Process: 300/2015-T

Date: January 27, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitral decision addresses the application of Stamp Tax under item 28.1 of the General Table of Stamp Tax (TGIS) to a residential property held in vertical ownership comprising eight independently usable divisions. The central controversy concerns whether the Tax Authority can aggregate the taxable patrimonial values (TPVs) of separately usable units within a single vertical property to determine if the €1,000,000 threshold triggering item 28.1 liability is met. The claimant owned an urban building with eight residential floors/divisions, each with individual TPVs ranging from €51,100 to €168,520. No single unit exceeded €1,000,000, but their combined value totaled €1,011,624.76. The Tax Authority assessed Stamp Tax of €10,116.24 for 2012 by summing all TPVs. The claimant challenged this on multiple grounds: first, that aggregating independently usable divisions violates principles of legality, equality, and contributive capacity by discriminating against vertical property compared to horizontal property (condominiums), where each autonomous fraction is taxed separately; second, that the TPV determination under Article 138 of CIMI was materially incorrect and constituted a procedural nullity. The Tax Authority defended its position arguing that vertical property remains a single legal unit despite containing divisions capable of independent economic use, distinguishing these from legally autonomous fractions under horizontal ownership regimes. The authority maintained the TPV update was lawful. The claimant sought annulment of the assessments, reimbursement of taxes paid, and compensatory interest. This case raises fundamental questions about the distinction between vertical and horizontal property for Stamp Tax purposes and whether administrative practice creates unjustified disparate treatment based solely on property regime rather than economic substance.

Full Decision

ARBITRAL DECISION

  1. Report

A..., NIF..., with tax domicile at Av..., ...–..., ...-... Lisbon, hereinafter designated as Claimant, submitted to the Administrative Arbitration Center (CAAD) a request for the constitution of an arbitral tribunal with a view to the annulment of the tax assessment act of levy of item no. 28.1 of the General Table of Stamp Tax (GIST) of the year 2012, in the total amount of € 10,116.24, which is broken down into the collection notices relating to the 3rd installment (November) of the tax of the said year.

The Claimant bases the illegality and consequent annulment of the tax assessment on the following defects:

a) Error as to the legal and factual presuppositions whereby the Tax and Customs Authority violated, through erroneous interpretation and application of this rule, the principles of legality, equality and material justice (article 5, no. 2 of the LGT), as well as the tax act violates the principle of contributive capacity (article 4, no. 1 of the LGT), proportionality of taxation and the prevalence of material truth over legal-formal reality, the tax assessment act of Stamp Tax relating to the year 2012 being illegal, insofar as it applied the aforementioned tax to the areas/divisions capable of independent use, summing them for the purpose of determining the TPV of the entire property article, thus unjustifiably discriminating in the treatment conferred on properties in vertical and horizontal ownership;

b) The ATA determined, under article 138 of CIMI, a taxable patrimonial value of the property in question that is materially incorrect, since there is no basis whatsoever for it to be worth € 975,060.00 up to November 2012 and € 1,011,624.76 in December 2012, for which reason the tax assessment should be considered to be affected by nullity due to pretermission of an essential formality;

The Claimant also petitions for the reimbursement of the Stamp Tax paid relating to the 2012 assessments in question, as well as payment of indemnity interest.

The Tax and Customs Authority, in turn, argued that there is no illegality whatsoever, since the unit of an urban property in vertical ownership comprised of several floors or divisions is not, however, affected by the fact that all or some of those floors or divisions are capable of independent economic use. Such property remains only one, and thus its distinct parts are not legally equated with autonomous fractions under the horizontal ownership regime, concluding in favor of the dismissal of the annulment request formulated by the Claimant.

Moreover, it argued in favor of the legality of the update of the TPV carried out under article 138 of CIMI, whose TPV in December 2012 was fixed at € 1,011,624.76.

The sole arbitrator was designated and appointed on 09.07.2015.

In accordance with article 11, no. 1, paragraph c) of the JRAT, the singular arbitral tribunal was constituted on 27.07.2015.

The Arbitral Tribunal dispensed with the holding of the first arbitral meeting, with the Claimant having formulated written submissions, whose content substantially replicates the content of the arbitral ruling request previously formulated.

  1. Procedural Matters

The cumulation of requests made in the present arbitral ruling request, in which tax assessments of the same tax (Stamp Tax) are at issue, based on the same factual basis and applying the same legal rules, is fully justified in light of the principle of procedural economy enshrined in article 3 of the JRAT.

The singular arbitral tribunal is materially competent, pursuant to the provisions of articles 2, no. 1, paragraph a) of the Legal Regime of Arbitration in Tax Matters.

The parties have legal standing and capacity and have legitimacy pursuant to article 4 and no. 2 of article 10 of the Legal Regime of Arbitration in Tax Matters (JRAT), and article 1 of Ordinance no. 112-A/2011, of 22 March.

The proceedings do not suffer from any nullity nor have the parties raised any exceptions that prevent the examination of the merits of the case, so the conditions are met for the delivery of the arbitral decision.

  1. Factual Matters

3.1. Proven Facts:

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

  1. The Claimant is the owner for tax purposes of the urban property registered in the urban property matrix of the parish of ... (previously...), under article..., located at Rua..., no...., municipality of Lisbon;

  2. The identified urban property is in the regime of full/vertical ownership, with floors or divisions capable of independent use, as shown in the property record attached to the case file;

  3. With respect to the aforementioned urban article and more specifically concerning each of the floors or divisions capable of independent use, the Claimant was notified to proceed with payment of the 3rd installment of the 2012 Stamp Tax assessment, in the total amount of € 10,116.24 relating to item 28.1 of the GIST, which is broken down into the following collection notices: 2013..., 2013..., 2013..., 2013..., 2013..., 2013..., 2013..., 2013...

The aforementioned article is comprised of 8 floors or divisions for independent use with residential allocation, with the following TPVs:

  • CV: € 51,100.00;
  • RC D: € 123,440.00;
  • RC E: € 123,070.00;
  • 1st D: € 127,420.00;
  • 1st E: € 127,420.00;
  • 2nd D: € 127,420.00;
  • 2nd E: € 126,670.00;
  • 3rd: € 168,520.00;

The taxable patrimonial value of the urban property article ... of the parish of ... (extinct...), municipality of Lisbon only reaches or exceeds the amount of € 1,000,000.00 when the TPVs relating to the floors or divisions capable of independent use and with residential allocation that comprise this same property article are summed;

No floor or division capable of independent use with residential allocation of article ... has a taxable patrimonial value equal to or greater than € 1,000,000.00;

The collection notices indicated in 3 were notified to the Claimant;

The Claimant paid the full amounts shown in the collection notices referred to in 3;

The Claimant filed a Petition for Administrative Review, which was dismissed by order dated 26.03.2014;

Unsatisfied, the Claimant filed a Hierarchical Appeal, which was expressly dismissed by order dated 20.02.2015;

On 11.05.2015 the Claimant herein submitted, via electronic platform, the request for the constitution of an arbitral tribunal;

The Claimant proceeded on 28.04.2015 to the bank transfer for payment of the initial court fee;

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

3.2. Substantiation of the Proven Factual Matters:

As regards the proven facts, the arbitrator's conviction was based on the documentary evidence attached to the case file, as well as on the acceptance by the parties of the factual matters brought to these proceedings.

  1. Legal Matters:

4.1. Object and Scope of the Present Proceedings

The arbitral ruling request has as its object the declaration of illegality of the acts of assessment of Stamp Tax, pursuant to item 28.1 of the GIST, relating to the year 2012 embodied in the collection notices already identified above, in the total amount of € 10,116.24, the examination of the alleged violations of item 28.1 of the GIST, namely due to the fact that the assessments take into consideration the sum of the TPVs of the floors or divisions capable of independent use for the purpose of determining the subjection to item 28.1 of the GIST of the Stamp Tax Code.

The existence of nullity due to pretermission of an essential formality and likewise the alleged interpretation contrary to the Constitution of the Portuguese Republic constitute the other grounds set forth in the arbitral ruling request under examination.

Additionally, the Claimant petitions for the reimbursement of the tax paid, alleging it was undue, and the payment of indemnity interest.

In view of the foregoing, having regard to the provisions of article 124 of the CPPT, applicable by virtue of paragraph a) of no. 1 of article 29 of the JRAT, it is important to examine the defects that are pointed out to the Stamp Tax act that is the subject of these arbitral proceedings, given such criterion.

4.2. Regarding the Alleged Illegality of the Stamp Tax Assessments, item 28.1 of the GIST

In summary, the question at issue, in the concrete segment alleged by the Claimant now under examination, is to ascertain whether the interpretation made by the Tax and Customs Authority of using, as a legal criterion for purposes of subjection to item 28.1 of the GIST, the sum of the TPVs of all floors or divisions of independent use with residential allocation relating to the same property article is consistent with the applicable legal framework.

In this regard, it is important to take into account that the tax act in question occurred during the validity of the wording given by Law no. 55-A/2012, of 29 October, so the current wording given to it by article 194 of Law no. 83-C/2013, of 31 December (State Budget for 2014) is not applicable here, since it only came into force on 1 January 2014.

And it is while keeping in mind the legislative context of this innovation in the area of taxation under Stamp Tax that the issue relating to the valuation of the scope of the rule of incidence contained in article 28.1 of the GIST should also be examined.

Let us thus proceed, first of all, with the legal framework of the Stamp Tax assessment in question:

Law no. 55-A/2012, of 29 October, added item 28.1 to the General Table of Stamp Tax (GIST), with the following wording:

"28 – Ownership, usufruct or right of superficies of urban properties whose taxable patrimonial value contained in the matrix, pursuant to the Municipal Property Tax Code (CIMI), is equal to or greater than € 1,000,000 – on the taxable patrimonial value used for the purpose of IMI:

28.1 – Per property with residential allocation – 1% (…);"

In turn, article 67, no. 2 of the Stamp Tax Code, added by the aforementioned Law, provides that "to matters not regulated in this code relating to item 28 of the General Table, the CIMI is applied on a subsidiary basis."

The rule of incidence refers to urban properties, the basic concept of property being rooted in article 2 of the CIMI, with the determination of the TPV following the tenor of article 38 and following of the same code.

It being that, pursuant to that legal provision:

"1 - For the purposes of this Code, property is every fraction of territory, encompassing waters, plantations, buildings and constructions of any nature incorporated therein or situated thereon, with the character of permanence, provided that it is part of the assets of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the aforementioned circumstances, endowed with economic autonomy in relation to the land where they are located, although situated in a fraction of territory that constitutes an integral part of a diverse asset or does not have a patrimonial nature." (emphasis ours)

It being that article 6 of the CIMI clarifies:

"1 - Urban properties are divided into:

a) Residential;

2 - Residential, commercial, industrial or for services are buildings or constructions licensed for such or, in the absence of a license, that have as their normal destination each of these purposes." (emphasis ours)

The legislator's concept regarding properties and the subsequent division into urban ones is, for tax purposes, undoubtedly a criterion based on economic value and functional autonomy due to purpose.

That is, one is dealing with a concept of a material or substantive basis and not with a concept of legal-formalistic delineation, as the Respondent AT appears to intend.

Now, in the case at hand the Respondent AT does not even put into question whether the floors or divisions with independent use and with residential allocation relating to the property articles do not have these same characteristics (functional autonomy and economic value) highlighted by the legislator, nor could it do so since it is the AT itself that deemed that information correct and had it registered in the respective property records of the property articles to which the floors or divisions capable of independent use relate.

Moreover, precisely because such floors or divisions have such characteristics of autonomy, both in functional and economic value terms, it is understandable that the legislator provided for the assignment of taxable patrimonial values to each of those floors, areas or divisions capable of independent use.

Which contradicts the thesis of the AT according to which, since not expressly set forth in no. 4 of article 2 of the CIMI the floors or divisions capable of independent use, the legislator had intended to exclude such a figure from the concept of property.

Accordingly, being indisputable the residential allocation and likewise the functional autonomy and economic value, moreover fiscally translated in the TPV of those same independent areas or divisions, characteristics that are transposed to the respective property record of the property article under the designation of floors or divisions capable of independent use, we cannot fail to conclude that at the material and substantive level those same floors or divisions are encompassed by the notion of property contained in no. 1 article 2 of the CIMI and of urban property contained in a) of no. 1 and no. 2 of article 6, both of the CIMI.

The introduction into the tax legal order of the present item 28.1 of the GIST had as a relevant and determining factor the incidence on urban properties with residential allocation of high value, also commonly referred to as luxury dwellings, more strictly, of value equal to or greater than €1,000,000.00, on which Stamp Tax came to apply.

The legislator thus intended to introduce a principle of taxation on wealth manifested in ownership, usufruct or right of superficies over any and every urban property with residential allocation, with the legislative criterion applying such stamp tax to urban properties with residential allocation whose TPV is equal to or greater than €1,000,000.00.

This conclusion can be drawn from the analysis of the discussion of legislative proposal no. 96/XII in the Parliament, available for consultation in the Parliamentary Gazette, Series I, no. 9/XII/2, of 11 October 2012.

The justification for the measure designated as "special tax on urban residential properties of the highest value" is based on invoking the principles of social equity and fiscal justice, requiring those holding high-value properties intended for housing to contribute more intensely, applying the new special tax to "houses of value equal to or greater than 1 million euros."

In this way, it appears clear that the legislator understood that houses having certain characteristics assessed quantitatively through the TPV should determine a special contribution to ensure just distribution of the tax burden.

But it is no less evident that it reflects a line of legislative choice that intended to specifically burden urban properties with residential allocation of the higher segment, premium, or commonly called luxury properties.

Note that, regardless of more or less subjective conceptions about the concept of luxury dwellings, upper segment, or expressions of equivalent meaning, it is certain that the taxable patrimonial value is, since the 2003 reform of property taxation, measured based on objective elements, such as area, location, level of comfort, among others.

What means to say that and regardless of the ideological considerations that can be made about such a political choice, the legislator had a concrete and defined objective: to subject to Stamp Tax assessment urban properties with residential allocation of the highest value, which in practice resulted in the fixing of a threshold measurable through the TPV: value equal to or greater than € 1,000,000.00.

Moreover, the legislator ensured through various coefficients (reductive and increase) the objectivity in the ascertainment of that same TPV.

Now, none of the floors or divisions capable of independent use here in question and to which the assessments subject of the present arbitral ruling request fall, individually reach the value of € 1,000,000.00, and each of those independent floors or divisions represents in the tax system a property per se, reason for which the AT incurred in error as to the presuppositions by making subjection to item 28.1 of the GIST while disregarding that each of those same areas or divisions represents, pursuant to the Municipal Property Tax Code and consequently under Stamp Tax, a property, reason for which those areas or divisions relating to the same property article could not be the object of summation for calculation of the TPV of that property article.

Which means to say that having regard to the ratio legis just set forth, the floors or divisions capable of independent use do not meet the presupposition concerning taxation within the scope of the rule of incidence provided in item 28.1 of the GIST, reason for which, also in view of what has been expounded, one cannot fail to conclude the legal non-conformity of the interpretation of the AT of subjecting to item 28.1 of the GIST the floors or divisions capable of independent use, since they do not individually reach the minimum quantitative criterion for such subjection.

Thus, with respect to the collection notices issued and notified to the Claimant and the respective assessments underlying them, one cannot fail to render a judgment of censure and, consequently, to determine the annulment of the tax acts subject to these present proceedings.

4.3. Prejudiced Issues:

As the singular arbitral tribunal accepted the understanding of the inapplicability, as illegal, of item 28.1 of the GIST to the case at hand, examination of the remaining defects alleged and any that may affect the contested assessments is rendered procedurally moot.

Thus rendered moot is the examination of the question of unconstitutionality, as well as the existence of nullity due to pretermission of an essential formality.

4.4. Regarding the Reimbursement to the Claimant of the Stamp Tax Paid, Plus Payment of Indemnity Interest:

In view of everything expounded and concluded in section 4.2, the judgment of illegality that fell upon the tax acts subject to the present arbitral ruling, it is important to heed the request also formulated by the Claimant to the effect that indemnity interest be paid to her.

Pursuant to no. 1 of article 43 of the LGT, "Indemnity interest is due when it is determined, in a petition for administrative review or judicial challenge, that there was error attributable to the services resulting in payment of the tax debt in an amount greater than legally due."

Article 2 of that LGT provision further provides that "Error attributable to the services is also considered to exist in cases where, although the assessment is made based on the taxpayer's declaration, the latter followed, in its completion, generic guidance from the tax administration, duly published."

Now, in the concrete case, the legitimacy of the aforementioned request for payment of indemnity interest in favor of the Claimant is unequivocally established, since the assessments in question are shown to be affected by illegality, being due, for this reason, beyond the reversal of the amount paid as Stamp Tax, indemnity interest is also due to the Claimant from the day following payment of the undue amount until the date of issuance of the respective credit note, in accordance with what is provided in article 43 of the LGT and article 61 of the CPPT.

It is, therefore, the Claimant a creditor of the Respondent ATA for the amount corresponding to the Stamp Tax unduly paid, in the amount of € 10,116.24 and also adding the right of the Claimant to the respective indemnity interest accrued and accruing to be calculated until the issuance of the respective credit note.

  1. DECISION:

In these terms and with the substantiation set forth above, this arbitral tribunal decides:

  1. To adjudge the request for declaration of illegality of the Stamp Tax assessment acts of 2012 to which correspond the collection notices better identified in 3.1.3 of the "Proven Facts" relating to the urban property article identified in 3.1.1., due to defect of violation of law regarding the rule contained in item 28.1 of the GIST, due to error as to the legal presuppositions and consequent reimbursement by the Respondent of the amounts paid by the Claimant relating to the tax acts which by this decision are annulled;

  2. To adjudge the request for payment of indemnity interest by the Respondent to the Claimant from the date of undue payment until the date of issuance of the credit note, in accordance with what is provided in article 43 of the LGT and in article 61 of the Tax Procedure and Process Code;

  3. To condemn the Respondent to payment of costs, pursuant to Table I of the RCPTA, calculated as a function of the value of the case, to be borne by the Respondent - articles 4-1, of the RCPTA and 6, no. 2, paragraph a) and 22, no. 4, of the JRAT.

Value of the case: € 10,116.24 – articles 97-A, of the CPPT, 12, of the JRAT (DL 10/2011), 3-2, of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

This arbitral decision shall be notified to the parties and, in due time, the case shall be filed away.

Lisbon, 27 January 2016.

The Sole Arbitrator

(Luís Ricardo Farinha Sequeira)

Frequently Asked Questions

Automatically Created

How is Stamp Tax (Imposto de Selo) applied to buildings in vertical property under Verba 28.1 of the TGIS?
Under item 28.1 of the TGIS, Stamp Tax applies to urban properties for residential purposes with a taxable patrimonial value equal to or exceeding €1,000,000. For buildings in vertical property (full ownership with multiple floors or divisions capable of independent use), the Tax Authority's position is that the property constitutes a single legal unit regardless of the existence of separately usable divisions. Therefore, the TPVs of all divisions within the vertical property are aggregated to determine whether the €1,000,000 threshold is met. This approach treats the entire building as one taxable article, with Stamp Tax assessed on the combined value of all residential divisions capable of independent use within that single property registration.
Can independently usable units in vertical property be aggregated to calculate the taxable patrimonial value (VPT) for Stamp Tax purposes?
Yes, according to the Tax Authority's interpretation applied in this case, independently usable units within a vertical property regime are aggregated to calculate the total TPV for Stamp Tax purposes under item 28.1. The Tax Authority argues that a building in vertical ownership remains a single property article for tax purposes, and its distinct parts are not legally equivalent to autonomous fractions under horizontal ownership. Therefore, even when individual divisions have separate TPVs and are capable of independent economic use, these values are summed to determine if the €1,000,000 threshold is crossed. The claimant contested this aggregation as creating unlawful discrimination compared to horizontal property treatment, where each autonomous fraction is taxed independently based on its individual TPV.
What is the difference between vertical and horizontal property for Stamp Tax liability under Portuguese tax law?
The critical distinction for Stamp Tax liability under Portuguese law concerns legal structure rather than economic substance. In horizontal property (condominium regime), each fraction constitutes an independent legal property with separate registration, and Stamp Tax under item 28.1 applies only to individual fractions exceeding €1,000,000. In vertical property (full ownership), the building remains a single registered property article despite containing floors or divisions capable of independent use. The Tax Authority aggregates all division TPVs to determine liability, meaning Stamp Tax applies when the combined value exceeds €1,000,000, even if no individual division reaches this threshold. This creates potential disparate treatment where economically similar properties face different tax consequences based solely on their property regime, which formed the basis of the claimant's equality and discrimination arguments.
Is the update of the VPT under Article 138 of the CIMI code valid for Stamp Tax liquidation purposes?
The validity of TPV updates under Article 138 of CIMI for Stamp Tax purposes was disputed in this case. Article 138 CIMI provides for updating taxable patrimonial values when properties undergo physical or legal changes, or when market values significantly differ from registered values. The claimant challenged the TPV determination as materially incorrect, noting the property was valued at €975,060 until November 2012 and then €1,011,624.76 in December 2012, arguing there was no factual basis for this valuation and that the assessment suffered from nullity due to pretermission of essential formalities. The Tax Authority defended the update's legality under Article 138. The resolution of this issue determines whether the assessment basis itself was lawfully established before applying the Stamp Tax rate.
Can taxpayers claim reimbursement and compensatory interest for unlawful Stamp Tax assessments on real estate?
Yes, taxpayers can claim reimbursement and compensatory interest for unlawful Stamp Tax assessments on real estate. When an assessment is deemed illegal and annulled, the taxpayer has the right to reimbursement of amounts unduly paid, plus compensatory interest calculated from the payment date until reimbursement. In this case, the claimant paid €10,116.24 under the contested assessments and explicitly requested both reimbursement of the Stamp Tax relating to 2012 and payment of compensatory interest. The right to compensatory interest derives from the principle that the State must compensate taxpayers for the financial loss resulting from retention of amounts collected without legal basis, recognizing the time value of money and ensuring taxpayers are made whole when administrative errors are corrected through arbitral or judicial decisions.