Process: 290/2014-T

Date: October 22, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration case (290/2014-T) addresses the interpretation of Stamp Tax item 28.1 of the General Table, which imposes 1% tax on residential properties with taxable patrimonial value (TPA) equal to or exceeding €1,000,000. The claimant A, S.A. owned an urban property with 8 independent residential units not constituted under horizontal property regime. Each unit had a TPA below €1,000,000 (ranging from €127,620 to €136,080), but the total property value was €1,046,340. The Tax Authority assessed Stamp Tax for 2012 on each unit. The claimant challenged the assessments, arguing that since no individual unit exceeded €1,000,000, no tax was due. The central legal dispute concerns whether the €1,000,000 threshold applies to the aggregate property value or to each independent unit separately. The claimant also raised constitutional challenges, alleging violations of equality principles (Articles 13 and 104(3) CRP) because properties in vertical ownership are treated differently than those under horizontal property regime, and claimed violation of Article 103(2) CRP. The Tax Authority defended that the global TPA should determine tax incidence. The tribunal referenced prior CAAD decisions on similar matters, indicating established jurisprudence on this interpretative question regarding properties with multiple independent units not constituted as horizontal property.

Full Decision

ARBITRATION DECISION

CAAD: Tax Arbitration
Case No. 290/2014 – T
Subject: Stamp Tax – item 28.1 of the General Stamp Tax Table

Claimant / Applicant: A, S.A.
Respondent: Tax and Customs Authority (hereinafter AT)

  1. Report

On 26-03-2014, the joint-stock company A, S.A., legal entity no. …, with registered office at …, municipality of …, hereinafter referred to as the Applicant, submitted to the Administrative Arbitration Center (CAAD) a request for constitution of an arbitral tribunal with a view to annulling the tax acts of assessment of Stamp Tax, of item 28.1 of the General Table of Stamp Tax, relating to the year 2012 and to the urban property located in the parish of ..., municipality of ..., registered in the urban property register of the said parish under article ..., currently article ... of the parish of ..., constituted in full ownership and with 8 residential units with independent use.

The Applicant alleges that since none of the floors with independent use has a TPA superior to €1,000,000, no Stamp Tax can be assessed or collected.

In summary, the Applicant alleges as grounds for this arbitration request the erroneous quantification and classification of patrimonial values.

The Applicant further alleges that the Stamp Tax assessments in dispute directly violate the principle of equality, enshrined in Articles 13 and 104 No. 3 of the Constitution of the Portuguese Republic. It also refers that the assessments in question are unconstitutional by virtue of violation of Article 103 No. 2 of the Constitution of the Portuguese Republic.

The Tax and Customs Authority submitted its reply on 01-07-2014, defending the maintenance of the tax acts in dispute, requesting dismissal of the application, and arguing that the patrimonial value relevant for purposes of tax incidence is the total patrimonial value of the urban property and not the patrimonial value of each one of the floors that compose it, even if they are susceptible to independent use.

Suzana Fernandes da Costa was appointed as sole arbitrator on 16-05-2014. In accordance with the provisions of Article 11 No. 1 letter c) of the RJAT, the singular arbitral tribunal was constituted on 02-06-2014.

On 02-07-2014, the Tax and Customs Authority requested dispensation from holding the meeting provided for in Article 18 of the RJAT and from filing arguments. Notified of this request for dispensation, the Applicant made no statement.

On 12-09-2014 an order was issued dispensing with the holding of the meeting provided for in Article 18 of the RJAT and filing of arguments, taking into account that there were no exceptions to analyse.

At that time, 23-10-2014 was set as the date for delivery of the arbitral decision.

The parties have judicial personality and capacity and are legitimated (Articles 4 and 10 No. 1 and 2 of the RJAT and Article 1 of Order No. 112-A/2011 of 22 March).

The arbitration application is timely, in accordance with Article 10 No. 1 letter a) of Decree-Law No. 10/2011 of 20 January and Article 102 No. 1 letter a) of the CPPT.

The proceedings do not suffer from any nullities and no preliminary questions were raised.

  1. Factual Matters

2.1. Proven Facts:

Following analysis of the documentary evidence produced, the following facts are considered proven and relevant for the decision of the case:

  • The Applicant A, S.A. is owner of the urban property located at ..., in ..., registered in the urban property register of the parish of ... under article ... (extinct parish of ... and former article ...), property that is composed of 8 residential units with independent use, in accordance with the updated property card and property card of 2013 attached to the arbitration application as documents 1 and 2.

  • The Applicant was notified of the following Stamp Tax assessments for the year 2012, as per copies attached to the arbitration application as documents 3 to 10:

  • assessment No. 2013 ...51 in the amount of €1,276.20, relating to the 1st floor right of the property referred to in point one, whose TPA is €127,620.00;

  • assessment No. 2013 ...52 in the amount of €1,360.80, relating to the 1st floor left of the property referred to in point one, whose TPA is €136,080.00;

  • assessment No. 2013 ...53 in the amount of €1,276.20, relating to the 2nd floor right of the property referred to in point one, whose TPA is €127,620.00;

  • assessment No. 2013 ...54 in the amount of €1,360.80, relating to the 2nd floor left of the property referred to in point one, whose TPA is €136,080.00;

  • assessment No. 2013 ...55 in the amount of €1,276.20, relating to the 3rd floor right of the property referred to in point one, whose TPA is €127,620.00;

  • assessment No. 2013 ...56 in the amount of €1,360.80, relating to the 3rd floor left of the property referred to in point one, whose TPA is €136,080.00;

  • assessment No. 2013 ...57 in the amount of €1,276.20, relating to the RC right of the property referred to in point one, whose TPA is €127,620.00;

  • assessment No. 2013 ...58 in the amount of €1,276.20, relating to the RC left of the property referred to in point one, whose TPA is €127,620.00.

  • The payment deadline for these assessments was 31-12-2013.

  • From the aforementioned Stamp Tax assessments it appears that the total patrimonial value of the property is €1,046,340.00.

No other facts with relevance for the decision of the case were proven.

2.2. Grounds for the Proven Factual Matters:

With respect to the proven facts, the arbitrator's conviction was based on the documentary evidence attached to the file.

  1. Legal Matters:

3.1. Object and Scope of the Present Proceedings

The issues to be decided in the present proceedings are:

  • whether item 28.1 of the General Table of Stamp Tax (TGIS), in the case of properties not constituted in horizontal property regime, applies to the sum of the taxable patrimonial value attributed to the different parts or floors (global TPA), or rather to the taxable patrimonial value of each part of the property with independent economic use;

  • whether there was a violation of the principle of equality enshrined in Articles 13 and 104 No. 3 of the Constitution of the Portuguese Republic;

  • whether the assessments in question are unconstitutional by virtue of violation of Article 103 No. 2 of the Constitution of the Portuguese Republic.

On the first question, among others, the CAAD decisions rendered in cases No. 50/2013-T, 132/2013-T, 181/2013-T, 183/2013-T, 272/2013-T, 280/2013-T, 88/2014-T and 206/2014-T have already pronounced themselves.

3.2. Question of the Taxable Patrimonial Value Relevant for the Application of Item 28.1 of the TGIS

According to the Tax and Customs Authority, in a property in vertical ownership (or not constituted under a horizontal property regime) the criterion for determining the incidence of stamp tax is the global taxable patrimonial value of the floors and divisions intended for residential use.

As for the Applicant, subjection to the stamp tax contained in item No. 28.1 of the TGIS should be assessed not by the total value of the property but by the value attributed to each of the parts with independent use, based on the respective TPA, and should follow the same criterion as the determination of IMI.

Let us examine:

Law No. 55-A/2012, of 29 October, added item 28 to the General Table of Stamp Tax (TGIS), with the following wording:

28 – Ownership, usufruct or right of surface of urban properties whose taxable patrimonial value as recorded in the property register, in accordance with the Code of Municipal Property Tax (CIMI), is equal to or greater than €1,000,000 – on the taxable patrimonial value used for IMI purposes:

28.1 – For properties with residential use – 1% (…);

In the transitional provisions contained in Article 6 of that Law No. 55-A/2012, the following rules were established:

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 Municipal Property Tax by reference to the year 2011; (…)

f) The applicable rates are as follows:

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

ii) Properties with residential use not yet assessed under the Code of IMI: 0.8%;."

Item 28.1 TGIS and sub-items i) and ii) of letter f) of No. 1 of Article 6 of Law No. 55-A/2012 contain a concept that is not used in any other tax legislation, which is that of "property with residential use".

In turn, Article 67 No. 2 of the Code of Stamp Tax, added by the aforementioned Law, provides that "to matters not regulated in the present code relating to item 28 of the General Table, the CIMI shall apply subsidiarily."

The rule of incidence refers to urban properties, the concept of which results from the provisions of Article 2 of the CIMI, with the determination of the TPA following the terms provided for in Article 38 and following articles of the same code.

In turn, Article 6 of the CIMI indicates the different types of urban properties, and provides that "residential, commercial, industrial or service buildings or constructions are those licensed for such purposes or, in the absence of a license, that have as their normal destination each of these purposes." (see letter a) of No. 1 of Article 6 CIMI).

It is thus to be concluded that for the legislator it is irrelevant whether the property is in vertical ownership or in horizontal property, mattering only the material truth underlying its existence as an urban property and its use.

Since the CIS refers to the CIMI, we should consider that the registration in the property register of immovables in vertical ownership, constituted by different parts, floors or divisions with independent use, follows the same registration rules as immovables constituted in horizontal property.

From this it follows that the respective IMI, as well as the Stamp Tax, are assessed individually in relation to each of the parts. For this reason, the legal criterion for defining the incidence of the new tax must be the same.

Thus it is concluded as in the CAAD decision 50/2013-T, according to which "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 property, it has clearly established the criterion, which must be unique and unambiguous, for defining the rule of incidence of item 28.1 of the TGIS".

It thus results from the law that stamp tax of item 28.1 of the TGIS would only be applicable if any of the parts, floors or divisions with independent use presented a TPA superior to €1,000,000.00, which does not occur in the present case.

The criterion defended by the AT, which takes into account the sum of the parts, on the argument that the property would not be constituted under a horizontal property regime, finds no legal support and is contrary to the criterion that results from the CIMI and which applies by reference in the context of Stamp Tax.

Furthermore, the law itself expressly establishes, at the end of item 28 of the TGIS, that the Stamp Tax applying to urban properties of value equal to or greater than €1,000,000.00 is "on the taxable patrimonial value used for IMI purposes."

In conclusion, the patrimonial value relevant for purposes of application of item 28.1 of the TGIS is the TPA of the part, floor or division with independent use.

3.3. On the Alleged Violation of the Principle of Equality

The Applicant alleges that the application of item 28.1 of the TGIS directly violates the principle of equality enshrined in Articles 13 and 104 No. 3 of the Constitution of the Portuguese Republic.

According to the interpretation upheld above, the taxation of parts with independent use of value less than one million euros is not covered by the rule of incidence; therefore, their taxation effectively violates the principle of equality, more specifically in its corollaries of taxpaying capacity and fiscal proportionality.

Regarding the principle of equality, see CAAD decisions No. 50/2012-T and 218/2013-T, and the Constitutional Court decisions No. 142/04 and 187/2013.

We conclude as in the CAAD decision of case No. 218/2013-T, "the assessment of Stamp Tax now under consideration manifestly violates the principle of fiscal equality provided for in Article 13 of the CRP, because: i) it is based on a rule that treats taxpayers in identical situations in very different ways, with the measure of the difference not being assessed by their real taxpaying capacity; ii) it is based on an arbitrary legal solution devoid of any rational basis."

In the case at hand, the property in question is in vertical ownership and contains several floors and divisions with independent use intended for residential use, as proven above. Given that none of the floors intended for residential use has patrimonial value equal to or greater than €1,000,000.00, as results from the documents attached to the file, it is concluded that the legal requirement for incidence of Stamp Tax provided for in Item 28 of the TGIS is not met.

Looking now at the ratio legis of the provision in question in item 28.1 TGIS and citing the CAAD decision 50/2013-T "the legislator, when introducing this legislative innovation, considered as a determining element of taxpaying capacity urban properties, with residential use, of high value (luxury), more precisely, of value equal to or greater than €1,000,000.00, on which a special rate of stamp tax began to apply, intending to introduce a principle of taxation on wealth expressed in the ownership, usufruct or right of surface of luxury urban properties with residential use. For this reason, the criterion was to apply the new rate to urban properties with residential use, whose TPA is equal to or greater than €1,000,000.00.

Clearly the legislator understood that this value, when attributable to a residential unit (house, autonomous fraction or floor with independent use) reflects a taxpaying capacity above the average and, as such, susceptible to determining a special contribution to ensure just distribution of the tax burden." Whereas when applied to a part or fraction that does not exceed the said value of one million euros the rule of incidence will not be verified.

The principle of fiscal equality requires that what is equal be treated fiscally in an equal manner and what is different be treated differently. However, there is no justification for the differentiated treatment of fractions or parts of a property solely by reason of the fact that it is already in horizontal property, provided that the fractions or parts have independent use.

As stated in the CAAD decision of case No. 218/2013-T, "The principle of fiscal equality is based on the general principle of equality provided for in Article 13 of the CRP, from which results the principle of taxpaying capacity which, by constitutional imperative, is the prerequisite and the criterion of taxation.

As noted by Casalta Nabais, the principle of fiscal equality has embedded therein especially "the idea of generality or universality, in terms of which all citizens are bound to fulfill the duty to pay taxes, and of uniformity, requiring that such duty be assessed by a single criterion — the criterion of taxpaying capacity. This thus implies equal taxation for those with equal taxpaying capacity (horizontal equality) and different taxation (in qualitative or quantitative terms) for those with different taxpaying capacity in proportion to that difference (vertical equality) (Casalta Nabais, Tax Law, 5th edition, Coimbra, 2009, pages 151-152)."

In the CAAD decision of case No. 50/2013-T it can be read that "The tax legislator cannot treat equal situations differently. Now, if the property were in a horizontal property regime, none of its residential fractions would be subject to the incidence of the new tax."

Thus, and in line with the case law of the TC and CAAD, we conclude that there has been a violation of the principle of fiscal equality and taxpaying capacity.

3.4. On the Alleged Violation of Article 103 No. 2 of the Constitution of the Portuguese Republic

The Applicant alleges that the assessments in question are unconstitutional by virtue of violation of Article 103 No. 2 of the Constitution of the Portuguese Republic.

Article 103 No. 2 of the CRP, as well as Article 8 of the LGT, refers to matters covered by the reserve of law. According to these norms, the principle of fiscal legality encompasses incidence, rate, tax benefits and guarantees of taxpayers. This is also referred to in the work "The Principle of Fiscal Legality" by Ana Paula Dourado, Almedina, 2007, page 106.

On the principle of tax legality the following CAAD decisions have already pronounced themselves: 50/2013-T; 132/2013-T; 272/2013-T; 88/2014-T.

The final part of item 28 of the TGIS refers that Stamp Tax applies to urban properties of value equal to or greater than €1,000,000.00 – "on the taxable patrimonial value used for IMI purposes." Thus, the AT cannot make Stamp Tax apply to parts of a property with independent use that do not have a TPA equal to or greater than €1,000,000.

Thus, the adoption of this criterion by the AT clearly violates the principle of legality.

Therefore, it shall be concluded as in the decision of the CAAD of case No. 50/2013-T: "The AT cannot distinguish where the legislator himself understood not to do so, under penalty of violating the coherence of the tax system, as well as the principle of fiscal legality provided for in Article 103 No. 2 of the CRP."

  1. Decision

In view of the foregoing, it is determined that the application filed by the Applicant in the present tax arbitration proceedings is well-founded, with respect to the illegality of the Stamp Tax assessments of the year 2012, No. 2013 ...51 in the amount of €1,276.20, No. 2013 ...52 in the amount of €1,360.80, No. 2013 ...53 in the amount of €1,276.20, No. 2013 ...54 in the amount of €1,360.80, No. 2013 ...55 in the amount of €1,276.20, No. 2013 ...56 in the amount of €1,360.80, No. 2013 ...57 in the amount of €1,276.20 and No. 2013 ...58 in the amount of €1,276.20.

  1. Value of the Case:

In accordance with the provisions of Article 315 No. 2 of the CPC and Article 97-A No. 1 letter a) of the CPPT and Article 3 No. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the action is set at €10,463.40.

  1. Costs:

In accordance with Article 22 No. 4 of the RJAT, and Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is set at €918.00, payable by the Tax and Customs Authority.

Notify.

Lisbon, 22 October 2014.

Text prepared by computer, in accordance with Article 138 No. 5 of the Code of Civil Procedure (CPC), applicable by reference from Article 29 No. 1 letter e) of the Tax Arbitration Regime, with blank verses and reviewed by me.

The sole arbitrator,

Suzana Fernandes da Costa

Frequently Asked Questions

Automatically Created

Does Stamp Tax under Verba 28.1 apply to the total property value or to each independent unit separately?
The central dispute in this case concerns whether Stamp Tax under item 28.1 of the TGIS applies to the total global value of a property or to each independent unit separately. The Tax Authority argued that for properties in vertical ownership (not constituted under horizontal property regime), the criterion is the global taxable patrimonial value of all residential floors and divisions. The claimant argued that the tax should be assessed based on the value attributed to each part with independent use, following the same criterion as IMI (Municipal Property Tax). The €1,000,000 threshold should thus apply to each unit individually, not to the aggregate property value.
Can a building with independent housing units be taxed under Verba 28.1 if no single unit exceeds €1,000,000?
Yes, according to the Tax Authority's position, a building with independent housing units can be taxed under item 28.1 even if no single unit exceeds €1,000,000, provided the total property value reaches or exceeds the threshold. In this case, although each of the 8 residential units had individual TPAs ranging from €127,620 to €136,080 (all below €1,000,000), the combined property value was €1,046,340, exceeding the threshold. The Tax Authority issued separate assessments for each unit applying the 1% rate. However, the claimant contested this interpretation, arguing that taxation should be based on individual unit values, not the aggregate, particularly when units have independent economic use and separate registration.
Does taxing total property value instead of individual unit values violate the Portuguese constitutional principle of equality?
The claimant raised constitutional challenges arguing that the Stamp Tax assessments violated the principle of equality enshrined in Articles 13 and 104(3) of the Portuguese Constitution. The equality argument centers on the different treatment between properties in vertical ownership and those constituted under horizontal property regime. Additionally, the claimant alleged violation of Article 103(2) CRP regarding taxation on properties in joint ownership. These constitutional questions address whether applying the global property value for tax purposes, rather than individual unit values, creates discriminatory treatment that lacks reasonable justification, particularly when comparing properties with similar characteristics but different legal ownership structures.
What is the CAAD arbitration procedure for challenging Stamp Tax assessments under Verba 28.1?
The CAAD (Centro de Arbitragem Administrativa) arbitration procedure for challenging Stamp Tax assessments under item 28.1 follows the framework established in Decree-Law No. 10/2011 and the RJAT (Legal Regime of Tax Arbitration). In this case, the claimant filed the arbitration request on March 26, 2014, seeking annulment of 2012 Stamp Tax assessments. A sole arbitrator was appointed on May 16, 2014, and the tribunal was constituted on June 2, 2014. The procedure included submission of the reply by the Tax Authority on July 1, 2014. Both parties waived the oral hearing under Article 18 RJAT and written arguments. The arbitrator dispensed with these procedural steps by order of September 12, 2014, and set October 23, 2014, as the decision deadline. The process must comply with timeliness requirements under Article 10(1)(a) of Decree-Law No. 10/2011 and Article 102(1)(a) CPPT.
Are Stamp Tax assessments on properties in joint ownership unconstitutional under Article 103(2) of the Portuguese Constitution?
The claimant alleged that the Stamp Tax assessments were unconstitutional due to violation of Article 103(2) of the Portuguese Constitution, which addresses taxation principles. This constitutional provision concerns the taxation system's structure and fairness requirements. The specific argument relates to how properties are taxed when ownership is structured in certain ways versus others. In this case, the property had 8 residential units with independent use but was not constituted under a horizontal property regime. The constitutional challenge questions whether applying the global property value for determining tax liability, rather than treating each independent unit separately, violates constitutional taxation principles, particularly when the ownership structure affects whether the €1,000,000 threshold is met. This raises fundamental questions about equal treatment in tax law and whether similar economic realities should receive similar tax treatment regardless of formal legal ownership structures.