Process: 340/2015-T

Date: November 30, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

Process 340/2015-T addresses a critical Stamp Tax (Imposto de Selo) controversy under item 28.1 of the General Table of Stamp Duty (Tabela Geral do Imposto de Selo - TGIS), which taxes urban residential properties with patrimonial values equal to or exceeding €1,000,000. The claimant, acting as head of an undivided inheritance estate (herança indivisa), challenged stamp duty assessments for 2014 on an urban property in Porto containing twenty-five independent units for commerce and housing. The central legal dispute concerns whether the €1,000,000 threshold applies to each independent residential unit separately or to the aggregate patrimonial value of all residential units within a property held in total ownership. The Tax Authority assessed stamp duty based on the aggregated residential values totaling €2,108,920, while the claimant argued that item 28.1 should apply only to individual independent units exceeding €1 million, consistent with Municipal Property Tax Code (Código do IMI) definitions. The claimant contended that aggregating values violates constitutional tax equality principles and misinterprets the taxation's rationale of targeting properties demonstrating particular taxable capacity. The Tax Authority raised preliminary objections regarding tribunal jurisdiction and the impeachability of installment payment notices versus annual assessment acts. The Authority argued that properties in total ownership cannot be equated with horizontal property regimes, that civil law distinctions must be respected in tax interpretation per Article 11(2) of the General Tax Law, and that applying item 28.1 unit-by-unit would constitute an unconstitutional violation of tax legality principles. This arbitral proceeding under the Legal Framework for Tax Arbitration (RJAT - Decree-Law 10/2011) exemplifies the complexity of applying stamp duty to mixed-use properties with multiple independent economic units.

Full Decision

ARBITRAL DECISION

Claimant: A…

Respondent: AT - Tax and Customs Authority

I - STATEMENT OF FACTS

1. Claim

A…, hereinafter referred to as the Claimant, taxpayer number …, resident at Street …, …, Vila Nova de Gaia, …, in the capacity of Head of the Indivise Estate of B… and C…, with Tax Number …, submitted on 29-05-2015, pursuant to the provisions of paragraph a) of Article 2, section 1, and Article 10 of Decree-Law No. 10/2011 of 20 January, which approves the Legal Framework for Tax Arbitration (LFTA), a request for an arbitral decision, with the Tax and Customs Authority as Respondent, seeking the annulment of the acts of assessment of stamp duty, carried out under item 38.1 of the General Table of Stamp Duty, relating to the year 2014 and concerning the urban property located at Street …, number …/… and Street … number …/…, …, Porto, registered in the tax property matrix under article … of the Ramalde parish, embodied in the collection documents with the following numbers:

¾ 2015 …,
¾ 2015 …
[etc.]

To support its claim, the Claimant alleges, in summary:

  • The Claimant is the head of the indivise estate of B… and C…, of whom D…, the daughter of the deceased, is also an heir;

  • The Claimant and the other heir D… (hereinafter referred to as the Claimants) were, at the date of the facts, owners and legitimate possessors of the urban property located at Street …, number …/… and Street … number …/…, …, Porto, described in the property registry office of Porto with number …/Ramalde and registered in the tax property matrix under article … of the Ramalde parish;

  • The aforementioned property is described in the tax property matrix as an urban property in total ownership, composed of twenty-five floors or divisions of independent use intended for commerce and housing;

  • The tax patrimonial value of the various parts with independent use was determined separately;

  • In the year 2014, the sum of the tax patrimonial values of the parts with residential use is 2,108,920.00 euros (two million, one hundred and eight thousand, nine hundred and twenty euros);

  • In order to carry out the assessments being challenged, the Tax Administration took as its basis the sum of the tax patrimonial value of the residential fractions of the property;

  • The Tax Administration thus made an incorrect application of the tax law, as it could only take as its basis the tax patrimonial value of each part with independent use;

  • The rule of incidence in question - item 28.1 of the General Table of Stamp Duty (hereinafter referred to as GTSD) – speaks of property with residential use, with Article 67, section 2 of the Stamp Duty Code (SDC) referring to the Municipal Property Tax Code (MPTC) for matters not regulated in the former;

  • The concept of urban property with residential use must therefore be found in the MPTC, namely in its Articles 2, 4 and 6;

  • In particular from Article 4, and considering that nothing exists in the MPTC that would allow for an inference of discrimination between properties constituted in horizontal ownership and properties in total ownership, it must be concluded that autonomous parts of properties in total ownership should be treated as residential properties;

  • Thus, in the case of an urban property in total ownership with parts capable of independent use, stamp duty may only be incurred, under item 28.1 of the GTSD, on the parts with residential use whose tax patrimonial value individually considered is equal to or greater than one million euros;

  • This interpretation is the most consistent with the rationale of the taxation established in item 28.1 of the GTSD, which aims to tax residential properties that demonstrate particular taxable capacity;

  • To consider as the basis of incidence of the tax the sum of the tax patrimonial values of all parts with residential use would be a violation of the constitutional principle of tax equality;

2. Response

In its Response, the Respondent AT – Tax and Customs Authority, alleges, in summary:

2.1. Exception of Lack of Jurisdiction of the Arbitral Tribunal

  • The Claimant does not challenge the tax assessment act, but rather the payment of an installment of the assessment act contained in a document that is a collection note;

  • The subject matter of the proceedings is not the annulment of a tax act (or of 1/3 of a tax act, which would not be legally possible), but rather collection notes for payment of the 3rd installment of a tax;

  • Such subject matter falls outside the scope of the jurisdiction of the Arbitral Tribunal;

2.2. Unimpeachability of the Acts Challenged

  • The Claimant challenges certain installments of a unit tax value;

  • Now, the installments of stamp duty of item 28.1 of the GTSD are not challengeable; what is challengeable is the annual assessment of such tax, since the tax is annual;

2.3. Applicability of Item 28.1 of the GTSD to the Present Case

  • The Claimants are owners of an urban property in total ownership, whereby there are no autonomous fractions that can be qualified as property;

  • The unity of the urban property in vertical division composed of several floors or divisions is not affected by the fact that all or part of those floors or divisions are capable of independent economic use;

  • The determining factor for the application of that item of the General Table is the total tax patrimonial value of the property and not separately that of each of its parts;

  • The fact that the procedural norms of assessment, registration and assessment autonomize the parts capable of independent use does not allow one to assert that there is an equation between property in the regime of total ownership and the regime of vertical ownership;

  • Nothing in the law allows the regime of horizontal ownership to be applied to the property in question, by analogy. As these are two distinct regimes under civil law, the interpreter of tax law cannot equate the two ownership regimes by virtue of the rule whereby the concepts of other branches of law are interpreted in tax law with the meaning given to them in those other branches of law (Article 11, section 2 of the General Tax Law);

  • Interpretation is also not possible since there is no any gap in the law (Article 10 of the Civil Code);

  • It is unconstitutional, as an offense to the principle of tax legality, the interpretation of item 28.1 of the General Table, in the sense that the tax patrimonial value on which its incidence depends is calculated floor by floor or division by division, and not globally;

3. Meeting Provided for in Article 18 of the LFTA and Submissions

With the agreement of the parties, the Tribunal determined that the meeting provided for in Article 18 of the LFTA be dispensed with, as well as the phase of final submissions.

II. Preliminary Issues

The singular Arbitral Tribunal was duly constituted on 21-05-2015, with the Arbitrator being designated by the Ethics Council of the CAAD, with the respective legal and regulatory formalities being complied with (Articles 11, section 1, paragraphs a) and b) of the LFTA and Articles 6 and 7 of the Code of Ethics of the CAAD), and is competent ratione materiae, in accordance with Article 2 of the LFTA.

The parties have legal personality and capacity and are regularly represented.

No procedural irregularities were identified.

III. Reasoning

1. Questions to be Decided

The following are the questions to be decided by the Tribunal:

  • Lack of jurisdiction of the Tribunal to decide the claim;

  • Imputability of the acts challenged;

  • The applicability of item 28.1 of the GTSD to urban properties in vertical ownership formed by parts capable of independent use considered as a whole, with the consequence that the tax patrimonial value to be taken into account for the purposes of the incidence of the tax will be, in case of an affirmative answer, the tax patrimonial value of the property;

  • In case of an affirmative answer to the previous question, the constitutionality of the rule of incidence contained in item 28.1 of the GTSD, if interpreted in the sense of encompassing land for construction, in light of the constitutional principle of equality.

2. Matters of Fact

The following are the facts considered proven as being relevant to the decision:

  • The Claimant is the head of the indivise estate of B… and C…, of whom D…, the daughter of the deceased, is also an heir;

  • The Claimant and the other heir D… (hereinafter referred to as the Claimants) were, at the date of the facts, owners of the urban property located at Street …, number …/… and Street … number …/…, …, Porto, described in the property registry office of Porto with number …/Ramalde and registered in the tax property matrix under article … of the Ramalde parish;

  • The aforementioned property is described in the tax property matrix as an urban property in total ownership, composed of twenty-five floors or divisions of independent use intended for commerce and housing;

  • The tax patrimonial value of the various parts with independent use was determined separately;

  • In the year 2014, the sum of the tax patrimonial values of the parts with residential use is 2,108,920.00 euros (two million, one hundred and eight thousand, nine hundred and twenty euros);

  • The Claimant was notified to pay stamp duty, assessed under item 28.1 of the GTSD, on the independent parts of the said property with residential use, for the year 2014;

  • The total amount of tax assessed on the property is 7,030.76 euros (seven thousand and thirty euros and seventy-six cents);

3. On the Law

3.1 Jurisdiction of the Tribunal

According to the Respondent's allegation, the Claimant requests the Arbitral Tribunal to annul not a tax act, but rather collection notes. In its view, such subject matter does not fall within the scope of the jurisdiction of the Arbitral Tribunal.

Now, it is not true that the Claimant requests the Arbitral Tribunal to annul collection notes. Indeed, it reads at the beginning of the initial petition: "[The Claimant] hereby requests the pronouncement of this Arbitral Tribunal on the illegality of the acts of assessment of stamp duty (…)".

And at the end of the initial petition, the request is formulated as follows: "Your Excellencies should rule that the request for arbitral pronouncement is well-founded, as proven, with the consequent annulment of the said acts of assessment challenged, with all legal effects (…).

The exception of lack of jurisdiction of the Arbitral Tribunal raised by the Respondent is therefore unfounded, and the same is ruled to be without merit.

3.2. Imputability of the Acts Challenged

As regards the imputability of the acts challenged, the same considerations apply.

The Respondent alleges that the Claimant challenges certain installments of a unit tax value and that the installments of stamp duty of item 28.1 of the GTSD are not challengeable; what is challengeable is the annual assessment of such tax, since the tax is annual.

As has already been observed, it is not true that the Claimant challenges installments of the tax obligation. The Claimant challenges assessments of stamp duty.

The Claimant relies on the collection documents as proof of the assessment, which is something quite different.

Now, the collection documents do indeed prove the assessment.

And in any case it is not entirely correct to say that the documents in question do not embody the externalization of the assessment act, that is to say the document evidencing the act that reaches the knowledge of the taxpayer.

The collection document contains all the elements that the law requires for the notification of the assessment act. But this is, moreover, irrelevant. What is relevant is that the taxpayer challenges acts of assessment.

Therefore, the exception of unimpeachability of the acts challenged cannot stand.

What, however, should be noted, as regards the subject matter of the claim, is that we are dealing with several acts of assessment and not with a single act of assessment, as would be correct.

That we are dealing with several acts of assessment and not just one, as would be correct, is deduced from the fact that some tax debts are divided into installments while others are of a single installment. If we were dealing with a single assessment, the sole correct procedure, this disparity would not be possible.

The correct procedure, in light of the current Municipal Property Tax Code would be for the AT – Tax and Customs Authority to practice a single assessment, since the property is, as the Tax Administration states, only one, and stamp duty is incurred on the property, and not on the parts capable of independent use.

But that is not the reality that is the basis of this arbitral proceeding. We are, therefore, dealing with a request for annulment of several acts of assessment.

3.3. Applicability of Item 28.1 of the GTSD to the Present Case

The question of the applicability of item 28.1 to properties in total ownership composed of parts with independent use has already been the subject of numerous arbitral decisions, and it can be said that the case law emanating from them is firmly established (see proceedings 50/2013-T, 132/2013-T, 144/2013-T, 181/2013-T, 182/2013-T, 183/2013-T).

More recently, the Supreme Administrative Court ruled on this same question, in the judgment of 09-09-2015, delivered in proceeding No. 47/15, confirming the guidance that had been followed by the arbitral tribunals.

In this judgment, which we take as the basis of our decision in the present case, that Court ruled in the following terms:

"Taking into account that registration in the property matrix of properties in vertical ownership, for the purposes of the Municipal Property Tax Code, follows the same registration rules for properties constituted in horizontal ownership, and that the respective Municipal Property Tax, as well as the new Stamp Duty, are assessed individually in relation to each of the parts, it does not seem, (…), that there is any doubt that the legal criterion for defining the incidence of the new tax must be the same.

In this context, if the law requires, with respect to the Municipal Property Tax, the issuance of individualized assessment notices for the autonomous parts of properties in vertical ownership, in the same manner as it establishes for properties in horizontal ownership, it will require, in the same terms, with respect to the rule of incidence of Item No. 28 of the GTSD.

Whereby, the Stamp Duty, within the scope of Item No. 28 of the GTSD, could only be incurred on a determined fraction if such fraction, possibly, had a tax patrimonial value greater than € 1,000,000.00.

And, furthermore, it was also this understanding adopted by the TCA.

Indeed, the latter (TCA) also issued individualized assessment notices, relating to each of the fractions capable of autonomous use, demonstrating that, in its opinion, the aforementioned fractions, although not legally constituted in horizontal ownership, would, for all purposes, be independent of one another.

However, the TCA overlooked that it could not, by virtue of the framework previously set forth, proceed to the sum of the individual tax patrimonial values of the aforementioned fractions, aiming at a value that would already fall within the basis of incidence of Item No. 28 of the GTSD.

This when the legislator itself established a different rule within the scope of the Municipal Property Tax Code which, as previously mentioned, is the Code applicable to matters not regulated in the Stamp Duty Code, with respect to Item No. 28 of the GTSD.

In summary, the criterion established by the TCA, of considering the value of the sum of the individual tax patrimonial values attributed to the parts, floors or divisions with independent use, using the fact that the property is not constituted in the regime of horizontal ownership, does not find, in the eyes of this tribunal, legal sustenance, and is notably contrary to the criterion applicable in the context of the Municipal Property Tax and, by referral (in the terms mentioned above), in the context of Stamp Duty.

In this context, this tribunal considers that the criterion defended by the TCA violates the principles of legality and tax equality, and as well as that of the prevalence of material truth over formal legal reality.

In parallel, note that Article 12, section 3 of the Municipal Property Tax Code does not make any distinction regarding the regime of properties that are in horizontal or vertical ownership.

As such, and since if the property were in a regime of horizontal ownership, none of its residential fractions would suffer incidence of the new tax, the TCA cannot treat materially equal situations in a different manner."

In summary, the doctrine of the Supreme Administrative Court in this matter is that to treat differently, within the scope of Stamp Duty, fractions in horizontal ownership and parts of property in total ownership would correspond to treating materially identical situations differently, which is not permitted in light of the principle of tax equality. Furthermore, the Tax and Customs Authority itself implicitly recognizes that the two realities are identical, when it assesses Stamp Duty on the parts individually and not on the property as a whole.

But the Tribunal further adds:

"(…) The present subject matter is, from the outset by virtue of Article 67, section 2 of the Stamp Duty Code, subject to the norms of the Municipal Property Tax Code, - 'for matters not regulated in this Code relating to item 28 of the General Table, the Municipal Property Tax Code shall apply subsidiarily'.

As such, and as has been mentioned so many times, in the understanding of this tribunal, the mechanism for calculating the tax patrimonial value relevant for the purposes of the aforementioned item is that which is established in the Municipal Property Tax Code.

Now, Article 12, section 3 of the Municipal Property Tax Code establishes that 'each floor or part of property capable of independent use is considered separately in the property registration, which also discriminates its respective tax patrimonial value'.

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

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

It should be noted that the TCA itself seems to agree with the criterion set forth, which is why the assessments that it itself issues are very clear in their essential elements, from which it results that the value of incidence is the one corresponding to the tax patrimonial value of each of the floors and the individualized assessments.

Therefore, 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 clearly established the criterion, which must be unique and unambiguous, for the definition of the rule of incidence of the new tax.

Thus, there would only be a place for the incidence of Stamp Duty (within the scope of Item No. 28 of the GTSD) if any of the parts, floors or divisions with independent use presented a tax patrimonial value greater than € 1,000,000.00.

The TCA cannot consider as the reference value for the incidence of the new tax the total value of the property, when the legislator itself established a different rule under the Municipal Property Tax Code (and, as previously mentioned, this is the Code applicable to matters not regulated regarding Item No. 28 of the GTSD).

In conclusion, the current legal regime does not impose the obligation to constitute horizontal ownership, whereby the conduct of the TCA translates into an arbitrary and illegal discrimination.

Indeed, the TCA cannot distinguish where the legislator itself understood not to do so, under pain 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 in question, the property/properties in question was/were, at the relevant date of the facts, constituted in total ownership and had […] fractions with independent use, as is evident from the documents […].

Given that none of these fractions has a tax patrimonial value equal to or greater than € 1,000,000.00, as is evident from the documents attached to the file, it is concluded that the legal requirement for incidence is not met."

It is this doctrine that is also accepted here, in consonance with the entire vast and unanimous prior arbitral case law, whereby it is necessary to conclude that the assessments of stamp duty challenged are illegal, for violation of the tax law, in that they are incurred on independent parts of properties in total ownership but taking as their basis the tax patrimonial value of the sum of such parts.

IV. DECISION

For the reasons set forth:

The request for annulment of the acts of assessment challenged is ruled entirely well-founded;

The value of the economic benefit of the proceeding is fixed at 7,029.73 euros.

Costs: Pursuant to Article 22, section 4, of the LFTA, the amount of costs is fixed at 612.00 euros, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Respondent.

Let this arbitral decision be registered and notified to the parties.

Lisbon, Administrative Arbitration Centre, 30 November 2015

The Arbitrator

(Nina Aguiar)

Frequently Asked Questions

Automatically Created

How is Stamp Tax (Imposto de Selo) calculated under Verba 28.1 of the TGIS for properties with multiple independent units?
Stamp Tax under Verba 28.1 of the TGIS is calculated on urban residential properties with a patrimonial value equal to or exceeding €1,000,000. The central controversy in Process 340/2015-T concerns properties in total ownership with multiple independent units. The Tax Authority calculates the tax by aggregating the patrimonial values of all residential units within the property, applying the tax when the aggregate exceeds €1 million. However, taxpayers argue that calculation should treat each independent unit separately, referencing Article 4 of the Municipal Property Tax Code (Código do IMI), which defines autonomous parts capable of independent use as separate properties for tax purposes. The rate applied is 1% annually on the patrimonial value exceeding the €1 million threshold, with payment typically divided into three installments.
Can the Tax Authority aggregate the patrimonial values of individual housing units to exceed the €1,000,000 threshold for Stamp Tax purposes?
The Tax Authority's position in Process 340/2015-T affirms that patrimonial values of individual housing units within properties held in total ownership can be aggregated to exceed the €1,000,000 threshold for Stamp Tax purposes under Verba 28.1. The Authority argues that the determining factor is the total patrimonial value of the property as a whole, not each independent part separately. This interpretation is based on the unity of urban property in vertical division, maintaining that procedural autonomization of independent units for assessment and registration purposes does not equate total ownership with horizontal property regimes. The Authority contends that civil law distinctions between ownership regimes must be respected per Article 11(2) of the General Tax Law, and that disaggregating the tax base unit-by-unit would violate tax legality principles. Taxpayers challenging this interpretation argue it contradicts constitutional tax equality and the rationale of taxing properties demonstrating exceptional taxable capacity.
What are the rights of heirs in an undivided inheritance (herança indivisa) when challenging Stamp Tax assessments before CAAD?
Heirs in an undivided inheritance (herança indivisa) have full standing to challenge Stamp Tax assessments before the Administrative Center for Tax Arbitration (CAAD) under the Legal Framework for Tax Arbitration (RJAT - Decree-Law 10/2011). In Process 340/2015-T, the head of the indivise estate (cabeça de casal) represented the inheritance to contest stamp duty assessments on inherited property. The arbitral request must be submitted within the legal deadline pursuant to Articles 2(1)(a) and 10 of the RJAT, seeking annulment of tax assessment acts. Heirs can challenge assessments through tax arbitration as an alternative to judicial courts, with proceedings typically completed within six months. The tribunal examines jurisdictional issues, including whether collection notes versus assessment acts are properly challengeable. Heirs must demonstrate legal personality, capacity, and proper representation. The RJAT procedure offers advantages including specialized tax expertise, faster resolution than traditional courts, and potentially lower costs, making it particularly valuable for inheritance estates contesting complex property tax issues.
Does Verba 28.1 of the Tabela Geral do Imposto de Selo apply to each independent unit separately or to the property as a whole?
This question represents the core legal controversy in Process 340/2015-T. The Tax Authority's position is that Verba 28.1 applies to the property as a whole when held in total ownership, meaning the patrimonial values of all residential units are aggregated to determine if the €1,000,000 threshold is exceeded. The Authority argues that properties in total ownership maintain unity despite containing multiple floors or divisions capable of independent economic use, and that civil law distinctions between total ownership and horizontal property regimes must be respected. Conversely, taxpayers argue that Verba 28.1 should apply to each independent unit separately, citing the Municipal Property Tax Code (IMI Code) Articles 2, 4, and 6, which define autonomous parts capable of independent use as individual properties. They contend that nothing in the IMI Code allows discrimination between horizontal ownership and total ownership properties, and that autonomous parts should be treated as separate residential properties. The taxpayer position emphasizes that the tax's rationale is targeting individual properties demonstrating exceptional taxable capacity, not aggregating multiple modest-value units to artificially reach the threshold.
What is the arbitral procedure under Decree-Law 10/2011 (RJAT) for contesting Stamp Tax liquidations on urban properties?
The arbitral procedure under Decree-Law 10/2011 (RJAT) for contesting Stamp Tax liquidations on urban properties follows these steps: (1) Submit an arbitral request within the legal deadline to CAAD, identifying the contested acts and legal grounds, pursuant to Articles 2(1)(a) and 10 of the RJAT; (2) The arbitral tribunal is constituted within 15 days, either by party agreement on an arbitrator or by designation from CAAD's Ethics Council per Article 11; (3) The Tax Authority files a response addressing both preliminary issues (jurisdiction, impeachability, standing) and substantive matters; (4) An optional Article 18 meeting may be held, though parties can agree to waive it; (5) A final submissions phase may occur unless dispensed with by agreement; (6) The tribunal examines preliminary issues including its own jurisdiction ratione materiae, parties' legal personality and representation, and procedural regularity; (7) The tribunal then decides the merits, issuing a reasoned decision within six months of constitution. In Process 340/2015-T, the tribunal was constituted on May 21, 2015, following a claim filed on May 29, 2015, contesting 2014 stamp duty assessments. The procedure provides an expedited alternative to traditional judicial review with specialized tax law expertise.