Process: 378/2016-T

Date: November 25, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 378/2016-T) addresses a critical interpretation issue regarding Stamp Tax under Item 28.1 of the General Schedule (TGIS), which applies to urban residential properties with taxable property value (VPT) equal to or exceeding €1,000,000. The dispute centers on a building owned by A., S.A. in Lisbon comprising 13 independent units across 6 floors allocated to commerce and residential use, not constituted under horizontal property regime. The Tax Authority (AT) assessed €15,189.40 in Stamp Tax for 2015 by aggregating the VPT of all residential units (€1,518,940 total), despite no individual unit exceeding the €1,000,000 threshold. The taxpayer challenged this interpretation, arguing that for properties with independent divisions capable of autonomous use, the VPT threshold should apply to each unit separately as determined under CIMI Article 7(2)(b), not to their cumulative total. The AT contended that the relevant VPT is that of the entire property as a single urban asset. This case raises fundamental questions about the scope of Stamp Tax incidence on vertical properties, the relevance of horizontal property constitution for tax purposes, compliance with constitutional principles of legality and equality, and whether aggregation of unit values is appropriate when the property lacks formal condominium status. The outcome has significant implications for owners of multi-unit buildings not established as condominiums, potentially affecting tax liability calculations and refund entitlements with compensatory interest.

Full Decision

ARBITRAL DECISION

I. REPORT

  1. A…, S.A., with taxpayer identification number …, with registered office at Avenue …, …, …, …-… Lisbon, requested the establishment of an arbitral tribunal in tax matters with a view to the declaration of illegality of stamp duty assessment acts, in the total amount of € 15,189.40, relating to an urban property, not established under a condominium regime, registered in the respective real estate registry of the parish of …, municipality of Lisbon, under article … . The said assessments, made on the basis of the provision of article 1 of the Stamp Duty Code (CIS), combined with Item no. 28.1 of the respective General Schedule, relate to the year 2015. As a consequence of the declaration of illegality of the aforementioned acts, the Claimant requests that the annulment of the assessments in question be determined and the refund of the amount paid, plus the respective default interest calculated in accordance with legal terms.

  2. As the basis for the request, the Claimant alleges, in summary, that the taxation provided for in the aforementioned provisions has as its object urban properties with residential use, whose taxable property value used for purposes of municipal property tax (IMI) is equal to or greater than € 1,000,000. In the case of properties not established under condominium ownership but comprising parts or divisions capable of independent use, the taxable property value used for purposes of IMI, and consequently, relevant for purposes of the incidence of stamp duty, is, in accordance with the aforementioned provision, the value determined with reference to each of those parts or divisions.

  3. For its part, the Respondent – Tax and Customs Authority (AT) – in response to the allegations, pronounces itself in favor of the dismissal of the request and, consequently, for the maintenance of the disputed assessment acts, on the ground that there is a single urban property at issue, and the taxable property value relevant for purposes of the incidence of stamp duty is the value resulting from the sum of the taxable property values attributed to the various parts that comprise it.

  4. The request for establishment of an arbitral tribunal, presented on 08-07-2016, was accepted by the President of CAAD and automatically notified to the Respondent on 02-08-2016.

  5. Pursuant to the provisions of subparagraph a) of paragraph 2 of article 6 and subparagraph b) of paragraph 1 of article 11 of Decree-Law no. 10/2011, of 20/01, as amended by article 228 of Law no. 66-B/2012, of 31/12, the Deontological Council appointed the undersigned as arbitrator of the sole arbitral tribunal, who communicated acceptance of the assignment within the applicable time period and notified the parties of this appointment on 15-09-2016.

  6. Duly notified of this appointment, the parties did not manifest the intention to refuse the appointment of the arbitrator, pursuant to the combined provisions of article 11, paragraph 1, subparagraphs a) and b) of the Rules of Tax Arbitration (RJAT) and of articles 6 and 7 of the Deontological Code.

  7. Thus, in accordance with the provision of subparagraph c) of paragraph 1 of article 11 of the RJAT, as amended by article 228 of Law no. 66-B/2012, of 31/12, the sole arbitral tribunal was constituted on 30-09-2016.

  8. Regularly constituted, the arbitral tribunal is materially competent in light of the provision of articles 2, paragraph 1, subparagraph a), of the RJAT.

  9. The parties have legal personality and capacity and are entitled to bring proceedings (articles 4 and 10, paragraph 2, of the RJAT, and article 1 of Ordinance no. 112-A/2011, of 22/03).

  10. In view of the knowledge derived from the procedural documents filed by the parties, which is deemed sufficient for the decision, the Tribunal decided to dispense with the hearing referred to in article 18 of the RJAT.

  11. The proceedings are free from nullities and no other issues have been raised that would prevent the examination of the merits of the case, the conditions being present for a final decision to be rendered.

II. FACTS

  1. With relevance for the examination of the issue raised, the following factual elements are noteworthy:

12.1. The Claimant is the owner of the urban property situated at Avenue …, no. …, parish of …, municipality of Lisbon, registered in the respective real estate registry under article … .

12.2. The property in question, in full ownership with apartments or divisions capable of independent use, is composed of 6 floors, having in total 13 apartments or divisions with independent use, allocated to commerce or industry and to residential use.

12.3. To each of the independent divisions was attributed a taxable property value separately determined in accordance with the provision of subparagraph b) of paragraph 2 of article 7 of the Municipal Property Tax Code (CIMI).

12.4. None of the parts or apartments with residential allocation has a taxable property value exceeding € 1,000,000.00, resulting from their sum a total taxable property value of € 1,518,940.00.

12.5. Considering the sum of the taxable property values of the apartments with independent residential use, the AT proceeded to assess stamp duty provided for in Item 28.1 of the respective General Schedule, with reference to the year 2015 and to each of the units capable of independent use.

12.6. For payment in April, July and November of 2016, collection notices relating to three installments of the assessments in question were sent to the Claimant, totaling € 15,189.40.

  1. There are no other facts relevant to the decision on the merits that have not been proven.

III. LEGAL MATTER

  1. As already previously mentioned, the Claimant in its request for arbitral decision sustains, in essence, that the provision of Item 28.1 of the General Schedule of Stamp Duty is not applicable to properties in full ownership comprised of parts or divisions capable of independent use, whenever the taxable property value attributed to each of those intended for residential use does not exceed € 1,000,000.00.

  2. Beyond directly questioning the rule of tax incidence, in the interpretation underlying the disputed assessments, the Claimant invokes the violation of constitutional principles of legality and tax equality, as well as the principle of material truth.

  3. In response to the allegations by the Claimant, the AT stated, in summary, that Item 28 of the General Schedule of Stamp Duty applies to urban properties with residential allocation and that the taxable property value on which the application of that legal provision depends is, as expressly results from the law, the taxable property value of each property and not of its distinct parts, even if capable of independent use. Concluding, thus, that the tax act in question, having not violated any legal provision, should be maintained.

  4. From the positions expressed by the Claimant and the Respondent, summarized above, it follows that the matter at issue is purely a legal one, making unnecessary the production of evidence beyond the documentary elements attached to the proceedings.

  5. Indeed, the issue to be decided centers solely on whether the scope of the incidence of stamp duty referred to in Item 28 of the General Schedule of Stamp Duty (TGIS) encompasses, or does not, residential urban properties which, although not established under condominium ownership, are comprised of apartments or divisions capable of independent use, whenever the taxable property value attributed to each of those distinct parts does not exceed the value of € 1,000,000.00.

  6. In other words, it is a matter of ascertaining whether the quantitative element relevant to the aforementioned provision should be considered on the basis of the taxable property value attributed to each of the parts, as the Claimant contends, or whether that element is what results from the sum of the taxable property values attributed to them, as the Respondent contends.

  7. It is therefore necessary, first and foremost, to carry out an analysis, albeit brief, of the prerequisites for the incidence of stamp duty on urban properties with residential allocation, using the tax provisions relevant to the definition of the respective legal concepts.

III.1. TAX INCIDENCE

  1. Through Law no. 55-A/2012, of 29/10, Item 28 was added to the General Schedule of Stamp Duty, subjecting to this tax urban properties whose taxable property value registered in the registry, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than € 1,000,000.00.

  2. The taxable base consists of the taxable property value considered for purposes of IMI, with such tax being annually assessed by the AT with respect to each urban property (CIS, article 23, paragraph 7), at the rate of:

  • 1%, per urban property with residential allocation;
  • 7.5%, per property, when the taxpayers, not being individuals, are resident in a country, territory or region subject to a clearly more favorable tax regime, included in the list approved by ordinance of the Minister of Finance.

  1. The taxpayers and debtors of the tax are the owners, usufructuaries or surface rights holders of the properties on 31 December of the year to which the tax relates, as follows from article 8 of the CIMI, by express referral of articles 3, paragraph 3, subparagraph u), and 2, paragraph 4, of the CIS.

  2. With regard to the date of constitution of the tax obligation, tax nexus, determination of the taxable base, assessment and payment of the stamp duty in question, the corresponding rules of the CIMI are applicable, by express referral of articles 5, paragraph 1, subparagraph u), 4, paragraph 6, 23, paragraph 7, 44, paragraph 5, 46, paragraph 5 and 49, paragraph 3, of the CIS. In general, by referral of article 67, paragraph 2, of the same Code, the provisions of the CIMI apply subsidiarily to matters not specifically regulated.

  3. Not questioning, in the present case, the nature of the property in question, classified as urban and with residential allocation, in accordance with the criteria established in articles 2, 4 and 6 of the CIMI, the issue at hand is solely to ascertain what is the exact meaning of "taxable property value considered for purposes of IMI" contained in the rule of incidence of stamp duty.

  4. It is therefore necessary to resort to the rules of the CIMI relating to the treatment that, under this tax, is given to parts of urban properties capable of independent use, especially with regard to the determination of the respective taxable property value and rules applicable to the assessment and payment of the aforementioned tax.

  5. In accordance with paragraph 3 of article 12 of the aforementioned Code, which establishes the concept of real estate registry, "each apartment or part of property capable of independent use is considered separately in the real estate registry entry, which specifies the respective taxable property value."

  6. The autonomization in the registry of the functionally and economically independent parts of a property in full ownership is based on reasons of a fiscal and extrafiscal nature. On the fiscal level, this autonomization is related to the very determination of the taxable property value, which constitutes the taxable base of IMI, given that the formula for determining such value, provided for in article 38 of the same Code, includes indices that vary according to the use attributed to each of those parts. On the extrafiscal level, this autonomization continues to find justification in the relevance attributed to the taxable property value of properties and their autonomous parts in the legislation on urban leasing.[i]

  7. However, in the economy of IMI, the autonomization of parts of urban property capable of independent use is not limited to their separation in the real estate registry and specification of the respective taxable property value. This autonomy extends to the very assessment of the tax.

  8. Indeed, article 119, paragraph 1, of the aforementioned Code determines that the tax collection document shall contain a specification of the properties, their parts capable of independent use and the respective taxable property value. For compliance with this provision, the assessment of IMI, in the strict sense of applying the rate to the taxable base, does not take as reference the sum of the taxable property values attributed to the autonomous parts of the same property, but the value attributed to each of them individually considered.

  9. In the same sense of individualization, for tax purposes, of the autonomous parts of urban properties, is also relevant the provision of paragraph 1 of article 15-O of Decree-Law no. 287/2003, of 12/11, added by Law no. 60-A/2011, of 30/11.

  10. In accordance with the provision of the aforementioned rule, the safeguard clause relating to the aggravation of IMI taxation resulting from the general reassessment of urban properties is applicable per property or part of urban property that is the subject of the aforementioned reassessment.

  11. It follows, thus, from the relevant rules of the CIMI, applicable by referral to the stamp duty referred to in Item 28 of the respective Schedule, that the autonomous parts of urban properties assume full autonomy, in terms of evaluation and description in the real estate registry and assessment of the tax.

  12. By referring to the taxable property value considered for purposes of IMI, the rule of incidence and quantification of stamp duty referred to in Item 28 of the respective Schedule can only appeal to the reality described above, that is, to the taxable property value considered under IMI with respect to each part of an urban property capable of independent use.

  13. As, moreover, is reflected in the assessments questioned in the present request for arbitral decision: the AT, after, without legal support, operating the sum of the taxable property values of the various autonomous parts of the property to extract therefrom the quantitative prerequisite for the incidence of stamp duty, proceeds with the assessment with reference to each of those parts even though, individually, none of them reaches that value.

  14. It should be noted that the issue raised in this proceeding is, in all respects, identical to those raised and decided in numerous arbitral decisions[ii], as well as in rulings of the Supreme Administrative Court[iii], to whose conclusion, in the sense of the illegality of the AT's decision to subject the taxation of the residential parts of a property in full ownership based on the global taxable property value of the property and not on what is actually attributed to each of the parts separately, full adherence is expressed.

IV. RIGHT TO DEFAULT INTEREST

  1. Along with the declaration of illegality and annulment of the assessments with the consequent refund of the amounts that, in the meantime, have been wrongfully paid, the Claimant further requests that it be recognized the right to default interest, under article 43 of the General Tax Law (LGT).

  2. Indeed, pursuant to the provision of paragraph 1 of the aforementioned article, default interest is due "when it is determined, through administrative complaint or judicial review, that there was error attributable to the tax services resulting in payment of the tax debt in an amount greater than legally due." In addition to the remedies referred to in the provision that is transcribed, we understand that, as follows from paragraph 5 of article 24 of the RJAT, the right to the aforementioned interest can be recognized in the arbitral proceeding and thus the request is examined.

  3. The right to default interest referred to in the LGT provision above presupposes that tax has been paid in an amount greater than due and that this derives from error, whether factual or legal, attributable to the AT's services. In the present case, both conditions are met, the obligation for default interest being thus constituted in favor of the taxpayer, which is hereby declared.

V. DECISION

For these reasons and on the grounds stated, the Arbitral Tribunal decides to uphold the request for arbitral decision, determining the annulment of the disputed assessments with the consequent refund of the amounts that have been paid, plus the respective default interest, due and quantified in accordance with legal terms.

Value of the case: The value of the case is fixed at € 15,189.40, in accordance with article 97-A, paragraph 1, subparagraph a) of the Civil Procedure Code (CPPT), applicable by referral of article 29, paragraph 1, subparagraphs a) and b), of the RJAT and article 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings.

Costs: Pursuant to article 22, paragraph 4, of the RJAT, and in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, I fix the amount of costs at € 918.00, to be borne by the Respondent (AT).

Lisbon, 25 November 2016,

The Arbitrator,

Álvaro Caneira

[i] See Silvério Mateus and Leonel Corvelo de Freitas, "Real Estate and Stamp Duty Taxes Commented and Annotated," Engifisco, Lisbon 2005, pp. 159 and 160.

[ii] Among many others, and referring only to the most recent: CAAD, Procs. 544/2015-T, 552/2015-T, 554/2015-T, 560/2015-T, 562/2015-T, 573/2015-T, 576/2015-T, 581/2015-T, 589/2015-T, 597/2015-T, 606/2015-T, 632/2015-T, 643/2015-T, 644/2015-T, 651/2015-T, 659/2015-T, 681/2015-T, 718/2015-T, 755/2015-T, 768/2015-T, 777/2015-T, 10-2016-T, 20/2016-T.

[iii] See STA, Procs. 047/15, 01352/15, 01354/15, 01504/15, 01534/15, 0166/16, 0498/16.

Frequently Asked Questions

Automatically Created

Does Stamp Tax (Verba 28) apply to each independent unit or the total VPT of a vertical property building?
The central legal dispute is whether Stamp Tax under Item 28.1 TGIS applies based on individual unit VPT or aggregate building VPT. The taxpayer argues that for properties with independent divisions capable of autonomous use, each unit's separately-assessed VPT (per CIMI Article 7(2)(b)) should be considered independently against the €1,000,000 threshold. The Tax Authority contends the total aggregated VPT determines incidence. The resolution depends on interpreting whether 'urban property' refers to the registered real estate article as a whole or to each functionally independent unit.
How is the €1,000,000 threshold calculated for buildings not constituted under horizontal property regime?
For buildings not constituted under horizontal property (condominium) regime but containing independent units, the €1,000,000 threshold calculation is disputed. The taxpayer position is that each unit's individual VPT—separately determined under municipal property tax rules—should be compared to the threshold independently. The Tax Authority aggregates all residential unit VPTs to determine if the building as a single property exceeds €1,000,000. The case illustrates that absence of formal horizontal property constitution creates ambiguity in applying Item 28.1 TGIS, potentially leading to different tax outcomes.
Can a taxpayer challenge Stamp Tax assessments on urban properties through CAAD arbitration?
Yes, taxpayers can challenge Stamp Tax assessments on urban properties through CAAD (Centro de Arbitragem Administrativa) arbitration. This case confirms CAAD's material competence under RJAT Article 2(1)(a) for Stamp Tax disputes. The taxpayer requested arbitration on 08-07-2016 seeking declaration of illegality of €15,189.40 in assessments, annulment, and refund with compensatory interest. The tribunal was properly constituted and proceeded without requiring an oral hearing, demonstrating CAAD's accessibility for resolving tax disputes efficiently.
What is the tax treatment of independent units in a building without horizontal property constitution under Portuguese Stamp Tax?
Independent units in buildings without horizontal property constitution receive individual VPT assessments under CIMI Article 7(2)(b) for municipal property tax purposes. However, for Stamp Tax under Item 28.1 TGIS, the treatment is contested: the Tax Authority treats such buildings as single urban properties, aggregating unit VPTs to determine if the €1,000,000 threshold is met, thereby triggering tax liability on each unit. The taxpayer argues each unit should be evaluated independently. This divergence creates uncertainty for owners of vertical properties lacking formal condominium status.
Is the taxpayer entitled to a refund with compensatory interest if Stamp Tax liquidations are declared illegal?
If Stamp Tax liquidations are declared illegal, the taxpayer is entitled to full refund of amounts paid plus compensatory interest (juros indemnizatórios) calculated according to legal terms. In this case, the claimant specifically requested refund of €15,189.40 plus applicable interest as a consequence of declaring the assessments illegal. Portuguese tax law provides for compensatory interest to remedy financial prejudice caused by undue tax collection, protecting taxpayers' property rights when administrative acts are annulled.