Process: 426/2016-T

Date: February 1, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 426/2016-T) addresses whether a public utility cooperative must pay Stamp Tax under Verba 28.1 of the General Stamp Tax Table on a high-value urban property in Lisbon valued at €7,826,092.30. The Tax Authority assessed €78,260.92 in Stamp Tax (1% annual rate) based on the property's 'residential' designation in the Urban Property Record. The cooperative challenges this assessment on two primary grounds: first, the property should not be classified as residential since its authorization certificate designates it as 'Equipment' and initial registry shows 'Services,' making Verba 28.1 inapplicable; second, as a Legal Entity of Public Utility since 1993, the cooperative claims automatic exemption from Stamp Tax under article 6(c) of the Stamp Tax Code. The cooperative argues this subjective exemption cannot be administratively overridden without violating constitutional tax legality principles enshrined in article 103 of the Portuguese Constitution. Despite paying all three installments under protest, the cooperative seeks annulment of the assessment acts and compensatory interest on amounts paid. The case raises fundamental questions about the interaction between property designation requirements, public utility exemptions, and the scope of automatic tax benefits. The tribunal must determine whether technical designation errors override substantive exemptions and whether public utility status provides blanket immunity from property-based stamp taxes regardless of use or classification.

Full Decision

ARBITRAL AWARD

I – Report

1. The taxpayer company "A…, CRL", with the tax identification number … (hereinafter "Claimant"), filed, on 22 July 2016, a request for constitution of a Collective Arbitral Tribunal, under the terms of the combined provisions of articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter "LRAT"), in which the Tax and Customs Authority (hereinafter "TCA" or "Respondent") is Respondent.

2. The Claimant seeks an arbitral ruling on the illegality, and consequent annulment, of the assessment acts for Stamp Tax purposes (hereinafter "ST") under item 28.1 of the General Table of Stamp Tax (hereinafter "GTST"), relating to the year 2015 and to the property registered in the urban property register under article ... of the parish of ... in Lisbon, and formalized in assessment no. 2015..., in the total amount of €78.260,92, and in collection notes nos. 2016..., 2016... and 2016..., corresponding to three installments. It also requests compensatory interest for the amounts already paid relating to the collection notes.

3. The request for constitution of the Arbitral Tribunal was accepted by His Excellency the President of CAAD and automatically notified to the TCA on 18 August 2016.

4. Under the terms set out in subparagraph a) of section 2 of article 6 and subparagraph b) of section 1 of article 11 of the LRAT, as amended by article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council appointed the arbitrators of the Collective Arbitral Tribunal, who communicated acceptance of the appointment within the applicable period, and notified the parties of this appointment on 30 September 2016.

5. The Collective Arbitral Tribunal was constituted on 18 October 2016; it was regularly constituted and is materially competent, in accordance with the provisions of articles 2, section 1, subparagraph a), 5, 6, section 1, and 11, section 1, of the LRAT (as amended by article 228 of Law No. 66-B/2012, of 31 December).

6. Under the terms of sections 1 and 2 of article 17 of the LRAT, the TCA was notified on 18 October 2016 to submit a response.

7. The TCA submitted its Response on 21 November 2016.

8. In that response the TCA alleges, in summary, the total lack of merit of the Claimant's petition, arguing that the assessment in question is entirely lawful.

9. The Arbitral Order of 28 November 2016 dispensed with the holding of the hearing referred to in article 18 of the LRAT, allowing the parties the possibility to submit written submissions in successive periods of 10 days; and setting, as the deadline for issuing the final decision, 30 days after the submission of submissions by the Respondent, or the expiration of the period for submission of such submissions.

10. The parties submitted written submissions.

11. The proceedings do not suffer from any defects of form and no further preliminary or subsequent questions, prejudicial or by way of exception, remain that would prevent consideration of the merits of the case, with the conditions being met for a final decision to be rendered.

12. The TCA proceeded to appoint its representatives in the proceedings and the Claimant filed a power of attorney, with the Parties thus being duly represented.

13. The Parties have legal personality and capacity and have standing, under the terms of articles 4 and 10, section 2, of the LRAT and article 1 of Ordinance No. 112-A/2011, of 22 March.

II – Grounds: Matter of Fact

II.A. Facts considered proved and with relevance for the decision

1) The Claimant is a Cooperative of a cultural nature whose purpose is to provide cooperators, on a non-profit basis, with a set of cultural, sports and leisure goods and services.

2) The Claimant has been, since 15-01-1993, a Legal Entity of Public Utility.

3) The Claimant's tax situation is fully regularized.

4) The Claimant is the owner of the property registered in the urban property register under article ... of the parish of ... in Lisbon.

5) The property, with 5 floors, is subject to the regime of full (or "vertical") ownership.

6) The authorization certificate for use No. .../... /2007, relating to the property subsequently registered in the urban property register under article ... of the parish of ... in Lisbon, authorizes its use as "Equipment".

7) The registration in the urban property register, in 2008, identifies "Services" as the designation of the property.

8) The Urban Property Record of the property registered in the urban property register under article ... of the parish of ... in Lisbon indicates that its designation is "Residential", and assigns to the property the taxable property value of €7.826.092,30.

9) The Claimant delivered, on 11 July 2016, a Declaration of "Change of Property Designation" seeking to correct this situation and changing the designation from "Residential" to "Services".

10) Stamp Tax was applied to the property in accordance with item 28.1 of the GTST, at the rate of 1%, resulting in an assessment of €78.260,92.

11) The Claimant has already paid in 3 installments the assessed amount.

II.B. Facts considered not proved

Based on the documentary evidence available in the proceedings and consensually accepted by the parties, there remains nothing to be proved with interest for the decision of the case.

II.C. Grounds for the Matter of Fact

With regard to the matter of fact, the Tribunal does not have to pronounce on everything that was alleged by the parties, but rather has the duty to select the facts that matter for the decision and to distinguish the proved from the unproved matter (cf. article 123, section 2, of the TCPA and article 607, section 3 of the CPC, applicable ex vi article 29, section 1, subparagraphs a) and e), of the LRAT).

Thus, the facts pertinent to the judgment of the case are chosen and delimited according to their legal relevance, which is established in light of the various plausible solutions to the question(s) of Law (cf. previous article 511, section 1, of the CPC, corresponding to current article 596, applicable ex vi article 29, section 1, subparagraph e), of the LRAT).

Thus, having regard to the positions taken by the parties, in light of article 110/7 of the TCPA, the documentary evidence and the Case File attached to the proceedings, the facts listed above were considered proved, with relevance for the decision.

In particular, the fact set out in point 2) of the matter of fact results from document 4 submitted by the Respondent, and no subsequent fact has been established, nor even alleged, that contradicts it.

III – Grounds: Matter of Law

III.A. Position of the Claimant

a) The Claimant begins by alleging that the assessment presented to it violates the law and contravenes fundamental principles regarding Stamp Tax.

b) It argues that only by error attributable to the services could an assessment for Stamp Tax have been issued under item 28.1 of the GTST relating to the property registered in the urban property register under article ... of the parish of ... in Lisbon, insofar as that provision refers to "properties with residential designation" or "residential properties".

c) The Claimant further argues that, as a Legal Entity of Public Utility, it is exempt from taxation for Stamp Tax purposes under subparagraph c) of article 6 of the Stamp Tax Code ("STC"), and that such exemption, which is automatic and subjective in nature, cannot be set aside by an administrative act without violation of the principle of tax legality enshrined in article 103 of the Constitution – and this in any manner whatsoever, including the addition of conditions not provided for in the legal framework itself.

d) Nevertheless, and despite having sought to annul the assessments issued, never accepting them, the Claimant has continued to pay the assessments issued under item 28.1 of the GTST.

e) In particular, the Claimant understands that the understanding subscribed by the TCA in assessments of previous years violates article 6, c) of the STC, according to which cooperatives would not be exempt from Stamp Tax with respect to the application of item 28.1 of the GTST.

f) Furthermore, insofar as the use license No. .../... /2007, relating to the property in question, authorizes its use as "Equipment", and the registration in the urban property register identifies "Services" as the designation of the property, it is clear that item 28.1 of the GTST does not apply to that property, which is limited to residential uses of properties.

g) Moreover, as the Claimant emphasizes, Law No. 55-A/2012, of 29 October, itself expressly excluded from taxation under item 28.1 of the GTST legal entities of public utility, by adding a section 6 to article 7 of the STC which, referring to article 44, 1, e) of the EBF, excludes, with respect to those legal entities, properties directly intended for the realization of their purposes – as is the case.

h) The Claimant attributes to error attributable to the services the fact that the designation "Residential" appears in the respective Urban Property Record, and this insofar as the registration in the matrix cannot fail to reflect the designation provided for in the licensing of the property – which in this case was "Equipment".

i) In order to correct that error it was that the Claimant delivered on 11 July 2016, the Declaration of modification of the designation, from "Residential" to "Services".

j) The Claimant concludes that:

1. The property was incorrectly classified for the purposes of the application of item 28.1 of the GTST, since the Urban Property Record was relied upon, which itself contains an error, and not the use license, which exists and unambiguously points to a non-residential use.

2. The taxation under item 28.1 of the GTST was unlawful insofar as, in this manner, it fell on a property with non-residential use.

3. The taxation under item 28.1 of the GTST was also unlawful insofar as it disregarded the subjective exemption that the Claimant automatically benefits from by being a Legal Entity of Public Utility – under the terms of subparagraph c) of article 6 of the STC.

k) The Claimant also claims payment of compensatory interest for the fact of having paid, and going to pay still, the amounts corresponding to the collection notes presented to it.

l) In Submissions, the Claimant reiterated and developed the positions previously exposed.

III.B. Position of the Respondent

a) In its Response, the Respondent begins by noting that the Claimant presents itself, in tax terms, as a Cooperative, and not as a Legal Entity of Public Utility.

b) Being so, the Claimant is subject to its own regime, which is contained in article 66-A of the EBF, which establishes all the benefits that cooperatives can enjoy.

c) The Respondent argues that section 12 of article 66-A of the EBF exhausts the cases of exemption from Stamp Tax that cooperatives can benefit from, and item 28.1 of the GTST is not included in those cases, insofar as it affects the taxable property value of assets in the ownership of the taxpayer.

d) On the other hand, the Respondent recalls the reason for the introduction of item 28.1 of the GTST, which would make any exemptions exceptional, thereby encompassing all ownership of properties with residential designation and value in the matrix exceeding one million euros.

e) This regime, argues the Respondent, is independent of that established in section 12 of article 66-A of the EBF and the latter does not constitute a special regime in relation to the former.

f) This point, in the Respondent's argument, is reinforced by the introduction, by Law No. 7-A/2016, of 30 March, of a section 14 in article 66-A of the EBF, providing that "housing and construction cooperatives are exempt from stamp tax provided for in item 28.1 of the General Table of Stamp Tax", which allows it to be inferred, "a contrario", that the Claimant, not being a Cooperative of either of those two types, cannot benefit from an exemption from the regime of item 28.1 of the GTST.

g) The Respondent insists that the Claimant cannot benefit from the regime of section 6 of article 7 of the STC, and of article 44 of the EBF to which it refers, because, for tax classification purposes, it is not a Legal Entity of Public Utility.

h) Thus, concludes the Respondent, unable to resort to section 12 of article 66-A of the EBF to encompass item 28.1 of the GTST therein, unable to resort to the exemption provided for in section 14 of article 66-A of the EBF, unable to invoke the status that would allow it to resort to the exemption of article 44 of the EBF, there remains for the Claimant the status of non-exempt taxpayer from Stamp Tax corresponding to item 28.1 of the GTST.

i) As to the residential designation of the property, the Respondent notes that Stamp Tax is assessed based on the property register data, under the terms of article 113, 1 of the CIMI to which section 7 of article 23 of the STC refers, and that those data pointed to residential use on 31 December 2015, as the Claimant itself recognizes insofar as it admits that only on 11 July 2016 it delivered a declaration seeking to modify the designation from "Residential" to "Services", when it could have done so between 2008 and 2015, under the terms of article 130 of the CIMI.

j) If an error occurred, concludes the Respondent for this reason, it is due exclusively to the Claimant, contrary to what it alleges.

k) In Submissions, the Respondent reiterated and developed the positions previously exposed.

III.C. Questions to be decided

III.C.1 – On the merits of the case

The essential question to be decided in the present proceedings concerns the assessment of the tax relevance, for Stamp Tax purposes, of the nature of the Claimant as a Cooperative with the status of a Legal Entity of Public Utility.

Indeed, the Claimant claims, in this case, in the first instance, the application of the provisions of article 6, c) of the STC, which provides that:

"Exempt from stamp tax, when this constitutes their charge: (...)

c) Legal entities of administrative public utility and of mere public utility;".

As follows from the matter of fact given as proved, the Claimant has been, since ...-...-1993, a Legal Entity of Public Utility, a status that was recognized by order of the Prime Minister, of 30-12-1992, as published in the Official Journal ...-...-1993.

Thus, the provisions of the aforementioned rule are met, since the Claimant, being a cooperative, which is a legal entity, and having the status of public utility, will be a legal entity of mere public utility, covered, therefore, by the provisions of article 6, c) of the STC. As can be read in the Decision of the Court of Appeal (Southern Region) of 11-12-2012, rendered in case 05814/12[1]:

"The appellant should be considered a legal entity of private law, of an associative basis (cf. article 157 of the Civil Code), without profit motive, which enjoys the status of public utility, which was granted to it under the regime provided for in Decree-Law 460/77, of 7/11 (cf. currently Decree-Law 391/2007, of 13/12). We are therefore dealing with a private legal entity to which the status of public utility has been granted and which the doctrine denominates as a legal entity of mere public utility.".

The TCA argues to the contrary, arguing that the Claimant presents itself, in tax terms, as a Cooperative, and not as a Legal Entity of Public Utility.

With all due respect, neither is any legal ground, direct or indirect, for such conclusion to be discerned, nor does the Respondent present it.

Indeed, the provision in question, article 6, c) of the STC, covers all legal entities, of administrative public utility and of mere public utility, without exception, and no provision is to be found in any sector of the tax legal order that suggests, in the name of systematic coherence, any other meaning.

It is therefore not correct the understanding of the Respondent, according to which the Claimant is subject to the special regime contained in article 66-A of the EBF, which would establish all the benefits that cooperatives can enjoy. Indeed, that provision applies to the generality of cooperatives, and the aforementioned article 6, c) of the STC is a special provision that will apply to cooperatives which, in addition to being such, possess the status of legal entities of public utility.

Such a situation does not prevent the reason for the introduction of item 28.1 of the GTST, nor does it prevent the application of the remaining exemptions arising from the law, including those provided for in article 6 of the STC.

It is equally irrelevant to the matter, with all due respect, the assertion of the Respondent, according to which "The A... is not a public legal entity with its own tax legal personality of this attribute, but rather constitutes a cooperative, as an autonomous center of rights and duties in tax matters.".

Indeed, the provision in question, article 6, c) of the STC, is not restricted to public legal entities, but rather refers to all legal entities of administrative public utility or of mere public utility, regardless of whether they are public or private legal entities. As stated in the Decision of the Court of Appeal (Southern Region) of 19-06-2014, rendered in case 11167/14:

"Legal entities of public utility are legal entities of private law that manage to obtain from the Administration a declaration of public utility by reason of the general or local interest purposes they pursue."

Similarly, another assertion of the Respondent in the proceedings does not prevent the conclusion advanced, according to which "There is no direct connection between the property in the proceedings with residential designation in the amount of € 7.826.092,30, and the exemption provided for in that provision [of article 6/c) of the STC] and the grounds of the declaration of public utility of the A…, as well as its statutory purposes, not being compatible with the rationale of the exemption benefit of the tax, granted to protect extrafiscal public interests relevant that are considered superior to that of taxation itself which prevent, as results from the definition of fiscal benefit.".

Indeed, in the first place, nothing is proved in the proceedings as to the connection, or lack thereof, of the property in the proceedings with the grounds of the declaration of public utility of the A… . Furthermore, the exemption in question is subjective in nature, that is, it is peculiar to the subject who enjoys it, and not to the act or acts it performs. As was written in the Decision of the Supreme Administrative Court of 13-10-2010, rendered in case 0431/10:

"What is certain, however, is that the tax act must be based on a situation of fact or of law, concrete, provided abstractly and typified in the tax law as generating the right to the tax. Such a basis is, therefore, the presupposition of fact or the fact generating the imposition – cf. Cardoso da Costa, Course of Tax Law, 1972, p. 266.

Taxation results, thus, from the concrete verification of all tax presuppositions, as such provided and described, abstractly, in the tax law.

Cf. what has just been said, more extensively, for example, in the decisions of this Section of the Supreme Administrative Court, of 21-10-2009, of 13-1-2010, and of 28-4-2010, rendered in appeals no. 652/09, no. 1124/09, and no. 126/10.

On the other hand - and as is common doctrine -, it is not enough to have passive tax personality, in general, for an entity to integrate, as a taxpayer, in any type of tax obligation. The characteristic structure of each tax species requires fulfillment of certain requirements whose verification depends on the specific tax personality. Personal or subjective exemptions function as negative conditions in relation to the attribution of specific passive tax personality. And thus, specific passive tax personality cannot be attributed to a certain entity, if it benefits from an exemption."

It further appears that, as is stated in the Decision of the Court of Appeal of Porto, of 14-01-2014, rendered in case 1026/12.7TVPRT.P1:

"Although legal entities should, in principle, only exercise the rights and obligations to achieve the purposes for which personality was recognized to them, this consisting of the principle of speciality, this principle is shaped in the law with considerable latitude, comprising the acts necessary for the pursuit of its purposes and even the appropriate ones.".

There does not ultimately prevent what has just been concluded the section 14, added to article 66-A of the STC by Law No. 7-A/2016 of 30 March, which, referring to housing and construction cooperatives, does not distinguish those of public utility from those that are not, and is therefore not a special rule in relation to the aforementioned provision of article 6, c) of the STC.

Thus, considering the Claimant as a legal entity of mere public utility, the tax act that is the subject of the present arbitral action suffers from error in the presuppositions of fact, and consequent error of law, violating the provisions of the aforementioned article 6, c) of the STC, and must therefore be annulled, the consideration of the remaining questions raised by the Claimant being prejudiced.

III.C.2 – On interest

As to the Claimant's request for compensatory interest, article 43, section 1, of the General Tax Law provides that compensatory interest is due when it is determined that there has been error attributable to the services from which results payment of the tax debt in an amount higher than legally due.

In this case, the error that affects the assessment is attributable to the Tax and Customs Authority, which performed the act of assessment on its own initiative, without the due legal support.

The Claimant therefore has the right to be reimbursed the amount it paid (under the terms of the provisions of articles 100 of the General Tax Law and 24, section 1, of the LRAT) and, further, to be compensated for the improper payment through the payment of compensatory interest, by the Respondent, from the date of payment of the amount, until reimbursement, at the legal default rate, under the terms of articles 43, sections 1 and 4, and 35, section 10, of the General Tax Law, article 559 of the Civil Code and Ordinance No. 291/2003, of 8 April.

IV. Decision

In light of all the foregoing, it is decided to fully uphold the petition for arbitral ruling and, in consequence:

a) Annul the act of assessment for Stamp Tax purposes under item 28.1 of the General Table of Stamp Tax, relating to the year 2015 and to the property registered in the urban property register under article ... of the parish of ... in Lisbon, formalized in assessment no. 2015..., in the total amount of €78.260,92, and in collection notes nos. 2016..., 2016... and 2016...;

b) Determine the reimbursement of the tax improperly paid by the Claimant, plus the payment of compensatory interest due from the date of payment of the tax until full reimbursement of the amount paid;

c) Condemn the Respondent in the costs of the proceedings, fixed below.

V. Value of the proceedings

The value of the proceedings is fixed at €78.260,92, under the terms of the provisions of article 97-A of the TCPA, applicable ex vi article 29, section 1, subparagraph a), of the LRAT and article 3, section 2, of the Regulation of Costs in Tax Arbitration Proceedings (RCTA).

VI. Costs

Costs charged to the Respondent, given that the present petition was fully upheld, in the amount of € 2.448.00, under the terms of Table I of the RCTA, and in compliance with the provisions of articles 12, section 2, and 22, section 4, both of the LRAT.

Lisbon, 1 February 2017

The Arbitrators

José Pedro Carvalho
(President)

André Bacelar Gonçalves

Fernando Araújo

[1] Available at www.dgsi.pt, as well as the remaining case law cited without specific mention of source.

Frequently Asked Questions

Automatically Created

What is the Stamp Tax (Imposto do Selo) liability under Verba 28.1 of the General Stamp Tax Table for high-value properties?
Stamp Tax liability under Verba 28.1 of the General Stamp Tax Table applies to urban properties with residential designation valued above statutory thresholds. The tax is calculated at an annual rate of 1% on the taxable property value as determined in the Urban Property Record. For properties exceeding €1 million in value, this results in significant annual tax burdens. In this case, a property valued at €7,826,092.30 generated an annual assessment of €78,260.92. The tax is collected in three equal installments throughout the year via separate collection notes. Critically, Verba 28.1 specifically requires the property to have a 'residential designation' - properties designated as services, equipment, or commercial uses fall outside this provision's scope, even if they exceed the value threshold.
Can a public utility cooperative (cooperativa de utilidade pública) claim exemption from Stamp Tax on urban property?
Public utility cooperatives (cooperativas de utilidade pública) can claim exemption from Stamp Tax under article 6(c) of the Stamp Tax Code (Código do Imposto do Selo). This exemption is characterized as automatic and subjective in nature, meaning it attaches to the legal status of the entity rather than requiring case-by-case approval or being conditioned on specific property uses. Once an entity obtains Legal Entity of Public Utility status (pessoa coletiva de utilidade pública), the exemption operates by force of law. The cooperative argues this exemption cannot be set aside by administrative acts or subjected to additional conditions not provided in the legal framework itself, as doing so would violate the principle of tax legality under article 103 of the Portuguese Constitution. The key dispute is whether this exemption applies comprehensively to all Stamp Tax obligations or whether certain property-based taxes under Verba 28.1 fall outside its scope.
How is Stamp Tax on properties valued over €1 million calculated and collected in annual instalments?
Stamp Tax on properties valued over €1 million under Verba 28.1 is calculated by applying a 1% annual rate to the taxable property value (valor patrimonial tributário) as registered in the Urban Property Record. The assessment is issued annually and payment is structured in three equal installments to distribute the tax burden throughout the year. Each installment is formalized through separate collection notes (notas de cobrança) with specific due dates. Property owners receive the assessment notification detailing the total amount and installment schedule. The taxable value is determined by the property registration system, not market value, making accurate designation (residential versus services/commercial/equipment) critical to tax liability determination.
What is the procedure for challenging a Stamp Tax assessment through CAAD tax arbitration in Portugal?
Challenging a Stamp Tax assessment through CAAD (Centro de Arbitragem Administrativa) tax arbitration requires filing a request for constitution of an arbitral tribunal under the Legal Regime for Arbitration in Tax Matters (RJAT - Decree-Law 10/2011). The taxpayer must submit the request within applicable deadlines, specifying the contested acts and legal grounds for annulment. Upon acceptance, the CAAD President appoints arbitrators to form a collective tribunal. The Tax Authority is notified and must submit a written response within the statutory period (typically 30 days). The tribunal may dispense with oral hearings, allowing parties to submit successive written submissions. The process follows streamlined procedural rules adapted from administrative and civil procedure codes, with the tribunal issuing a final arbitral award within established timeframes. This alternative dispute resolution mechanism provides faster resolution than traditional court litigation.
What are the grounds for annulment of Stamp Tax liquidation acts and entitlement to compensatory interest?
Grounds for annulment of Stamp Tax liquidation acts include: illegality of the assessment due to incorrect application of law (such as wrong property designation making Verba 28.1 inapplicable), failure to apply legally mandated exemptions (like article 6(c) for public utility entities), violation of constitutional tax legality principles, and procedural irregularities. When challenging assessments, taxpayers must demonstrate that the assessment contradicts applicable legal provisions or that the Tax Authority failed to recognize automatic exemptions. If annulment is granted, taxpayers who paid the contested amounts are entitled to compensatory interest (juros indemnizatórios) on the wrongly collected sums, calculated from the payment date until reimbursement. This interest compensates taxpayers for the financial loss resulting from improper tax collection, reflecting the principle that the State must make taxpayers whole when illegally collecting revenue.