Process: 431/2016-T

Date: November 11, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD arbitral decision 431/2016-T addresses a critical interpretation of Stamp Tax (Imposto de Selo) under Verba 28 of the General Tax Schedule (TGIS) regarding vertical properties not constituted under the horizontal property regime. Property owners challenged stamp tax assessments of €13,856.30 on an urban residential building comprising 18 independent divisions with a total tax assessed value (VPT) of €1,385,630. The central legal dispute concerns how the €1,000,000 threshold for Verba 28.1 stamp tax applies to multi-unit buildings. The Tax Authority (AT) aggregated all division values to exceed the threshold, treating the property as a single taxable unit. The claimants argued each economically independent division should be assessed separately, and since none individually exceeded €1,000,000, no stamp tax liability arises. Each division had received a separate VPT under Article 7(2)(b) of the Municipal Property Tax Code (CIMI). The arbitral proceeding followed standard CAAD procedure: filed July 25, 2016, a single arbitrator was designated October 4, 2016, and the tribunal constituted October 20, 2016. The arbitrator dispensed with oral hearings, finding documentary evidence sufficient. This case raises fundamental questions about Verba 28 TGIS application to vertical properties with multiple independent units, the proper calculation methodology for the threshold, and whether tax authorities can aggregate individual unit values. The decision has significant implications for owners of multi-unit buildings not constituted as horizontal property, potentially affecting stamp tax liability assessment methodology across Portugal. If assessments are annulled, claimants are entitled to reimbursement of amounts unduly paid plus interest, representing a fundamental taxpayer safeguard.

Full Decision

ARBITRAL DECISION

I. REPORT

  1. A… and B…, taxpayers with tax identification numbers … and …, respectively, resident at …, No…, …, …-… …, requested the constitution of an arbitral tribunal in tax matters with a view to declaring unlawful the acts of stamp tax assessment, in the global amount of € 13,856.30, relating to an urban property, not constituted under the horizontal property regime, situated on Av…, No…, in …, Union of Civil Parishes of …, … and …, municipality of ..., registered in the respective property register under article….

The challenged acts of assessment, carried out on the basis of the provision of article 1 of the Stamp Tax Code (CIS), combined with Item No. 28.1 of the respective General Schedule, relate to the year 2015.

As a consequence of the declaration of unlawfulness of the aforementioned acts, the Claimant requests that the annulment of the assessments in question be determined and the consequent reimbursement of the amount unduly paid.

  1. As the basis for the claim, the Claimants allege, in summary, that the taxation provided for in the aforementioned provisions has as its object urban properties with residential use, whose tax assessed value used for purposes of IMI is equal to or greater than € 1,000,000.00. In the case of properties not constituted in horizontal property, but comprised of parts or divisions susceptible to independent use, the tax assessed value used for purposes of IMI and, consequently, relevant for purposes of the incidence of stamp tax is, in accordance with the above-mentioned provision, the value determined with reference to each of those parts or divisions.

  2. For its part, the Respondent – Tax and Customs Administration (AT) – in response to what was alleged, rules in favour of the dismissal of the claim and, consequently, the maintenance of the challenged acts of assessment, on the grounds that there is a single urban property involved, and that the tax assessed value relevant for purposes of the incidence of stamp tax is the value resulting from the sum of the tax assessed values attributed to the various parts that comprise it.

  3. The request for constitution of the arbitral tribunal, filed on 25-07-2016, was accepted by the President of CAAD and automatically notified to the Respondent, (AT) on 19-08-2016.

  4. In accordance with the provisions of letter a) of paragraph 2 of article 6 and letter b) of paragraph 1 of article 11 of Decree-Law No. 10/2011, of 20/01, as amended by article 228 of Law No. 66-B/2012, of 31/12, the Ethics Council designated the undersigned as arbitrator of the single arbitral tribunal, who communicated acceptance of the appointment within the applicable period, and notified the parties of such appointment on 04-10-2016.

  5. Duly notified of such appointment, the parties did not manifest any intention to challenge the designation of the arbitrator, in accordance with the combined provisions of article 11, paragraph 1, letters a) and b) of RJAT and articles 6 and 7 of the Code of Ethics.

  6. Thus, in conformity with the provision of letter c) of paragraph 1 of article 11 of RJAT, as amended by article 228 of Law No. 66-B/2012, of 31/12, the single arbitral tribunal was constituted on 20-10-2016.

  7. Duly constituted, the arbitral tribunal is materially competent, in light of the provision of articles 2, paragraph 1, letter a), of RJAT.

  8. The parties have legal personality and capacity and have standing (arts. 4 and 10, paragraph 2, of RJAT, and art. 1 of Order No. 112-A/2011, of 22/03).

  9. Given the knowledge that arises from the procedural documents submitted by the parties, which is deemed sufficient for the decision, the Court decided to dispense with the meeting to which article 18 of RJAT refers.

  10. The case is not affected by any nullities and no other questions were raised that prevent the examination of the merits of the case, the conditions being met for a final decision to be delivered.

II. FACTS

  1. As matters relevant to the examination of the question raised, the following factual elements are highlighted:

12.1. The Claimants are co-owners of the urban property situated on Avª…, No…, in …, registered in the urban property register of the Union of Civil Parishes of…, … and …, municipality of ..., under article….

12.2. The property in question, in full ownership, is comprised of 18 divisions susceptible to independent use.

12.3. To each of the economically independent divisions a tax assessed value was separately attributed, determined in accordance with the provision of letter b) of paragraph 2 of article 7 of the Municipal Property Tax Code (CIMI).

12.4. None of the parts or storeys with residential use has a tax assessed value exceeding € 1,000,000.00, with their sum resulting in a total tax assessed value of € 1,385,630.00.

12.5. Considering the total tax assessed value of the property, AT proceeded with assessments of stamp tax provided for in Item 28.1 of the respective General Schedule, with reference to the year 2015 and to each of the units susceptible to independent use.

12.6. The Claimant was duly notified of the assessments in question, and was sent the corresponding payment notices for payment in three instalments.

12.7. Following such notification, the Claimant made payment of the assessed tax.

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

III. LEGAL MATTERS

  1. As previously mentioned, the Claimant in its request for arbitral pronouncement argues, essentially, that the provision of Item 28.1 of the General Schedule of Stamp Tax is not applicable to properties in full ownership comprised of parts or divisions susceptible to independent use, whenever the tax assessed value attributed to each of those intended for residential use does not exceed € 1,000,000.00.

  2. In addition to directly questioning the tax incidence provision, in the interpretation underlying the challenged assessments, the Claimant invokes a violation of the principle of material truth.

  3. To what was alleged by the Claimant, AT responded, in summary, that Item 28 of the General Schedule of Stamp Tax applies to urban properties with residential use and that the tax assessed value upon which the application of such legal provision depends is, as expressly results from law, the tax assessed value of each property and not of its distinct parts, even though susceptible to independent use. Concluding, thus, that the tax acts in question, having not violated any legal provision, should be maintained.

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

  5. Indeed, the question to be decided focuses solely on whether, within the scope of the incidence of stamp tax referred to in Item 28 of the General Schedule of Stamp Tax (TGIS), there are contained, or not, residential urban properties which, although not constituted in the horizontal property regime, are comprised of storeys or divisions susceptible to independent use, whenever the tax assessed value attributed to each of those distinct parts does not exceed the value of € 1,000,000.00.

  6. In other words, it is a matter of knowing whether the quantitative element relevant to the aforementioned provision should be considered in function of the tax assessed value attributed to each of the parts, as the Claimant contends, or whether that element is what results from the sum of the tax assessed values attributed to them, as the Respondent (AT) argues.

  7. It is thus necessary, before anything else, to conduct an analysis, albeit brief, of the prerequisites for the incidence of stamp tax on urban properties with residential use, drawing on the relevant tax provisions for the definition of the respective legal concepts.

IV. TAX INCIDENCE

  1. Through Law No. 55-A/2012, of 29/10, Item 28 was added to the General Schedule of Stamp Tax, subjecting to this tax urban properties whose tax assessed value appearing in the register, under the provisions of the Municipal Property Tax Code (CIMI), is equal to or greater than € 1,000,000.00.

  2. The taxable base is constituted by the tax assessed value considered for purposes of IMI, such tax being annually assessed by AT in relation to each urban property (CIS, art. 23, paragraph 7), at the rate of:

  • 1%, per urban property with residential use;

  • 7.5%, per property, when the taxpayers, not being natural persons, are resident in a country, territory or region subject to a clearly more favourable tax regime, appearing in the list approved by order of the Minister of Finance.

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

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

  3. The type of property in question not being disputed, classified as urban and with residential use, in accordance with the criteria established in articles 2, 4 and 6 of CIMI, the only matter in issue is to determine the exact meaning of "tax assessed value considered for purposes of IMI" contained in the provision on the incidence of stamp tax.

  4. It is thus necessary to resort to the rules of CIMI concerning the treatment accorded, under such tax, to parts of urban properties susceptible to independent use, in particular as regards the determination of the respective tax assessed value and rules applicable to the assessment and payment of such tax.

  5. In accordance with paragraph 3 of article 12 of the aforementioned Code, which establishes the concept of property register, "each storey or part of a property susceptible to independent use is considered separately in the registration, which discriminates its respective tax assessed value."

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

  7. However, in the economy of IMI, the separation of parts of urban property susceptible to independent use does not limit itself to their separation in the property register and the discrimination of their respective tax assessed value. Such autonomy extends to the very assessment of the tax.

  8. Indeed, article 119, paragraph 1, of the aforementioned Code provides that the tax payment document must contain the discrimination of the properties, their parts susceptible to independent use and respective tax assessed value. For compliance with this provision, the assessment of IMI, in the strict sense of application of the rate to the taxable base, does not take as reference the sum of the tax assessed values attributed to the autonomous parts of the same property, but the value attributed to each of them individually considered.

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

  10. In accordance with the provision of the aforementioned provision, the safeguard clause relating to the increase in IMI taxation resulting from the general assessment of urban properties applies per property or part of urban property that is the object of such assessment.

  11. It thus follows from the relevant provisions of CIMI, applicable by reference to the stamp tax referred to in Item 28 of the respective Schedule, that the autonomous parts of urban properties assume full autonomy, in terms of assessment and description in the property register and assessment of the tax.

  12. In referring to the tax assessed value considered for purposes of IMI, the provision on the incidence and quantification of stamp tax referred to in Item 28 of the respective Schedule can only appeal to the reality described above, that is, to the tax assessed value considered under IMI in relation to each part of an urban property susceptible to independent use.

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

  14. It is noted that the question raised in this case is, in all respects, identical to those that were raised and decided in numerous arbitral decisions,[ii] as well as judgements of the Supreme Administrative Court,[iii] to whose conclusion, to the effect that the assessment by AT of subjecting taxation to the residential parts of a property in full ownership based on the total assessed value of the property and not on what is actually attributed to each of the parts separately is unlawful, full agreement is expressed.

V. DECISION

For these reasons, and on the basis of the grounds set out, the Arbitral Tribunal decides to uphold the request for arbitral pronouncement, determining the annulment of the questioned assessments with the consequent reimbursement of the amounts paid.

Process Value: The value of the case is fixed at € 13,856.30, in accordance with article 97-A, paragraph 1, letter a) of CPPT, applicable by reference in article 29, paragraph 1, letters a) and b), of RJAT and article 3, paragraph 2, of the Rules of Costs in Tax Arbitration Proceedings.

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

Lisbon, 11 November 2016

The Arbitrator,

Álvaro Caneira

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

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

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

Frequently Asked Questions

Automatically Created

Does Stamp Tax under Verba 28 apply to buildings not constituted as horizontal property?
Verba 28.1 of the General Stamp Tax Schedule applies to urban properties with residential use where the tax assessed value equals or exceeds €1,000,000. Process 431/2016-T addresses whether vertical properties (full ownership buildings) with multiple independent divisions fall within this provision. The claimants argued that vertical properties should be assessed per independent division, while the Tax Authority maintained that the aggregate value of the entire building determines liability regardless of property regime. The dispute centers on whether the horizontal property regime distinction is relevant for stamp tax purposes when a building contains economically independent units valued separately for IMI purposes.
How is the taxable patrimonial value calculated for vertical property with independent units?
Each of the 18 economically independent divisions received a separate tax assessed value (VPT) determined under Article 7(2)(b) of the Municipal Property Tax Code (CIMI). The claimants argued that for Verba 28 stamp tax purposes, each division's individual VPT should be considered separately for the €1,000,000 threshold. The Tax Authority contended that the relevant VPT is the sum of all division values (€1,385,630 total), treating the vertical property as a single unit. This methodological dispute determines whether stamp tax is triggered, as no individual division exceeded €1,000,000 but the aggregate did.
Can the tax authority aggregate individual unit values to reach the €1,000,000 Stamp Tax threshold?
The Tax Authority's position was that it could aggregate tax assessed values of all independent divisions within a vertical property to determine Verba 28 stamp tax liability. AT argued that since there is a single urban property registered under one article, the relevant VPT is the sum of individual division values. The claimants challenged this interpretation, asserting that each independent division with separate VPT for IMI purposes should be considered separately for stamp tax. Since no individual unit exceeded €1,000,000, they argued no stamp tax applies. The arbitral tribunal's resolution of this interpretative conflict establishes the legal methodology for vertical property stamp tax assessment.
What is the CAAD arbitral procedure for challenging Stamp Tax assessments on urban properties?
The standard CAAD arbitration procedure demonstrated in this case involves: (1) taxpayers file a request for tribunal constitution specifying challenged acts and legal grounds; (2) the CAAD President accepts and notifies the Tax Authority; (3) the Ethics Council designates an arbitrator who must accept within the legal deadline; (4) parties receive notification and may challenge the designation; (5) the tribunal is constituted after the challenge period expires; (6) parties submit positions; (7) the arbitrator may hold hearings or decide based on documentary evidence; (8) final decision is issued. This case, filed July 25, 2016, had its tribunal constituted October 20, 2016, demonstrating the relatively expeditious nature of Portuguese tax arbitration.
Are property owners entitled to a refund after annulment of illegal Stamp Tax liquidations?
Yes, when arbitral tribunals declare stamp tax assessments unlawful and order annulment, property owners are entitled to reimbursement of amounts unduly paid. In Process 431/2016-T, claimants had already paid the assessed €13,856.30 in three installments following notification and petitioned for reimbursement. Portuguese tax law provides that when tax assessments are annulled due to illegality, taxpayers have the right to recover amounts paid, typically with statutory interest. This reimbursement right is a fundamental safeguard ensuring taxpayers are made whole when administrative acts are found contrary to law, applying to all annulled tax assessments including stamp tax.