Process: 308/2016-T

Date: November 28, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD arbitration case 308/2016-T addresses whether Stamp Tax under verba 28.1 of the General Stamp Tax Table (TGIS) applies to properties held in full ownership when individual units are valued below €1,000,000 but aggregate value exceeds this threshold. The claimant, A... SA, challenged Stamp Tax assessments totaling €15,397.30 on a Lisbon property with 12 independent units across 6 floors. While no single unit exceeded €1,000,000 in taxable patrimonial value (TPV), the Tax Authority aggregated values to trigger the 1% tax rate. The claimant argued this interpretation violates verba 28.1's incidence rule and constitutional equality principles, contending that properties not under horizontal property regime (propriedade horizontal) should be taxed per independent unit, not as a consolidated whole. The Tax Authority defended that full ownership properties require different treatment than horizontal property, arguing the entire property constitutes the relevant taxable unit. The arbitral tribunal examined whether 'property with residential designation' means each autonomous unit or the aggregate property, analyzing CIRE provisions and legislative intent. The case raises critical questions about horizontal versus full ownership taxation, constitutional equality in property tax assessment, and the proper interpretation of high-value property tax provisions introduced by Law 55-A/2012.

Full Decision

ARBITRAL DECISION

The arbitrator Dr. Maria Antónia Torres, appointed by the Deontological Council of the Administrative Arbitration Center ("CAAD") to form the Single Arbitral Tribunal, constituted on 29 August 2016, hereby decides as follows:

1. REPORT

1.1 A..., SA, NIPC ..., hereinafter referred to as "Claimant", with registered office at Street ..., no. ..., Rooms ... to ..., in Lisbon, requested the constitution of an arbitral tribunal, under article 2, no. 1, paragraph a), and article 10, both of Decree-Law no. 10/2011, of 20 January (hereinafter "LRAT"[1]).

1.2. The request for arbitral decision concerns the declaration of illegality, and consequent annulment, of the tax acts for assessment of Stamp Tax, in the total amount of € 15,397.30 (fifteen thousand three hundred and ninety-seven euros and thirty cents), relating to the year 2015, better identified in the initial petition filed by the Claimant, which are hereby taken as articulated and reproduced for all legal purposes, and which concern the urban property owned by the Claimant, registered in the urban property register under article no. ..., of the Parish of ..., Council of Lisbon, as per documents attached to the initial petition.

The Claimant further requests the condemnation of the Respondent to refund the amounts unduly paid and that it be recognized the right to compensatory interest on all amounts paid.

1.3. In support of its request, the Claimant alleges that the Stamp Tax assessments subject to this petition are illegal due to violation of the rule of incidence of item 28.1 of the GTRS. The Claimant considers that, given that the property is in full ownership, as it was on that date, composed of 6 floors and 12 units of independent use, the TA cannot, as it did, sum the patrimonial values of the floors and divisions capable of independent use, given that none of those floors or divisions, by itself, has a TPV equal to or greater than 1,000,000 euros. And that the rule of incidence, in the interpretation carried out in practice by the TA, is unconstitutional due to violation of the principle of equality.

1.4. The TA defends that the request for declaration of illegality, and consequent annulment of the disputed assessments, should be judged unfounded, as it argues that although the Stamp Tax assessment, under the conditions provided in item 28.1 of the GTRS, is processed in accordance with the rules of the CIRE, the truth is that the legislator reserves the aspects that require appropriate adaptations.

The TA understands that this is the case for properties in full ownership, even if with floors or divisions capable of independent use, because although the Municipal Real Estate Tax is assessed in relation to each part capable of independent use, for purposes of Stamp Tax the property in its entirety is relevant, thus arguing for the legality of the tax acts because they constitute a correct application of the law to the facts.

1.5. The meeting of the arbitral tribunal provided for in article 18 of the LRAT was dispensed with, as there was no need for additional presentation of evidence.

2. SANITATION

The Tribunal was regularly constituted and is competent ratione materiae, in accordance with article 2 of the LRAT.

The parties have legal personality and judicial capacity, show themselves to be legitimate and are regularly represented (cf. articles 4 and 10, no. 2 of the LRAT and article 1 of Ordinance no. 112-A/2011, of 22 March).

No nullities were identified in the proceedings.

3. FACTS

With relevance to the decision on the merits, the Tribunal considers the following facts to be proven:

  1. The Claimant was, on the date of the assessments sub judice, owner of the urban property that was the subject of those same assessments, under a "full ownership" regime (i.e., not subject to the horizontal property regime) to which a global TPV greater than 1,000,000.00€ was assigned, corresponding to the sum of the partial TPV of each of the floors with independent use.

  2. In accordance with what was mentioned in the initial petition and in the response given by the Respondent, none of the divisions capable of independent use, to which an autonomous TPV was assigned by the Respondent, and regardless of its destination - residential or other - has a TPV that exceeds the value of €1,000,000.

  3. The Claimant was notified to assess stamp tax on the said property, with the Respondent having considered the Claimant to be the passive subject of stamp tax under item 28.1 of the GTRS, for being the owner of a property with taxable patrimonial value greater than €1,000,000.

Unproven Facts

No essential facts with relevance to the examination of the merits of the case were found that were not proven.

Grounds for the Factual Matter

The conviction regarding the facts established as proven was based on the documentary evidence submitted by the Claimant, whose authenticity and correspondence to reality were not questioned by the Respondent.

4. ISSUE TO BE DECIDED

The essential issue to be decided in the present case is to determine, with reference to a property not constituted under a horizontal property regime, made up of various floors and divisions with independent use, what the Taxable Patrimonial Value (TPV) is relevant, assessing the criterion of correct tax incidence in view of the law, in order to determine whether this should be assessed by the sum of the taxable patrimonial value attributed to the different parts or floors (global TPV) or, rather, whether it should be attributed to each of the parts or residential units.

The Claimant also petitions for the payment of compensatory interest.

5. LAW

As previously identified, the issue to be decided concerns whether the relevant patrimonial value for the purposes of determining the applicability of Item 28.1 of the GTRS, when a property not constituted under a horizontal property regime is at issue, is that of each unit autonomously considered or the sum of the taxable patrimonial value attributed to each of those units.

The issue arises due to taxation under stamp tax of the ownership, usufruct or right of superficies of urban properties whose taxable patrimonial value recorded in the register is equal to or greater than € 1,000,000, with the tax due at the rate of 1% on the taxable patrimonial value used for purposes of the Municipal Real Estate Tax, per property with residential designation.

Therefore, it is important to determine, when a property not constituted under a horizontal property regime is at issue, the concept of "property with residential designation": whether it should be interpreted as corresponding to each unit autonomously considered and apply to its respective patrimonial value or whether it should correspond to the totality of autonomous units, and should consequently apply to the sum of the taxable patrimonial value attributed to each of those units.

Since the Stamp Tax Code, nor its General Schedule, nor Law no. 55-A/2012, of 29 October (which approved the item of the GTRS under examination) provide a legal definition of "property with residential designation", it is important to assess the correct interpretation of this expression, presuming that the legislator was able to express its thought in the most appropriate manner (cf. article 9, no. 3, final part, of the Civil Code), in its systematic integration with the rules contained in the Municipal Real Estate Tax Code and, as well, in the spirit of the law.

Item 28 of the GTRS under examination was added by Law no. 55-A/2012, of 29 October with the following wording:

"28 - Ownership, usufruct or right of superficies of urban properties whose taxable patrimonial value recorded in the register, under the terms of the Municipal Real Estate Tax Code (CIRE), is equal to or greater than € 1,000,000 — on the taxable patrimonial value used for purposes of the Municipal Real Estate Tax:

28.1 — Per property with residential designation — 1 %;

28.2 — Per property, when the passive subjects who are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by an ordinance of the Minister of Finance — 7.5 %."

(Emphasis ours)

Law no. 55-A/2012, of 29 October entered into force on 30 October 2012, in accordance with its article 7, no. 1 which determined its entry "into force on the day following its publication".

However, neither the Stamp Tax Code nor Law no. 55-A/2012, of 29 October specify the concept of "urban property with residential designation", so in accordance with article 67 of the Stamp Tax Code, the interpretation of this concept should be sought in the Municipal Real Estate Tax Code.

Indeed, it follows from article 67 of the Stamp Tax Code that "To matters not regulated in this Code relating to item no. 28 of the General Schedule, the provisions of the CIRE shall apply, subsidiarily" - (Wording given by article 3 of Law no. 55-A/2012 of 29 October).

In the Municipal Real Estate Tax Code, the concept of property is defined in its article 2, from which it follows that "For purposes of this Code, property is every parcel of land, including waters, plantations, buildings and constructions of any nature incorporated in or affixed to it, with a permanent character, as long as it is part of the assets of a natural or legal person and, in normal circumstances, has economic value (...), it being clarified in no. 4 of this legal provision that "For purposes of this tax, each autonomous unit under a horizontal property regime is considered to constitute a property".

From a reading in isolation of this legal provision, we could be led, in a somewhat skewed interpretation, to understand that for purposes of the Municipal Real Estate Tax, autonomous units under a horizontal property regime would have a different treatment from parts of a property capable of independent use.

However, a more careful analysis of the regime allows us to conclude precisely the opposite.

As was highlighted by the Ombudsman to the Secretary of State for Tax Affairs, in a letter dated 2 April 2013, "the registration in the property register of properties in vertical ownership, composed of parts capable of independent use, follows the same rules as the registration of properties constituted in horizontal ownership, with the respective Municipal Real Estate Tax, as well as the new Stamp Tax, assessed individually in relation to each of the parts".

(Emphasis ours)

Indeed, article 12, no. 3 of the Municipal Real Estate Tax Code provides in this sense, in determining that "each floor or part of a property capable of independent use is considered separately in the property register entry which also discriminates its respective taxable patrimonial value."

According to article 119 of the Municipal Real Estate Tax Code "The services of the General Directorate of Taxes send to each passive subject, by the end of the month prior to payment, the relevant collection document, with a breakdown of the properties, their parts capable of independent use, respective taxable patrimonial value and the collection attributed to each municipality of the property location."

In sum, for purposes of taxation under the Municipal Real Estate Tax, each independent unit, even if integrating the same property, is considered separately, being assigned its own patrimonial value and being taxed autonomously.

Thus, one cannot fail to follow the understanding endorsed in the Arbitral Decision rendered in Case no. 50/2013, and by many other subsequent decisions of this same Tribunal, according to which "if the legal criterion imposes the issuance of individualized assessments for the autonomous parts of properties in vertical ownership, in the same manner as it establishes for properties in horizontal ownership, it has clearly established the criterion, which must be unique and unequivocal, for the definition of the rule of incidence of the new tax. Thus, there would only be a place for the incidence of the new stamp tax if any of the parts, floors or divisions with independent use presented a TPV greater than € 1,000,000.00."

(Emphasis ours)

But, furthermore, it is this separate treatment of each unit capable of independent use that allows, in the application of the designation coefficient (cf. article 41 of the Municipal Real Estate Tax Code), for attention to be paid to the different purposes of each unit that make up a single property.

What is relevant for this purpose is the actual use of each of the parts capable of independent use, regardless of whether the property is classified for residential purposes, under article 6 of the Municipal Real Estate Tax Code and, regardless of whether it is an autonomous unit or merely a unit capable of independent use.

In fact, according to this logic of the system, an urban property classified as residential can be composed of several independent units, in which one or more can have a non-residential designation, in accordance with article 41 of the Municipal Real Estate Tax Code.

This will be the case, for example, if in a property in full ownership with floors or divisions capable of independent use, licensed for residential purposes, one of its independent units is used for commerce or services or another purpose. In this hypothesis, the units in question will not have residential designation.

From this analysis it can be concluded that the concept of "property with residential designation", used in Item 28 of the GTRS, encompasses each of the autonomous units, with independent use, of properties in full ownership, with units capable of independent use, that have such designation.

In light of the above, one cannot follow the understanding of the Respondent, which would result, moreover, in a violation of the principle of equality, of fiscal justice and of contributory capacity, constitutionally enshrined.

As mentioned in the decision rendered in case 132/2013-T of this CAAD:

(...) in the work relating to the discussion of the draft law no. 96/XII in the National Assembly (...) such measure, called the "special tax on urban residential properties of higher value", was justified with the need to comply with the principles of social equity and fiscal justice, onerously affecting more significantly the holders of properties with high value intended for housing, and, to that extent, making the new "special tax" apply to "houses of value equal to or greater than 1 million euros."

(Emphasis ours)

It is thus presupposed a (very) above-average contributory capacity that justifies a "special" contributory effort for those who have a "house" or "property" whose value is at least one million euros. The intent of the legislator thus appears to indicate that the scope of the rule of incidence is to tax independent realities, individualized and not resulting from an aggregation or sum, even if legal.

That is, it is not apparent from this measure that the legislator aimed at the taxation of properties whose units capable of independent use did not individually reach that value.

In light of the above, and because none of the independent units that make up the Claimant's property have a patrimonial value greater than € 1,000,000, the assessments under examination are affected by a defect of violation of law, due to error in the legal grounds, which justifies the declaration of their illegality and the corresponding annulment of the tax acts now under examination.

In light of the declaration of illegality of the assessments that are the subject of the present proceedings, due to the defect of violation of law for error in the legal grounds, the examination of the other matters invoked on a subsidiary basis is precluded.

On the Request for Compensatory Interest

The Claimant petitions for the condemnation of the Respondent to pay compensatory interest, provided for in articles 43 of the General Tax Law and 61 of the Tax Procedure and Process Code.

It is clear from the proceedings that the illegality of the disputed tax assessment acts is directly attributable to the Respondent, which, on its own initiative, carried them out without legal basis, suffering from an erroneous interpretation (and, therefore, application) of the legal norms to the specific case.

Consequently, the Claimant has the right to receive compensatory interest on the amounts paid, in accordance with the provisions of articles 43, no. 1, of the GTL and 61 of the TPPC.

6. DECISION

In light of the above, it is decided:

  1. To declare the request for arbitral decision well-founded, with the consequent annulment, with all legal effects, of the stamp tax assessment acts, relating to 2015, better identified in the proceedings, in the total amount of Euros 15,397.30 (fifteen thousand three hundred and ninety-seven euros and thirty cents);

  2. To declare well-founded the request for compensatory interest petitioned by the Claimant.

The value of the case is fixed at Euros 15,397.30 (fifteen thousand three hundred and ninety-seven euros and thirty cents), in accordance with the provisions of articles 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), 97-A, no. 1, paragraph a) of the TPPC and 306 of the CPC.

The amount of costs is fixed at Euros 918 (nine hundred and eighteen euros) under article 22, no. 4 of the LRAT and Table I annexed to the RCPAT, payable by the Tax and Customs Authority, in accordance with the provisions of articles 12, no. 2 of the LRAT and 4, no. 4 of the RCPAT.

Let notice be given.

Lisbon, 28 November 2016

The Arbitrator

(Maria Antónia Torres)

Text prepared by computer, in accordance with article 131, no. 5 of the Code of Civil Procedure, applicable by cross-reference of article 29, no. 1, paragraph e) of the LRAT.

The wording of this arbitral decision is governed by the spelling prior to the 1990 Orthographic Agreement.

[1] Acronym for Legal Regime of Tax Arbitration.

Frequently Asked Questions

Automatically Created

Does the Stamp Tax (Imposto de Selo) under verba 28.1 of the TGIS apply when individual units in a building each have a taxable value below €1,000,000?
No, according to the claimant's argument. Verba 28.1 of the TGIS establishes Stamp Tax on properties with TPV equal to or greater than €1,000,000 'per property with residential designation.' When individual units in a building held in full ownership each fall below this threshold, the claimant contends the tax should not apply, even if aggregate values exceed €1,000,000. However, the Portuguese Tax Authority takes the opposing view, arguing that for properties not constituted under horizontal property regime, the entire property should be considered as one unit, making the aggregate value the relevant criterion for tax incidence.
Can the Portuguese Tax Authority aggregate the patrimonial values of independently usable units in a single property for Stamp Tax purposes?
The Portuguese Tax Authority argues yes, defending that properties held in full ownership (not under horizontal property regime) should be treated as single taxable units for Stamp Tax purposes under verba 28.1 of the TGIS. The TA maintains that while Municipal Real Estate Tax (IMI) assesses each independent unit separately, Stamp Tax legislation requires different treatment. The TA invokes CIRE provisions with appropriate adaptations for full ownership properties, arguing this aggregation constitutes correct application of law. The claimant contests this interpretation, asserting it violates the literal reading of verba 28.1 and discriminates against full ownership property holders.
Is it constitutional to apply different Stamp Tax rules to properties held in total ownership versus horizontal property (propriedade horizontal)?
The claimant argues yes, contending that applying different Stamp Tax assessment criteria to properties in total ownership versus horizontal property regime violates the constitutional principle of equality. The challenge asserts that two economically identical situations—residential units with individual TPVs below €1,000,000—receive disparate tax treatment based solely on legal ownership structure. Properties under horizontal property regime would be taxed per autonomous unit, while full ownership properties face aggregated assessment. This constitutional argument formed part of the claimant's basis for requesting annulment of the €15,397.30 assessment before the CAAD arbitral tribunal.
What is the legal basis for challenging Stamp Tax assessments on high-value properties before CAAD arbitration tribunals?
The legal basis is Decree-Law 10/2011 of 20 January (LRAT - Legal Regime of Tax Arbitration), specifically article 2, no. 1, paragraph a), and article 10. These provisions establish CAAD's jurisdiction over disputes concerning legality of tax acts, including Stamp Tax assessments under verba 28.1 of the TGIS. Taxpayers can request arbitral tribunal constitution within the statutory timeframe after notification of assessment acts. The claimant in case 308/2016-T utilized this mechanism to challenge assessments totaling €15,397.30 relating to 2015 Stamp Tax on high-value urban property in Lisbon, seeking declaration of illegality and annulment of the liquidations.
Are taxpayers entitled to compensatory interest (juros indemnizatórios) when Stamp Tax liquidations under verba 28.1 are annulled?
Yes, taxpayers are entitled to compensatory interest (juros indemnizatórios) when Stamp Tax assessments are annulled. The claimant in case 308/2016-T specifically requested condemnation of the Tax Authority to refund amounts unduly paid plus recognition of entitlement to compensatory interest on all payments made. Portuguese tax law provides that when tax assessments are declared illegal and amounts were paid, the State must compensate taxpayers for the financial loss through interest calculated from payment date until refund. This compensatory interest mechanism aims to restore taxpayers to their economic position prior to the unlawful assessment.