Process: 319/2016-T

Date: January 16, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

In CAAD arbitration process 319/2016-T, A..., S.A. challenged the rejection of its review request concerning Stamp Tax (Imposto de Selo) of €119,204.99 levied on a division of common property. The case involved a commercial development partnership where the Applicant and B..., S.A. held co-ownership (72% and 28% respectively) of property intended for a shopping centre, hypermarket, offices, and parking facilities. In 2011, the co-owners divided the development fractions, with the Applicant receiving units valued at €185,062,272.20, exceeding its original 72% share worth €170,161,649.90 by €14,900,624.30. The Tax Authority imposed Stamp Tax on this excess value at 0.8%. The Applicant argued the transaction was not onerous, thus not subject to taxation. However, the arbitral tribunal applied Article 1(1) of the Stamp Tax Code (CIS), point 1.1 of the General Table covering onerous acquisitions of real property rights, and Article 9(4) CIS referencing CIMT rules for property taxation. Critically, Article 4(a) CIMT establishes that in divisions and partitions, tax is owed by the acquirer of property whose value exceeds their original share. The tribunal rejected the Applicant's argument by invoking Article 2(3) CIS, which extends taxpayer status to legal persons for transactions under item 1.1, notwithstanding the general rule exempting legal persons from gratuitous transfer taxation. The tribunal reasoned that the transaction was part of a commercial agreement between profit-seeking entities, forming a natural conclusion to their co-ownership arrangement. The decision clarifies that divisions of common property resulting in value imbalances trigger Stamp Tax liability, even when executed within pre-existing partnership agreements, establishing important precedent for commercial real estate developments structured through co-ownership arrangements.

Full Decision

ARBITRAL DECISION

I. REPORT

A..., S.A., with head office in..., Vila Nova de Gaia, and NIF..., requested, on 9 June 2016, the constitution of an arbitral tribunal, with a view to examining the legality of the rejection of the request for review of the tax act for collection of Stamp Tax (IS) no..., in the amount of €119,204.99, as well as of the respective collection act, and further requesting recognition of its right to compensatory interest calculated from that request for review, filed on 21 February 2012.

In the absence of appointment of an arbitrator, the signatories were designated by the CAAD Deontological Council, and accepted the charge, whereby, in the absence of objection from the parties, the arbitral tribunal was constituted on 31 August 2016.

The Tax and Customs Authority (AT), notified, replied, defending itself by exception and challenge, attached the relevant administrative file and requested, subsidiarily, the suspension of the proceedings until the decision of the hierarchical appeal that the Applicant had filed against the collection of Municipal Tax on Onerous Real Estate Transfers (IMT) also carried out in the disputed collection act.

The Applicant argued for the inadmissibility of the exception and requested the consolidation of the said hierarchical appeal proceedings.

Considering unnecessary the meeting referred to in article 18 of the Legal Regime for Arbitration in Tax Matters (RJAT), the collegial tribunal met and issued an order in which it ruled the exception deduced inadmissible and rejected the requests for suspension of the arbitral proceedings and consolidation of the hierarchical appeal.

Subsequently, the tribunal announced the delivery of the decision by 16 January 2017, and invited the parties to submit written pleadings, which they did.

II. CLARIFICATION

The tribunal is competent, the parties legitimate and duly represented, with no nullities or further exceptions or other matters preventing examination on the merits.

III. FACTS

1. PROVED FACTS

a) On 22 December 2005 the Applicant and B..., S.A. (B) entered into a contract for the promotion of a development, including a shopping centre, a hypermarket, an office building and automatic parking spaces, to be built on two properties, one of which identified in the following subparagraph, manifesting the intention to remain in co-ownership until completion of the development, with B... then becoming owner of the fractions corresponding to the hypermarket and the Applicant of the others, as per document whose copy was attached with the request as document no. 4.

b) On the same date the Applicant acquired from B... an aliquot share of 72% of one of the properties in which the development was to be constructed, to which corresponds article... of the register of the parish of..., municipality of Amadora, for €25,568,391.56, with the remaining 28% remaining in the ownership of B..., as per public deed whose copy is attached as document no. 7 presented by the Applicant.

c) By public deed of 10 May 2011, whose copy constitutes document no. 3 attached with the request, the co-owners divided between themselves the fractions in which that and another property had been constituted, with all of them falling to the Applicant, in the value of €185,062,272.20, except for EI, EJ and FU, which fell to B....

d) The said deed does not state that the Applicant paid adjustments or that these are owed by reason of the difference between the value of the fractions adjudicated to each of the contracting parties and the value of the aliquot shares held by them prior to the division of common property.

e) It is stated in the same deed that each of the parties bore the costs of construction of the autonomous fractions constituted in the proportion of 18/25 for the Applicant and 7/25 for B....

f) The patrimonial value of the property acquired by the Applicant (VPT), according to its second assessment, was €236,335,622.50, corresponding to its aliquot share of 72%, €170,161,649.90.

g) Following that division, the Tax Administration (AT) issued, on 13 May 2010, the collection of IS no..., to which corresponds the payment document with the same number, as per copy which constitutes document no. 1 attached with the request, in the amount of €119,204.99.

h) In the same act IMT was collected in the amount of €968,540.58.

i) The Applicant filed a request for review of the collection act of IS on 21 February 2012, which was expressly rejected on 8 March 2016, in accordance with document no. 2 attached with the request.

j) The Applicant paid the IS collected on 16 May 2011, as stated in the information on which the rejection of the ex officio review request was based.

2. UNPROVED FACTS

Among the facts alleged, relevant for the various plausible solutions, none remained unproved.

3. REASONING OF THE DECISION ON THE FACTS

The tribunal's conviction is based on the examination of the documents attached to the file, all of which are hereby considered reproduced, and on the factual allegations not contradicted.

IV. SUBSUMPTION OF FACTS TO LAW

The AT's action was based on the fact that in the division of common property fractions fell to the Applicant with a total value of €185,062,272.20, whereas previously its aliquot share of 72% was worth €170,161,649.90.

It thus found an excess of €14,900,624.30, and imposed stamp tax on it.

In accordance with article 1 no. 1 of the Stamp Tax Code (CIS), it "incides on all acts, contracts, documents, titles, papers and other facts or legal situations provided for in the General Table, including gratuitous transfers of real property".

In point 1.1 of that Table reference is made to "Onerous acquisition or by donation of the right of ownership or parcellary forms of that right over real property (...)", with the rate of 0.8% on the value.

In article 9 no. 4 of the CIS it is provided that "to the taxation of legal transactions concerning real property, provided for in the General Table, the rules for determining the taxable matter of the Code of Municipal Tax on Onerous Real Estate Transfers (CIMT) shall apply".

Article 4 subparagraph a) of the CIMT establishes that "In divisions and partitions, the tax is owed by the acquirer of real property whose value exceeds that of its share in those property".

Moreover, in the case, although the Applicant is a legal person, it does not cease to be a taxpayer of IS, even if we were dealing with a gratuitous transfer. This is because the rule of no. 2 of article 2 of the CIS, which only considers taxpayers, in the case of gratuitous transfers, natural persons, has an exception, residing in no. 3 of the same article, regarding the "(...) acts and contracts of item 1.1 of the General Table (...)", in the wording in force since 1 September 2009, applicable, consequently, to the case in question.

Given this body of regulations, the incidence of the tax in the present case seems clear, since the Applicant, being owner of an aliquot share - 72% - of a property with a value of €236,335,622.50, corresponding to this share €170,161,649.90, became owner, through the division of common property, of autonomous fractions with a value of €185,062,272.20, that is, of property of a value exceeding by €14,900,624.30 what it previously held in co-ownership.

We have already seen that the Applicant's argument, that this is not an onerous transaction, is worth nothing in the face of the aforementioned no. 3 of article 2 of the CIS.

But it is apparent that the transaction is not gratuitous, since it is part of the agreement between the Applicant and B..., both promoters of a commercial development which, given the nature of the contracting parties, aimed at obtaining profits in the exercise of the corresponding activities, an agreement which included and culminated in the end of the co-ownership in which they found themselves. As the Applicant clearly states, "(...) the division operation (...) is a natural and inevitable corollary of the way in which the same [project development] was outlined".

Nor does the alleged circumstance that adjustments were not made characterize the non-existence of the tax event, as it is not a constitutive element of it.

Moreover, the Applicant makes an effort, throughout its pleadings, to explain how the transaction was structured, insisting on the idea that the division constituted a mere formality, from which nothing more accrued to it than what it was already co-owner of, and that the excess found by the Respondent is merely a consequence of the implausibility (in this case, impossibility) that the sum of the value of the fractions would correspond exactly to the value of its aliquot share. Claiming that, for all this, there is no "added purchasing power", no "contributory capacity added to that already revealed in the acquisition of its share in the land".

Being certain that the tribunal accepted the version of the facts alleged by the Applicant, it is also certain that it cannot follow it in its conclusion.

In fact, the proved facts meet the fattispecie of the rule of incidence of IS, which provides for it "on all acts, contracts, documents, titles, papers and other facts or legal situations provided for in the General Table, including gratuitous transfers of real property", when there is "onerous acquisition or by donation of the right of ownership or parcellary forms of that right over real property (...)", being that "in divisions and partitions, the tax is owed by the acquirer of real property whose value exceeds that of its share in those property".

The dispatch invoked by the Applicant, reflecting the previous understanding of AT in a similar case, also does not serve as an argument.

On the one hand, it does not bind the Tax Authority; on the other, it refers to income tax, whereas, in this instance, what is at issue is a patrimonial increase of economic result equivalent to a transfer of real property.

And, even though the division of common property reflected the different participation of the co-owners in the development of the construction, the fact is that, in the end, and through the division of common property, the Applicant saw its real estate patrimony increased – and it is this increase that is relevant for purposes of IS.

In summary, the Applicant, being owner of a share of 72% of a property with a value of €236,335,622.50, corresponding to this share €170,161,649.90, became owner, through the division of common property, of autonomous fractions with a value of €185,062,272.20, that is, of property of a value exceeding by €14,900,624.30 what it previously held in co-ownership.

The grounds for its challenge of the tax act that decided in conformity are thus lacking.

V – DECISION

In light of the foregoing, it is decided:

To fix the value of the process at €119,204.99, as this is the value of the cause, in accordance with the provisions of article 97-A no. 1 subparagraph a) of the CPPT, applicable by virtue of the reference in article 3 no. 2 of the Regulation of Costs in Tax Arbitration Proceedings;

To rule the request inadmissible, absolving thereof the Tax and Customs Authority, maintaining the collection act and, consequently, that of rejection of the respective administrative complaint;

To condemn the Applicant in costs, which are computed at €3,060.00, in accordance with Table I referred to in article 4 nos. 1 and 4 of the cited Regulation.

Notify hereof.

Lisbon, 16 January 2017

The arbitrators

(José Baeta de Queiroz)

(Jorge Bacelar Gouveia)

(Luís Menezes Leitão)

Frequently Asked Questions

Automatically Created

Is Stamp Tax (Imposto de Selo) due on the division of common property (divisão de coisa comum) in Portugal?
Yes, Stamp Tax is due on divisions of common property (divisão de coisa comum) in Portugal when one party receives property exceeding the value of their original co-ownership share. Article 4(a) of CIMT, applied through Article 9(4) of the Stamp Tax Code, establishes that the acquirer of property whose value exceeds their share owes tax on the excess at 0.8% under point 1.1 of the General Table.
What was the outcome of CAAD arbitration process 319/2016-T regarding Stamp Tax on property division?
The CAAD arbitral tribunal in process 319/2016-T ruled that Stamp Tax was properly levied on the division of common property. The tribunal found that the Applicant, having received property fractions worth €14.9 million more than its original 72% co-ownership share, was liable for Stamp Tax on this excess value, rejecting arguments that the transaction was non-onerous or exempt from taxation.
Can a taxpayer request a review of a Stamp Tax assessment related to a real estate development partnership?
Yes, taxpayers can request a review of Stamp Tax assessments related to real estate development partnerships, as demonstrated in this case where A..., S.A. filed a review request on 21 February 2012. When the Tax Authority rejected the review on 8 March 2016, the company subsequently requested CAAD arbitration on 9 June 2016, exercising its right to challenge the assessment through alternative dispute resolution mechanisms provided under the RJAT (Legal Regime for Arbitration in Tax Matters).
How does the division of co-owned commercial property affect Stamp Tax and IMT obligations in Portugal?
When co-owned commercial property is divided, if one party receives fractions exceeding the value of their original co-ownership percentage, both Stamp Tax and IMT (Municipal Tax on Onerous Real Estate Transfers) may apply. In this case, the Applicant paid €119,204.99 in Stamp Tax on the €14.9 million excess value (0.8% rate) and €968,540.58 in IMT. The division is treated as an onerous acquisition of the excess portion, triggering taxation under Article 4(a) CIMT and point 1.1 of the Stamp Tax General Table.
What is the procedure for challenging a Stamp Tax liquidation through CAAD tax arbitration?
To challenge a Stamp Tax liquidation through CAAD tax arbitration, taxpayers must first exhaust administrative remedies by filing a review request (pedido de revisão) with the Tax Authority. If rejected or not decided within the legal timeframe, the taxpayer can request constitution of an arbitral tribunal under the RJAT. The process involves: (1) filing the arbitration request with CAAD; (2) appointment of arbitrators; (3) tribunal constitution; (4) Tax Authority's reply and submission of administrative file; (5) written pleadings; and (6) final arbitral decision, typically within 6 months from tribunal constitution.