000,000.00 (one million euros). In accordance with the general canons of legal hermeneutics, in particular in light of the provisions of no. 1 of article 9 of the Civil Code, applicable to the interpretation of tax law pursuant to no. 1 of article 11 of the General Tax Law, "interpretation should not limit itself to the letter of the law, but should reconstruct from the texts the legislative intent, taking especially into account the unity of the legal system, the circumstances in which the law was enacted and the specific conditions of the time in which it is applied." It is this interpretative exercise that must now be undertaken.

First and foremost, given the rules of legal exegesis, it is important to consider the literal element of the relevant norms, and in particular Item 28 of the General Table of Stamp Duty, introduced by Law no. 55-A/2012, of 29 October and which came into force on 30 October 2012. Thus:

"28 – Ownership, usufruct or right of superficies of urban properties whose taxable patrimonial value in the cadastre, in accordance with the Code of Municipal Real Estate Tax (CIMI), is equal to or greater than €1,000,000 — on the taxable patrimonial value used for purposes of IMI:

28.1 — For property with residential use — 1%;

28.2 — For property, where the passive subjects that are not natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime, as listed in the list approved by ordinance of the Minister of Finance — 7.5%."

From the analysis of the literal element, it can be concluded that the tax fact relevant for purposes of application of Item of the General Table of Stamp Duty in question is based on the rights described, constituted over:

a) urban properties;

b) with residential use;

c) whose taxable patrimonial value is equal to or greater than €1,000,000.00;

d) with that taxable patrimonial value to be the one used for purposes of IMI.

It is further important to bear in mind the provisions of article 23, no. 7 of the Code of Stamp Duty which provides that: "Where the tax is due for the situations provided for in Item no. 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 CIMI." Similarly, no. 2 of article 67 of the Code of Stamp Duty provides that "For matters not regulated in this Code relating to Item no. 28 of the General Table, the provisions of the CIMI shall apply subsidiarily."

It is further important to consider the following transitional provisions provided for in Law no. 55-A/2012, of 29 October:

a) The tax fact occurs on 31 October 2012;

b) The passive subject of the tax is that mentioned in no. 4 of article 2 of the Code of Stamp Duty, on 31 October 2012;

c) The taxable patrimonial value to be used in the assessment of the tax corresponds to that resulting from the rules provided for in the Code of IMI by reference to the year 2011;

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

e) The tax is to be paid, in a single installment, by the passive subjects by 20 December 2012;

f) The applicable rates are as follows:

i) Properties with residential use assessed in accordance with the Code of IMI: 0.5%;

ii) Properties with residential use not yet assessed in accordance with the Code of IMI: 0.8%;

iii) Urban properties where the passive subjects that are not natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime, as listed in the list approved by ordinance of the Minister of Finance: 7.5%.

g) The failure to deliver, in whole or in part, within the indicated period, of the amounts assessed as stamp duty constitutes a tax infraction, punished in accordance with the law.

With relevance to the decision, it is also important to bear in mind article 12, no. 3 of the Code of Municipal Real Estate Tax, which provides that "each floor or part of a property capable of independent use is considered separately in the cadastral registration, which also specifies the respective taxable patrimonial value." Finally, article 119, no. 1 of the Code of Municipal Real Estate Tax provides that "The services of the Directorate-General for Taxation send to each passive subject, by the end of the month prior to payment, the relevant collection document, with specification of the properties, their parts capable of independent use, respective taxable patrimonial value and the tax allocation to each municipality of the location of the properties."

It results therefore from the letter of the Law that the legislative intent was to create a tax whose applicability is measured by the economic purpose of the urban property and by the Taxable Patrimonial Value used for purposes of Municipal Real Estate Tax, with assessment being conducted in the same manner as the aforementioned Municipal Real Estate Tax.

Having analyzed the literal element of the legal norms, it is now important to analyze also the teleological element (cf. articles 9, no. 1 of the Civil Code and 11 of the General Tax Law).

In order to gauge the legislative intent with this tax innovation, we can draw on the records of the debate that is at the genesis of this legislative initiative. As results from the discussion, of the Bill no. 96/XII (Official Journal of the Portuguese Parliament, I series, no. 9/XII/2, of 11 October 2012), which is at the genesis of Law no. 55-A/2012, of 29 October, the aim is to create special taxation on high-value properties intended for residential use. This measure is part of a set of other measures whose purpose is to create a more just and equitable fiscal system, in which taxpayers are called upon to contribute in accordance with their actual capacity to contribute. It was thus stated that: "This rate will be 0.5% to 0.8%, in 2012, and 1%, in 2013, and will apply to houses with value equal to or greater than 1 million euros." and also that "These measures, Madam President, Ladies and Gentlemen Members of Parliament, represent a decisive step in the realization of a more just and equitable fiscal system in the pressing circumstances the Country faces. By broadening the tax base, requiring an increased effort from taxpayers holding high-value real estate properties, as well as from company shareholders, and strengthening the powers of the tax administration in controlling manifestations of wealth and transfers to tax havens, the Government fulfills its program and creates the conditions for a more just distribution of the fiscal burden." (cf. Official Journal of the Portuguese Parliament, I Series, no. 9, of 10 October 2012, p. 32). On the other hand, from reading the speeches of Members of Parliament from various parties, it is evident that, without exception, reference is made in this connection to the taxation of luxury real estate property and which aims at striking the rich: See in this regard the speech of Member of Parliament Pedro Filipe Soares who states: "It is that luxury property does not end at real estate property (…)." Similarly, Member of Parliament Paulo Sá stated that "(…) as has the PCP, proposed on several occasions, particularly with regard to the taxation of luxury real estate property." (cf. Official Journal of the Portuguese Parliament, I Series, no. 9, of 10 October 2012, pp. 36, 38, 39 and 40).

From all of this, from the interpretative exercise conducted, it results that the legislative intent was, unequivocally, to tax those who demonstrate possession of increased taxpaying capacity through the ownership, usufruct or holding of the right of superficies of luxury houses. Now the use of the word "house" by the State Secretary immediately refers to the concept of physical space used for residential purposes by its owner/usufructuary/holder of the right of superficies. That is, it suggests that the legislature intended that the applicability of this tax manifest itself in taxpayers holding urban properties (houses) whose physical configuration and characteristics suggest their use, in their entirety, by the holder of the right, for residential purposes. Now this will not be the case in the situation in the present file, as the configuration of a property composed of units with independent use does not suggest a unitary residential use of the same, but rather a residential use division by division. In fact, that is the framework that results from the matter of fact, in that some divisions capable of independent use were subject to lease contracts. It does not seem, therefore, that it was the legislative intent to tax through Item 28 of the General Table of Stamp Duty properties in full ownership composed of divisions capable of independent use, where each of the divisions, individually considered, does not have a Taxable Patrimonial Value equal to or greater than €1,000,000.00 (one million euros). The intent will be to tax urban properties with residential use whose physical and economic unit has a Taxable Patrimonial Value greater than €1,000,000.00 (one million euros).

Given this and taking as a basis the applicable legal provisions, proceeding from the analysis of the letter and rising to its spirit, it will be important to determine with precision the meaning and scope of the concept of property and respective Taxable Patrimonial Value, determinative of the applicability of Item 28 of the General Table of Stamp Duty. First of all, it seems safe to assert that the concept of property is not univocal, neither in the various branches of law, nor in the various existing taxes, assuming in each case specific contours and characteristics (cf. GOMES, Nuno de Sá, Fiscal Concepts of Property, Science and Tax Technique no. 101, May 1967). Thus, it will be important to delimit the concept for purposes of application of Item 28 of the General Table of Stamp Duty. In property taxes, only the Code of Municipal Real Estate Tax establishes, or attempts to establish, this concept, although without precisely defining its contours. Thus, and as well noted by the Supreme Administrative Court (2nd Section) in its Decisions in Appeals 1109/11 and 1004/11, of 30 May 2012 and 27 June 2012, respectively, "In accordance with art. 2 of the CIMI the concept of property rests on three elements: an element of a physical nature (fraction of land, encompassing waters, plantations, buildings and constructions of any nature incorporated or based therein, with a character of permanence), an element of a legal nature (requirement that the thing - movable or immovable - form part of the patrimony of a natural or legal person) and an element of an economic nature (requirement that the thing have economic value in normal circumstances). This is a concept of property that diverges, both from the concept of property contained in no. 3 of art. 8 of the IRS Code, (However, for Rui Duarte Morais ("On the IRS", 2nd edition, Almedina, 2008, p. 116) the IRS Code does not define what property is, so in a systematic interpretation, we understand that we should draw on the notion contained in the CIMI. This is because "In reality, no. 3 of art. 8 of the IRS Code presents the definitions of rural property, urban property and mixed property, for purposes of this tax. Beyond such notions, as overly simplistic, they do not proceed to a rigorous delimitation of these concepts (cf. arts. 3 to 6 of the CIMI), there are property realities not subsumable in any one of these categories (it would be the case of properties that do not have as a physical component a fraction of land). and from that contained in no. 2 of art. 204 of the Civil Code. (In this connection, cf. Nuno Sá Gomes, "Fiscal Concepts of Property", in Notebooks of Science and Tax Technique, no. 54 (and also published in Science and Tax Technique nos. 101 and 102 – May and June of 1967), a study which, although referring to the legislative evolution that culminated in the former Code of Real Property Contribution, maintains some relevance.)"

With regard to the physical and legal components, as defined by the Supreme Administrative Court, it does not seem that there is any dispute. Indeed, in the case in question, the cause of action was structured by the Claimant in order to argue that the divisions capable of individual use have economic value, whose constituent elements influence their own Taxable Patrimonial Value, which implies that they be considered autonomously for purposes of the applicability of Item 28 of the General Table of Stamp Duty. Now the value/economic purpose of properties has been determinative of the delimitation of the various fiscal concepts of property. Indeed, article 6, no. 2 of the Code of Municipal Real Estate Tax, whose rules should be applied here as we have seen, distinguishes various concepts of urban properties according to their respective economic purpose. Indeed, that rule determines the concept starting from the physical structure and correcting it through its economic purpose. Now, in the case in question, there is no doubt that the divisions capable of independent use have economic value in normal circumstances, which is revealed not only in the fact that there is an economic use that is not mere enjoyment, but also in the very attribution of a concrete and autonomous Taxable Patrimonial Value. On the other hand, it is verified that the tax legislature made no distinction between horizontal ownership and vertical ownership. In fact, as well noted in the Arbitral Decision rendered in case no. 50/2013-T, to whose reasoning we adhere, "from the legislator's perspective, what matters is not the legal-formal precision of the concrete property situation but rather its normal use, the purpose for which the property is intended. We further conclude that for the legislator the situation of the property in vertical or horizontal ownership did not matter, as no reference or distinction is made between them. What matters is the material truth underlying its existence as an urban property and its use."

And with regard to the determination of the Taxable Patrimonial Value, the criterion used by the legislature is also decisively influenced by the economic purpose of the real property. That is, also here the legislature preferred material truth to legal-formal reality. A solution which is well understood in light of the constitutional principles inherent in articles 103, no. 1 (just distribution of wealth) and 104, no. 3 (taxation of property as guarantor and contribution to equality among citizens), both of the Constitution of the Portuguese Republic. Now, equality among citizens can only be achieved if, more than formal reality, taxation, in this case of property, is based on material truth, on the facts of real life. Now, in material terms there is no difference between a building in horizontal ownership and a building (physical element of the concept) in vertical ownership composed of divisions with independent use. In fact, and as was already mentioned, the tax law also makes no distinction, either at the level of cadastral registration (articles 12 and 91 and following of the Code of Municipal Real Estate Tax), or at the level of taxation, with article 119 of the Code of Municipal Real Estate Tax mandating that the tax be assessed individually on each division capable of independent use and based on the concrete Taxable Patrimonial Value (of each of the divisions with independent use) – which, in compliance with the Law, occurred in the case in question. That is, based on the same building, both the cadastral registration and the evaluation and the assessment of Municipal Real Estate Tax are processed in the same manner – division by division.

As defended by José Maria Pires (Lessons on Taxes on Property and Stamp Duty, Almedina, 2010) with regard to the determination of the taxable patrimonial value of real properties, the legislature adopted pragmatic criteria that relate to the actual use of properties, with that pragmatism being most evident in cases, like those in the present file, of properties with autonomous parts capable of independent use. "In these cases the evaluation must necessarily reflect the existence of more than one use given that this multifunctionality is relevant in the determination of the value of those properties, regardless of the purpose for which they are licensed. (…) In this second case, naturally it is the actual use of each of the parts capable of independent use that is relevant in the determination of the use coefficient (….). Here too the legislature followed a principle of pragmatism of valorization of the actual functionality of each property. (…) In truth, in these cases, the Code of IMI provides that the evaluation of each of the parts capable of independent use be evaluated separately and, more still, that each of those parts be registered in an autonomous manner in the property registries. That autonomization, although integrated in the same cadastral registration number, also encompasses the taxable patrimonial value, with the Law providing that each of those parts have its own value. The Law goes even further, establishing that in the very assessment of IMI, this must be done separately for each of those parts capable of independent use, as provided for in article 119 of the CIMI" (PIRES. José Maria, Lessons on Taxes on Property and Stamp Duty, Almedina 2010, pp. 84 and 85). That is, the evaluation, which is conducted in concreto for each of the divisions with independent use, is influenced by material truth (actual economic purpose of the property) and not by formal reality.

From the interpretative exercise conducted, it results that the essential criterion of the legislature in the context of property taxes was that of material substance of the property. That is, rather than legal-formal precision, what is at issue is the actual use of buildings and their component parts. And this pragmatic criterion and of material truth manifests itself in the determination of the taxable patrimonial value which is done individually by reference to each of the divisions capable of independent use, as occurs in a building in horizontal ownership.

In this manner, the Taxable Patrimonial Value that constitutes the applicability of Item 28, no. 1 of the General Table of Stamp Duty is that which results from the letter and ratio of the combined application of articles 2, 6, no. 1, paragraph a), 12 and 119 of the Code of Municipal Real Estate Tax and Item 28, no. 1 of the General Table of Stamp Duty, that is, that which results from the material truth of the configuration and use of the property.

As we have already seen, the criteria for ascertainment of the Taxable Patrimonial Value relevant for measuring the applicability of the Stamp Duty tax provided for in Item 28 of the respective General Table must necessarily be those provided for in the Code of Municipal Real Estate Tax, not only because it is the applicable regulation that applies subsidiarily (cf. articles 23, no. 7 and 67, no. 2 of the Code of Stamp Duty), but essentially because the said Item of the General Table of Stamp Duty mandates that attention be paid to the "taxable patrimonial value used for purposes of IMI." Now, having analyzed the Code of Municipal Real Estate Tax, it is verified that it makes no distinction between urban properties with residential use in the form of horizontal ownership and urban properties with residential use in the form of full or vertical ownership. In fact, both are provided for in no. 2 of article 6 of the Code of Municipal Real Estate Tax under the designation of residential urban properties, being, as we have already seen, the rules of cadastral registration unique. And unique are also the rules of assessment of Municipal Real Estate Tax (and therefore of Stamp Duty provided for in Item 28 of the General Table of Stamp Duty), which is levied on the Taxable Patrimonial Value of each of the divisions capable of independent use. Now, it was precisely this that occurred in the concrete case, with there being as many assessments as there were divisions with independent use allocated to residential use.

In light of the above, determining the Code of Municipal Real Estate Tax that the assessment of that tax be done individually on each of the divisions capable of independent use – which occurred, as we have seen – the same criterion must be used for the assessment of Stamp Duty provided for in Item 28, no. 1 of the respective General Table. The applicability of Stamp Duty (provided for in Item 28, no. 1 of the General Table of Stamp Duty) must therefore be measured against the Taxable Patrimonial Value of each of the divisions capable of independent use. Indeed, if the legal criterion of Municipal Real Estate Tax – which is the applicable one when Item 28 of the General Table of Stamp Duty is involved – requires the issuance of individualized assessments for the autonomous parts of properties in vertical ownership, assessments that are based on the concrete Taxable Patrimonial Value of each of the divisions with independent use, it is that concrete Taxable Patrimonial Value that is relevant for measuring the applicability of Stamp Duty.

And this conclusion, in light of the interpretative exercise conducted, is supported, both by the literal element and by the ratio of the relevant legal norms. Indeed, on the one hand, the literal element mandates that attention be paid to the Taxable Patrimonial Value used for purposes of IMI (which is the concrete taxable patrimonial value of each division with independent use), and the legislature has always manifested the intent to tax the owners/usufructuaries/holders of the right of superficies of high-value houses, thus striking those who, through their ownership used for residential purposes, is indicative of increased taxpaying capacity.

In light of what has been set out, it is important to ascertain whether any of the divisions capable of independent use has a taxable patrimonial value greater than €1,000,000.00 (one million euros). From the evidence made in the case file, it results that this is not the case, so that, inexorably, one must conclude to the illegality of the assessment acts in question through error in the prerequisites and violation of article 1, no. 1 of the Code of Stamp Duty and Item 28, no. 1 of the General Table of Stamp Duty, requiring the declaration of illegality and annulment of the same, as requested.

Finally, the Claimant requests reimbursement of the amounts paid, plus compensatory interest, in accordance with the provisions of article 43 of the General Tax Law. Against this request, the Respondent objects, not only because it considers that the assessment acts practiced are legal, but also because it merely complied with the Law, which it contends is objective and without margin of discretion, so that no fault can be imputed to it. Let us examine this:

Article 43 of the General Tax Law provides that the taxpayer shall be entitled to be compensated through compensatory interest whenever the unduly paid tax is attributable to error of the services.

"The error attributable to the services that conducted the assessment is demonstrated when they proceed to administrative complaint or challenge of that same assessment and the error is not attributable to the taxpayer (for example, there will be annulment by error attributable to the taxpayer when the assessment is based on erroneous factual premises, but the error is based on incorrect information provided in the statement that the taxpayer submitted)." (Campos, Diogo Leite de; Rodrigues, Benjamim Silva, Sousa, Jorge Lopes de, General Tax Law, Annotated and Commented, 4th Ed. 2012 Encontro da Escrita, Lisbon, p. 342). Also the Supreme Administrative Court concretizes the concept of error attributable to the services (although by reference to article 78 of the General Tax Law, but which here has full application) as any illegality regardless of proof of fault of any of the persons or entities that comprise it. "As stated in the Decision of 12/12/2001, appeal 26.233: "where there is error of law in the assessment, through application of national norms that violate community law and it being made by the services, it is to the tax administration that this error is attributable, as long as the erroneous application of the law is not based on any information from the taxpayer. On the other hand, this attribution to the services is independent of the fault of any of its officials in conducting an assessment affected by error" since "the tax administration is generically obliged to act in conformity with the law (arts. 266, no. 1 of the CRP and 55 of the LGT), so that, regardless of proof of the fault of any of the persons or entities that comprise it, any illegality not resulting from action of the passive subject will be attributable to the fault of the services themselves".
Cf., in the same sense and by all, the Decisions of 06/02/2002 appeal 26.690, 05/06/2002 appeal 392/02, 12/12/2001 appeal 26.233, 16/01/2002 appeal 26.391, 30/01/2002 appeal 26.231, 20/03/2002 appeal 26.580, 10/07/2002 appeal 26.668." (cf. Decision of the Supreme Administrative Court – 2nd Section, rendered in Appeal no. 1009/10, on 22 March 2011, with Rapporteur Her Excellency Judge Counselor Dr. Isabel Marques da Silva, available at:

http://www.dgsi.pt/jsta.nsf/35fbbbf22e1bb1e680256f8e003ea931/b1e7cc04381b03af802578620046b202?OpenDocument&ExpandSection=1).

In the case in question, the Stamp Duty assessment acts are illegal, because practiced with error of fact and law and violation of the applicable legal norms and principles, and such error does not emerge from any conduct of the Claimant, so that it is attributable to the Services.

In light of the above, the request for condemnation of the tax administration to payment to the Claimant of compensatory interest in accordance with the provisions of article 43, no. 1 of the General Tax Law is justified.

Decision

In light of the foregoing, this Arbitral Tribunal decides to fully uphold the claim submitted and consequently:

a) Declare the illegality of the Stamp Duty assessment acts, annulling them;

b) Condemn the Respondent to reimburse the amount unduly paid plus compensatory interest; and,

c) Condemn the Respondent to payment of costs.

The value of the action is fixed at €11,983.60 (eleven thousand nine hundred eighty-three euros and sixty cents), in accordance with the provisions of article 97-A, no. 1, paragraph a) of the CPPT, applicable pursuant to article 29, no. 1, paragraph a) of the RJAT.

The value of the Arbitration Fee is fixed at €918.00, in accordance with Table I of the Regulations for Costs of Tax Arbitration Proceedings, to be paid by the Respondent, in accordance with articles 12, no. 2, 22, no. 4 of the RJAT and 4 of the cited Regulations.

Let notice be given.

Lisbon, 16 May 2014

The Arbitrator

Francisco de Carvalho Furtado

Frequently Asked Questions

Automatically Created

What is Verba 28.1 of the Portuguese Stamp Tax Table and how does it apply to high-value properties?
Item 28.1 of the Portuguese Stamp Duty General Table (Tabela Geral do Imposto do Selo) imposes an annual tax on urban properties designated for residential use with a taxable patrimonial value (valor patrimonial tributável - VPT) exceeding €1,000,000. The tax rate is progressive: properties valued between €1,000,000 and €2,000,000 are taxed at 0.7% annually, while those exceeding €2,000,000 face a 1% annual rate. This levy was introduced as a wealth tax targeting high-value residential real estate. The taxable value is determined by the VPT established under the Municipal Real Estate Tax Code (Código do IMI). Item 28.1 applies automatically when the valuation threshold is met, without requiring discretionary assessment by tax authorities. The tax is calculated on the property's total VPT as of January 1st each year and must be paid by the owner(s) listed in the cadastral registry.
How does the CAAD treat properties in total ownership (propriedade total) with divisions capable of independent use for Stamp Tax purposes?
In CAAD arbitration case 277/2013-T, the treatment of properties in total ownership (propriedade total) with divisions capable of independent use was central to the dispute. The Tax Authority's position, as articulated in its Reply, distinguishes between properties in full ownership with independent divisions and properties under horizontal ownership (propriedade horizontal) with autonomous units. According to the tax administration, a property held in full/vertical ownership remains a single property for Stamp Duty purposes under Article 2(1) and 2(4) of CIMI, even when it contains multiple stories or divisions capable of independent use. Only autonomous units under the horizontal ownership regime, governed by Article 4(2) of CIMI, are considered separate properties. The Authority argued that Article 12(3) of CIMI, which addresses cadastral registration of independent divisions, does not transform those divisions into distinct properties. Therefore, for Item 28.1 application, the aggregate taxable patrimonial value of all divisions within the single property determines tax liability, not the individual values of each division. This interpretation means taxpayers cannot circumvent the €1,000,000 threshold by structuring a single building with multiple independent units under vertical ownership.
Can a taxpayer challenge Imposto do Selo assessments on urban properties through tax arbitration at the CAAD?
Yes, taxpayers can and frequently do challenge Imposto do Selo (Stamp Duty) assessments on urban properties through tax arbitration at the CAAD (Centro de Arbitragem Administrativa). Case 277/2013-T exemplifies this procedure. The claimant invoked Article 2(1)(a) and Article 10 of Decree-Law 10/2011 (the Legal Regime for Tax Arbitration - RJAT), in conjunction with Articles 99(a) and 102(1)(d) of the Tax Procedure Code (CPPT) to challenge Stamp Duty assessments totaling €11,983.60 for 2012. Tax arbitration provides an alternative dispute resolution mechanism for challenging tax acts, including assessments, liquidations, and denials of refund claims. The CAAD process is generally faster and less formal than judicial tax courts. Arbitral tribunals have jurisdiction to review the legality of Stamp Duty assessments, including interpretation of Item 28.1 and related CIMI provisions. Taxpayers can seek annulment of unlawful assessments and reimbursement of taxes paid, plus compensatory interest. The arbitration request must be filed within the statutory deadlines applicable to administrative challenges. CAAD decisions are binding and enforceable, though subject to limited judicial review on procedural grounds.
Are individual units in a building held under vertical ownership assessed separately or collectively under Verba 28.1?
According to the Tax Authority's interpretation in CAAD case 277/2013-T, individual units in a building held under vertical ownership are assessed collectively, not separately, under Item 28.1 of the Stamp Duty Table. The Respondent distinguished vertical ownership from horizontal ownership (condominium) regimes. Under Article 4(2) of the Municipal Real Estate Tax Code (CIMI), only autonomous units under horizontal ownership are legally recognized as separate properties (prédios) for tax purposes. In contrast, a building held in full ownership with multiple divisions capable of independent use remains a single property under Articles 2(1) and 2(4) of CIMI, regardless of internal configuration. Consequently, the taxable patrimonial value (VPT) relevant for Item 28.1 is the aggregate value of all divisions combined, not each division separately. In the case at hand, although each individual unit's VPT was below €1,000,000, the combined VPT of €1,198,360 exceeded the threshold, triggering Item 28.1 liability. The claimant's contrary argument—that each independent division should be treated as a separate property—was based on the cadastral registration provisions of Article 12(3) CIMI, which the Authority contended merely concerns administrative registration procedures, not the substantive definition of property for tax purposes.
What remedies are available when Stamp Tax is unlawfully charged, including reimbursement and compensatory interest under Article 43 of the LGT?
When Stamp Duty (Imposto do Selo) is unlawfully charged, Portuguese tax law provides several remedies. First, under Article 100 of the General Tax Law (Lei Geral Tributária - LGT), taxpayers are entitled to reimbursement of taxes paid in excess or without legal basis. The reimbursement claim must typically be filed within two years from payment or from when the right becomes enforceable. Second, Article 43(1) of the LGT establishes the right to compensatory interest (juros indemnizatórios) when tax has been unlawfully collected due to error attributable to the tax administration. The interest runs from the date of payment until reimbursement and is calculated at the legal interest rate established annually by ministerial order. Compensatory interest compensates taxpayers for the State's unlawful retention of their funds. In case 277/2013-T, the claimant specifically requested both reimbursement of the €11,983.60 Stamp Duty paid and compensatory interest under Articles 43(1) and 100 of the LGT, arguing the assessments resulted from administrative error in applying Item 28.1. To obtain these remedies, taxpayers must successfully demonstrate the illegality of the assessment, either through administrative challenge, tax arbitration at the CAAD, or judicial proceedings in tax courts. The burden of proof regarding the illegality generally rests with the taxpayer, though the administration must justify the lawfulness of its acts.