Process: 32/2018-T

Date: May 28, 2018

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 32/2018-T) addressed the legality of Stamp Tax assessments under Verba 28.1 of the General Table (TGIS) on high-value properties owned by UK residents in Portugal. The claimants challenged Stamp Tax liquidations totaling €40,054.80 for years 2012-2015, arguing the patrimonial tax value (VPT) was incorrectly calculated by the Tax Authority (AT). The arbitral tribunal ruled in favor of the taxpayers, finding the AT failed to apply mandatory updates when calculating the property's taxable value. Specifically, the AT neglected to apply the age depreciation coefficient (0.9 under Article 44 of the IMI Code), update the base value of built properties (VBPE), and apply the area adjustment coefficient (CAJ) as required by Article 13(3) of the IMI Code. These omissions resulted in an inflated VPT exceeding €1,000,000, triggering Stamp Tax obligations under Verba 28.1. The tribunal determined that proper application of these coefficients would have kept the VPT below the €1,000,000 threshold. The decision annulled all contested Stamp Tax assessments due to violation of the tax base requirements, establishing that the AT has an ex officio duty to update patrimonial values according to legal parameters without requiring taxpayer intervention. This ruling confirms non-residents' right to challenge tax assessments through CAAD arbitration and reinforces the principle that Stamp Tax on high-value properties must be based on correctly calculated patrimonial values following all mandatory legal adjustments.

Full Decision

ARBITRAL DECISION

REPORT

A... (taxpayer no. ...) and B... (taxpayer no. ...), married, resident in ..., in the United Kingdom (hereinafter referred to as "Claimants"), filed on 25/01/2018 a request for arbitral determination with a view to the assessment and declaration of illegality of the Stamp Duty assessment acts for 2012, 2013, 2014 and 2015 and, likewise, of the rejection of the ex officio review timely filed which confirmed them, relating to the application of Item no. 28.1 of the General Schedule of Stamp Duty (General Schedule), in the total amount of € 40,054.80 (forty thousand, fifty-four euros and eighty cents) to a property of which they are owners.

The Honourable President of the Deontological Council of the Centre for Administrative Arbitration (CAAD) designated, on 09/02/2018, the signatory of this decision as sole arbitrator.

On 05/04/2018 the arbitral tribunal was constituted.

In compliance with the provisions of no. 1 of article 17 of the Legal Framework for Tax Arbitration (RJAT), the Tax and Customs Authority (AT) was notified on 06/04/2018 to, if it wished, submit a response and request the production of additional evidence.

On 02/05/2018 the AT submitted its response, accompanied by the administrative file, requesting exemption from holding the meeting described in article 18 of the RJAT, as well as from submitting further arguments.

Given that this was exclusively a matter of law, the arbitral tribunal on 07/05/2018 decided to exempt the holding of the meeting to which no. 1 of article 18 of the RJAT refers, based on the principle of the arbitral tribunal's autonomy in conducting the proceedings, inviting both parties to, if they wished, submit optional written arguments and scheduled the date for rendering the final decision.

Neither the AT nor the Claimants submitted optional written arguments.

PROCEDURAL ISSUES

The arbitral tribunal was regularly constituted and is materially competent.

The parties have legal personality and capacity and are legitimate, with no defects in representation.

There are no nullities, exceptions or preliminary issues that prevent knowledge of the merits and which require ex officio examination.

Consequently, the conditions exist for rendering the final decision.

POSITIONS OF THE PARTIES

As the basis of their claim, the Claimants allege, in summary, error as to the factual and legal assumptions (specifically, absence of the respective requirement of the tax base, due to the incorrect and outdated fixing of the taxable property value of the Claimants' property) and, in particular, violation of the transitional regime provided for in Item no. 28.1 of the General Schedule. The Claimants conclude that Item no. 28.1 of the General Schedule ignores all constitutional parameters of equality, proportionality and tax justice.

In contrast, the AT argues for the dismissal of the claim and, consequently, for the maintenance of the said assessment acts, on the ground that the taxable property value relevant for the purposes of the tax base of Stamp Duty consists of the total taxable property value of the urban property and not the taxable property value of each of the parts that comprise it, even where susceptible to independent use.

It concludes, with reference to recent case law of the Constitutional Court and likewise to arbitral case law, that the Stamp Duty assessment acts in question do not violate any legal or constitutional principle.

FACTUAL MATTERS

FACTS ESTABLISHED AS PROVEN

Based on the documents submitted to the proceedings, the following are established as proven:

The Claimants are owners of the urban property registered in the urban property matrix of the parish of ..., municipality of Loulé, with registration number U-....

The property is wholly owned without storeys or divisions with independent use, allocated to residential purposes.

The property in question was registered in the property matrix in 2007 and had, at that date, a taxable property value of € 930,290.00.

In 2009 and 2012, the AT promoted the respective updating of the taxable property value, in accordance with article 138 of the IMI Code, determining a taxable property value of € 965,175.88, as a result of the first three-year update, and € 1,001,369.98, as a result of the last update.

The Claimants were notified of the Stamp Duty assessment acts for the years 2012, 2013, 2014 and 2015, carried out under Item no. 28.1 of the General Schedule, in the total amount of € 40,054.80 (forty thousand, fifty-four euros and eighty cents).

On 17/06/2015, the Claimants submitted an IMI Model 1 form for updating the respective urban property matrix, on the ground of the outdatedness of the taxable property value, which was fixed by the AT at € 626,440.00, and the Claimants were notified on 16/05/2016.

No complaint or second valuation request was made.

On 04/09/2017, the Claimants filed a request for ex officio review of the Stamp Duty assessment acts for 2012, 2013, 2014 and 2015.

On 25/01/2018, the Claimants filed the request for arbitral determination which gave rise to the present proceedings.

FACTS NOT ESTABLISHED AS PROVEN

There are no facts of relevance to the decision that have not been established as proven.

THE LAW

According to the established facts, the AT promoted, in 2009 and in 2012, the updating of the taxable property value fixed in 2007, in accordance with article 138 of the IMI Code, determining a taxable property value of € 965,175.88, as a result of the first three-year update, and € 1,001,369.98, as a result of the last update.

However, in both property matrix updates, the AT failed to take into account:

the whole number of years elapsed since the date of issue of the use licence (age depreciation coefficient);

the base value of built properties (VBPE), which decreased since 2009;

the area adjustment coefficient (CAJ), which was introduced to take effect from 01/07/2007.

In fact, it is incumbent upon the AT, specifically upon the Head of Finance for the area where the property is located, to ex officio update the taxable property value in accordance with its age, the updating of the VBPE and the introduction of the CAJ, in accordance with the provisions of article 13, no. 3, paragraphs a) and b) of the IMI Code.

In practice, none of these three circumstances represents any alteration to the property caused by the taxpayer, which would need to be brought to the attention of the AT by the latter.

Rather, they represent variations to the taxable property value of the property dictated exclusively by legal requirement and which require no additional information or documentation for their application.

Now, in 2009, at the time of the first three-year update promoted by the AT, more than two full years had already elapsed since the date of issue of the use licence (which dates back to 13/06/2006).

However, the AT refrained from updating the taxable property value of the property in light of the age depreciation coefficient of 0.9 provided for in article 44 of the IMI Code.

It would have been sufficient for the AT to have considered the said age depreciation coefficient of 0.9 for the taxable property value of the property never to have reached the amount of € 1,000,000.00.

To this extent, the assessment acts in question are deficient due to violation of law through violation of the tax base rule of Item no. 28.1 of the General Schedule, first of all because they are based on a taxable property value that proceeds from a violation of article 44 of the IMI Code, but also violation of article 13, no. 3, paragraphs a) and b) of the IMI Code, thus declaring the illegality of those assessment acts, with the consequent annulment thereof.

Beyond the Stamp Duty assessments in question being deficient due to illegality by absence of the respective tax base requirement, the assessment relating to 2012, in particular, is further deficient due to violation of the transitional regime provided for in article 6 of Law no. 55-A/2012, of 29 October.

In accordance with no. 1 of that article, in 2012, the taxable event occurs on 31 October and the assessment must be carried out up to 20 December at the rate of 0.5% or 0.8%, depending on whether or not the property is valued in accordance with the IMI Code.

That is, in 2012, the taxable event does not occur on 31 December and the assessment should not be carried out in the months of February and March of the following year, and the rate should not be 1%, as would otherwise result from the applicable rules.

Likewise, the same no. 1 clarifies that, in 2012, the taxable property value to be used in the assessment of Stamp Duty corresponds to that which results from the rules provided for in the IMI Code by reference to the year 2011 – see article 6, no. 1, paragraph c) – and that only in 2013 should the assessment of Stamp Duty be based on the same taxable property value used for the purposes of IMI in that year.

This is to say that, in 2012, the property value to be considered in the assessment of Stamp Duty is the one entered in the property matrix on 31/12/2011.

However, the notification of the 2012 assessment clarifies that this took place at the rate of 1%, on a taxable property value of € 1,001,369.98, the determination of which the property record dates to 2012, without clarifying the date on which the taxable event occurred.

Likewise, the taxable property value for 2011 – lower than € 1,000,000.00 – was disregarded, and in its place the taxable property value for 2012 was applied, which resulted, according to the established facts, from the second three-year update which took place in 2012.

It is thus apparent that the assessment act in question, relating to the year 2012, violated all the rules of the 2012 transitional regime, and therefore for this reason also cannot subsist in the legal order.

The same applies to the assessment relating to 2015, which suffers from a defect of violation of law.

In fact, article 113, no. 1 of the IMI Code provides that the tax is assessed on the basis of the taxable property value entered in the property matrix on 31 December of the year to which it relates.

On 31/12/2015, the taxable property value entered in the matrix could only be € 626,440.00, which resulted from the new valuation promoted by the AT.

Having concluded that the Stamp Duty assessment acts which are the subject of the present request for arbitral determination suffer from a defect of violation of law which requires their annulment, knowledge of the remaining issues relating to the legality (by violation of the constitutional principles of equality, proportionality and tax justice) of those acts and likewise of the act rejecting the ex officio review submitted becomes moot through lack of utility.

Regarding entitlement to compensatory interest

Along with the annulment of the assessments and consequent refund of amounts improperly paid, the Claimants further request that they be recognised as entitled to compensatory interest, under article 43 of the General Tax Code (LGT).

In fact, in accordance with the rule in no. 1 of the said article, compensatory interest is due "when it is determined, in a gracious complaint or judicial challenge, that there was error attributable to the services which results in payment of the tax debt in an amount greater than legally due." In addition to the means referred to in the rule transcribed, we understand that, as results from no. 5 of article 24 of the RJAT, the right to the aforementioned interest can be recognised in the arbitral proceedings and thus the claim is entertained.

The right to compensatory interest referred to in the above-mentioned rule of the LGT presupposes that tax has been paid in an amount greater than that due and that this derives from error, whether of fact or of law, attributable to the services of the AT. In the present case, both conditions are satisfied, thus establishing the obligation of compensatory interest in favour of the taxpayer, which is hereby declared.

DECISION

For the reasons stated, the arbitral tribunal decides:

To uphold the request for arbitral determination and, in consequence, to declare illegal the Stamp Duty assessments for 2012, 2013, 2014 and 2015, with all legal consequences;

To uphold the claim for recognition of the Claimants' right to payment of compensatory interest;

To order the AT to refund to the Claimants the Stamp Duty improperly paid, in the amount of € 40,054.80;

To order the AT to bear costs.

VALUE OF THE CASE

The value of the case is fixed at € 40,054.80 (forty thousand, fifty-four euros and eighty cents), in accordance with article 97-A of the Tax Procedure and Process Code (CPPT), applicable under the terms of paragraphs a) and b) of no. 1 of article 29 of the RJAT and no. 2 of article 3 of the Schedule of Costs in Tax Arbitration Proceedings (RCPAT).

COSTS

Costs to be borne by the AT, in the amount of € 2,142 (two thousand, one hundred and forty-two euros), in accordance with Table I of the Schedule of Costs in Tax Arbitration Proceedings, in accordance with no. 2 of article 22 of the RJAT.

Let notification be made.

Lisbon, 28 May 2018

The Arbitrator,

(Hélder Filipe Faustino)

Document prepared by computer, in accordance with the provisions of no. 5 of article 131 of the Code of Civil Procedure, applicable by cross-reference of paragraph e) of no. 1 of article 29 of the RJAT. The preparation of this decision is governed by the spelling prior to the 1990 Orthographic Agreement.

Frequently Asked Questions

Automatically Created

What is Verba 28.1 of the Portuguese Stamp Tax General Table (TGIS) and how does it apply to high-value properties?
Verba 28.1 of the TGIS imposes annual Stamp Tax on urban properties with a patrimonial tax value (VPT) exceeding €1,000,000, applicable to properties owned as of December 31 each year. The tax applies to the total VPT of the entire property, not individual autonomous fractions, even when capable of independent use. This provision targets high-value real estate, regardless of owner residency status, and has been subject to constitutional challenges regarding equality and proportionality principles, though courts have generally upheld its validity.
Can non-resident property owners in Portugal challenge Stamp Tax (Imposto do Selo) assessments through CAAD arbitration?
Yes, non-resident property owners can challenge Stamp Tax assessments through CAAD arbitration. This case demonstrates that UK residents successfully contested Stamp Tax liquidations totaling €40,054.80 for multiple tax years. The arbitration process allows both resident and non-resident taxpayers to challenge the legality of tax assessments, including disputes over incorrect patrimonial tax values, application of legal coefficients, and compliance with transitional regimes. CAAD provides an alternative to judicial courts for resolving tax disputes efficiently.
How does the transitional regime under Verba 28.1 of the TGIS affect Stamp Tax liquidation on vertical properties?
The transitional regime under Verba 28.1 was designed to phase in Stamp Tax obligations for high-value properties. However, this case highlights that the transitional provisions do not excuse the Tax Authority from correctly calculating the patrimonial tax value. The AT must apply all mandatory legal adjustments including age depreciation coefficients, updated base values (VBPE), and area adjustment coefficients (CAJ) when determining whether a property exceeds the €1,000,000 threshold. Failure to apply these adjustments during transitional periods constitutes grounds for annulment of the tax assessment.
What are the legal grounds for contesting Stamp Tax based on incorrect patrimonial tax value (valor patrimonial tributário)?
Legal grounds for contesting Stamp Tax based on incorrect VPT include: (1) failure to apply the age depreciation coefficient under Article 44 of the IMI Code; (2) non-application of updated base values for built properties (VBPE); (3) omission of the area adjustment coefficient (CAJ) introduced in 2007; and (4) violation of Article 13(3) of the IMI Code requiring ex officio updates by the Tax Authority. Taxpayers can demonstrate that correct application of these legal parameters would reduce the VPT below the €1,000,000 threshold, eliminating Stamp Tax liability under Verba 28.1.
Does Verba 28.1 of the TGIS comply with constitutional principles of equality, proportionality, and tax justice?
While the claimants argued Verba 28.1 violates constitutional principles of equality, proportionality, and tax justice, recent Constitutional Court and arbitral case law has generally upheld its validity. However, this decision emphasizes that constitutional compliance requires proper application of the law. The tribunal's ruling implicitly supports constitutional principles by ensuring the tax base accurately reflects legally mandated adjustments. The violation occurred not in Verba 28.1 itself, but in the AT's failure to correctly calculate the VPT according to legal requirements, which would have prevented properties from being incorrectly subjected to the tax.