Process: 351/2014-T

Date: November 20, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Process 351/2014-T addresses a critical question in Portuguese tax law: whether Stamp Duty (Imposto do Selo) under Item 28.1 of the General Stamp Tax Table applies to properties held in vertical ownership (propriedade vertical) rather than horizontal property (propriedade horizontal). Item 28.1, introduced by Law 55-A/2012, imposes Stamp Tax on urban residential properties with taxable property values of €1,000,000 or more, intended to tax luxury real estate. The taxpayer challenged a €3,796.66 assessment, arguing that the Tax Authority (AT) erroneously applied the €1,000,000 threshold to the entire building's aggregate value rather than to each individual floor or unit. The claimant contended that since the property operates under vertical ownership—not horizontal property regime—and no individual unit reaches €1,000,000 in taxable value, the assessment lacks a fundamental legal prerequisite and is void. The taxpayer emphasized that Article 2(4) of the Property Tax Code only recognizes horizontal property units as autonomous properties for tax purposes, and that applying Item 28.1 to the aggregate value of vertically-owned properties violates principles of legality, tax equality, and the prevalence of substantive truth. The Tax Authority countered that properties should be considered in their entirety for Stamp Duty purposes, arguing that only horizontal property units constitute separate properties under the Property Tax Code, and that Item 28.1 taxes properties as unified legal-tax entities. The AT maintained that no constitutional equality violation exists. This arbitration proceeding demonstrates taxpayers' right to challenge Stamp Tax assessments through CAAD under Decree-Law 10/2011, providing an alternative dispute resolution mechanism for tax controversies involving complex property law and tax incidence questions.

Full Decision

ARBITRAL DECISION

Claimant: A...

Respondent: Tax and Customs Authority.

I – REPORT

  1. On 22 April 2014, the taxpayer A..., Head of Estate of B..., with tax identification number …, requested the constitution of an arbitral tribunal, pursuant to articles 2 and 10 of Decree-Law no. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to only as "LRAT").

  2. The request for constitution of the arbitral tribunal was accepted by the Honourable President of CAAD on 24 April 2014 and notified to the Tax and Customs Authority (hereinafter referred to as "TCA" or the "Respondent") on 29 April 2014.

  3. The Claimant seeks the determination of the Arbitral Tribunal with a view to declaring the nullity of the tax acts that constitute its object, relating to the assessment of Stamp Duty (SD) in the amount of € 3,796.66 (three thousand seven hundred and ninety-six euros and sixty-six cents).

  4. In the request for arbitral determination, the Claimant chose not to appoint an arbitrator. Pursuant to paragraph (a) of article 6, section 2, and paragraph (b) of article 11, section 1, of the LRAT, with the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council of CAAD appointed as arbitrator of the singular arbitral tribunal the Honourable Dr. Olívio Mota Amador who, within the applicable period, communicated acceptance of the appointment.

  5. The parties were notified on 20 June 2014 of the appointment of the arbitrator and did not express any intention to challenge the appointment of the arbitrator, pursuant to the combined provisions of article 11, section 1, paragraphs (a) and (b) of the LRAT and articles 6 and 7 of the Code of Ethics.

  6. In accordance with paragraph (c) of article 11, section 1, of the LRAT, with the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the Arbitral Tribunal was constituted on 7 July 2014.

  7. On 24 September 2014, the Respondent, duly notified for this purpose, submitted its Reply. On the same date it submitted a request seeking exemption from the meeting provided for in article 18 of the LRAT and waiving the conduct of oral arguments.

  8. By order of 26 September 2014, the Arbitral Tribunal granted a period of five days for the Claimant to pronounce itself on the request identified in the preceding section; if the Claimant disagreed or did not pronounce itself, the meeting provided for in article 18 of the LRAT would be held on the date previously established.

  9. On 10 October 2014, at 16:00, in the facilities of CAAD, the meeting provided for in article 18 of the LRAT was held, with the attendance of the appointed arbitrator and the representative of the Claimant. The representatives of the Respondent communicated that they could not attend but did not oppose the holding of the meeting.

  10. Both parties waived the conduct of oral arguments.

  1. The position of the Claimant, in accordance with the provisions in the petition for constitution of the Arbitral Tribunal, is, in summary, as follows:

11.1. There is a manifest absence of one of the legal prerequisites of the tax fact in the assessments in question, rendering them void. If this is not accepted, subsidiarily, the assessment of SD to which the present request relates suffers from error, both as to the factual prerequisites and as to the rate applicable to the tax in question.

11.2. The property in question is not constituted in horizontal property regime, therefore the assessment cannot relate to each of the autonomous units, on pain of error as to the factual prerequisites. Furthermore, the legal requirement relating to the taxable property value contained in Item 28 of the General Table of Stamp Duty (GTSD) would not be satisfied, since none of the units subject to assessment reaches the taxable property value of € 1,000,000.00 as provided for in the cited legal rule.

11.3. The law itself expressly establishes, at the end of Item 28 of the GTSD, that the SD to be assessed on urban properties of value equal to or greater than € 1,000,000.00 – "based on the taxable property value used for purposes of IMI". Thus, the adoption of the criterion defended by the TCA manifestly violates the principles of legality and tax equality, as well as the principle of prevalence of material truth over legal-formal reality.

11.4. The legislator in introducing the rule of Item 28 of the GTSD through Law no. 55-A/2012, of 29 October, considered as the determining element of taxpaying capacity urban properties with residential allocation of high value (luxury), more precisely of value equal to or greater than € 1,000,000.00 on which a special SD rate began to apply, intending to introduce a principle of taxation on wealth externalized in the ownership, usufruct or surface right of urban luxury properties with residential allocation. Therefore, the criterion was the application of the new rate to urban properties with residential allocation whose TPV is equal to or greater than € 1,000,000.00.

11.5. The incidence of the new stamp duty would only occur if any of the units, floors or divisions with independent use presented a Taxable Property Value (TPV) exceeding € 1,000,000.00, which does not occur. 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 Property Tax Code (PTC) and this is the code applicable to matters not regulated regarding Item 28 of the GTSD.

11.6. The rule of article 12, section 3, of the PTC reveals for purposes of registration in the property register the autonomy that, within the same property, can be attributed to each of its parts, economically and functionally independent. Now this appears inconsistent with the TCA's decision to tax the residential portions of a property in vertical ownership based on the global TPV of the property and not on what is actually attributed to each part. The TCA cannot distinguish between the two situations (horizontal and vertical ownership) where the legislator did not.

11.7. Each of the TPVs of the floors (autonomous units) of the property with residential allocation is less than € 1,000,000.00. On them cannot be assessed the SD referred to in Item no. 28 of the GTSD, therefore the disputed assessment acts are illegal.

11.8. The Claimant requests the right to indemnity interest or compensation for damages resulting from the possible provision of guarantee. Thus, within the scope of the present proceedings, the TCA should be sentenced to reimburse the Claimant for all amounts that may be incurred by virtue of the request for suspension of executions that may be instituted, with the expenses resulting from the provision of guarantees, specifically, commissions relating to their issuance, rates, interest and other bank charges to be quantified as soon as actually determined.

  1. The position of the Respondent, expressed in the reply, may be summarized as follows:

12.1. For purposes of SD, the property is considered in its entirety, since divisions susceptible to independent use are not deemed to be property, but only autonomous units under the horizontal property regime, as provided for in section 4 of article 2 of the PTC.

12.2. The entry into force of the vertical property regime (Civil Code of 1966) and its express reference in the delimitation of the concept of property provided for in article 2, section 4, of the PTC determine the relevance of such figure in matters of tax incidence.

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

12.4. The TCA understands that the provision of Item 28.1 of the GTSD does not constitute any violation of the constitutional principle of equality because there is no discrimination in the taxation of properties constituted in horizontal property regime and properties in full ownership with floors or divisions susceptible to independent use or between properties with residential allocation and properties with other allocations.

12.5. Item 28.1 of the GTSD applies to ownership, usufruct or surface right of urban properties with residential allocation, whose taxable property value contained in the register, pursuant to the PTC, is equal to or greater than € 1,000,000.00. This is a general and abstract rule applicable indistinctly to all cases in which the respective factual and legal prerequisites are verified.

12.6. Indeed, constitution in horizontal property regime determines the division/splitting of full ownership and the independence or autonomy of each of the units that constitute it, for all legal purposes, pursuant to section 2 of article 4 of the PTC and articles 1414 et seq. of the Civil Code, whereas a property in full ownership constitutes, for all purposes, a single legal-tax reality.

12.7. Taxation for SD purposes complies with the criterion of adequacy to the extent that it aims at the taxation of wealth embodied in the ownership of immovable property of high value, arising in a context of economic crisis that cannot be ignored.

12.8. The option for this mechanism of revenue generation is justified, being applicable indistinctly to all holders of immovable property with residential allocation of value exceeding € 1,000,000.00.

12.9. As to the Claimant's request for indemnity interest, the Respondent understands that the request is inchoate in its content and insufficient for the tribunal to decide upon it.

II – SANITATION (JURISDICTIONAL EXAMINATION)

  1. The arbitral tribunal is materially competent and is regularly constituted pursuant to articles 2, section 1, paragraph (a), 5, section 2, and 6, section 1 of the LRAT. The parties have legal capacity and standing, are legitimate and are duly represented, pursuant to articles 4 and 10 of the LRAT and article 1 of Regulation no. 112-A/2011 of 22 March. The case does not suffer from any defects that would invalidate it. Accordingly, there is no obstacle to the examination of the merits of the case.

III – FACTUAL MATTER

  1. Facts Found Proven

14.1. Based on the documentary evidence attached to the file, the following facts are considered proven:

A) The Claimant is the head of the indivisible estate opened by the death of B..., in accordance with the deed of heirship executed on 9 February 2010, at the Notarial Office of ..., a copy of which is attached as document no. 1 to the petition for constitution of the Arbitral Tribunal.

B) The indivisible estate referred to in the preceding subparagraph consists of the urban property located at Avenue ..., numbers ..., ... A, ... B, ... C, ... D and ... E turning onto Street ... number ..., registered on 27 September 2010, by dissolution of marital community and succession in the name of the Claimant and the three children of the couple, in accordance with a copy of the property register certificate, attached as document no. 2 to the petition for constitution of the Arbitral Tribunal.

C) The property identified in the preceding subparagraph is composed of ground floor and four stories with various floors susceptible to independent use, being registered in the urban property register of the parish of ... in Lisbon, under property registration article U-… and has a taxable property value of €1,114,850.00 (one million one hundred fourteen thousand eight hundred fifty euros).

D) The said property is not constituted under the horizontal property regime.

E) Each of the independent floors has a taxable property value attributed, determined pursuant to the provisions of the PTC, ranging between €48,240.00 (forty-eight thousand two hundred forty euros) and €65,840.00 (sixty-five thousand eight hundred forty euros).

F) The sum of the taxable property values of all the floors totals €1,114,850.00 (one million one hundred fourteen thousand eight hundred fifty euros), which constitutes the taxable property value of the property.

G) On 17 March 2014, the following SD assessments were issued by the Finance Service of Lisbon-…, relating to the property in question and to the year 2013, which are attached to the petition for constitution of the Arbitral Tribunal, the contents of which are hereby reproduced:

i) Assessment no. 2014 … relating to article U-…-R/c-E, in the amount of €192.18.

ii) Assessment no. 2014 … relating to article U-…-R/c D, in the amount of €241.20.

iii) Assessment no. 2014 … relating to article U-…-1E-…, in the amount of €201.00.

iv) Assessment no. 2014 … relating to article U-…-1D-…, in the amount of €217.30.

v) Assessment no. 2014 … relating to article U-…-2E-…, in the amount of €201.00.

vi) Assessment no. 2014 … relating to article U-…-2D-…, in the amount of €217.30.

vii) Assessment no. 2014 … relating to article U-…-3E-…, in the amount of €203.04.

viii) Assessment no. 2014 … relating to article U-…-3D-…, in the amount of €219.48.

ix) Assessment no. 2014 … relating to article U-…-4E-…, in the amount of €203.04.

x) Assessment no. 2014 … relating to article U-…-4D-…, in the amount of €219.48.

xi) Assessment no. 2014 … relating to article U-…-1E-…, in the amount of €217.30.

xii) Assessment no. 2014 … relating to article U-…-1D-…, in the amount of €201.00.

xiii) Assessment no. 2014 … relating to article U-…-2E-…, in the amount of €217.30.

xiv) Assessment no. 2014 … relating to article U-…-2D13, in the amount of €201.00.

xv) Assessment no. 2014 … relating to article U-…-3E-13, in the amount of €219.48.

xvi) Assessment no. 2014 … relating to article U-…-3D-13, in the amount of €203.04.

xvii) Assessment no. 2014 … relating to article U-…-4E-13, in the amount of €219.48.

xviii) Assessment no. 2014 … relating to article U-…-4D-13, in the amount of €203.04.

14.2. The facts stated in the preceding section constitute undisputed matter and are documentarily demonstrated in the case file.

  1. Facts Not Proven

There are no facts relevant to the decision that have not been proven.

IV – LEGAL MATTER

  1. In light of the foregoing in the preceding sections, the first issue to be decided in the present proceedings is whether the floors with independent use in an urban property under full ownership are covered by the scope of incidence of Item 28.1 of the GTSD. The second issue to be decided concerns the recognition of compensation for the provision of guarantee.
  1. The factual matter is fixed (see, above, section 14) and we shall now determine the applicable law to the underlying facts in accordance with the issues already stated (see, above, section 16).
  1. The legal framework of this issue is as follows:

18.1. Item 28 was added to the GTSD by Law no. 55-A/2012, of 29 October and has the following wording:

"28 – Ownership, usufruct or surface right of urban properties whose taxable property value contained in the register, pursuant to the Property Tax Code (PTC), is equal to or greater than € 1,000,000 – based on the taxable property value used for purposes of IMI:

28.1 – For properties with residential allocation – 1%;

28.2 – For properties, when the taxpayers who are not natural persons are resident in a country, territory or region subject to a clearly more favourable tax regime, contained in the list approved by regulation of the Minister of Finance – 7.5%"

18.2. Law no. 55-A/2012, of 29 October added article 67 to the Stamp Duty Code which provides in section 2 of the following: "To matters not regulated in the present Code relating to Item no. 28 of the General Table, the provisions of the PTC shall apply, subsidiarily."

18.3. The PTC, in article 12, which is headed "Concept of property registers", provides in section 3: "Each floor or part of a property susceptible to independent use shall be considered separately in property registration, which also discriminates the respective taxable property value."

  1. It is verified, in accordance with the legal provisions cited previously, that the rule contained in the PTC implies the assessment of IMI individualized in relation to each one of the parts susceptible to independent use. This rule also applies to the assessment of SD. It is important to emphasize that the legal criterion that imposes the issuance of individualized assessments for the autonomous parts of properties is unique, with no differentiation between properties in horizontal ownership and properties in vertical ownership.
  1. The TCA considers that in properties in vertical ownership with floors or divisions susceptible to independent use, IMI is assessed in relation to each part susceptible to independent use, but for purposes of SD what matters is the property in its entirety. This criterion introduces a differentiation of regime that has no legal foundation and that contravenes the rule of the PTC, which also applies in SD matters due to the rule of reference in article 67, section 2, of the Stamp Duty Code.
  1. In accordance with the legally established criterion, SD shall be assessed under Item 28 of the GTSD only if any of the parts or divisions with independent use presents a TPV equal to or greater than € 1,000,000.00.
  1. Having regard to the factuality subject of the present arbitral proceedings (see, above, section 14.1, subparagraphs C), D), E) and F)), the property in question is under vertical ownership and none of the floors intended for residential use has a taxable property value equal to or greater than €1,000,000.00. Accordingly, it is concluded that the legal prerequisite for the incidence of SD provided for in Item 28 of the GTSD is not verified.
  1. The arbitrator in the present case rendered a decision in singular arbitral proceedings in case no. 281/2013-T on an issue identical to that presented in the present proceedings, having considered illegal the criterion used by the TCA in assessing SD, Item 28 of the GTSD, on vertical property and, consequently, held the claim to be well-founded.
  1. The submission of the same issue of merit in a new case can always result in the modification of the position previously adopted, because from the new adversarial process a deepening of the analysis and a reweighing of the legal matter may result.
  1. The present case file does not present elements that justify the alteration of the position that I subscribed to in the arbitral decision rendered in case no. 281/2013-T.
  1. Arbitral case law, through the Arbitral Decisions rendered in cases nos. 50/2013-T, 248/2013-T and 268-2013-T has pronounced itself on the illegality of the criterion used by the TCA in assessing SD, Item 28 of the GTSD, on vertical property and held the claims to be well-founded.
  1. The second issue to be decided concerns the recognition of compensation for the provision of guarantee by the Claimant.
  1. The Claimant in section 57 of the petition affirms: "In the event that the Claimant does not effect voluntary payment of the assessments in question, the competent tax enforcement proceedings will certainly be instituted." And continues in section 58: "If so, and for purposes of the suspension of tax enforcement proceedings arising from the assessments in question, the Claimant will request the provision of guarantee in the value legally provided for." For this reason, concludes in section 60: "Accordingly, within the scope of the present proceedings, the Tax Administration should be sentenced to reimburse the Claimant for all amounts that may be incurred by virtue of the request for suspension of executions that may be instituted, with the expenses resulting from the provision of guarantees, specifically, commissions relating to their issuance, rates, interest and other bank charges to be quantified as soon as actually determined."
  1. Pursuant to article 53 of the General Tax Code (GTC), the debtor who, to suspend execution, offers a bank guarantee or equivalent shall be compensated, wholly or partially, for the damages resulting from its provision, if he has maintained it for a period exceeding three years in the proportion of the outcome in administrative appeal, challenge or opposition to execution that have as their object the discussion of the legality or enforceability of the debt. The right to compensation provided for in article 53 of the GTC should be exercised pursuant to the provisions of article 171 of the Tax Procedural and Process Code (TPPC), that is, in the initial petition of the case in which the legality or enforceability of the debt is contested or, in the event that the fact from which the right to compensation emerges is subsequent, within thirty days after its occurrence.

In conclusion, the judicial challenge process covers the possibility of condemnation in the payment of undue guarantee.

  1. The request for constitution of the arbitral tribunal and for arbitral determination implies that in the arbitral proceedings the "legality of the executable debt" will be discussed, for which reason, as results from the express content of section 1 of article 171 of the TPPC, it is also the arbitral proceedings that are adequate to examine the claim for compensation for undue guarantee. (see, in this sense, Arbitral Decision in case no. 77/2012-T)
  1. Pursuant to article 74 of the GTC, following the provisions of article 342 of the Civil Code, "the burden of proof of the facts constituting the rights of the tax administration or of the taxpayers rests on those who invoke them." In the present proceedings in relation to the claim now under examination – compensation for guarantee unduly provided – there are no doubts that it is a right invoked by the Claimant, for which reason it is incumbent on the Claimant to prove the occurrence of the respective prerequisites.
  1. In the case under examination, it is verified that the Claimant formulated the compensatory claim in the initial petition for arbitral determination. It happens, however, that from the examination of the case file, the Claimant has not proven that it has provided a guarantee to suspend the tax enforcement proceedings instituted for the coercive collection of the debt whose legality is discussed in the present proceedings.
  1. In conclusion, this Tribunal is unaware of whether the competent tax enforcement proceedings were instituted and whether, in that context, the respective bank guarantees were provided, because the Claimant has not provided the proof incumbent upon it that the prerequisites for recognition of the right to compensation for undue guarantee are met. Accordingly, pursuant to articles 99, section 1, of the GTC and 13, section 1, of the TPPC, applicable by virtue of article 29, section 1, paragraph (a) of the LRAT, the powers of cognition of the Tribunal are limited to the facts alleged. Accordingly, since no fact has been alleged from which the compensatory right that the Claimant intends to avail itself may emerge, it is forbidden to this Arbitral Tribunal to examine it.
  1. The conclusion contained in the preceding section is also applicable, with the necessary adaptations, to indemnity interest. As to indemnity interest, the Claimant does not make an autonomous claim but merely refers to it in heading V of the petition for constitution of the Arbitral Tribunal. Indeed, article 24, section 5, of the LRAT provides that "payment of interest, irrespective of its nature, is due, in accordance with the terms provided for in the General Tax Code and the Tax Procedural and Process Code." In accordance with the provisions of article 43, section 1, of the GTC, the judicial challenge process admits condemnation of the TCA in the payment of indemnity interest when it is determined that there was error imputable to the services resulting in the payment of the tax debt in an amount exceeding that legally due. Only in the present case the Claimant has not proven that it proceeded to the payment of the tax in question and therefore the prerequisites for recognition of the right to indemnity interest are not met, which are not included in the claim but merely referred to in a heading of the petition for constitution of the Arbitral Tribunal.

V – DECISION

In accordance with the foregoing, it is decided:

a) To hold the claim for arbitral determination well-founded with the consequent annulment, with all legal effects, of the assessment acts nos. 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 ….

b) To hold the claim for compensation for undue provision of bank guarantee unfounded;

c) To sentence the Claimant and the Respondent to costs, in the proportion of the costs as fixed at one tenth for the Claimant and nine tenths for the Respondent.

The value of the case is fixed at € 3,796.66 (three thousand seven hundred ninety-six euros and sixty-six cents) pursuant to the provisions of article 97-A, section 1, paragraph (a), of the TPPC, applicable by virtue of paragraphs (a) and (b) of article 29, section 1 of the LRAT and section 2 of article 3 of the Regulation of Costs in Arbitration Proceedings in Tax Matters.

The arbitration fee is fixed at €612.00 (six hundred twelve euros), pursuant to Table I of the Regulation of Costs of Arbitration Proceedings in Tax Matters (RCAPNTM), to be paid by the Claimant and the Respondent in the indicated proportion, pursuant to articles 12, section 2, 22, section 4, of the LRAT and 4, section 4, of the cited Regulation.

Let notice be given.

Lisbon, Administrative Arbitration Centre, 20 November 2014

The arbitrator

Olívio Mota Amador