Process: 366/2015-T

Date: February 8, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

Process 366/2015-T involves a challenge to Stamp Tax assessments under Item 28 of the General Stamp Tax Table (TGIS), which taxes properties with taxable patrimonial value (VPT) exceeding €1,000,000. The claimant company owned an urban property in Lisbon under vertical ownership (full ownership, not horizontal property regime) comprising 21 independent divisions, including 20 residential units. The Tax Authority assessed €28,589.50 in Stamp Tax for 2014 by aggregating the individual VPTs of all divisions to exceed the €1,000,000 threshold. The claimant contested this methodology, arguing that since no individual division had a VPT reaching €1,000,000, Item 28 should not apply. The claimant further alleged the assessment violated the constitutional principle of equality. The Tax Authority defended the assessment, asserting that for properties in full ownership with independent divisions, the property must be considered in its entirety for Stamp Tax purposes, despite Municipal Property Tax being assessed per independent unit. The Authority also raised a preliminary exception challenging the arbitral tribunal's jurisdiction, arguing the challenge concerned payment installments rather than the assessment act itself. The CAAD arbitral tribunal was constituted under Decree-Law 10/2011 to resolve this dispute concerning whether vertical property with multiple independent units should be taxed as a single property or separately when none individually meets the €1,000,000 threshold, presenting significant implications for real estate taxation in Portugal.

Full Decision

ARBITRAL AWARD

The arbitrator Dr. Maria Antónia Torres, designated by the Deontological Council of the Administrative Arbitration Centre ("CAAD") to form the Singular Arbitral Tribunal, constituted on 14 August 2015, decides as follows:

  1. REPORT

1.1 A..., Lda., hereinafter referred to as "Claimant", Tax Identification Number ..., with registered office at ..., no. ..., ...-... Lisbon, requested the constitution of an arbitral tribunal, pursuant to Article 2, paragraph 1, subsection a), and Article 10, both of Decree-Law no. 10/2011, of 20 January (hereinafter "RJAT"[1]).

1.2 The request for arbitral ruling concerns the declaration of illegality, and consequent annulment, of the tax acts for the assessment of Stamp Tax, in the total amount of € 28,589.50 (twenty-eight thousand five hundred and eighty-nine euros and fifty cents) relating to the year 2014, and contained in the collection notices better identified in the initial petition presented by the Claimant, which are hereby considered articulated and reproduced, for all legal purposes, which concern the urban property owned by the Claimant, located at ..., no. ..., ...-... Lisbon, registered in the urban property register under article no. ..., Parish of ..., as documented in the initial petition.

1.3 To support its request, the Claimant alleges that the Stamp Tax assessments that are the subject of this petition are illegal due to violation of the tax base provision of item 28 of the General Stamp Tax Table. The Claimant considers that, given that the property is in vertical ownership, as it was on that date, divided by 21 floors or divisions of independent use (20 of which with residential purpose), the Tax Authority cannot, as it did, sum the taxable patrimonial values of the floors and divisions capable of independent use, given that none of those floors or divisions, considered individually, has a Taxable Patrimonial Value equal to or exceeding 1,000,000 euros. And that the tax base provision, in the interpretation implemented by the Tax Authority, is unconstitutional due to violation of the principle of equality.

1.4 The Tax Authority defended itself by exception and by objection. By exception, it defends that the payments contained in the collection notices sub judice cannot be challenged autonomously, giving rise to the dilatory exception provided for in subsection c), of paragraph 1, of Article 89 of the Administrative Tax Procedure Code, subsidiarily applicable by Article 29, paragraph 1, subsection c), of the RJAT, which should prevent the tribunal from deciding on the merits and result in the dismissal of the Tax Authority from the proceedings.

Without conceding, the Tax Authority considers that the request for declaration of illegality, and consequent annulment of the disputed assessments, should be judged inadmissible, on the grounds that although the assessment of Stamp Tax, under the conditions provided for in item 28 of the General Stamp Tax Table, is carried out in accordance with the rules of the Municipal Property Tax Code, the truth is that the legislator reserves aspects that require appropriate adaptations. The Tax Authority considers that this is the case for properties in full ownership, even though with floors or divisions capable of independent use, since although Municipal Property Tax is assessed in relation to each part capable of independent use, for purposes of Stamp Tax the property is relevant in its entirety, thus arguing for the legality of the tax acts because they constitute a correct application of law to the facts.

1.5 The parties agreed to waive submissions and the holding of the arbitral tribunal meeting provided for in Article 18 of the RJAT.

  1. PRELIMINARY EXAMINATION

The Tribunal was properly constituted and is competent ratione materiae, in accordance with Article 2 of the RJAT.

The parties have legal standing and capacity, are properly represented (cf. Articles 4 and 10, paragraph 2 of the RJAT and Article 1 of Order no. 112-A/2011, of 22 March).

No procedural nullities were identified.

  1. MATERIAL FACTS

With relevance for the decision on the merits, the Tribunal considers the following facts as established:

  1. The Claimant was, at the date of the assessments sub judice, owner of the urban property that was the subject of those same assessments, under the regime of "full ownership" (i.e., not subject to horizontal property ownership regime) to which a global Taxable Patrimonial Value exceeding 1,000,000.00€ was attributed, corresponding to the sum of the partial Taxable Patrimonial Values of each of the 21 floors or divisions with independent use.

  2. In accordance with what was mentioned in the initial petition and in the response given by the Respondent, none of the divisions capable of independent use, to which an autonomous Taxable Patrimonial Value was assigned by the Respondent, and regardless of its purpose - residential or other - has a Taxable Patrimonial Value exceeding €1,000,000.

  3. The Claimant was notified to assess stamp tax on the said property, with the Respondent considering the Claimant to be the taxpayer liable for stamp tax pursuant to item 28.1 of the General Stamp Tax Table, by being the owner of a property with taxable patrimonial value exceeding €1,000,000.

  4. Having the Claimant received the collection notices for payment of the 1st instalment of the Stamp Tax provided for in item 28.1 of the General Stamp Tax Table relating to the urban property of which it is the owner, as documented in the initial petition, it came to lodge a challenge to the assessment of Stamp Tax, relating to the year 2014, in the total amount of € 28,589.50 (twenty-eight thousand five hundred and eighty-nine euros and fifty cents). The Claimant did not make payment of the Stamp Tax collection notices referred to.

Facts Not Established

No essential facts, with relevance for the assessment of the merits of the case, which were not established, were identified.

Grounds for the Material Facts

The conviction regarding the facts established as proven was based on the documentary evidence presented by the Claimant, whose authenticity and correspondence to reality were not disputed by the Respondent.

  1. ISSUES TO BE DECIDED

There are two issues to be decided in the present proceedings:

a) To decide on the exception of incompetence of the Arbitral Tribunal;

b) To determine whether, for purposes of application of item 28.1 of the General Stamp Tax Table, the sum of the Taxable Patrimonial Values of areas or divisions of independent use should or should not be considered.

a) On the Incompetence of the Arbitral Tribunal

The Tax Authority bases its contention, with regard to the exception of incompetence of the arbitral tribunal, on the fact that a tax act was not challenged, but rather the payment of an instalment of Stamp Tax. Having the Claimant attached to the proceedings the collection notices for the first instalment of Stamp Tax relating to the year 2014, the Tax Authority understands that the request does not refer to the annulment of a tax act, but rather to a mere collection notice, whereby it considers that this matter is not within the scope of competence of tax arbitral tribunals, provided for in Article 2 of the RJAT.

However, let us consider.

Subsection a) of paragraph 1 of Article 2 of the RJAT establishes that arbitral tribunals are competent to consider requests for declaration of illegality of acts of tax assessment, self-assessment, withholding at source and payment on account.

Now, the tax arbitral proceeding has as its object, mediately or immediately, the tax act of assessment, as an act of determination of the amount of tax to be paid (collection), by application of a rate to the taxable matter.

The consideration of the exception raised by the Tax Authority depends, therefore, on the question of whether the Claimant challenges the act of assessment of Stamp Tax relating to the year 2014 or whether, on the contrary, it merely challenges one of the instalments of Stamp Tax, namely the 1st instalment.

In cases where the tax must be paid in instalments, the assessment is notified to the taxpayer together with the notification for payment of each instalment, and can only be challenged in its entirety and not instalment by instalment.

In this regard, José Casalta Nabais argues that "The assessment lato sensu, that is, as the set of all operations intended to determine the amount of tax, comprises: 1) The subjective assessment intended to determine or identify the taxpayer or subject of the tax legal relationship, 2) The objective assessment through which the taxable or tax matter is determined and, equally, the rate to be applied is determined, in the case of plurality of rates, 3) The assessment stricto sensu translated into the determination of the collection through the application of the rate to the taxable or tax matter, and 4) the (possible) deductions from the collection.".

Thus, to each tax fact will correspond, in principle, a single assessment through which the collection to be paid will be determined.

It is also important to note paragraph 7 of Article 23 of the Stamp Tax Code which establishes that "in the case of tax due under the situations provided for in item no. 28 of the General Table, the tax is assessed annually (…)" applying, with the necessary adaptations, the rules contained in the Municipal Property Tax Code". As for its payment, "where the assessment of the tax referred to in item no. 28 of the General Table occurs, the tax is paid within the periods, terms and conditions defined in Article 120 of the Municipal Property Tax Code".

That is, the assessment of the tax is carried out in the months of February and March of the year following that to which it relates and the tax must be paid in three instalments, in the months of April, July and November, respectively, depending on the amount involved.

Now, it is clear from the various relevant provisions that Stamp Tax is the subject of a single annual assessment, an assessment that necessarily precedes the sending of the first instalment collection notice of the tax and which appears therein. And it is that annual assessment that can be the subject of challenge.

In the present case, the Claimant came to request the annulment of the "twenty Stamp Tax assessments", relating to the year 2014, to which the property of which it is the owner was subject. That is, the Claimant seeks to have the illegality of the tax acts of assessment of Stamp Tax underlying the collection notices it has attached to the initial petition declared, and not of each of the stamp tax instalments individually considered.

And so much is this the case that the value of the request corresponds to the entirety of that assessment (€28,589.50) and not to the value of the first instalment payment in the month of April.

Whereby the invocation of the exception in question by the Tax Authority is judged inadmissible, this Arbitral Tribunal being considered competent to consider the request for declaration of the illegality of the act of assessment of Stamp Tax.

b) On the Illegality of the Act of Assessment of Stamp Tax

The essential question to be decided in the proceedings is to determine, with reference to a property not constituted under the horizontal property ownership regime, composed of various floors and divisions with independent use, some of which with residential purpose, what is the Taxable Patrimonial Value relevant, assessing the correct criterion of tax incidence in the face of the law, so as to determine whether this should be assessed by the sum of the taxable patrimonial value assigned to the different parts or floors (global Taxable Patrimonial Value) or, rather, whether it should be assigned to each of the parts or residential floors individually.

Additionally, the Claimant invokes the unconstitutionality of the transitional regime approved by Article 6, paragraph 1 of Law 55-A/2012, of 29 October, due to violation of a significant set of constitutional principles that it expressly invokes.

  1. LEGAL GROUNDS

As identified above, the issue to be decided concerns whether the taxable patrimonial value relevant for purposes of determining the applicability of Item 28 of the General Stamp Tax Table, when a property not constituted under horizontal property ownership is at issue, is that of each unit considered autonomously or the sum of the taxable patrimonial value assigned to each of those units.

The question arises because of taxation under stamp tax of the ownership, usufruct or right of superficies of urban properties whose taxable patrimonial value contained in the property register is equal to or exceeding €1,000,000, the tax being due at a rate of 1% on the taxable patrimonial value used for purposes of Municipal Property Tax, per property with residential purpose.

For this reason, it is important to determine, when a property not constituted under horizontal property ownership is at issue, the concept of "property with residential purpose": whether it should be interpreted as corresponding to each unit considered autonomously and apply to the respective taxable patrimonial value or whether it should correspond to the totality of the autonomous units, and consequently apply to the sum of the taxable patrimonial value assigned to each of those units.

As neither the Stamp Tax Code, nor its General Table, nor Law no. 55-A/2012, of 29 October (which approved the item of the General Stamp Tax Table under consideration) provides a legal definition of "property with residential purpose", it is important to assess the correct interpretation of this expression, presuming that the legislator knew how to express its intent in the most appropriate manner (cf. Article 9, paragraph 3, final part, of the Civil Code), in its systematic integration with the norms contained in the Municipal Property Tax Code and, equally, in the spirit of the law.

Item 28 of the General Stamp Tax Table under consideration was added by Law no. 55-A/2012, of 29 October with the following wording:

"28 - Ownership, usufruct or right of superficies of urban properties whose taxable patrimonial value contained in the property register, pursuant to the Municipal Property Tax Code, is equal to or exceeding €1,000,000 — on the taxable patrimonial value used for purposes of Municipal Property Tax:

28.1 — Per property with residential purpose — 1%;

28.2 — Per property, when taxpayers who 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, of 29 October entered into force on 30 October 2012, in accordance with Article 7, paragraph 1 thereof which determined its entry "into force on the day following its publication".

The applicable rates are as follows:

i) Properties with residential purpose assessed pursuant to the Municipal Property Tax Code: 0.5%;

ii) Properties with residential purpose not yet assessed pursuant to the Municipal Property Tax Code: 0.8%;

iii) Urban properties when taxpayers who 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%.

It happens, however, that neither the Stamp Tax Code, nor Law no. 55-A/2012, of 29 October define the concept of "urban property with residential purpose", whereby in accordance with Article 67 of the Stamp Tax Code, the interpretation of this concept should be sought in the Municipal Property Tax Code.

Indeed, it follows from Article 67 of the Stamp Tax Code that "To matters not regulated in the present Code concerning item no. 28 of the General Table, the provisions contained in the Municipal Property Tax Code apply, subsidiarily" - (Wording given by Article 3 of Law no. 55-A/2012 of 29 October.).

In the Municipal Property Tax Code, the concept of property is defined in Article 2 thereof, from which it results that "For purposes of the present Code, property is any part of territory, encompassing waters, plantations, buildings and constructions of any nature incorporated therein or based thereon, with the character of permanence, provided that it forms part of the assets of a natural or legal person and, under normal circumstances, has economic value (…), clarifying in paragraph 4 of this legal provision that "For purposes of this tax, each autonomous fraction, under the horizontal property ownership regime, is deemed to constitute a property".

From the isolated reading of this legal provision we could be led, in a somewhat biased interpretation, to understand that for purposes of Municipal Property Tax, autonomous fractions, under the horizontal property ownership regime, would have a different treatment from parts of a property capable of independent use.

However, it turns out that a more careful analysis of the regime allows one to conclude precisely the opposite.

As emphasized by the Ombudsman to the Secretary of State for Tax Affairs, in an official letter dated 2 April 2013, "the registration in the property register of properties in vertical ownership, composed of parts capable of independent use, follows the same rules as the registration of properties constituted in horizontal property ownership, with the respective Municipal Property Tax, as well as the new Stamp Tax, being assessed individually in relation to each of the parts".

Indeed, Article 12, paragraph 3 of the Municipal Property Tax Code provides in this sense, when it determines that "each floor or part of property capable of independent use is considered separately in the matricial registration which equally discriminates the respective taxable patrimonial value."

According to Article 119 of the Municipal Property Tax Code "The services of the General Directorate of Taxes send to each taxpayer, by the end of the month preceding the month of payment, the respective collection document, with discrimination of the properties, their parts capable of independent use, respective taxable patrimonial value and the collection charged to each municipality of the location of the properties.".

In sum, for purposes of taxation under Municipal Property Tax, each independent unit, even if forming part of the same property, is considered separately, being assigned its own taxable patrimonial value and being taxed autonomously.

Thus, one cannot but follow the understanding endorsed in the Arbitral Award issued in Case no. 50/2013, according to which "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 property ownership, it clearly established the criterion, which must be single and unequivocal, for the definition of the rule of tax incidence of the new tax. Thus, the new stamp tax would only apply if one of the parts, floors or divisions with independent use presented a Taxable Patrimonial Value exceeding €1,000,000.00.".

But, moreover, it is this separate treatment of each unit capable of independent use that permits that, in the application of the allocation coefficient (cf. Article 41 of the Municipal Property Tax Code), attention be paid to the different purposes of each unit, which compose a single property.

This is relevant for this purpose, the actual use of each of the parts capable of independent use, regardless of whether the property is classified for residential purposes, pursuant to Article 6 of the Municipal Property Tax Code and, regardless of whether it concerns an autonomous fraction or merely a unit capable of independent use.

Moreover, according to this logic of the system, an urban property classified as residential can be composed of several independent units, in which one or more may have a non-residential purpose, in accordance with Article 41 of the Municipal Property Tax Code.

This will be verified, for example, if in a property in full ownership with floors or divisions capable of independent use, licensed for residential purposes, one of its independent units is used for commerce or services. In this case, the units in question will not have residential purpose.

From this analysis it can be concluded that the concept of "property with residential purpose", used in Item 28 of the General Stamp Tax Table, encompasses each of the autonomous units, with independent use, of properties in full ownership, with units capable of independent use, that have that purpose.

In light of the foregoing, the understanding of the Respondent cannot be endorsed, which would result, beyond all else, in a violation of the principle of equality, fiscal justice and ability to pay, constitutionally enshrined.

As referred to in the decision issued in case 132/2013-T of this CAAD:

(…) in the work relating to the discussion of bill no. 96/XII in the National Assembly (…) this measure, called a "special tax on high-value residential urban properties", was justified by the need to comply with the principles of social equity and fiscal justice, imposing a greater burden on holders of properties with high value intended for residential use, and, in that measure, applying the new "special tax" to "houses with a value equal to or exceeding 1 million euros."

It is presumed, thus, a capacity to pay (much) above average that justifies a "special" contribution effort for those who have a "house" or "property" whose value is at least one million euros. The legislator's intention seems, therefore, to indicate that the scope of the tax base provision is to tax independent realities, individualized and not resulting from an aggregation or sum, even if legal.

That is, it is not apparent from this measure that the legislator intended the taxation of properties whose units capable of independent use did not individually reach that value.

In light of the foregoing, and given that none of the independent units that make up the Claimant's property have a taxable patrimonial value exceeding €1,000,000, the assessments under consideration suffer from a defect of violation of law, due to error in the legal presumptions, which justifies the declaration of its illegality and the corresponding annulment of the tax acts now under consideration.

In light of the declaration of illegality of the assessments that are the subject of the present proceeding, due to a defect of violation of law due to error in the legal presumptions, the consideration of the remaining matters invoked on a subsidiary basis is rendered moot.

  1. DECISION

In light of the foregoing, it is decided to judge the request for arbitral ruling well-founded, with the consequent annulment, with all legal effects, of the acts of assessment of stamp tax better identified in the record, in the total amount of Euros 28,589.50 (twenty-eight thousand five hundred and eighty-nine euros and fifty cents);

The value of the proceeding is fixed at Euros 28,589.50 (twenty-eight thousand five hundred and eighty-nine euros and fifty cents), in accordance with the provisions of Articles 3, paragraph 2 of the Regulation of Costs in Tax Arbitration Proceedings, 97-A, paragraph 1, subsection a) of the Tax Procedure Code and 306 of the Civil Procedure Code.

The amount of costs is fixed at Euros 1,530 (one thousand five hundred and thirty euros) pursuant to Article 22, paragraph 4 of the RJAT and Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority, in accordance with the provisions of Articles 12, paragraph 2 of the RJAT and 4, paragraph 4 of the Regulation of Costs in Tax Arbitration Proceedings.

Let notice be given.

Lisbon, 8 February 2016

The Arbitrator

(Maria Antónia Torres)

Text prepared by computer, pursuant to Article 131, paragraph 5 of the Civil Procedure Code, applicable by referral of Article 29, paragraph 1, subsection e) of the RJAT.

The wording of the present arbitral award is governed by the spelling prior to the 1990 Orthographic Agreement.

[1] Acronym for Legal Framework for Tax Arbitration.

Frequently Asked Questions

Automatically Created

What is Verba 28 of the TGIS and how does it apply to properties valued over €1,000,000?
Item 28 of the General Stamp Tax Table (Verba 28 da TGIS) imposes an annual Stamp Tax on urban properties with taxable patrimonial value (VPT) equal to or exceeding €1,000,000. This tax applies to property owners and is calculated based on progressive rates depending on the property's VPT. The key issue in this case concerns whether, for properties in vertical ownership (full ownership not subject to horizontal property regime) with multiple independent divisions, the €1,000,000 threshold should be assessed by aggregating all divisions' VPTs or by considering each division separately.
Can the Tax Authority aggregate the taxable heritage values of independent units in vertical property for Stamp Tax purposes?
The central dispute in this case is whether the Tax Authority can legally aggregate the taxable patrimonial values of independent units within a property held in vertical ownership. The Tax Authority argues that properties in full ownership, even with divisions capable of independent use, must be considered as a whole for Stamp Tax purposes under Item 28 TGIS. This contrasts with Municipal Property Tax (IMI), which assesses each independent unit separately. The claimant contends this aggregation is illegal since no individual division exceeds €1,000,000, and the law should apply the same unit-by-unit approach as IMI. The tribunal must interpret whether Item 28's reference to 'property' means the entire building or each independent division.
Is the Stamp Tax assessment on vertical property with independent divisions a violation of the equality principle?
The claimant argues that the Stamp Tax assessment violates the constitutional principle of equality because it treats vertical property differently from horizontal property. In horizontal property regimes, each autonomous unit is owned separately and taxed individually under Item 28 only if that specific unit's VPT exceeds €1,000,000. However, for vertical property with independent divisions under single ownership, the Tax Authority aggregates all values, potentially subjecting the owner to taxation even when no individual unit reaches the threshold. The claimant contends this differential treatment lacks objective justification and creates unequal tax burdens based solely on the property ownership structure, not on the actual economic capacity demonstrated by individual unit values.
How does CAAD arbitration process work for challenging Stamp Tax (Imposto de Selo) assessments?
The CAAD (Centro de Arbitragem Administrativa) arbitration process for challenging Stamp Tax assessments begins with a request filed under Decree-Law 10/2011 (RJAT). Article 2(1)(a) grants arbitral tribunals jurisdiction over illegality declarations and annulments of tax assessment acts. In this case, a singular arbitral tribunal was constituted with one arbitrator appointed by CAAD's Deontological Council. The procedure includes: (1) filing an initial petition identifying the contested assessments and legal grounds; (2) the Tax Authority's response with defenses and exceptions; (3) optional submissions and hearings (waived here by agreement); and (4) issuance of an arbitral award. The process offers an alternative to administrative courts for tax disputes, providing specialized expertise and potentially faster resolution of complex tax matters like the interpretation of Stamp Tax provisions.
What is the difference between horizontal and vertical property ownership for Stamp Tax under Verba 28 TGIS?
For Stamp Tax purposes under Item 28 TGIS, the distinction between horizontal and vertical property ownership is crucial. Horizontal property (propriedade horizontal) involves a regime where a building is divided into autonomous units, each with separate ownership and its own property registration. Each unit is independently assessed for all tax purposes, including Stamp Tax, meaning Item 28 applies only if an individual unit's VPT exceeds €1,000,000. Vertical property or full ownership (propriedade plena/vertical) means a single owner holds the entire building, even if it contains physically distinct divisions capable of independent use. The dispute centers on whether these independent divisions should be taxed as separate units (like horizontal property) or whether the Tax Authority can aggregate their values to determine if the threshold is met, treating the entire property as one taxable unit despite the existence of functionally independent divisions.