Process: 430/2016-T

Date: March 16, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

In Process 430/2016-T, the CAAD examined whether Stamp Tax under verba 28.1 of the General Table of Stamp Tax (TGIS) applies to urban properties held in total ownership when individual units are valued below €1,000,000 but the aggregate property value exceeds this threshold. The case involved a real estate investment fund that owned two Lisbon properties in full ownership, comprising 28 residential units with individual tax patrimonial values (VPT) below €1M but combined VPTs of €1,867,810 and €1,477,100. The Tax Authority assessed Stamp Tax totaling €29,704.60 based on the aggregate property values. The fund challenged these assessments, arguing that verba 28.1 was designed to tax individual high-value dwellings exceeding €1M, not to aggregate values of buildings with multiple units. The fund invoked CAAD precedents (processes 50/2013-T and 132/2013-T) that applied the €1M threshold to individual units in condominium properties, arguing the same principle should apply to total ownership properties. The fund relied on Real Estate Tax Code (CIMI) articles 6, 7(2)(b), and 12(3), which classify properties by actual use rather than formal legal structure, supporting separate evaluation of floors or divisions susceptible of independent use. The Tax Authority countered that under CIMI article 2(4), only autonomous fractions in condominium ownership qualify as separate properties for tax purposes, and these total ownership properties should be treated as two single properties based on their registration records. This case highlights whether substance (independent residential use) or form (property registration structure) should govern Stamp Tax application under verba 28.1 TGIS.

Full Decision

ARBITRAL DECISION

I – Report

  1. On 25 July 2016, A…, S.A., with the tax identification number … and with registered office at …, …, …, Lisbon, came as the managing company and in representation of B… (hereinafter "B…"), with the tax identification number … and equally with registered office at …, …, …, Lisbon, comes, under the provisions of article 2, nº 1, paragraph a), and article 10, nºs 1 and 2, both of Decree-Law nº 10/2011, of 20 January (Legal Regime of Arbitration in Tax Matters or "RJAMT") and of articles 1 and 2 of Ordinance nº 112-A/2011, of 22 March, to request a ruling on the illegality of the refusal orders issued by the Tax and Customs Authority regarding the administrative complaints submitted by the Requesting Party and of the tax acts for the assessment of Stamp Tax issued by the Tax and Customs Authority under item 28.1 of the General Table of Stamp Tax ("TGIS"), with reference to urban properties with registration articles … and …, of the parish of …, municipality of Lisbon, and for the year 2014.

  2. In the Request for arbitral ruling, the Requesting Party opted not to appoint an arbitrator, having been, pursuant to nº 1 of article 6 of the RJAT, by decision of the President of the Deontological Council, appointed as sole arbitrator the undersigned, who accepted the position within the legally stipulated time period.

  3. The parties having been notified of this appointment, they did not manifest the will to refuse it, and the arbitral tribunal was constituted on 19 October 2016.

  4. On 15 November 2016, the Tax and Customs Authority (AT or Defendant) submitted a Response, requesting exemption from holding the meeting provided for in article 18 of the RJAT and from submission of arguments.

  5. Having obtained the agreement of the Requesting Party, the tribunal decided to exempt the holding of the meeting of article 18 of the RJAT and submission of written arguments, indicating that the arbitral decision would be rendered by 31 March 2017.

6. The Request for Ruling

The Requesting Party sustains, in summary (our responsibility):

  • The Fund represented by the Requesting Party was notified of the assessments of Stamp Tax for the year 2014, under item 28.1 of the TGIS, with reference to urban properties with registration article … and registration article …, of the parish of …, Lisbon, in the total amount of € 14,933.60 and € 14,771.00, respectively.

  • These are properties in full ownership, the first (registration …) comprises a total of 15 floors or divisions susceptible of independent use, of which 10 are intended for housing and the second (registration …), has 13 floors or divisions susceptible of independent use, all intended for housing, and in any of the properties each one of the "floors and divisions with independent use" has its own tax patrimonial value, calculated in accordance with the Real Estate Tax Code, all of them inferior to € 1,000,000.00.

  • The referred properties have a total tax patrimonial value, resulting from the sum of the tax patrimonial values of "each one of its floors or divisions susceptible of independent use", in the amounts of € 1,867,810.00, in the case of the property with registration article …, and of € 1,477,100.00 in the case of the property with registration article ….

  • It is requested the declaration of illegality of the refusal orders of the administrative complaints and of the acts of assessment of Stamp Tax that applied item 28 of the TGIS amended by Law nº 55-A/2012, of 29 October 2012, and amended by Law nº 83-C/2013, of 31 December, with which the Government sought to create a "special taxation" that applies only to urban properties with value exceeding one million euros, seeking to promote a "more equitable tax system", in which taxpayers "are called to contribute according to their contributive capacity".

  • The understanding that led to the assessments of Stamp Tax relative to the properties in question in the records, taking into account the result of the sum of the tax patrimonial value of the 10 "floors and divisions with independent use" intended for housing, in the case of the first in the total amount of € 1,493,360.00 and, in the case of the second, of € 1,477,100.00, cannot be accepted in light of the rules enshrined in the Real Estate Tax Code, by referral of article 67, nº 2 of the Stamp Tax Code.

  • Article 6 of the Real Estate Tax Code only distinguishes "urban properties" according to their respective use or the purposes for which they are intended (residential, commercial, industrial or services, land for construction and other), not assuming relevance the respective formal situation (whether or not constituted in condominium ownership) but only the effective "use"

  • Thus it was decided for example in proceedings nºs 50/2013-T and 132/2013-T of the CAAD, that is, if, for the purpose of taxation of urban properties in condominium ownership, under item 28.1, also in urban properties in vertical ownership should be considered the individual tax patrimonial value of each one of its "floors or divisions susceptible of independent use".

  • And it is also what results from articles 7, nº 2, paragraph b) and 12, nº 3, of the Real Estate Tax Code.

  • The taxation, in the concrete situation, of all "floors or divisions susceptible of independent use" of the properties intended for housing in the properties with registration articles … and …, would constitute a total distortion of the content of item 28 (which is the taxation of "houses" in themselves - detached houses, fractions, floors or parts intended for housing - which by their high tax patrimonial value should be object of special taxation) making the assessments illegal due to error in the factual and legal assumptions.

  • This matter has been subject of reiterated case law of the arbitral and administrative courts, namely at the level of the Supreme Administrative Court, and the assessments should be annulled, with reimbursement of the amount of the tax and extinction of the tax enforcement proceedings instituted

  • On a subsidiary basis, it invokes the unconstitutionality of the taxation provided for in item 28 of the TGIS by violation of the principles of equality and contributive capacity (articles 13 and 104 of the Constitution).

  • And it requests condemnation to payment of the due compensation interest regarding the partial payment (in the amount of € 9,593.87) made, added to the default interest, expenses and fees associated with the respective proceedings, in the amount of € 1,473.16.

  • The value of the economic benefit of the request is the value corresponding to the Stamp Tax assessed through the acts that are here challenged - as well as the default interest, expenses and fees associated with the respective tax enforcement proceedings, in the total amount of € 31,177.76.

7. The Response

The Defendant responded, in summary (our responsibility):

  • In accordance with the notion of property contained in article 2 of the Real Estate Tax Code only autonomous fractions of property in condominium ownership regime are considered as properties (nº 4 of article 2).

  • The properties of which the Fund represented by the Requesting Party is owner are found in a regime of full ownership, not possessing autonomous fractions to which fiscal law attributes the qualification of property, that is, for the purposes of Real Estate Tax and also of stamp tax, by virtue of the drafting of the referred item, is not owner of 13+15 autonomous fractions, but rather of two properties, according to its property registration records.

  • Condominium ownership is a specific legal regime of property provided for in articles 1414 and following of the Civil Code, which regulate the establishment and rules on the rights and duties of condominiums, enshrining a more advanced ownership regime, so that, for the purposes of stamp tax assessment the interpreter and applicator of fiscal law cannot apply, by analogy, the same regime of condominium ownership to full ownership.

  • Nor does there exist any lacuna to be filled by analogy, having to apply articles 11 of the Tax Code and 10 of the Civil Code;

  • The Real Estate Tax Code, to which item 28 of the TGIS refers, provides that in the regime of condominium ownership the fractions constitute properties; not being the property subject to the regime of condominium ownership the fractions are, legally, parts susceptible of independent use without having common parts.

  • Being the property subject to the regime of full ownership, but being physically constituted by parts susceptible of independent use, fiscal law attributed relevance to this materiality, evaluating these parts individually, in accordance with article 12, nº 3, of the Real Estate Tax Code, so that each floor or part of property susceptible of independent use is considered separately in the registration, but included in the same registration record, proceeding to the assessment of Real Estate Tax taking into account the tax patrimonial value of each part.

  • The floors or independent divisions, evaluated in accordance with article 12, nº 3, of the Real Estate Tax Code, are considered separately in the registration, containing the respective tax patrimonial value on which Real Estate Tax is assessed, just as happened in the body of article 232, rule 1, of the Land Contribution Code and Tax on Agricultural Industry (C.C.P.I.I.A.), which provided that each dwelling or part of property was automatically taken for the purpose of determining the collective taxable income on which assessment should fall, but, according to the same Code, the collective taxable income had necessarily to correspond to the sum of the rent or rental value of each one of the components of the property with economic autonomy.

  • The registration record must make reference to each one of the parts and also to the patrimonial value corresponding to each one of them, calculated separately in accordance with articles 37 and following of the Real Estate Tax Code, without the unity of the urban property in vertical ownership composed of several floors or divisions being affected by the fact that all or part of these floors or divisions are susceptible of independent economic use;

  • The property does not cease to be only one, its parts not being legally comparable to autonomous fractions in condominium ownership regime and, without prejudice to the regime of co-ownership when applicable, its ownership cannot be attributed to more than one owner;

  • The fact that Real Estate Tax is calculated in accordance with the tax patrimonial value of each part of property with independent economic use does not affect the application of item 28, nº 1, of the TGIS because the determining fact for the application of that item is the total tax patrimonial value of the property and not that of each one of its parcels separately;

  • Condominium ownership and vertical ownership are differentiated legal institutes and, although the establishment of condominium ownership implies a mere legal alteration of the property without new evaluation, the legislator can subject to a distinct fiscal legal framework, therefore discriminatory, properties in regimes of condominium and vertical ownership, benefiting the legally more advanced institute of condominium ownership, without such discrimination being necessarily considered arbitrary, and may even be imposed by the need to impose coherence to the fiscal system;

  • According to item 28.1 the tax patrimonial value relevant for the purposes of the incidence of the tax will, necessarily, be the total tax patrimonial value of the urban property and not the tax patrimonial value of each one of the parts that compose it, even when susceptible of independent use;

  • In conclusion, the tax acts challenged, in terms of substance, did not violate any legal or constitutional precept, and should be maintained in the legal order.

8. Issue to be decided

The fundamental legal question to be decided is whether the scope of the incidence of Stamp Tax provided for in Item 28 of the TGIS includes urban properties not constituted in condominium ownership regime but integrated by floors or divisions susceptible of independent use with residential purpose, when the tax patrimonial value attributed to each one of these distinct parts is inferior to the value of € 1,000,000.00, although the set of independent units intended for housing reaches a total tax patrimonial value equal to or exceeding that amount.

9. Case Management

The collective arbitral tribunal is materially competent, in accordance with the provisions of articles 2, nº 1, paragraph a), of the Legal Regime of Arbitration in Tax Matters.

The parties possess legal personality and capacity and have standing in accordance with articles 4 and 10, nº 2, of the Legal Regime of Arbitration in Tax Matters (RJAT) and article 1 of Ordinance nº 112-A/2011, of 22 March.

The proceedings do not suffer from any nullity nor have the parties raised any exceptions that preclude the merits of the case, so the conditions are met for the rendering of the arbitral decision.

II Foundation

10. Established Facts

It is considered proved that:

10.1. The Fund represented by the Requesting Party is owner of the urban property located at …, nº … to …, bordering with the Street …, nºs … to …, and of the urban property located at … nº …, both with the Postal Code …-…, Lisbon, which have the registration articles U-… and …, of the parish of … (cf. Property Registration Records, documents nºs 71 and 72, attached with the Request).

10.2. The property with registration article U-… is composed of six floors, 15 floors or independent divisions, being intended for housing the following ten (10): 1st D (VPT € 142,360.00), 1st E (VPT 153,890.00; 2nd D (VPT 142,360.00), 2nd E (153,890.00), 3rd D (VPT € 143,820.00); 3rd E (VPT € 155,460.00), 4th D (VPT € 143,820.00,00), 4th E (VPT € 155,460.00); 5th D (VPT € 145,270.00, 5th E (VPT € 157,030.00) (Docs. Nºs 3 to 32 and 71 attached with the Request).

10.3. The property referred to in the previous number has a total VPT of 1,867,810.00 and the sum of the independent divisions intended for housing reaches the amount of € 1,493,360, determining a value of Stamp Tax (item 28 of the TGIS) to be paid in the amount of € 14,933.60, (article 12 of the Request and collection notices, documents 3 to 31 attached with the Request).

10.4. The Requesting Party was notified to pay the assessments, issued on 20 March 2016, of Stamp Tax provided for in item 28.1 of the TGIS, for the year 2014, regarding each one of the divisions intended for housing referred to in the previous points, to be paid in three installments, according to article 120 of the Real Estate Tax Code, each one of the installments regarding each one of the divisions being of the following amounts: 1st D (€ 1,423.60), 1st E (€1,538.90); 2nd D (€ 1,423.60), 2nd E (€ 153,890.00), 3rd D (€1,438.20); 3rd E (€1,554.60), 4th D (€ 1,438.20), 4th E (€ 1,554.60); 5th D (€1,452.70), 5th E (€ 1,570.30) (Collection documents contained in Documents nºs 2 to 32, attached with the Request).

10.5. The property with registration article U-… is composed of seven floors, 13 floors or independent divisions, all intended for housing: basement (VPT € 48,410.00), ground floor D (VPT € 116,520.00), ground floor E (VPT € 116,520.00) 1st D (VPT € 116,520.00), 1st E (VPT €122,610.00); 2nd D (VPT € 116,520.00), 2nd E (VPT €122,610.00), 3rd D (VPT € 116,520.00); 3rd E (VPT €122,610.00), 4th D (VPT € 116,520.00), 4th E (VPT €122,610.00); 5th D (VPT €122,610.00), 5th E (VPT €122,610.00) (documents nºs 33 to 70 and 72 attached with the Request).

10.6. The property referred to in the previous number has a total VPT of € 1,477,100.00, being the value of tax to be paid in the amount of € 14,771.00 (Article 13 of the Request and Documents 33 to 70, attached with the Request).

10.7. The Requesting Party was notified to pay the assessments, issued on 20 March 2015, of Stamp Tax provided for in item 28.1 of the TGIS, for the year 2014, regarding each one of the divisions intended for housing referred to in the previous points, to be paid in installments, according to article 120 of the Real Estate Tax Code, each one of the installments regarding each one of the divisions being of the following amounts: basement (€ 242.05), ground floor D (€ 388.40), ground floor E (€ 388.40) 1st D (€ 388.40), 1st E (€408.70); 2nd D (€388.40), 2nd E (€408.70), 3rd D (€388.40); 3rd E (€408.70), 4th D (€ 388.40), 4th E (€408.70); 5th D (€388.40), 5th E (€408.70) (Collection documents contained in Documents nºs 33 to 70, attached with the Request).

10.8. The collection documents indicate the tax patrimonial values subject to Stamp Tax corresponding to each one of the independent divisions, intended for housing, in each one of the properties/buildings in the numbers above identified showing that the assessment of Stamp Tax, carried out on 20 March 2015, had as foundation item 28.1 of the General Table of Stamp Tax, applying the rate of 1% to the value of the VPT of each one of the referred independent divisions (Collection documents attached with the Request).

10.9. The Requesting Party submitted an administrative complaint of the assessments referred to in the previous numbers, which gave rise to proceedings …2015… (property U…) and …2015… (property U…) coming these to be refused by orders of 28 April 2016, notified by letters nºs … and …, respectively (Documents 1 and 2 attached with the Request).

10.10. On 25 July 2016 the Requesting Party submitted the present Request for arbitral review.

10.11. The Requesting Party provided guarantee (through voluntary mortgage) in the context of the tax enforcement proceedings instituted in the face of the assessments relative to the 1st and 2nd installments of Stamp Tax (Documents 73 and 74 attached with the Request).

10.12. The Requesting Party paid the amount corresponding to the third installments, in the context of the respective tax enforcement proceedings, in the amount of € 9,593.87 (added to the default interest, expenses and fees associated with the respective proceedings, in the amount of € 1,473.16) (Document 75 attached with the Request).

11. Legal Analysis

11.1. Item 28 of the General Table of Stamp Tax (TGIS)

11.1.1. Regime approved by Law nº 55-A/2012, of 29 October

The fundamental legal question in controversy in the present records consists in knowing whether in the case of properties in full ownership, with floors or divisions of independent use but not constituted in condominium ownership regime, the VPT to be considered for the purposes of the incidence of Stamp Tax provided for in item 28.1 of the TGIS should correspond to the VPT of each floor or division with residential purpose and independent use or to the sum of the VPT corresponding to the floors or divisions of independent use with residential purpose.

That is, it is necessary to decide whether the VPT relevant as a criterion of incidence of the tax is the VPT attributed to each one of the parts or residential floors or corresponding to the sum of the tax patrimonial value attributed to each one of the different parts or floors (global VPT).

This question has already been reviewed in many proceedings within the scope of Tax Arbitration[1], not identifying, up to now, arguments that allow breaking the unanimity that has been achieved as to the conclusion of the decisions rendered.

Item 28 of the General Table of Stamp Tax, annexed to the Stamp Tax Code (CIS), was added by article 4 of Law nº 55-A/2012, of 29 October, with the following content:

"28 – Ownership, usufruct or right of superficies of urban properties whose tax patrimonial value shown in the registration record, in accordance with the Real Estate Tax Code (CIMI), is equal to or exceeding € 1,000,000 – on the tax patrimonial value for the purpose of Real Estate Tax:

28-1 – For property with residential purpose – 1%;

28.2 – For property, when the taxpayers that are not natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime, shown in the list approved by ordinance of the Minister of Finance – 7.5%."

In accordance with the amendments to the Stamp Tax Code introduced by article 3 of Law nº 55-A/2012, of 29/10, the Stamp Tax provided for in item 28 of the TGIS applies to a legal situation (nº 1 of article 1 and nº 4 of article 2 of the CIS), in which the respective taxpayers are those referred to in article 8 of the Real Estate Tax Code (nº 4 of article 2 of the CIS), to whom falls the burden of the tax (paragraph u) of nº 3 of article 3 of the CIS).

The CIS, in the wording given by Law nº 55-A/2012, both in article 4, nº 6 ("In the situations provided for in item 28 of the General Table, the tax is due whenever the properties are located in Portuguese territory"), and in article 23, nº 7 ("In the case of tax due for the situations provided for in item nº 28 of the General Table, the tax is assessed annually, in relation to each urban property, by the central services of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in the Real Estate Tax Code"), in combination with article 1 of the Real Estate Tax Code, considers the property itself as the taxable fact (the situation that triggers taxation) as long as it reaches the value provided for in item 28 of the General Table of Stamp Tax, independently of the number of taxpayers, possessors (whether as owners, usufructuaries or superficiaries) of the goods in question.

The wording of item 28.1 of the TGIS was amended by Law nº 83-C/2013, of 31 December, which approved the Budget for 2014, now reading: "For residential property or for land for construction whose construction, authorized or planned, is for housing, in accordance with the provisions of the Real Estate Tax Code".

That is, the relevant concept in a case such as that in the records - assessment relating to 2015 - shifted from "property with residential purpose" to "residential property", and it appears to us that such amendment is not susceptible of altering the interpretation that we have been defending in situations relating to years prior to 2014.

11.1.2. The concept of property used in item 28 of the TGIS

Neither the concept of "properties with residential purpose" in the original wording of item 28.1 nor that of "residential property", in the later wording, are expressly defined in any provision of the CIS or in the Real Estate Tax Code, statute to which article 67, nº 2 of the CIS refers.

In the case at hand, the properties in full ownership have the following composition and value (above 10.2 to 10.7):

  • The property located at …, nº… to …, registration article U-…, has ten independent divisions intended for housing, with tax patrimonial values oscillating between € 142,360.00 and € 157,030.00

  • The property at … nº …, registration article U-…, is composed of 13 floors or independent divisions intended for housing, with tax patrimonial values varying between € 48,410.00 and € 122,610.00.

What is at issue is the exact meaning of the segment of the norm of incidence of stamp tax in the body of item 28 of the TGIS that refers to the tax patrimonial value in accordance with the Real Estate Tax Code: in the case of properties in full ownership but with floors or divisions susceptible of independent use, with residential purpose, the VPT relevant corresponds to the sum of the VPT of the various divisions/floors with residential purpose, the set being considered a single property, as the Defendant contends, or what must be taken into account is the VPT of each one of the respective floors or independent divisions with the referred residential purpose, as the Requesting Party argues?

Now the referred segment (tax patrimonial value considered for the purposes of Real Estate Tax) is integrated in a text that defines as the object of incidence of stamp tax the "Ownership, usufruct or right of superficies of urban properties whose tax patrimonial value shown in the registration record, in accordance with the Real Estate Tax Code (CIMI), is equal to or exceeding € 1,000,000 - (...)" (bold ours).

As has been repeatedly invoked and admitted, the Real Estate Tax Code enshrines, both as to registration and discrimination of the respective tax patrimonial value as well as as to assessment of the tax, the autonomization of the parts of urban property susceptible of independent use and the segregation/individualization of the VPT relative to each floor or part of property susceptible of independent use[2].

Thus, each property (building) corresponds to a single article in the registration record (nº 2 of article 82 of the Real Estate Tax Code) but, in accordance with nº 3 of article 12 of the same Code, referring to the concept of the property registration record (record of the property, its characterization, location, VPT and ownership), "each floor or part of property susceptible of independent use is considered separately in the registration, which discriminates the respective tax patrimonial value", not taking as reference the sum of the tax patrimonial values attributed to the autonomous parts of a single property but the value attributed to each one of them individually considered.

As to Real Estate Tax assessment - application of the rate to the taxable base - article 119, nº 1, of the Real Estate Tax Code provides that "the competent collection document" contains the "discrimination of the properties, their parts susceptible of independent use, respective tax patrimonial value and the tax amount (…)".

That is, for tax purposes the rule is autonomization, the qualification also as "property" of each part of a building, as long as functionally and economically independent, susceptible of independent use, in accordance with the concept of property defined right at nº 1 of article 2 of the Real Estate Tax Code: property is any fraction (of territory, encompassing waters, plantations, buildings and constructions of any nature incorporated in or resting on it, with a character of permanence) provided it is 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 previous circumstances, endowed with economic autonomy (presentation and underlining ours)[4].

Thus, when nº 4 of article 2 provides that "For the purposes of this tax, each autonomous fraction, in the condominium ownership regime, is considered as constituting a property", it does not establish properly an exceptional or special regime for properties in condominium ownership.

After all, each building in condominium ownership (article 92) has only a single registration entry (nº 1), generically describing the building and mentioning the fact that it is in condominium ownership regime (nº 2) and the autonomous status is concretized in the attribution to each one of the autonomous fractions, detailed and individualized, of a capital letter, according to alphabetical order (nº 3). This appears to be the specificity of buildings in condominium ownership.

But in other cases, of properties in vertical or full ownership, the divisions or floors with independent use but without the status of condominium ownership, the registration also enshrines autonomy evidencing the different units with indication of the type of floor/level.

Thus, the arguments of the Defendant are not convincing in the sense of justifying the diversity of treatment under Stamp Tax (item 28) of two types of realities – properties with independent fractions in regime of full or vertical ownership and properties with independent fractions under condominium ownership regime – considering the first situation as constituting a unit, with irrelevance of the economic and fiscal autonomy enshrined in the same Real Estate Tax Code. Against the thesis that these properties are only one for the purposes of item 28 of the TGIS we have the near unanimity of arbitral and administrative decisions, in this case confirmed at the highest level, by the Supreme Administrative Court.

The defense of an interpretation based on an institutional difference between the two ownership situations – and in which the Defendant has frequently glimpsed in item 28 of the TGIS an intent of the legislator to develop the figure of condominium ownership – does not appear to us to result either from the letter of the precept or from its confrontation with other norms of the legal system, from which does not result justification for, in the matter of incidence of Stamp Tax provided for in item 28.1 of the TGIS, giving to fractions of properties in "vertical ownership", endowed with autonomy, treatment different from that granted to properties in condominium ownership, when in any of these situations the Real Estate Tax is applied to the tax patrimonial value evidenced in the registration for each one of the autonomous units.

And there does not exist in the legislative process that led to the approval of Law nº 55-A/2012, of 29 October, any element that allows identifying and legitimizing a purpose (extra-fiscal or fiscal) in the sense of the difference sustained by the Defendant between the two situations: ownership of a building in full ownership or its division into units with status of condominium ownership.

11.2. The ratio legis of items 28 and 28.1 of the TGIS

The interpretation above sustained, resulting from the analysis of the letter of the law and its insertion in the set of other applicable tax norms, is also most consonant with the spirit of the legislative amendments introduced by Law nº 55-A/2012, of 29 October.

As has already been evidenced in other arbitral decisions, "the legislator when introducing this legislative innovation considered as the determining element of contributive capacity urban properties, with residential purpose, of high value (luxury), more rigorously, of value equal to or exceeding €1,000,000.00 on which it began to apply a special rate of stamp tax, seeking to introduce a principle of taxation on the wealth shown in the ownership, usufruct or right of superficies of luxury urban properties with residential purpose. For this reason, the criterion was the application of the new rate to urban properties with residential purpose, whose VPT is equal to or exceeding € 1,000,000.00" (...). "The basis of the measure designated by 'special tax on residential urban properties of highest value' rests on the invocation of the principles of social equity and fiscal justice, calling to contribute in a more intense way the holders of properties of high value intended for housing, applying the new special rate to 'houses of value equal to or exceeding 1 million euros. Clearly the legislator understood that this value, when attributed to a dwelling (house, autonomous fraction or floor with independent use) translates a contributive capacity above average and, as such, capable of determining a special contribution to ensure fair distribution of the fiscal effort."[5]

Given the legislative purpose, it is further concluded that the holding of fractions in full or vertical ownership does not reveal a greater contributive capacity than if they were constituted under the form of condominium ownership. On the contrary, in the majority of cases, as evidenced by Arbitral Decision nº 50/2013, "many of the properties existing in vertical ownership are old, with undeniable social utility, as in many cases they house residents with moderate and more accessible rents, factors that necessarily must be taken into account."

Also the analysis through this lens confirms the correctness of the interpretation that item 28 of the TGIS does not encompass each one of the floors, divisions or parts susceptible of independent use when only from the sum of the respective tax patrimonial values results a VPT exceeding that provided for in the referred item.

The legislator did not intend to treat differently residential properties distinguishing between those that are or are not under condominium ownership regime, but to give relevance to divisions or property fractions intended for housing purposes and considered for the purposes of Real Estate Tax as autonomous units, identifying those whose VPT is superior to one million, understanding that such value configures them as luxurious and justifies specific taxation, as Stamp Tax.

Thus, and even without understanding that item 28 would be affected by unconstitutionality due to different treatment of situations that are tax-wise identical[6], it is considered that "The basis of the measure designated by 'special tax on residential urban properties of highest value' rested on the invocation of the principles of social equity and fiscal justice, calling to contribute in a more intense way the holders of properties of high value intended for housing, applying the new special rate to 'houses of value equal to or exceeding 1 million euros. Clearly the legislator understood that this value, when attributed to a dwelling (house, autonomous fraction or floor with independent use) translates a contributive capacity above average and, as such, capable of determining a special contribution to ensure fair distribution of the fiscal effort."[7]

That is, item 28 was intended to reach properties which, in themselves, individually have value exceeding one million because it was understood that such value would be the threshold for expression of "luxury dwelling", not intending, from this perspective, to reach properties that only combined with others of the same holder (regardless of whether or not they have the legal form of condominium ownership) reach that value.

This legislative choice may or may not deserve agreement, and is even confronted with the alternative (and its respective advantages and actual possibilities) of global wealth taxation or, at least, of the set of all real property of the same holder. But it cannot be overlooked that such was the choice affirmed by the legislator who in the letter of the law left no signs in a different sense.

Thus, the present arbitral tribunal concludes that the assessments of Stamp Tax, effected based on item 28/28.1 of the TGIS, relating to each one of the floors or parts susceptible of independent use, owned by the Requesting Party, object of the present records, are affected by illegality, because the referred legal provisions cannot be interpreted in the sense of their application to floors or parts susceptible of independent use of a property in vertical ownership when only from the sum of each one of these floors or parts is obtained a VPT equal to or exceeding € 1,000,000.00 (one million Euros), not reaching the VPT of each one of said floors or parts that amount.

Thus it has already been decided in various cases by the Supreme Administrative Court. For all, there is cited the Judgment 0166/16, of 4 May 2016, which concluded: «I - Item 28 of the General Table of Stamp Tax (TGIS) added by article 4 of Law nº 55-A/2012, of 29/10, does not apply to urban properties, with a single registration article but constituted by parts with purpose and independent use to which were attributed independent VPT, each one of these of value inferior to one million euros. II - Item 28 of the General Table not having made any distinction between properties in condominium ownership regime and total/vertical ownership and referring to the tax patrimonial value used for the purpose of Real Estate Tax, it will not be incumbent upon the applicator thereof to introduce any distinction, all the more so that it is a rule of incidence. III - If it were the intention of the legislator to tax immovable property having a single registration article, because they are constituted by parts susceptible of independent use to which were assigned various tax patrimonial values, and intended that for the purposes of taxation under stamp tax, in this case, the sum of these various tax patrimonial values be considered, would not have added the final part of the precept: on the tax patrimonial value used for the purpose of Real Estate Tax. IV - Nothing in the law imposing the consideration of any sum of all or part of the VPT attributed to the various parts of a property with a single registration article, so also does it appear improper with the law to perform such arithmetic operation solely for the purpose of the taxation enshrined in item 28 of the General Table of Stamp Tax».

And as evidenced in identical situation, by the Judgment rendered by the Supreme Administrative Court on 24 May 2016, in proceedings 01344/15, there is no need for review of item 28 of the TGIS, "in light of principles and constitutional parameters, rather an interpretation that is teleological and systematic of the same is required, so that the legal orientation that has been followed by the common Courts, and which will now be followed, does not belittle the sound doctrine imposed by that Constitutional Court".[9]

In the case at hand, it results from the established facts that none of the floors intended for housing in the two properties in full ownership has tax patrimonial value equal to or exceeding €1,000,000.00, by which it is concluded by the non-verification of the legal assumption of incidence of Stamp Tax provided for in Item 28 of the TGIS, with consequent illegality of the tax acts under review.

12. Other Requests – Condemnation to payment of compensation interest, default interest and reimbursement of costs and fees paid in tax enforcement proceedings

The Requesting Party requests condemnation of the Defendant to payment of compensation interest regarding the amount of tax paid in the meantime referring to the third installments of the collections of all independent divisions in question.

As it has been peacefully understood when what is at issue is an erroneous interpretation and application by the Defendant of a norm of tax incidence, the arbitral tribunal has, by application of article 24, nº 5 of the RJAT, competence to condemn to payment of compensation interest, in accordance with article 100 of the Tax Code. Thus, the request is granted insofar as it relates to compensation interest to be calculated regarding the amount of collections paid in the meantime, pursuant to articles 43 and 100 of the Tax Code and article 61 of the Code of Tax Procedure and Process.

As to the request for condemnation of the Defendant to payment of default interest to be added to the amount indebted, to be reimbursed, it is verified that the legal assumptions are not met.

This is because default interest aims to compensate the creditor for the delay (default) of the debtor and there is not verified in the case any default insofar as the time period for the Defendant to comply with the judgment only begins with the finality of the present arbitral decision (articles 43, nº 5, of the Tax Code and article 146, nº 2, of the Code of Tax Procedure and Process). Thus, the request of the Requesting Party as to this part of the request is denied.

As to the amounts expended by the Requesting Party due to the institution of the enforcement proceedings of which it was the target for payment of installments not paid voluntarily, we rely on the learned considerations contained in the Judgment of the Supreme Administrative Court of 1 July 2009 (proc. 0374/09), where analyzing a similar question and taking into account the effects provided for in article 100 of the Tax Code, article 103 of the Code of Tax Procedure and Process and article 173, nº 1 of the Code of Administrative Procedure) as to the merits of the challenge, including the "annulment of all consequent acts that have been practiced having as basis or legal-practical assumption the tax act annulled", it was concluded: «Now, by consequent act should be understood the act whose practice and content depends on the existence of a previous act (assumed act) that serves as its cause or basis and thus, is its root and foundation (see judgment of 13/05/09, in appeal nº 483/08, of the administrative section of this Supreme Court). As thus, it is patent that the act of payment of judicial fee by the executed party in tax enforcement proceedings cannot be defined as a consequent act of the tax act object of annulment in a judicial challenge proceeding, first of all because it assumes a nature distinct, the first assuming a nature of judicial costs and, as such, wholly extraneous to the essence of a tax act, moreover practiced in a distinct and autonomous jurisdictionalized procedure (article 103, nº 1 of the Tax Code), thereby exceeding the "object of the dispute" (article 100 cited above)».

13. Decision

With the grounds set forth, the arbitral tribunal decides:

a) To judge the request for arbitral ruling as well-founded and, in consequence, to declare illegal the tax acts of assessment of Stamp Tax (item 28 and 28.1 of the General Table of Stamp Tax) dated 20 March 2015 and affecting the properties with registration articles … and …, of the parish of …, municipality of Lisbon, as expressed in the collection documents identified, in the amounts, respectively, of € 14,933.60 (fourteen thousand nine hundred thirty-three euros and sixty cents) and € 14,771.00 (fourteen thousand seven hundred seventy-one euros), therefore in a total of € 29,704.60 (twenty-nine thousand seven hundred four euros and sixty cents), ordering the annulment of the assessments regarding the year in question with all legal consequences, namely the right of the Requesting Party to the reimbursement of the amount of tax paid in the meantime as well as to the corresponding compensation interest.

b) To judge the request for condemnation to payment of default interest as not well-founded;

c) Not to condemn the Defendant to costs and fees associated with the enforcement proceedings instituted by the Defendant for collection of the taxes whose assessment was the object of the present decision;

d) To condemn the Defendant to costs.

14. Value of the proceedings

In accordance with the provisions of nº 2 of article 315 of the Code of Civil Procedure, in paragraph a) of nº 1 of article 97-A of the Code of Tax Procedure and Process and also of nº 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings the value of the proceedings is set at € 29,704.60 (twenty-nine thousand seven hundred four euros and sixty cents).

15. Costs

For the purposes of the provisions of nº 2 of article 12 and nº 4 of article 22 of the RJAT and nº 4 of article 4 of the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is set at € 1,530.00 (one thousand five hundred thirty euros), pursuant to Table I annexed to said Regulation, to be borne entirely by the Defendant.

Lisbon, 16 March 2017.

The Arbitrator

Manuela Roseiro

[1] On the application of item 28 of the TGIS in the case of properties in full/vertical ownership, there is already publicized a very high number (hundreds) of decisions on the CAAD tax case law website.

[2] "Another aspect that should be evidenced in the registration has to do with the need to make relevant the autonomy that, within the same property, can be attributed to each one of its parts, functionally and economically independent. In these cases, the registration record should not only make reference to each one of the parts but should make express reference to the tax patrimonial value corresponding to each one of them" (Silvério Mateus and Freitas Corvelo, "The Taxes on Real Property and Stamp Tax, Commented and Annotated", Engifisco, Lisbon 2005, pages 159 and 160). And said the same authors (ibidem, p. 160): "This autonomization of the autonomous parts of a property, applicable especially to urban properties, was justified in the scope of the former Land Contribution where the collective taxable income corresponded to the rent or rental value of each one of these components, continued to be justified in the case of Municipal Contribution where the tax patrimonial value had underlying the actual or potential rent and continues to be relevant under Real Estate Tax, given that the valuation factors provided for in articles 38 and following may not be the same for all these components (...) the fact of a property being or not leased continues to have relevance for the purposes of determining the tax patrimonial value both for purposes of Real Estate Tax and for Real Estate Transfer Tax (see Article 17 of Decree-Law 287/2003)" (they referred to the original wording "transitional regime for leased urban properties", a norm to be reviewed, according to its nº 5, when the urban rental law was reviewed, which happened with Law nº 6/2006, of 27/02).

[3] On this aspect, and in line with the comment cited in the previous note, see the foundation contained in the decision of proceedings nº 248/2013-T: "The autonomization in the registration of the parts functionally and economically independent of a property in full ownership is related to reasons of fiscal and extra-fiscal nature. On the fiscal level, this autonomization is related to the determination itself of the tax patrimonial value, which constitutes the taxable base of Real Estate Tax, given that the formula for determining such value, provided for in article 38 of the same Code, contains indices that vary according to the use attributed to each one of these parts. On the extra-fiscal level, this autonomization continues to find justification in the relevance attributed to the tax patrimonial value of properties and their autonomous parts in the legislation on urban rental." There is also mentioned the provision of article 15-O, of Decree-Law nº 287/2003, of 12/11, added by Law nº 60-A/2011, of 30/11 (providing that the safeguard clause relating to the increase of taxation in Real Estate Tax resulting from the general evaluation of urban properties, is applicable per property or part of urban property that is the object of said evaluation) as confirming the individualization, for tax purposes, of the autonomous parts of urban properties.

[4] As observed in the decision of arbitral proceedings nº 132/2013-T: "The norms (...) listed enshrine the principle of autonomization of the independent parts of an urban property, even when not constituted in condominium ownership. That is, each part susceptible of independent use should be, for purposes of Real Estate Tax, valued in light of its specificities and use, resulting in an autonomous VPT, individualizable and corresponding to each part susceptible of independent use."

[5] Excerpts from the Decision in proceedings nº 50/2014-T, also referring to the Arbitral Decision in proceedings nº 48/2013-T, as to the analysis of the discussion of the legislative proposal in the National Assembly.

[6] Various decisions of the Constitutional Court have considered unfounded the invocation, with that foundation, of unconstitutionality of item 28 of the TGIS.

[7] Excerpts from the Decision in proceedings nº 50/2014-T, also referring to the Arbitral Decision in proceedings nº 48/2013-T, as to the analysis of the discussion of the legislative proposal in the National Assembly.

[8] On that question we left some considerations in the arbitral decision of 4 May 2014, in proceedings nº 219/2013-T, where, because it was a single property not divided in condominium ownership nor in independent units, the Request was considered not well-founded as to the legality of the assessment, not accepting the thesis of unconstitutionality of item 28 of the TGIS.

[9] It expressly refers the ruling of the Constitutional Court (the judgment 247/2016, of 04.05.2016 is cited) on the constitutional dimension of items 28 and 28.1 of the General Table of Stamp Tax, added by article 4 of Law nº 55-A/2012, of 29 October, in light of the principles of tax equality, contributive capacity and proportionality, in which it was concluded that the norm contained in the referred item insofar as it imposes annual taxation on the ownership of urban properties with residential purpose, whose tax patrimonial value is equal to or exceeding €1,000,000.00, is not unconstitutional.

Frequently Asked Questions

Automatically Created

Is Stamp Tax under verba 28.1 TGIS due when individual units in a total ownership property are each valued below €1,000,000?
Based on CAAD precedents cited in this case (processes 50/2013-T and 132/2013-T), Stamp Tax under verba 28.1 should not be due when individual units in a total ownership property are each valued below €1,000,000. The taxpayer argued that item 28.1 TGIS was designed to tax high-value residential properties exceeding €1 million to promote a more equitable tax system based on contributive capacity. The Real Estate Tax Code (CIMI) distinguishes urban properties by actual use rather than formal legal structure. Therefore, each independent residential unit should be evaluated separately, and if none exceeds €1M individually, no Stamp Tax is due under verba 28.1, even if the aggregate building value exceeds the threshold.
How does the CAAD interpret the taxable base for Imposto do Selo on properties held in total ownership (propriedade total)?
The CAAD has established precedent treating individual units within total ownership properties similarly to autonomous fractions in condominium ownership for Stamp Tax purposes. In processes 50/2013-T and 132/2013-T, the tribunal determined that the individual tax patrimonial value (VPT) of each floor or division susceptible of independent use should be considered separately for verba 28.1 TGIS purposes. This interpretation aligns with CIMI articles 6, 7(2)(b), and 12(3), which focus on actual use rather than formal property structure. The taxable base is therefore each independent unit's VPT, not the aggregate value of the entire building, even when properties are held in total ownership rather than condominium regime.
Can a real estate investment fund challenge Stamp Tax assessments through tax arbitration at CAAD?
Yes, real estate investment funds can challenge Stamp Tax assessments through tax arbitration at CAAD. In Process 430/2016-T, the real estate investment fund B... successfully initiated arbitration proceedings under Decree-Law 10/2011 (RJAMT - Legal Regime of Arbitration in Tax Matters). The fund, represented by its management company A..., S.A., filed for arbitration on July 25, 2016, under articles 2(1)(a) and 10(1)(2) of the RJAMT and Ordinance 112-A/2011. The arbitral tribunal was constituted on October 19, 2016 with a sole arbitrator. This demonstrates that real estate investment funds have full standing to challenge Stamp Tax assessments, including those under verba 28.1 TGIS, through the Portuguese tax arbitration system.
What is the legal procedure to contest Imposto do Selo liquidations issued under verba 28.1 of the Tabela Geral do Imposto do Selo?
The legal procedure to contest Imposto do Selo liquidations under verba 28.1 TGIS involves: (1) First, submitting an administrative complaint (reclamação graciosa) to the Tax and Customs Authority; (2) If the complaint is refused or not responded to within the legal timeframe, initiating tax arbitration proceedings at CAAD under the RJAMT (Decree-Law 10/2011) and Ordinance 112-A/2011; (3) The arbitration request must specify the challenged acts, legal grounds, and economic value of the dispute; (4) The taxpayer can choose to appoint an arbitrator or allow the President of the Deontological Council to appoint a sole arbitrator; (5) The Tax Authority submits a formal response; (6) The tribunal may hold a hearing under article 18 RJAMT or, with both parties' agreement, proceed directly to decision. In Process 430/2016-T, both parties waived the hearing and written arguments, streamlining the process.
Does the patrimonial tax value (VPT) threshold of €1,000,000 for Stamp Tax apply per independent unit or per entire building in total ownership?
The taxpayer argued that the €1,000,000 VPT threshold for Stamp Tax under verba 28.1 TGIS should apply per independent unit, not per entire building in total ownership. This position was based on CAAD precedents and CIMI provisions emphasizing that properties should be classified by actual use (residential, commercial, etc.) per article 6 CIMI, with articles 7(2)(b) and 12(3) supporting individual unit evaluation. The legislative intent behind verba 28.1 was to tax high-value residential dwellings based on contributive capacity. Applying the threshold to aggregate building values would distort this purpose, capturing properties where no individual dwelling exceeds €1M. However, the Tax Authority countered that under CIMI article 2(4), only autonomous fractions in condominium ownership are separate properties; total ownership properties should be treated as single properties per their registration records.