Process: 422/2014-T

Date: December 9, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitration case (Process 422/2014-T) addressed a critical question regarding Stamp Tax incidence under Clause 28.1 of the General Stamp Tax Table (TGIS) for properties held in total ownership. The petitioner, A... S.A., challenged seven Stamp Tax assessments totaling €5,225.89 for a building at Avenue Lisbon consisting of seven floors with independent residential use. The Tax Authority assessed 1% Stamp Tax on each floor individually based on their respective taxable patrimonial values (TPV), ranging from €37,010 to €257,670. The central legal dispute concerned whether Clause 28.1's €1,000,000 TPV threshold applies to individual floors or the total property value of €1,558,250. The petitioner argued that since each floor had independent economic use and none individually exceeded €1,000,000 TPV, no Stamp Tax was due. They contended that applying the tax based on total property value violated equality and fiscal proportionality principles, as the tax should follow contributory capacity rather than formal property registration. The petitioner maintained that the Tax Authority's interpretation was illegal and potentially unconstitutional. Conversely, the Tax Authority maintained that properties not constituted under horizontal ownership regime must be assessed as single units. They argued that each floor cannot be qualified as an independent property under Article 2(4) of CIMI, and applying horizontal ownership rules to total ownership properties would violate the legality principle. The Authority claimed that allowing floor-by-floor assessment would constitute an improper analogous application of horizontal ownership tax rules. The arbitral tribunal, constituted on September 9, 2014, under sole arbitrator Ricardo Marques Candeias, determined that testimonial evidence and oral arguments were unnecessary given the purely legal nature of the matter. The decision was scheduled for November 17, 2014, focusing on interpreting whether Stamp Tax incidence depends on individual floor TPV or aggregate property TPV when properties lack horizontal ownership constitution.

Full Decision

ARBITRAL DECISION

Process no. 422/2014-T

Subject: Item 28.1 of the TGIS; Property in full ownership

Applicant/Petitioner: A..., S.A.

Respondent: Tax and Customs Authority (hereinafter TA)

  1. Report

On 09-06-2014, A..., S.A., taxpayer number ..., with headquarters at Avenue ..., Lisbon, hereinafter referred to as the Petitioner, submitted to the Administrative Arbitration Center (CAAD), under article 10 of Decree-Law no. 10/2011, of 21.01, a request for constitution of an arbitral tribunal with a view to declaring the illegality and consequent annulment of the tax acts assessing item no. 28 of the General Table of Stamp Duty, relating to the floors of the urban property in full ownership located at Avenue ..., in Lisbon, described in the Lisbon Real Estate Registry under number ..., of the parish of ..., municipality of Lisbon, registered in the urban property register under article ... of the said parish.

The Petitioner petitions for the annulment of the following stamp duty assessment acts:

  • No. ... – in the amount of € 185.05;
  • No. ... – in the amount of € 858.90;
  • No. ... – in the amount of € 858.90;
  • No. ... – in the amount of € 850.64;
  • No. ... – in the amount of € 850.64;
  • No. ... – in the amount of € 825.88;
  • No. ... – in the amount of € 825.88.

It alleges, for this purpose, that the immovable property of its ownership to which the said Stamp Duty assessments refer, whose legality is disputed, is a property in full ownership, divided into 7 floors, with independent use, and that none of these floors has a taxable patrimonial value (TPV) equal to or greater than € 1,000,000. In its view, the legal requirement for the application of item 28.1 of the General Table of Stamp Duty is not met.

Ricardo Marques Candeias was appointed as sole arbitrator on 29-07-2014. In accordance with the provisions of article 11, no. 1, subsection c), of the RJAT, the single arbitral tribunal was constituted on 09-09-2014.

Notified to that effect, the TA submitted a response on 15-10-2014. It argued that the request for declaration of illegality and consequent annulment of the disputed assessments should be judged as unfounded, since the patrimonial value relevant for the purposes of tax incidence is the total patrimonial value of the urban property and not the patrimonial value of each of the component parts, even if they are susceptible to independent use, since the property is not constituted in horizontal ownership.

The TA further requested the dispensation of the production of testimonial evidence requested by the Petitioner as well as the holding of the meeting referred to in article 18 of the RJAT and respective oral arguments.

Although notified to that effect, the TA did not file the administrative file.

Notified to submit observations, the Petitioner stated that it had nothing to oppose.

Upon further insistence with the TA to proceed with the attachment of the administrative file to the present case, it responded to the effect of its dispensation, alleging that we are dealing with a matter of law and considering the principle of procedural dispatch.

The arbitral tribunal understood, in light of the elements brought to the case, and with no exceptions to resolve, that the holding of the scheduled meeting as well as the production of arguments was not necessary. Consequently, on 06-11-2014, the date of 17-11-2014 was set for the pronouncement of the decision.

The parties have judicial personality and capacity and have procedural legitimacy (articles 4 and 10, nos. 1 and 2, of the RJAT, and article 1, of Ordinance no. 112-A/2011, of 22 March). The case is not affected by nullities and no preliminary questions were raised that need to be addressed.

  1. Factual Matters

Having critically assessed the documentary evidence produced by the Petitioner, the following facts are considered proven and of interest for the resolution of the case:

a) The Petitioner is the owner of the urban property located at ..., in Lisbon, described in the Lisbon Real Estate Registry under number ..., of the parish of ..., municipality of Lisbon, registered in the urban property register under article ... of the said parish;

b) The property is in full ownership, consisting of 7 floors susceptible to independent use;

c) The TA assessed Stamp Duty for the year 2013, dated 17-03-2014, relating to each of the seven floors with independent use and residential allocation existing in the property above identified, in the amount corresponding to 1% of its taxable patrimonial value:

I. Assessment no. ..., in the amount of € 185.05, relating to the seventh floor, with a TPV of € 37,010.00;

II. Assessment no. ..., in the amount of € 858.90, relating to the sixth floor, with a TPV of € 257,670.00;

III. Assessment no. ..., in the amount of € 858.90, relating to the fifth floor, with a TPV of € 257,670.00;

IV. Assessment no. ..., in the amount of € 850.64, relating to the fourth floor, with a TPV of € 255,190.00;

V. Assessment no. ..., in the amount of € 850.64, relating to the third floor, with a TPV of € 255,190.00;

VI. Assessment no. ..., in the amount of € 825.88, relating to the second floor, with a TPV of € 247,760.00;

VII. Assessment no. ..., in the amount of € 825.88, relating to the first floor, with a TPV of € 247,760.00;

d) The deadline for payment of these assessments ended on 30-04-2014.

e) The total patrimonial value of the property is € 1,558,250.00.

f) The Petitioner was notified to proceed with the payment of the said assessment notices in the total amount of € 5,225.89.

g) The Petitioner did not proceed with the payment of the said amount.

The arbitrator's conviction was based on the documentary evidence attached to the case, specifically points a) and e) result from the content of the property register attached to the case and points b), c), d), f) and g) result from the assessment notices of the first installment of the tax.

For the resolution of the case, no other facts of relevance were proven.

  1. On the Law

The issue to be decided relates exclusively to whether the rule of incidence of item 28.1 of the General Table of Stamp Duty (TGIS) is applicable to properties that are not constituted in horizontal ownership. Indeed, in such cases, the question arises whether the said item should apply to the sum of the TPV attributed to the different floors, that is, to the total TPV of the property, or rather to the TPV of each floor with independent economic use of the property.

In the perspective of the petitioner, the "position of the TA is manifestly illegal and even unconstitutional", as it considers that for "a property in vertical ownership the criterion for determining the incidence of stamp duty is the global TPV of the floors and divisions intended for housing". Indeed, "the subjection to stamp duty is determined not by the TPV of the property, but by the TPV attributed to each of the floors or divisions". Consequently, "the TA cannot consider as the reference value of the new tax the total value of the property, since the legislator himself established a different rule in the context of CIMI, which is the Code applicable to matters not regulated regarding item 28 TGIS". If it did, it would result "in a clear violation of the principle of equality and fiscal proportionality". A criterion of contributory capacity should instead prevail, and not merely a formal reality of the property.

In opposing understanding, the TA comes to counter that it is not possible to qualify each floor as a property, pursuant to no. 4 of article 2 of the CIMI, since what the Petitioner seeks is the analogous application of the system instituted for horizontal ownership to properties in full ownership, which would violate the principle of legality. It thus contends for the unconstitutionality of the interpretation of item 28.1 of the TGIS in the sense that the TPV on which its incidence depends is determined per floor and not globally, violating the principle of fiscal legality.

The respondent thus emphasizes the different legal-civil regime attributed to horizontal ownership in relation to full ownership, which would consist, even for fiscal purposes, of different legal institutions, which justifies the different treatment in terms of the incidence of item 28.1 of the TGIS.

It is therefore necessary to examine this.

The controversy under analysis has already been the subject of several CAAD decisions, namely those rendered in processes 14/2014-T, 30/2014-T, 88/2014-T, 132/2013-T and 272/2014-T, which we shall follow closely.

Item 28 of the General Table of Stamp Duty (TGIS) was added by Law 55-A/2012, of 29 October. It establishes the following:

"28 – Ownership, usufruct or right of superficies of urban properties whose taxable patrimonial value recorded in the register, in accordance with the Municipal Tax Code on Immovable Property (CIMI), is equal to or greater than € 1,000,000 – on the taxable patrimonial value used for the purpose of IMI:

28.1 – For property with residential allocation – 1% (…);"

With the addition of no. 2 of article 67 of the Stamp Duty Code (CIS), also operated by the said Law, it was established that as to "matters not regulated in this code relating to item 28 of the General Table the CIMI is applied subsidiarily."

By force of this referral, as the rule of incidence of item 28.1, TGIS, refers to urban properties, it is important to seek the concept of urban property from the CIMI.

The CIMI establishes in article 2, 1, the concept of property. It defines it as "any fraction of territory, encompassing waters, plantations, buildings and constructions of any nature incorporated or based therein, with a character of permanence, provided that it forms part of the patrimony of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the aforementioned circumstances, endowed with economic autonomy in relation to the land on which they are based, although located on a fraction of territory that constitutes an integral part of a different patrimony or does not have a patrimonial nature".

Already article 4 of the CIMI establishes that urban properties are "all those that should not be classified as rustic, without prejudice to the provisions in the following article".

In turn, article 6, ibidem, proceeds with the classification of the various types of urban properties, distinguishing them, in no. 1 of the said article, into four subcategories: "a) Residential; b) Commercial, industrial or for services; c) Land for construction; d) Others". In turn, no. 2 specifies the criterion used for this distinction, defining that "Residential, commercial, industrial or for services are the buildings or constructions licensed for such or, in the absence of a license, that have as normal destination each of these purposes".

Now, we find that no classification of urban properties emerges from any of the legal provisions of the said statute that distinguishes them between properties in horizontal ownership versus properties in vertical ownership.

If the legislator qualifies them as the same legal-fiscal reality, legal support will fail for the application of different fiscal regimes, by force of the legal-civil nature that an urban property with residential allocation may have.

It is true that article 2, 4, of the CIMI, determines that, "for the purposes of this tax, each autonomous fraction, in the regime of horizontal ownership, is deemed to constitute a property". However, it is also true that it does not establish any differentiation between the autonomous fractions of properties in horizontal ownership and the parts of the property with independent use classified as urban residential properties. From this it follows that the legislator intended only, as it did, to differentiate urban properties considering their normal destination, that is, considering the destination to which each of them is bound. From the fiscal point of view we do not see a distinction that civil law provides, between properties in horizontal ownership and properties in vertical ownership. Consequently, this legal characterization is irrelevant to what interests us, which is the scope of tax incidence, both of the IMI and of item 28.1 of the TGIS, resulting from the aforementioned referral. It is rather pertinent the material truth underlying its existence as an urban property and its residential use.

Moreover, given the intention of the legislator in creating item 28 of the TGIS and the application that the TA has been giving to it, it is considered that the criterion adopted by the latter regarding properties in vertical ownership does not conform to the principles of legality, equality and fiscal proportionality, constitutionally enshrined in our legal order.

The principle of fiscal equality should be understood in its material sense. Therefore, the emphasis of this principle will always rest on the contributory capacity of each taxpayer. In other words, we will have equal tax for those with equal contributory capacity, and different tax for those with different contributory capacity. It is certain that the difference in tax will be proportional to the different contributory capacity.

This principle is imposed on us by the combination of article 13 of the Constitution of the Portuguese Republic (CRP), with articles 103 and 104 of the same statute.

Now, the tax established by item 28 of the TGIS aims to harmonize the distribution of the fiscal effort of taxpayers, by imposing this tax on holders of high-value properties intended for housing, exceeding € 1,000,000, per floor with independent use.

Indeed, since the principle of fiscal equality determines that what is equal should be treated equally and what is different should be treated differently from a fiscal standpoint, the differentiated treatment, for taxation purposes, of the floors of a property solely because the same is already in horizontal ownership is not justified, provided that those floors have independent use.

And referring the CIS to the CIMI, we consider that the registration in the register of immovable property in vertical ownership, consisting of different floors with independent use, should obey the same rules of registration of immovable property constituted in horizontal ownership.

Consider, from the outset, the provision in no. 3, of article 12 of the CIMI, according to which "each floor or part of property susceptible to independent use is considered separately in the property register registration, which also discriminates the respective taxable patrimonial value".

We conclude that fixing the total TPV of the property in question as the reference value for the incidence of the new tax, as the TA claims, finds no basis whatsoever in the applicable legislation mentioned above.

Moreover, the Respondent itself issued seven Assessment Notices, each one relating to each of the floors with independent use and residential allocation, containing, furthermore, in each one a particular reference to the TPV of each floor, for the purposes of applying item 28.1 of the TGIS. From this fact results an individual assessment of the tax in relation to each of the parts with independent use and not in relation to the sum of the TPVs of the floors of the property in full ownership.

Considering all the foregoing, the legal criterion to be used for defining the incidence of the tax established in item 28.1 of the TGIS must be identical to that established for the purposes of the IMI.

As can be read in the Arbitral Decision rendered in process 132/2013-T, "there is no indication, in the works relating to the discussion of bill no. 96/XII in the National Assembly, of the invocation of an interpretative rationale different from the one presented here. Indeed, such a measure, called the "special tax on urban residential properties of higher value", was justified by the need to comply with the principles of social equity and fiscal justice, burdening more significantly the holders of properties of high value intended for housing, and, to that extent, by imposing the new "special tax" on "houses with a value equal to or greater than 1 million euros".

It further states in the said decision that "if such logic seems to make sense when applied to 'housing' - be it 'house', 'autonomous fraction' or 'part of property with independent use' / 'autonomous unit' -, because it is assumed that there is a contributory capacity above average and, to that extent, the need for an additional contributory effort is justified, it would make little sense to start disregarding the appraisals 'unit by unit' when only through the sum of the TPVs of the same (because held by the same individual) would the million euros be exceeded".

Wherefore, the TA would only be right and, consequently, entitled to assess the tax in question if one of the floors with independent use corresponded to a TPV greater than € 1,000,000.00, which does not occur in any of the floors of the Petitioner's property. Indeed, the highest value corresponds to € 257,670.00. We thus observe the non-fulfillment of the legal requirement for the incidence of Stamp Duty provided for in item 28 of the TGIS.

Finally, as a consequence of the foregoing, we conclude for the illegality of the stamp duty assessments contested by the Petitioner. Therefore, the taxable matter that serves as the basis for the rule of incidence of item 28.1 of the TGIS should be the TPV determined in accordance with the CIMI, for each of the floors of the property that are susceptible to independent use.

  1. Decision

In light of the foregoing, it is decided to judge totally well-founded the request formulated by the Petitioner in this present tax arbitral process, regarding the illegality of the Stamp Duty assessments no. ..., ..., ..., ..., ..., ... and ..., the same should be considered null, with the necessary legal consequences.

Value of the Case

In accordance with the provisions of article 306, 2, CPC, and 97-A, 1, a), of the CPPT, and 3, 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the action is set at € 5,255.89.

Costs

In accordance with article 22, 4, of the RJAT, and Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is set at € 612.00, to be borne by the Tax and Customs Authority.

Notify.

Lisbon, 09 December 2014.

Text elaborated by computer, in accordance with article 131, no. 5 of the CPC, applicable by referral of article 29, no. 1, subsection e) of the RJAT, with blank lines and reviewed by me.

The sole arbitrator

Ricardo Marques Candeias

Frequently Asked Questions

Automatically Created

Does Stamp Tax under Clause 28.1 of the TGIS apply to individual units of a property held in total ownership?
Under Clause 28.1 of the TGIS, Stamp Tax incidence for properties held in total ownership (not horizontal property) depends on the total property's taxable patrimonial value, not individual floor values. The central dispute in Process 422/2014-T involved whether the €1,000,000 threshold applies per floor or to the entire building. The Tax Authority's position was that properties not constituted as horizontal ownership must be assessed as single units, meaning all floors are aggregated for determining tax liability, even when floors have independent use capabilities.
How is the taxable patrimonial value (VPT) calculated for buildings not under horizontal property regime?
For buildings not under horizontal property regime, the taxable patrimonial value (VPT) is calculated based on the total property value as registered in the property registry and urban property matrix. In Process 422/2014-T, despite the property having seven floors with independent use and individual TPVs, the Tax Authority assessed the total property TPV of €1,558,250. This differs from horizontal property where each autonomous unit (fraction) has its own independent TPV for tax purposes under Article 2(4) of CIMI.
Can a taxpayer challenge Stamp Tax assessments on undivided properties through CAAD arbitration?
Yes, taxpayers can challenge Stamp Tax assessments on undivided properties through CAAD (Administrative Arbitration Center) arbitration under Article 10 of Decree-Law 10/2011. In Process 422/2014-T, A... S.A. successfully petitioned CAAD for arbitration regarding seven Stamp Tax assessments on a property held in total ownership. The arbitral tribunal was constituted with a sole arbitrator, demonstrating that CAAD has jurisdiction over disputes involving Stamp Tax incidence on properties regardless of ownership structure.
What is the €1,000,000 VPT threshold under Clause 28.1 of the General Stamp Tax Table?
The €1,000,000 VPT threshold under Clause 28.1 of the General Stamp Tax Table determines when annual Stamp Tax applies to residential real estate. Properties with taxable patrimonial value equal to or exceeding €1,000,000 are subject to 1% annual Stamp Tax. In Process 422/2014-T, the critical issue was whether this threshold applies to individual floors with independent use (none exceeding €1,000,000) or the total property value (€1,558,250), which would trigger the tax obligation.
Does the independent use of building floors affect Stamp Tax incidence when the property is not constituted as horizontal property?
The independent use capability of building floors does not automatically affect Stamp Tax incidence under Clause 28.1 when the property is not constituted as horizontal property. In Process 422/2014-T, although the building had seven floors with independent residential use, the Tax Authority argued that without formal horizontal property constitution, the property must be treated as a single unit for tax purposes. The petitioner's argument that independent economic use should determine separate taxation was rejected by the Tax Authority, who maintained that formal property structure, not functional independence, determines tax treatment.