Process: 314/2016-T

Date: January 31, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Arbitration Decision 314/2016-T addresses whether Stamp Tax (Imposto de Selo) under Verba 28.1 of the General Stamp Tax Table applies to urban properties held in full ownership (propriedade total) with multiple residential units when each individual unit's taxable patrimonial value (VPT) falls below the €1,000,000 threshold. The applicant challenged 23 Stamp Tax assessment acts issued in 2016, arguing that the tax should be calculated based on each apartment's individual VPT rather than the aggregate property value. The central legal dispute concerns the interpretation of Article 2(4) of CIMI and whether independently usable parts of a building not constituted under horizontal property regime should be treated as separate properties for Stamp Tax purposes. The applicant contended that taxing properties differently based solely on whether they are formally constituted as horizontal property or full ownership violates the constitutional principle of tax equality, as the material economic reality remains identical. The Tax Authority maintained that full ownership properties constitute a single legal-tax unit, unlike horizontal property where each autonomous fraction is deemed a separate property under CIMI. The Authority argued that the legislator intentionally distinguished between these legal regimes and that Stamp Tax incidence depends on the property's total VPT when not divided into autonomous horizontal property units. This case highlights fundamental questions about the scope of Verba 28.1 TGIS taxation, the relationship between IMI valuation rules and Stamp Tax incidence, and whether formal legal property structures can justify differential tax treatment of economically equivalent situations without violating constitutional equality guarantees under Portuguese tax law.

Full Decision

ARBITRATION DECISION

I – REPORT

Request

A…, taxpayer no. …, with registered office at Street …, no. … –…, Lisbon, hereinafter referred to as the Applicant, submitted, on 08-06-2016, pursuant to the provisions of subparagraph a) of paragraph 1 of article 2 and article 10 of Decree-Law no. 10/2011, of 20 January, which approves the Legal Regime for Arbitration in Tax Matters (RJAMT), a request for arbitral determination, against the AT - TAX AND CUSTOMS AUTHORITY hereinafter referred to as the Respondent, with a view to:

- The declaration of illegality of the stamp duty assessment acts numbers: … of 2016; … of 2016; … of 2016; … of 2016; … of 2016; … of 2016; … of 2016; … of 2016; … of 2016; … of 2016; … of 2016; … of 2016; … of 2016; … of 2016; … of 2016; … of 2016; … of 2016; … of 2016; … of 2016; … of 2016; … of 2016; … of 2016; and … of 2016;

- The condemnation of the Respondent to refund to the Applicant the amounts of tax unduly paid, plus the corresponding indemnification interest;

The Applicant alleges, in substance and with relevance for the decision of the case, the following:

- The assessments concern apartments with residential use of an urban property not subject to the horizontal property regime, owned by the Applicant, located at Street …, no. … to…, parish of …, Lisbon, described in the urban property tax registry with no. …, of the parish of …, municipality of Lisbon.

- All apartments have tax asset value inferior to 1,000,000 euros;

- From the norm of item 28.1 of the General Stamp Duty Table it follows that the tax is based on the tax asset value of properties used for IMI purposes, which, in the case of properties in full ownership composed of parts susceptible to independent use, is the individual tax asset value of each part;

- Therefore it is only the tax asset value of each part that can determine the incidence of stamp duty;

- Between the parts susceptible to independent use and the autonomous units of properties in horizontal property regime there is only a formal and not material differentiation, and if the property were constituted in horizontal property regime none of the units would be taxed in stamp duty, for not having a tax asset value equal to or greater than 1,000,000 euros. To tax the same material reality differently on the basis of legal-formal reality is violative of the principle of tax equality.

Response of the Respondent

In its Response, the Respondent alleges, in summary, the following:

- In compliance with the provisions of article 6, paragraph 2 of Law no. 55-A/2012, of 29 October, which added item 28 to the TGIS, with the amendment made by Law no. 83-C/2013 of 31 December and whose respective scope of application rule refers to urban properties, assessed under the terms of the CIMI, with tax asset value (VAT) equal to or superior to 1,000,000 € and, under the terms of no. 28.1, residential use, the Tax Authority proceeded to the assessments, which are the object of the present request;

- What is at issue is an assessment that results from the direct application of the legal norm, which translates into objective elements, without any subjective or discretionary appreciation.

- The concept of property is defined in article 2, paragraph 1 of the CIMI, being established in its paragraph 4 that in the horizontal property regime, each autonomous unit is deemed to constitute a property. It follows from the analysis of the normative provision that a "property in full ownership with apartments or divisions susceptible to independent use" is, unequivocally, different from an immovable in horizontal property regime, constituted by autonomous units, that is, several properties.

- Article 12 of the CIMI establishes the concept of property registry, with its paragraph 3 concerning, exclusively, the form of recording the registry data.

- As for the IMI assessment, in the case of a property in full ownership, the VAT that serves as the basis for its calculation will, indisputably, be the total value of the property.

- Although the assessment of stamp duty, in the situations foreseen in item 28.1 of the TGIS, is carried out in accordance with the rules of the CIMI, the truth is that the legislator reserves those aspects that require proper adaptation, namely those in which, as is the case of properties in full ownership, even though with apartments or divisions susceptible to independent use (although the IMI is assessed with respect to each part susceptible to independent use) for the purposes of stamp duty the property in its entirety is relevant since the divisions susceptible to independent use are not deemed to be a property, but only the autonomous units in the horizontal property regime, as per paragraph 4 of article 2 of the CIMI.

- What expressly results from the letter of the law is that the legislator intended to tax under item 28.1 properties as a single legal-tax reality.

- The subjection to stamp duty of item 28.1 of the General Table attached to the CIS results from the conjunction of two facts: residential use and the tax asset value of the urban property registered in the registry being equal to or greater than € 1,000,000.00.

- The property being in full ownership regime, does not possess autonomous units, to which tax law attributes the qualification of property, because from the notion of property of article 2 of the CIMI, only the autonomous units of property in horizontal property regime are deemed to be properties – paragraph 4 of the cited article.

- The challenged assessments should be maintained insofar as they constitute a correct application of the law to the facts.

- As regards the violation of the principle of tax equality, the Respondent understands that the provision of item 28.1 of the TGIS does not constitute any violation of the principle of equality, with no discrimination existing in the taxation of properties constituted in horizontal property regime and properties in full ownership with divisions susceptible to independent use or between properties with residential use and properties with other uses;

- Horizontal property and full ownership are distinct legal institutes. The former implies, it is a fact, a mere legal alteration of the property, but the legislator can submit to a different, and therefore discriminatory, tax regime properties in horizontal and vertical ownership regime, in particular benefiting the more evolved legal institute of horizontal property, without this discrimination being considered necessarily arbitrary.

- The registry registration of each independent part is not autonomous per registry, but consists of a description in the registry of the property in its entirety.

- The procedural norms of assessment, the norms on registry registration and also the norms on the assessment of parts susceptible to independent assessment do not allow affirming that there should be an equation of the property in full ownership regime to the horizontal property regime;

- The taxation in stamp duty obeys the criterion of suitability in that it aims at the taxation of wealth embodied in the ownership of immovables of high value, arising in a context of economic crisis that cannot be ignored.

Subsequent Proceedings

By order of 29 November 2016, after obtaining the consent of the Parties, the Tribunal determined the dispensability of holding the meeting provided for in article 18 of the RJAMT and of further arguments.

II – PRELIMINARY ASSESSMENT

The arbitration tribunal was regularly constituted on 01-09-2016, with the arbitrator having been designated by the Deontological Council of CAAD, with the respective legal and regulatory formalities fulfilled (articles 11, paragraph 1, subparagraphs a) and b) of the RJAMT and 6 and 7 of the Deontological Code of CAAD).

The Parties have legal personality and capacity, are entitled and are regularly represented, pursuant to articles 4 and 10 of the RJAMT and article 1 of Ordinance no. 112-A/2011, of 22 March.

The cumulation of claims is admissible under article 3 of the RJAMT.

No procedural defects were identified.

III – ISSUES TO BE DECIDED

The sole substantive issue raised is that of the incidence of stamp duty under item 28.1 of the General Stamp Duty Table on divisions of an urban property in full ownership, with residential use and susceptible to independent use and as such considered in the property tax registry.

IV – PROVEN FACTS

The following proven facts considered relevant for the decision are:

- The Applicant was registered on the relevant tax date in the property tax registry as owner of the urban property located at Street …, no. … to…, parish of …, Lisbon;

- The property is described in the property tax registry as property in full ownership and composed of twenty-eight parts susceptible to independent use, of which twenty-six have residential use;

- No part with independent use with residential use has tax asset value equal to or greater than 1,000,000.00 euros;

- The Respondent assessed stamp duty on the tax asset values of the apartments or parts susceptible to independent use with residential use, at the rate of 1%, under the provisions of item 28.1 of the General Stamp Duty Table (TGIS) for the year 2014;

- The Respondent did not assess stamp duty on the tax asset values of the apartments or parts susceptible to independent use with "industrial" or "services" use;

- The sum total of the stamp duty assessed is 6,244.66 euros;

- The Applicant proceeded to payment of this amount;

V – GROUNDS

The substantive issue that must be considered and decided is whether stamp duty under item 28.1 of the General Stamp Duty Table is levied on divisions of an urban property in full ownership, with residential use susceptible to independent use and as such considered in the property tax registry.

The delimitation of the issue to be decided in this case requires additional justification.

In our understanding, it is not the incidence of the tax on a property in its entirety that is at issue, but rather on the parts of that property that have residential use, separately considered.

The issuance of autonomous assessment acts for the various parts of the property with residential use would already be indicative of this if not even conclusive.

But to this aspect – which could be considered merely procedural and formal – is added another of substantial value.

Although the Tax Authority argues that it interprets the scope of application rule contained in item 28.1 of the TGIS in the sense that the tax is levied on the "property in full ownership" and that it considers, for purposes of incidence, the property in its entirety, this is not true, as the Tax Authority excludes from the incidence the parts of the property that are not devoted to residential use.

If the incidence – and the consequent taxation – of property in its entirety were at issue, the Tax Authority could not exclude from the incidence the divisions that do not have residential use, taxing only a part of the property.

One can only conclude, therefore, that the assessments are effectively levied on the parts of the property and not on the property in its entirety.

On this same issue the Supreme Administrative Court has ruled on several occasions, with established jurisprudence that, where a property constituted in full ownership is concerned, the incidence of stamp duty should be determined, not by the tax asset value resulting from the sum of the tax asset value of all divisions or apartments susceptible to independent use (itemized in the registry article), but by the tax asset value attributed to each of those apartments or divisions destined for residential use.

The grounds for this jurisprudence may be found in one of the first judgments that the Supreme Court handed down on this matter, on 09-09-2015, in case no. 47/15. In this judgment, which we take as the basis for our decision in the present case, the STA states:

"The concept of 'property (urban) with residential use' was not defined by the legislator. Neither in Law no. 55-A/2012, which introduced it, nor in the Code of IMI, to which paragraph 2 of article 67 of the Code of Stamp Duty (also introduced by that Law) refers subsidiarily. And it is a concept which, probably due to its imprecision – a fact all the more serious in that it is in function of it that the scope of objective incidence of the new taxation is delimited –, had a short life, as it was abandoned when the State Budget Law for 2014 came into force (Law no. 83-C/2013, of 31 December), which gave new wording to that item no. 28 of the General Table, and which now delimits its scope of objective incidence through the use of concepts that are legally defined in article 6 of the Code of IMI.

From the letter of the law nothing unequivocal follows, moreover, for it itself, by using a concept that it did not define and that was also not found defined in the statute to which it referred subsidiarily, unnecessarily lent itself to ambiguities, in a matter – of tax incidence – in which certainty and legal security should also be paramount concerns of the legislator."

And the Court continues:

"(…) The present subject matter is, already by virtue of article 67, paragraph 2 of the Code of Stamp Duty, subject to the norms of the Code of IMI, – 'to matters not regulated in the present code relating to item 28 of the General Table, the CIMI applies subsidiarily'.

As such, and as has been mentioned so many times, in the understanding of the present court, the mechanism for the determination of the VAT relevant for the purposes of the aforementioned item is that which is established in the Code of IMI.

Now, article 12, paragraph 3 of the Code of IMI establishes that 'each apartment or part of property susceptible to independent use is considered separately in the registry registration, which also discriminates the respective tax asset value'.

The legislator downplaying, in the terms previously mentioned, any prior constitution of horizontal or vertical property.

Indeed, for this [legislator], what is relevant is the material truth underlying its existence as an urban property and its use.

It should be noted that the Authority itself seems to agree with the criterion set forth, which is why the assessments it issues are very clear in their essential elements, from which it follows that the value of incidence is the corresponding to the VAT of each one of the apartments and the assessments are itemized.

Therefore, if the legal criterion imposes the issuance of itemized assessments for the autonomous parts of properties in vertical ownership, in the same manner as it establishes for properties in horizontal ownership, it 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 place for stamp duty incidence (within the scope of Item no. 28 of the TGIS) if any of the parts, apartments or divisions with independent use presented a VAT exceeding € 1,000,000.00.

The Authority cannot consider as reference value for the incidence of the new tax the total value of the property, when the legislator itself established a different rule under IMI (and, as previously mentioned, this is the code applicable to matters not regulated as regards Item no. 28 of the TGIS).

In conclusion, the current legal regime does not impose the obligation of constitution of horizontal property, wherefore the action of the Authority translates into an arbitrary and illegal discrimination.

In fact, the Authority cannot distinguish where the legislator itself understood not to do so, under penalty of violating the coherence of the tax system, as well as the principle of tax legality provided for in article 103 of the Constitution of the Portuguese Republic, and also the principles of tax justice, equality and proportionality.

In the case at hand, the property [properties] in question were, on the relevant date of the facts, constituted in full ownership and had […] units with independent use, as follows from the documents […].

Given that none of these units has tax asset value equal to or greater than € 1,000,000.00, as follows from the documents attached to the case file, it is concluded that the legal presupposition for incidence is not met."

We consider that the jurisprudence of the Supreme Administrative Court is based on correct grounds, wherefore we understand that it should be applied to the case sub judice, without any modification.

Within the scope of the Municipal Property Tax (IMI), the legislator clearly established, in article 12, paragraph 2 of the CIMI, that parts of property with independent use are assessed separately, with this value being taken as the basis for the tax assessment.

Within the scope of Stamp Duty, article 13, paragraph 1 of the respective code provides that "the value of immovables is the tax asset value contained in the registry pursuant to the CIMI".

It therefore appears clear that the legislator intended that the tax asset value of the parts with independent use be considered.

The Authority – Tax and Customs Authority appears to conform its action with this understanding, by issuing stamp duty assessment acts itemized with respect to each part.

The Authority – Tax and Customs Authority, contrary to what it alleges, does not consider, for purposes of incidence, the property in its entirety, but only the independent parts with residential use. Therefore, it considers the parts, and not the whole, as the subject matter of the tax.

If it did not consider the independent parts as an autonomous subject matter of taxation, then it would be taking as the subject of taxation parts of property and not properties in their entirety, which would have no legal basis whatsoever.

Furthermore, in accordance with article 9, paragraph 1 of the Civil Code, interpretation should not be limited to the letter of the law, but should reconstruct from the texts the legislative intent, having particularly regard for 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. Now, the subjective element of the interpretation, to be drawn from the historical elements that are well known in this matter, and that are partially reproduced in the judgment of the STA cited, clearly indicates the intention of the legislator to subject to taxation housing units ("houses") of high value.

In consonance with all the interpretive elements mentioned, it should be considered that, where there is a property in full ownership formed by parts susceptible to independent use, there is only place for stamp duty incidence (within the scope of Item no. 28 of the TGIS) if any of the parts, apartments or divisions with independent use presents a tax asset value equal to or greater than 1,000,000.00 euros.

By all the foregoing, it is necessary to conclude that the challenged stamp duty assessments are illegal, by violation of the tax law, in that they are levied on independent parts of properties in full ownership but taking as their basis the tax asset value of the sum of the same parts and when none of these parts has a tax asset value equal to or greater than 1,000,000 euros.

V – DECISION

We hold that the Tribunal decides:

To declare the illegality and annul all stamp duty assessments challenged, relating to the year 2015, levied on the divisions with residential use of the urban property located at Street …, no. … to…, parish of …, Lisbon, described in the urban property tax registry with no. …, of the parish of …, municipality of Lisbon, with the numbers: … of 2016; … of 2016; … of 2016; … of 2016; … of 2016; … of 2016; … of 2016; … of 2016; … of 2016; … of 2016; … of 2016; … of 2016; … of 2016; … of 2016; … of 2016; … of 2016; … of 2016; … of 2016; … of 2016; … of 2016; … of 2016; … of 2016; and … of 2016;

To condemn the Respondent AT – Tax and Customs Authority to refund the tax unduly paid in accordance with the same assessments, plus the corresponding indemnification interest, pursuant to article 43 of the General Tax Law.

Economic value of the case: The economic value of the case is set at 6,244.66 euros.

Costs: Pursuant to article 22, paragraph 4 of the RJAMT, the amount of costs is set at 612.00 euros, in accordance with Table I attached to the Costs Regulation in Tax Arbitration Proceedings, to be borne by the Respondent.

This arbitration decision shall be registered and the parties shall be notified thereof.

Lisbon, Administrative Arbitration Centre, 31 January 2017

The Arbitrator

(Nina Aguiar)

Frequently Asked Questions

Automatically Created

Is Stamp Tax (Imposto de Selo) applicable to individual units of an urban property held in total ownership when each unit's taxable value is below €1,000,000?
Under the Tax Authority's interpretation of Verba 28.1 of the General Stamp Tax Table, Stamp Tax applies to the entire urban property held in full ownership based on its aggregate taxable patrimonial value, not the individual values of separately usable units. If the total property VPT equals or exceeds €1,000,000, Stamp Tax is due regardless of whether each individual apartment's value falls below this threshold. The Authority argues that Article 2(4) CIMI treats only autonomous horizontal property fractions as separate properties, meaning full ownership properties constitute a single taxable unit. The applicant contests this interpretation, asserting that independently usable parts should be valued separately as they are for IMI purposes, which would exempt units individually valued below €1,000,000.
Does taxing undivided property units differently from horizontal property fractions violate the principle of tax equality under Portuguese law?
The applicant argues that differential tax treatment violates Article 13 of the Portuguese Constitution (principle of tax equality) because horizontal property and full ownership represent merely formal legal distinctions without material economic differences. If the same building were constituted as horizontal property, none of its units would incur Stamp Tax liability. The Tax Authority contends no equality violation exists because horizontal property and full ownership are distinct legal institutes with different legal consequences, and the legislator may legitimately subject them to different tax regimes. The Authority argues the discrimination is not arbitrary since it reflects coherent legal distinctions recognized throughout Portuguese property law, and fiscal policy may favor the more evolved horizontal property regime as a legitimate legislative choice within the margin of appreciation for tax policy.
How is the taxable patrimonial value (VPT) determined for independently usable parts of a building not under horizontal property regime?
For properties in full ownership with independently usable parts, the Tax Authority maintains that the relevant taxable patrimonial value for Stamp Tax purposes under Verba 28.1 is the total VPT of the entire property as registered in the urban property registry. Although Article 12(3) CIMI requires separate registry descriptions for each independently usable part and IMI may be assessed on individual parts under certain circumstances, these provisions govern IMI assessment procedures rather than defining separate properties for Stamp Tax. The Authority argues that only autonomous units under horizontal property regime constitute separate properties per Article 2(4) CIMI. Consequently, divisions susceptible to independent use within a full ownership property do not have separate legal existence as properties, and their aggregate value determines Stamp Tax liability under Verba 28.1, even though individual VPT data may exist for IMI administrative purposes.
What is the legal basis for challenging Stamp Tax assessments under Verba 28.1 of the General Stamp Tax Table before CAAD?
The legal basis for challenging Stamp Tax assessments before CAAD derives from Article 2(1)(a) of Decree-Law 10/2011 (RJAMT - Legal Regime for Tax Arbitration), which grants jurisdiction over decisions by Tax Authority in tax enforcement proceedings, including Stamp Tax assessments. Article 10 RJAMT establishes procedural requirements for arbitration requests. The applicant invoked these provisions to challenge the legality of 23 Stamp Tax assessment acts issued in 2016 under Verba 28.1 TGIS. The arbitration tribunal was constituted according to Article 11(1)(a)(b) RJAMT with an arbitrator designated by CAAD's Deontological Council. Tax arbitration provides an alternative dispute resolution mechanism to judicial courts for contesting tax assessments, with decisions having equivalent effect to judicial rulings. The substantive grounds for challenge include alleged misapplication of Verba 28.1, incorrect VPT determination, and constitutional violation of the tax equality principle.
Can a property owner claim restitution of unduly paid Stamp Tax plus compensatory interest through tax arbitration proceedings?
Yes, pursuant to Article 10 RJAMT, the applicant explicitly requested condemnation of the Tax Authority to refund amounts of tax unduly paid plus corresponding compensatory interest (juros indemnizatórios). Portuguese tax law provides for restitution of illegally collected taxes when assessments are annulled, accompanied by compensatory interest calculated from payment date until restitution to compensate taxpayers for temporary loss of funds. If the arbitration tribunal declares the Stamp Tax assessments illegal, it must order full restitution including interest. The legal framework for tax arbitration encompasses complete remedies equivalent to those available in administrative courts, including both annulment of illegal acts and consequential financial restitution. Article 100 of the Tax Benefits Statute and Article 43 of the General Tax Law establish the right to compensatory interest on tax refunds, ensuring taxpayers receive complete reparation for unlawful tax collection.