Process: 356/2016-T

Date: November 4, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 356/2016-T) addresses the application of Stamp Tax under item 28.1 of the General Stamp Tax Schedule (TGIS) to properties held in vertical ownership with multiple independent residential units. The taxpayer challenged stamp tax assessments totaling €4,337.08, arguing that the €1,000,000 threshold should apply to each autonomous unit separately rather than the global property value. The claimant contended that distinguishing between horizontal and vertical ownership lacks legal basis, as Article 2(4) of the Municipal Property Tax Code (CIMI) treats autonomous units in horizontal ownership as separate properties for tax purposes. The same principle should apply to vertical ownership, where none of the individual units exceeded €1,000,000. The Tax Authority defended the assessments, arguing that for properties in total ownership, the relevant value is the global property value of the entire building, which exceeded €1,000,000 for residential portions. The case raises fundamental questions about the interpretation of item 28 TGIS, the relationship between CIMI valuation rules and stamp tax liability, the treatment of vertical versus horizontal ownership for tax purposes, and the availability of compensatory interest when tax assessments are challenged through arbitration. The arbitral tribunal examined whether the legislative reference to CIMI in Article 67(2) of the Stamp Tax Code requires consistent treatment of autonomous units regardless of ownership structure. The taxpayer sought annulment of the assessments, restitution of €2,838.70 allegedly overpaid, and compensatory interest at the legal rate from payment until full restitution.

Full Decision

ARBITRATION AWARD

I – REPORT

1.1. A… (hereinafter referred to as the "Claimant") – domiciled at Rua …, …, …, …-… Porto, with Tax Identification Number …, and in the capacity of legal representative of an undivided estate with Tax Identification Number … – having been notified of the assessment notices for Stamp Tax (IS) in the total amount of €4,337.08, filed, on 29/6/2016, a petition for constitution of an arbitral tribunal and for an arbitration award, pursuant to Article 99 of the Code of Tax Procedure and Process and Articles 2(1)(a) and 10(2)(c) of Decree-Law no. 10/2011 of 20/1 (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as "LFATM"), in which the Tax and Customs Authority (TCA) is named as respondent, seeking that it be declared "the illegality of all acts of stamp tax assessment that are the subject of the present challenge, as well as their annulment and the restitution of the sum of €2,838.70 unduly paid, as well as condemning the TCA to pay compensatory interest at the legal rate on the sum paid, from the date of its payment until full restitution, at the legal rate in force, with all legal consequences, as well as the court fee paid."

1.2. On 19/9/2016, the present Singular Arbitral Tribunal was constituted.

1.3. Pursuant to Article 17(1) of the LFATM, the TCA was cited as respondent party to submit its response, in accordance with and for the purposes of the aforementioned article. The TCA submitted its response on 28/10/2016, arguing, in summary, for the total lack of merit of the Claimant's petition.

1.4. By order of 31/10/2016, the Tribunal considered, pursuant to Article 16(c) of the LFATM, that the meeting referred to in Article 18 of the LFATM was unnecessary, and that the case was ready for decision. Furthermore, the date of 4/11/2016 was set for delivery of the arbitration award.

1.5. The Arbitral Tribunal was duly constituted, is materially competent, the case does not suffer from defects that would invalidate it, and the Parties have standing and legal capacity, being properly constituted.

II – SUBMISSIONS OF THE PARTIES

2.1. The Claimant submits, in its initial petition, that: a) "the stamp tax at issue is not due, since the urban property concerns a group of independent units of separate use, but in vertical or total ownership"; b) "item 28.1 of the General Schedule of Stamp Tax was established for properties with residential designation that present a taxable property value exceeding €1,000,000.00"; c) "there being doubt as to the scope of said item, it is therefore justified to observe what the Code on Municipal Property Tax (CMPT) states. From reading the CMPT it is understood that the concept of property with residential designation refers, naturally, to the concept of urban property that is defined in Articles 2 and 4. Additionally, it is found that the determination of Taxable Property Value (TPV) is governed by Articles 38 et seq. of the same Code"; d) "while it is true that Article 2(4) of the CMPT states that, 'for purposes of this tax, each autonomous unit, in the regime of horizontal ownership, is deemed to constitute a property,' it is equally true that there is nothing in the law pointing to discrimination between properties in horizontal and vertical ownership as regards their identification as 'residential urban properties'"; e) "from this it is concluded that autonomous parts of properties in vertical ownership with residential designation should be considered as 'residential urban properties'"; f) "to distinguish, in this context, between properties constituted in horizontal and total ownership has no legal basis, especially since nothing indicates, neither in item no. 28 of the General Schedule of Stamp Tax, nor in the CMPT, justification for that particular differentiation"; g) "the uniform criterion that is required is, therefore, that which provides that the application of the rule at issue only takes place when any of the parts, floors or divisions with independent use of property in horizontal or total ownership, with residential designation, has a TPV exceeding €1,000,000.00"; h) "setting as the reference value for the application of the new tax the global TPV of the property at issue finds no basis in the applicable legislation, which is the CMPT, given the referral made by the aforementioned Article 67(2) of the Stamp Tax Code"; i) "in this case, it is found that, as the Claimant notes, 'the TPVs of the independent units with residential designation are all of value less than €1,000,000.00.' From this it is concluded that upon them the stamp tax referred to in item no. 28 of the General Schedule of Stamp Tax should not be imposed, being therefore illegal the assessment acts here contested"; j) "the Claimant proceeded to pay the aforementioned assessment notices on 20/04/2016 [...]. [...] in light of all the foregoing, the Claimant here deems it verified [that there is 'excessive tax payment that should be refunded by the TCA with due legal interest']. Wherefore [...] compensatory interest accrues in favor of the taxpayer Claimant [...] which is hereby requested to be paid in full to the Claimant herein."

2.2. In conclusion, the Claimant requests "full acceptance of the petition, being consequently declared the illegality of all acts of stamp tax assessment that are the subject of the present challenge, as well as their annulment and the restitution of the sum of €2,838.70 unduly paid, as well as condemning the TCA to pay compensatory interest at the legal rate on the sum paid, from the date of its payment until full restitution, at the legal rate in force, with all legal consequences, as well as the court fee paid."

2.3. For its part, the TCA submits, in its response: a) that "the property was assessed taking into account its residential and commercial destination"; b) that, "for the calculation of TPV, the coefficient varies according to its destination and, the taxable property value for the portions intended for residential use being superior to €1,000,000.00, the coefficient of allocation applied was 1.00 and 1.20 to the portions allocated to commerce"; c) that, "being this the property registry information, in accordance with Article 23(7) of the Stamp Tax Code, the stamp tax assessment at issue was carried out by the Tax Administration taking into account the nature of the urban property, namely its portions allocated to residential use, on the date of the tax event, applying, with the necessary adaptations, the rules contained in the CMPT"; d) that, "taking into account the property registry information contained in the property registry card, the Claimant fails, with the documents currently submitted to the record, to prove that contradicts the nature of the portions with residential character. Therefore, the stamp tax assessments contested were issued in accordance with the information contained in the property registry card of the property, and therefore are valid and do not suffer from any illegality"; e) that "what is at issue here are assessments resulting from the direct application of the legal rule, which translates into objective elements, without any subjective or discretionary evaluation"; f) that, "as regards the IMI [Municipal Property Tax] assessment, being properties in total ownership, the PV [Property Value] that serves as the basis for its calculation will indisputably be the PV that the Claimant here defines as 'global value of the property'"; g) that, "in compliance with Article 119(1) of the CMPT, the tax bill is sent to the taxpayer with a breakdown of the parts susceptible to independent use, their respective taxable property value and the tax amount attributable to each municipality of the location of the properties. And the assessment being correct and the tax calculated being due, compensatory interest is not due, firstly because there is no error attributable to the Services, which merely acted, as they should, in strict compliance with the legal rule"; h) that "one cannot conclude by an alleged discrimination in violation of the principle of equality when, in truth, we are faced with distinct realities, valued by the legislator in a different manner"; i) that "item 28 of the General Schedule of Stamp Tax does not suffer from any unconstitutionality, with no violation of the constitutional principles governing tax law, specifically, the principles of tax equality, taxpaying capacity and proportionality. Thus, the TCA understands that the provision of item 28 of the General Schedule of Stamp Tax does not constitute any violation of the principle of equality in Article 13 of the Portuguese Constitution."

2.4. In conclusion, the TCA considers that "the present petition for arbitration award should be dismissed as not proven, maintaining in the legal order the tax assessment acts being challenged, absolving accordingly the respondent entity of the petition."

III – PROVEN FACTS, UNPROVEN FACTS AND RESPECTIVE JUSTIFICATION

3.1. The following facts are deemed proven:

i) At issue is the assessment of Stamp Tax carried out under item 28.1 of the General Schedule of Stamp Tax, added by Article 4 of Law no. 55-A/2012 of 29/12, relating to the year 2015 and to a property in the regime of vertical or total ownership, with urban property registry number … of the parish of … (former article … of the parish of …), municipality and district of Lisbon, in the amount of €4,337.08.

ii) The Claimant is the head of household of the undivided estate owning part of the aforementioned urban property. The urban property at issue has a total taxable value of €3,469,628.83 (see document 1 attached to the record), consisting of 14 floors and 22 units of independent use (all with TPVs, contained in the attached property registry cards – see document 1 attached to the record – of value less than €1,000,000.00).

iii) The Claimant was notified of the aforementioned assessment, the amount to be paid in the month of April 2016 being €2,838.70. This amount was paid by the Claimant on 20/4/2016.

iv) Disagreeing, the Claimant filed the present petition for arbitration award on 29/6/2016.

3.2. There are no proven facts relevant to the decision of the case that remain unproven.

IV – ON THE LAW

In the case now under analysis, the essential questions that arise are: 1) whether subjection to IS, pursuant to item no. 28 of the General Schedule of Stamp Tax, is determined by the TPV corresponding to each of the parts of the property with residential designation, or whether, conversely, it is determined by the global TPV of the property, which would correspond to the sum of all the TPVs of the floors or independent units that compose it; 2) whether, as the TCA invokes, item no. 28 "does not suffer from any unconstitutionality, with no [...] violation [...] of the principles of tax equality and taxpaying capacity"; 3) whether the requested compensatory interest is due.

Let us examine this then.

  1. At the origin of the first question is item no. 28 of the General Schedule of Stamp Tax, added by Article 4 of Law no. 55-A/2012 of 29/10, which provides as follows:

"28 – Ownership, usufruct or right of surface of urban properties whose taxable property value contained in the registry, pursuant to the Code on Municipal Property Tax (CMPT), is equal to or exceeding € 1,000,000.00 – on the taxable property value for purposes of IMI: 28.1 – For property with residential designation – 1%. 28.2 – For property, when the taxpayers that are not natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by order of the Minister of Finance – 7.5%."

Law no. 55-A/2012, which entered into force on 30/10/2012, did not qualify the concepts contained in said item no. 28, in particular the concept of "property with residential designation." However, observing what Article 67(2) of the Stamp Tax Code (STC), also added by the aforementioned Law no. 55-A/2012, provides, it is found that "to matters not regulated in the present code relating to item 28 of the General Schedule shall be applied subsidiarily the CMPT." There being doubt as to the scope of said item, it is therefore justified to observe what the CMPT states.

From reading the CMPT it is understood that the concept of "property with residential designation" refers, naturally, to the concept of "urban property" that is defined in Articles 2 and 4. For its part, it is found that the determination of TPV is governed by Articles 38 et seq. of the CMPT.

Among the various types of "urban properties" (Article 6), mention is expressly made of "residential urban properties" [see no. 1(a)], adding then, Article 6(2) of the same CMPT, that these "are buildings or constructions licensed for such purpose or, in the absence of a license, that have as their normal destination each of these purposes."

If it is true that Article 2(4) of the CMPT states that, "for purposes of this tax, each autonomous unit, in the regime of horizontal ownership, is deemed to constitute a property," it is equally true that there is nothing in the law pointing to discrimination between properties in horizontal and vertical ownership as regards their identification as "residential urban properties." From this it is concluded that autonomous parts of properties in vertical ownership with residential designation should be considered as "residential urban properties."

In effect, it makes no sense to distinguish in the law what the law itself does not distinguish (where the law does not distinguish, neither should we). In effect, nothing indicates, neither in item no. 28, nor in the provisions of the CMPT, justification for that particular differentiation. Note in this regard what Article 12(3) of the CMPT provides: "each floor or part of a property susceptible to independent use is considered separately in the property registry inscription, which also discriminates its respective taxable property value."

The uniform criterion that is required is, therefore, that which determines that the application of the rule at issue only takes place when any of the parts, floors or divisions with independent use of a property in horizontal or total ownership with residential designation, has a TPV exceeding €1,000,000.00. Setting as the reference value, for the application of the new tax, the global TPV of the property at issue finds no basis in the applicable legislation, which is the CMPT, considering the referral made by the aforementioned Article 67(2) of the STC.

Thus, observing the case now under analysis, it is found that, as the Claimant notes, "the TPVs of the independent units with residential designation are all of value less than €1,000,000.00." From this it is concluded, in light of what was stated above, that upon them the IS referred to in item no. 28 of the General Schedule of Stamp Tax should not be imposed, being consequently illegal the assessment acts contested by the Claimant herein.

In effect, and as correctly noted in the Arbitration Award issued in case no. 552/2015-T of 27/1/2016, in a case identical to the one now under analysis, "the principal question brought before the tribunal [...] is whether subjection to Stamp Tax (item 28 of the General Schedule of Stamp Tax) of an urban property not constituted in horizontal ownership is determined by the TPV corresponding to each of the divisions of independent use and with residential designation [...], or whether it is determined by the global TPV of the property, which would correspond to the sum of all the TPV of the floors or divisions of independent use and with residential designation that compose it [...]. Effectively, from a formal point of view, the TCA is correct in referring to the fact that a property constituted in horizontal ownership is a distinct legal-tax reality from an urban property in vertical or total ownership. However, if Article 2(4) of the CMPT establishes the legal fiction that each of the autonomous units of a property constituted in horizontal ownership constitutes a property, it does not necessarily follow therefrom that a part of independent use of an urban property not constituted in horizontal ownership should be considered a property. If the legislator used, in the provision of item 28.1 of the General Schedule of Stamp Tax, the expression 'urban property of residential designation,' it does not appear legitimate that the TCA should wish to include therein the floors or divisions of independent use of properties not constituted in horizontal ownership which, as it itself recognizes, are not properties, and therefore cannot be equated to the autonomous units of properties constituted under the regime of horizontal ownership. Regarding the determination of the taxable property value of properties not constituted in horizontal ownership, Article 7(2) of the CMPT applies, but only as to 'urban properties with parts that can be classified under more than one of the classifications of Article 6(1),' in which case, in accordance with its subsection (b) '(...) each part is evaluated by application of the corresponding rules, the value of the property being the sum of the values of its parts.' And this is the only provision of the CMPT in which reference is made to the 'value [global] of the property,' without, however, this having any relevance at the level of tax assessment. Thus, from the conjunction of the provisions of Article 7(2) and Article 6(1), both of the CMPT, it results that, if an urban property not constituted in horizontal ownership is composed exclusively of parts or divisions intended for residential use, the value of the property does not equal the sum of its parts."

It should be noted, lastly, that this interpretation (of an infra-constitutional order), which has been defended here, has been endorsed by the Supreme Administrative Court, as can be seen from the recent Judgment no. 47/15 of 9/9/2015, in which it was clearly stated that, "in the case of a property constituted in vertical ownership, the incidence of IS should be determined, not by the TPV resulting from the sum of the TPV of all divisions or floors susceptible to independent use (individualized in the property registry article), but by the TPV attributed to each of those floors or divisions intended for residential use."

  1. In this regard, what is followed here, as it is agreed entirely – particularly regarding the lack of necessity for evaluation of the rule at issue in light of the constitutional principles and parameters referred to – is what was pertinently observed in the following recent judgment of the Supreme Administrative Court (see Judgment of 24/5/2016, issued in appeal 1344/15): "the question that must be decided relates to the interpretation of items 28 and 28.1 of the General Schedule of Stamp Tax added by Article 4 of Law no. 55-A/2012 of 29/10, to define whether it applies to urban properties, with one property registry article but composed of parts with allocation and independent use to which independent TPVs were attributed, each of these of value less than one million euros. This question is no longer new in this Supreme Court and has received a uniform answer in the direction propounded in the judgment appealed [that is, and as summarized by this judgment: 'In the case of a property constituted in vertical ownership, the incidence of IS should be determined, not by the TPV resulting from the sum of the TPV of all divisions or floors susceptible to independent use (individualized in the property registry article), but by the TPV attributed to each of those floors or divisions intended for residential use.'], as confirmed by, inter alia, the judgment dated 04.05.2016, appeal no. 0166/16. The Constitutional Court has also ruled on the constitutional dimension of this rule in light of the principles of tax equality, taxpaying capacity and proportionality, having concluded that the provision contained in items 28 and 28.1 of the General Schedule of Stamp Tax, added by Article 4 of Law no. 55-A/2012 of 29 October, insofar as it imposes annual taxation on the ownership of urban properties with residential designation, whose taxable property value is equal to or exceeding €1,000,000.00, is not unconstitutional, as confirmed by, inter alia, judgment 247/2016 dated 04.05.2016. In the present case there is no necessity for evaluation of the rule in question in light of such constitutional principles and parameters, but rather an interpretation that is teleological and systematic is called for, and therefore the jurisprudential guidance that has been followed by the common courts, and which will now be followed, does not undermine the good doctrine imposed by that Constitutional Court."

  2. In light of what Article 24(5) of the LFATM provides – "interest is due, irrespective of its nature, under the terms provided in the general tax law and the Code of Tax Procedure and Process" – it has been understood that this provision allows for recognition of the right to compensatory interest in arbitration proceedings. It is therefore justified to analyze the present petition.

Compensatory interest is due when determined, in informal appeal or judicial challenge, to have occurred an error attributable to the services from which there results payment of the tax debt in an amount exceeding that legally due (see Article 43(1) of the General Tax Law). It is, therefore, a necessary condition for the award of the aforementioned interest the demonstration of the existence of error attributable to the services: "The right to compensatory interest provided in Article 43(1) of the General Tax Law [...] depends on it being demonstrated in the proceeding that that act is affected by error concerning the factual or legal premises attributable to the TCA." (Judgment of the Supreme Administrative Court of 30/5/2012, case 410/12); "The right to compensatory interest provided in Article 43 of the General Tax Law presupposes that it be determined in the proceeding that in the assessment 'there was error attributable to the services,' understood as the 'error concerning the factual or legal premises attributable to the Tax Administration'" (Judgment of the Supreme Administrative Court of 10/4/2013, case 1215/12).

There having been, as results from what was stated in section 1), error attributable to the services, this determines the merits of the petition for payment of compensatory interest to the Claimant.

V – DECISION

In light of the foregoing, it is decided:

– To declare the illegality of the Stamp Tax assessment being challenged, due to error in the legal premises, determining its annulment, as well as the restitution of the sum of €2,838.70, unduly paid.

– To judge the petition well-founded also in the part relating to the recognition of the right to compensatory interest in favor of the Claimant.

The value of the case is set at €4,337.08 (four thousand three hundred and thirty-seven euros and eight cents), pursuant to Article 32 of the Code of Administrative Court Procedure and Article 97-A of the Code of Tax Procedure and Process, applicable by virtue of the provision in Article 29(1)(a) and (b) of the LFATM, and Article 3(2) of the Regulations of Costs in Tax Arbitration Proceedings.

Costs charged to the respondent in the amount of €612.00 (six hundred and twelve euros), pursuant to Table I of the Regulations of Costs in Tax Arbitration Proceedings, given that the present petition was judged well-founded, and in compliance with Articles 12(2) and 22(4), both of the LFATM, and with Article 4(4) of the aforementioned Regulations.

Notify.

Lisbon, 4 November 2016.

The Arbitrator

(Miguel Patrício)

Text prepared by computer, pursuant to the provision in Article 131(5) of the Code of Civil Procedure, applicable by referral of Article 29(1)(e) of the LFATM.

The drafting of this decision is governed by the orthography prior to the Orthographic Agreement of 1990.

Frequently Asked Questions

Automatically Created

Is Stamp Tax under Verba 28.1 of the TGIS applicable to properties held in vertical ownership with separate independent units?
Yes, Stamp Tax under Verba 28.1 of the TGIS is potentially applicable to properties held in vertical ownership with separate independent units, but the key dispute concerns whether the €1,000,000 threshold applies to the global property value or to each autonomous unit individually. The taxpayer argued that autonomous units in vertical ownership should receive the same treatment as horizontal ownership units under Article 2(4) of CIMI, where each unit constitutes a separate property for tax purposes. The Tax Authority maintained that for properties in total ownership, the global taxable property value of the building determines stamp tax liability, not individual unit values. The case centered on whether there is legal basis to discriminate between ownership structures when applying item 28.1 of the TGIS.
How is the €1,000,000 property tax value threshold assessed for Stamp Tax purposes on buildings with multiple housing units?
The assessment of the €1,000,000 property tax value threshold for buildings with multiple housing units depends on the ownership structure interpretation. For horizontal property ownership, Article 2(4) of the Municipal Property Tax Code (CIMI) treats each autonomous unit as a separate property, suggesting individual valuation. However, for vertical or total ownership, the Tax Authority applies the global taxable property value of the entire building. The taxpayer challenged this distinction, arguing that Article 67(2) of the Stamp Tax Code's reference to CIMI requires uniform treatment of all autonomous units with independent use, regardless of whether the ownership is horizontal or vertical. The central issue is whether legislative differentiation between ownership types has sufficient legal basis or whether a uniform criterion should apply to all independent residential units.
Can a taxpayer challenge Stamp Tax assessments through CAAD tax arbitration under the RJAT regime?
Yes, taxpayers can challenge Stamp Tax assessments through CAAD (Centro de Arbitragem Administrativa) tax arbitration under the RJAT regime (Legal Framework for Arbitration in Tax Matters established by Decreto-Lei n.º 10/2011 of 20 January). This case was filed pursuant to Article 2(1)(a) and Article 10(2)(c) of the RJAT, demonstrating that stamp tax disputes fall within CAAD's material jurisdiction. The arbitral tribunal's competence was confirmed, and the case proceeded through the standard arbitration process including petition filing, respondent citation, written response by the Tax Authority, and award delivery within the statutory timeframe. Tax arbitration provides an alternative dispute resolution mechanism for challenging stamp tax liquidation acts.
What is the relationship between the CIMI property valuation rules and the Stamp Tax liability under Verba 28 of the TGIS?
Article 67(2) of the Stamp Tax Code establishes a direct relationship between CIMI property valuation rules and Stamp Tax liability under Verba 28 of the TGIS by requiring application of CIMI rules with necessary adaptations for determining taxable property values. The taxpayer argued this legislative reference mandates consistent treatment of autonomous units regardless of ownership structure, since Article 2(4) of CIMI treats each autonomous unit in horizontal ownership as a separate property for tax purposes. The Tax Authority countered that for vertical or total ownership, CIMI rules support using the global property value of the entire building. This interpretative dispute reflects fundamental questions about whether the legislative reference to CIMI creates uniformity requirements across all ownership types or permits differential treatment based on the specific ownership structure of the property.
Are compensatory interest payments due when Stamp Tax liquidation acts are annulled by a CAAD arbitral tribunal?
Compensatory interest payments become due when Stamp Tax liquidation acts are annulled by a CAAD arbitral tribunal if the tax was unduly paid and the conditions of Article 43 of the General Tax Law are met. The taxpayer in this case specifically requested compensatory interest at the legal rate on €2,838.70 allegedly paid in excess, calculated from the payment date (20 April 2016) until full restitution. However, compensatory interest is not automatically due upon annulment. The Tax Authority argued that when assessments are based on direct application of objective legal rules derived from property registry information, without discretionary evaluation or error attributable to tax services, compensatory interest obligations do not arise even if the assessment is subsequently challenged and annulled through arbitration proceedings.