Process: 436/2016-T

Date: February 15, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD case addresses whether Stamp Tax under item 28.1 of the General Table applies to individual residential units within a mixed-use property in total ownership regime when no single unit exceeds the €1,000,000 threshold. The applicant challenged 60 assessments on residential divisions of a property comprising 71 independent units (60 residential, 11 commercial/services). The key legal question concerns the proper unit of assessment: whether item 28.1 targets the aggregate property or each independent division separately. The applicant argued that the tax authority erroneously applied item 28.1 by treating a mixed-use building as a residential property and by aggregating values across independent units. Central to the dispute is the subsidiary application of CIMI provisions, particularly articles 6, 7, and 12, which require separate valuation of each economically independent unit. Article 12(3) CIMI mandates that each story or independent unit be registered separately with discriminated taxable property values. The applicant contended that since no individual unit met the €1,000,000 threshold, item 28.1 was inapplicable. Additionally, the assessments allegedly lacked sufficient reasoning and contradicted the legislative intent of Law 55-A/2012, which aimed to tax luxury homes rather than ordinary apartments in mixed-use buildings. The case raises fundamental questions about Stamp Tax application to properties in total ownership regime with multiple independent divisions and establishes important precedents for interpreting value-based tax thresholds in complex property structures.

Full Decision

ARBITRAL DECISION

Applicants: A…–, S.A

Respondent: AT - TAX AUTHORITY AND CUSTOMS AUTHORITY

I – REPORT

Application

A …–, S.A, taxpayer no.…, with registered address at Av…, …, …, …-… Lisbon, hereinafter referred to as the Applicant, submitted, on 26-07-2016, pursuant to the provisions of letter a) of paragraph 1 of article 2 and article 10 of Decree-Law no. 10/2011, of 20 January, which approves the Legal Framework for Arbitration in Tax Matters (RJAMT), a request for arbitral decision, in which the AT - TAX AUTHORITY AND CUSTOMS AUTHORITY is the Respondent, hereinafter referred to as the Respondent, with a view to:

  • The declaration of illegality of the stamp duty tax assessment acts numbered: 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 …;

The Applicant alleges, substantially and with relevance to the decision of the case, as follows:

  • The contested assessments have in common the fact that they relate to stories/units susceptible of independent use, with residential allocation, of the same property in a regime of total ownership with stories or divisions susceptible of independent use – the property U … of the parish … …– which includes other stories and divisions susceptible of independent use not allocated to residential use.

  • Therefore, pursuant to the provisions of paragraph 1 of article 3 of the Legal Framework for Tax Arbitration, the prerequisites are met that allow the cumulation of requests for declaration of illegality regarding all assessments subject to this Request for Arbitral Decision.

  • The Applicant is the owner, legitimate proprietor and holder of the income of the urban property registered in the property tax roll of the parish of …, municipality of Lisbon under article … and described in the Property Registration Office of … under number … (of the extinct parish of …).

  • As appears from the content of the respective tax roll, the property registered in the roll under article U –… of the parish of …, municipality of Lisbon, is an "urban property in a regime of total ownership with stories or divisions susceptible of independent use".

  • The said urban property is composed of 71 (seventy-one) stories or divisions susceptible of independent use.

  • Of these 71 stories or divisions susceptible of independent use, 11 stories or divisions have a tertiary allocation – commerce or services – and only 60 have a residential allocation.

  • Each of the assessments subject to this request relates to Stamp Duty, and was made under item no 28.1 of the respective General Table, with the content arising from Law no 55 A/2012.

  • Each of the assessments subject to this Request is levied on one of the stories susceptible of independent use, with residential allocation, of the property identified in article 6 above.

  • Precisely for that reason, the urban property registered in the roll under article U –… of the parish of …, municipality of Lisbon, is not an "urban property with residential allocation".

  • Rather, it is an urban property with various and distinct allocations, according to the different stories susceptible of independent use.

  • None of the stories susceptible of independent use has a taxable property value equal to or greater than € 1,000,000, as proven both by the property booklet attached to the case file and by each of the assessments whose declaration of illegality is requested.

  • It is not understood, therefore, what the concrete interpretation of the provision contained in the CIS that the AT uses to carry out each of the assessments being challenged is.

  • This itself constitutes an independent ground for declaration of illegality, on the basis of insufficient reasoning of the assessment act, which is hereby alleged for all legal purposes.

  • But beyond being incomprehensible, the application of item no 28.1 of the General Table of Stamp Duty, for purposes of each of the Assessments being challenged, is illegal, as it results from an erroneous qualification of the facts and a wrong application of the Law.

  • In fact, item 28 of the General Table of Stamp Duty provides:

"28 – Ownership, usufruct or right of superficies of urban properties whose taxable property value contained in the roll, pursuant to the Municipal Property Tax Code (CIMI), is equal to or exceeding € 1,000,000 – on the taxable property value used for purposes of IMI:

28.1. – Per residential property - ..."

  • And article 3 of Law 55 A/2012 establishes, among others, the amendment to article 67 of the CIS, by which a paragraph 2 is introduced to that article, with the following wording:

"2- To matters not regulated in this Code relating to item no 28 of the General Table, the provisions of the CIMI shall apply subsidiarily."

  • Article 6 of the CIMI provides that there are various types of urban properties depending on their allocation, namely: residential; commercial, industrial and for services; land for construction; others.

  • And article 7, paragraph 1 of the CIMI provides that, in the case of a property falling within more than one of the types provided for in article 6, each economically independent part is valued according to the respective rules, the value of the property being the sum of the different parts.

  • Finally, paragraph 3 of article 12 of the CIMI provides:

"Each story or part of property susceptible of independent use is considered separately in the property registration, which also discriminates the respective taxable property value."

  • From the combination of these provisions of the CIMI results, for purposes of regulating matters relating to item 28 of the General Table of Stamp Duty, pursuant to paragraph 2 of article 67 of the CIS the following:

  1. Item no 28.1 of the General Table of IS applies only to residential urban properties. It does not apply to properties that fall within more than one of the types provided for in paragraph 1 of article 6 of the CIMI.

  2. With respect to urban properties in a regime of total ownership with stories or divisions susceptible of independent use, item no 28.1 of the General Table of IS applies only to each of the units susceptible of independent use allocated to residential use, in relation to which, separately, the condition of application of the said item is verified, relative to the respective taxable property value.

  • In fact, pursuant to the CIMI, in urban properties in a regime of total ownership, the property tax rolls indicate, separately, the taxable property value of each of the units susceptible of independent use that compose them.

  • In these properties there is no single reference to the allocation of the property, such reference being made only separately in relation to each of the stories or divisions susceptible of independent use.

  • In these properties the IMI is liquidated, also separately, for each of these units susceptible of independent use.

  • Precisely because the calculation of the tax payable by each of these independent units may be subject to different rules, namely, for example, depending on whether or not they are leased under contracts that were already in force before the date of entry into force of the CIMI.

  • Hence the relevance of the final part of the text of item no 28 of the Table, or of the provisions of subparagraph ii) of letter f) of paragraph 1 of article 6 of law 55 A/2012.

  • This interpretation is, moreover, the only one compatible with the announced – and much publicized – legislative intent (ratio legis) of the creation of Item no 28 of the General Table of IS, by Law 55 A/2012, according to which it was intended to tax luxury homes and the ownership of real estate held by companies based in tax havens.

  • It is precisely this legislative intent that justifies that only urban properties "with residential allocation and taxable property value exceeding € 1,000,000" are taxed by Item 28.1 of the General Table of IS.

  • Whereas, in Item 28.2, which subjects to taxation companies based in tax havens, all urban properties are taxed, regardless of their allocation, residential or otherwise, because the legislative intent is, there, in combating tax evasion.

  • The legislator's reasoning would be perverted if, under Item 28.1, it were permitted to tax small homes of average or low quality, of types T1 to T3, each with a taxable property value of little more than € 100,000, as if they were luxury homes, merely because the property in which they are included is not constituted in a regime of horizontal ownership and there are more than ten homes of that type in it.

  • Yet it is precisely this perverse interpretation of the Law that the AT seeks to apply with the set of Assessments being challenged.

  • The Taxable Property Value of each of the stories subject to each of the Assessments being challenged in no case exceeds € 316,000 - about one third of the value that the Law sets as the minimum limit of the Taxable Property Value susceptible of being subject to taxation under item 28 of the General Table of Stamp Duty.

  • And, in more than half of the assessments subject to the present Challenge, the Taxable Property Value does not even reach € 200,000 - one fifth of the minimum limit subject to taxation.

  • It is obvious that neither the property in which the stories subject to the Assessments whose declaration of illegality is requested are inserted is a property allocated to residential use – about 40% of the total independent stories that compose it are allocated to commerce and services – nor, much less is it a luxury property; nor is any of the stories that compose it a luxury home.

  • That the interpretation being defended is the only one compatible with the good rules of legal interpretation is further evident from the very fact that the AT proceeds to liquidate the Tax separately for each of the stories.

  • Because residential allocation only exists for each of the stories separately and not for the property as a whole;

  • And the taxable property value for purposes of IMI is the value of each of the stories separately and not the total taxable property value of the property.

  • This is uncovered through the cunning artifice used by the AT, when, in the absence of fields automatically generated by the computer system – designed to deal with the concepts of the CIMI - it manually introduces a reference with no legal basis to the "Taxable Property Value of the Property – total subject to tax –€ 10,886,788.55"

  • Such reference is objectively false: The Taxable Property Value of the Property is € 12,098,806.45 and not € 10,886,788.55.

  • And is intended only to present an apparent legal basis for an illegitimate taxation.

  • Since it is not legally viable to consider the Total Taxable Property Value of the property, because it results from the sum of units independent allocated to residential use and tertiary use, the only Taxable Property Value relevant is the Taxable Property Value of each of the stories susceptible of independent use.

  • And that value does not allow subjection to taxation under Item no 28.1 of the General Table of Stamp Duty.

  • The choice to frame the concrete situation of these proceedings under Item 28.1 of the General Table of Stamp Duty would, furthermore, result in a flagrant and serious violation of the constitutionally enshrined principles of equality and proportionality in tax matters.

  • The serious violation of the principle of equality results from unequal treatment of materially similar situations;

  • Two stories with the same composition and the same taxable property value would be taxed differently, merely because one is part of a property in a regime of horizontal ownership and the other is part of a property in a regime of total ownership with stories susceptible of independent use.

  • It being certain that, in both cases, the urban property is only one, with the same property roll article, divided in one case into "autonomous fractions" and in the other into "stories susceptible of independent use"

  • The serious violation of the principle of proportionality results from the imposition of a tax rate totally disproportionate to the value of the property taxed:

  • The AT would be taxing at the additional rate of 1% per year, stories with a taxable property value of € 100,000, when this additional rate was only envisaged for properties with a taxable property value at least 10 times higher.

  • In the concrete case, the violation of the principle of proportionality in tax matters is even more flagrant, since, in the case of a proprietor that is a company dedicated to the construction and rental of medium-range properties and small dimensions, at controlled values, it will be subject, in this fiscal year, to additional and income-independent taxation, in an amount corresponding to more than 20% of its actual annual total income, a situation that approximates confiscation.

Response of the Respondent

In its Response, the Respondent alleges, briefly, as follows:

  • What is at issue is an assessment that results from the direct application of the legal norm, which translates into objective elements, without any subjective or discretionary assessment.

  • The concept of property is defined in article 2, paragraph 1 of the CIMI, with it being established in paragraph 4 that in the regime of horizontal ownership, each autonomous fraction is considered as constituting a property.

  • It follows from the analysis of the normative provision that a "property in total ownership with stories or divisions susceptible of independent use" is, unequivocally, different from an immovable in a regime of horizontal ownership, constituted by autonomous fractions, that is, several properties.

  • Article 12 of the CIMI establishes the concept of property tax roll, with paragraph 3 concerning exclusively the manner of registering tax roll data.

  • As to the liquidation of IMI, where it is a property in total ownership, the VP serving as the basis for its calculation will be indisputably the VP that the now Respondent defines as "global value of the property".

  • In compliance with the provisions of article 119, paragraph 1 of the CIMI, the collection document is sent to the taxable person with discrimination of the parts susceptible of independent use, respective taxable property value and the tax due to each municipality of the location of the properties.

  • With the assessment being correct and the apportioned tax being due, no compensatory interest is due regarding the Respondent who made the payment, not least because there is no error attributable to the Services, which merely acted, as they should, in strict compliance with the legal norm.

As to the question of the violation of the principles and proportionality in tax matters:

  • First of all, the Respondent puts in question the taxable property value of the property, by the fact that it is characterized by being a property in total ownership with stories or divisions susceptible of independent use and as such does not possess a taxable property value exceeding €1,000,000.00.

  • It argues that there is no norm that stipulates that the taxable property value of a property composed of various stories or divisions susceptible of independent use corresponds to the sum of the respective parts, arguing that we are faced with the defect of violation of law by error as to the legal presuppositions, since each of its stories or divisions susceptible of independent use is considered, pursuant to paragraph 3 of art. 12 of the CIMI, separately in the property registration, which also discriminates the respective value;

  • However, the thesis defended by the Respondent lacks legal support, for although the liquidation of IS, in the situations provided for in item no 28.1 of the TGIS, proceeds according to the rules of the CIMI, the truth is that the legislator reserves the aspects that require the necessary adaptations, namely those where, as is the case with properties in total ownership, even though with stories or divisions susceptible of independent use (although the IMI is liquidated in relation to each part susceptible of independent use) for purposes of IS the property as a whole is relevant because the divisions susceptible of independent use are not considered as property, but only the autonomous fractions in the regime of horizontal ownership, pursuant to paragraph 4 of art. 2 of the CIMI.

  • What, expressly, results from the letter of the law is that the legislator intended to tax with item 28.1 under discussion the properties as a single legal-tax reality, as referred to below.

  • The subjection to stamp duty of item 28.1 of the General Table attached to the CIS results from the combination of two facts: the residential allocation and the taxable property value of the urban property registered in the roll being equal to or exceeding € 1,000,000.00.

  • In fact, it appears from the property booklet that the property is in a regime of total ownership, composed of various parts susceptible of independent use.

  • Being this the property information, in accordance with article 23, paragraph 7 of the CIS, the stamp tax assessments relating to the year 2015 were made by the Tax Administration, taking into account the nature of the urban property at the date of the tax event, applying, with the necessary adaptations, the rules contained in the CIMI.

  • In accordance with the rules of the CIMI, specifically article 113, paragraph 1, the assessment is made on the basis of the taxable property values of the properties and in relation to the taxable persons that appear in the rolls on 31 December of the year to which the same relate.

  • The property being in a regime of total ownership, not possessing autonomous fractions, to which the tax law attributes the qualification of property, because from the notion of property in article 2 of the CIMI, only the autonomous fractions of property in a regime of horizontal ownership are considered as properties – paragraph 4 of the cited article 2 of the CIMI.

  • From the foregoing, the defect of violation of law by error as to the legal presuppositions should be judged inadmissible, with the assessments contested being maintained in the legal order by configuring a correct application of the law to the facts.

  • It further adds that the Respondent understands that we are faced with a violation of the principles of tax equality and proportionality.

  • It is not apparent how the taxation in question could have violated the principle of equality.

  • Horizontal ownership and vertical ownership are differentiated legal institutions.

  • The constitution of horizontal ownership implies, it is a fact, a mere legal alteration of the property, with no valuation (office – circular no. 40,025, of 11.08.200, of the DSCA), but the legislator may, however, submit to a distinct legal-tax framework, therefore discriminatory, properties in a regime of horizontal and vertical ownership, in particular, benefiting the legally more evolved institute of horizontal ownership, without such discrimination being necessarily considered arbitrary.

  • This discrimination may also be imposed by the need to impose consistency to the tax system.

  • The fact that the Respondent legitimately disagrees with this discrimination does not imply the violation of any principle of tax law or even constitutional law.

  • It should be noted that the property registration of each part susceptible of independent use is not autonomous, by roll, but appears in a description in the roll of the property as a whole;

  • What is intended to be concluded is that these norms on valuation procedures, the norms on property registration, and also the norms on the liquidation of the parts susceptible of independent use, do not allow asserting that there should be an equation of the property in a regime of total ownership to the regime of vertical ownership, this because, and as has already been mentioned, it would be illegal and unconstitutional.

  • It is thus a consequence of the fact that the tax event of stamp duty item 28.1 consists of the ownership of urban properties whose taxable property value contained in the roll, pursuant to the CIMI, is equal to or exceeding € 1,000,000.00, that the taxable property value relevant for purposes of the incidence of the tax is, thus, the total taxable property value of the urban property and not the taxable property value of each of the parts that compose it, even when susceptible of independent use.

  • Item 28.1 therefore applies to the ownership, usufruct or right of superficies of urban properties with residential allocation, whose taxable property value contained in the roll, pursuant to the CIMI, is equal to or exceeding € 1,000,000.00.

  • It is a general and abstract norm, applicable in the same manner to all cases in which the respective factual and legal presuppositions are met.

  • Also the different valuation and taxation of an immovable in total ownership as against an immovable constituted in horizontal ownership derives from the different legal effects inherent to these two figures.

  • In fact, the constitution in horizontal ownership determines the division/severance of total ownership and the independence or autonomy of each of the fractions that constitute it, for all legal purposes, pursuant to paragraph 2 of art. 4 of the CIMI and articles 1414 and following of the CC, while a property in total ownership constitutes, for all purposes, a single legal-tax reality.

  • In this way, one cannot conclude by an alleged discrimination in violation of the principle of equality when, in fact, we are faced with distinct realities, valued by the legislator in a different manner.

  • It is further important to note that taxation under Stamp Duty follows the criterion of suitability, to the exact extent that it aims to tax the wealth embodied in the ownership of immovables of high value, emerging in a context of economic crisis that cannot be ignored at all.

  • In fact, the measure implemented seeks to achieve maximum effectiveness as to the objective to be achieved, with the minimum injury to other interests considered relevant.

  • Thus, the choice for this mechanism of obtaining income is justified, which would only be censurable, in light of the principle of proportionality, if it resulted manifestly indefensible.

  • We do not believe that to be the case, because such measure is applicable in the same manner to all holders of immovables with residential allocation of value exceeding € 1,000,000.00.

  • All that is now being defended in this arbitral forum was already the subject of binding information by the AT, with the approval dispatch of 11.2.2013 of the Legal Substitute of the Director-General of the Tax Authority.

  • Otherwise it is also not procedurally sound, as is obvious, the argument invoked by the Applicant that the taxable property value of the property of € 10,886,788.55 is intended only to represent an apparent legal basis for an illegitimate taxation, given that the taxable property value is € 12,098,806.45, because the indication of that taxable property value is the resultant after the exclusion of the stories that do not have exclusively residential allocation.

  • Therefore, we must, necessarily, conclude that the tax acts in question did not violate any legal or constitutional principle, and should thus be maintained.

  • In a recent Arbitral Decision rendered in Proc. no. 668/2015–T, the Arbitral Tribunal decided to judge inadmissible a request for arbitral decision, maintaining in the legal order the Stamp Duty assessments in that case contested, with the grounds and in the following terms:

"(...)It is now important to understand whether the AT acted with error in the factual or legal presuppositions for application, to the case, of item 28.1 of the TGIS.

For the appreciation of the question at issue, it is important, first and foremost, to analyze items no. 28 and 28.1 of the TGIS: "28. Ownership, usufruct or right of superficies of urban properties whose taxable property value contained in the roll, pursuant to the Municipal Property Tax Code (CIMI), is equal to or exceeding (euro) 1,000,000 - on the taxable property value used for purposes of IMI: 28.1 Per property with residential allocation or per land for construction whose building, authorized and envisioned, is for residential purposes, pursuant to the provisions of the IMI Code- 1%".

The Applicant argues that properties in total ownership considered as a whole, when composed of parts susceptible of independent use, do not fall within this normative provision.

It is necessary to interpret, for this purpose, the concept of "property" contained in that item 28.1 of the TGIS. To understand its content, the concepts of property contained in the CIMI (articles 2 to 6) should be consulted - under the provisions of article 67, paragraph 2 of the CIS, according to which, to matters not regulated in the CIS relating to item no. 28 of the TGIS, the provisions of the CIMI shall apply subsidiarily.

And such interpretation should always be carried out pursuant to the provisions of articles 11 of the General Tax Law (LGT) and 9 of the Civil Code, to which it refers, which will be done.

Article 2 of the CIMI defines the concept of property and establishes, specifically, in its paragraph 4, that for purposes of this tax, each autonomous fraction, in the regime of horizontal ownership, is considered as constituting a property. This article says nothing with regard to properties in total ownership or as to parts of properties (stories or divisions susceptible of independent use).

From a literal interpretation of article 2 of the CIMI, there will be no doubt that parts of properties that are not in horizontal ownership do not integrate, for purposes of IMI, the concept of property.

As to the determination of the taxable property value of each property, article 7 of the CIMI applies. In accordance with paragraph 1 of the same, the taxable property value of properties is determined pursuant to this Code. Thus, and in accordance with paragraph 2 letter b) of that article 7, the taxable property value of urban properties with parts that can be classified in more than one of the classifications assigned to urban properties pursuant to article 6 paragraph 1 of the CIMI (namely, residential, commercial, industrial or for services, land for construction and others) is determined as described: "where the different parts are economically independent, each part is valued by application of the corresponding rules, the value of the property being the sum of the values of its parts".

Consequently, also in the determination of the taxable property value of properties, there does not appear to be any reference that specifically determines that the economically independent parts are considered as constituting, of themselves, properties. On the contrary, the literal interpretation of the norm allows one to conclude in the opposite sense: the value of the property is the sum of the values of its parts.

It is reiterated therefore: the CIMI does not equate, for determination of the taxable property value, parts of properties susceptible of independent use with properties. On the contrary, it clearly separates the concepts of "property" and "part of property". Now, returning to article 2 of the CIMI, the "parts of property" are not considered as properties (precisely the opposite of what is specifically referred to as to autonomous fractions, those yes equated to properties). In the concrete case, the urban property is composed of parts (independent) residential and parts (independent) commercial. Thus, the value of the property is, in accordance with the indicated rules, the sum of the values of its parts.

There is not, therefore, equality of treatment in the CIMI between properties in horizontal ownership and properties in total ownership with parts that can be classified in more than one of the classifications assigned to urban properties. As to the former, their respective autonomous fractions are, unequivocally, properties for purposes of IMI, as to the latter, their independent parts do not fall within that concept. The parts compose, as a whole, the property.

Consequently, if the parts of properties, for purposes of IMI, are not properties, then neither will they be for purposes of IS. Thus, the fact giving rise to tax liability is the ownership of the property as a whole, as follows from the concept contained in article 2 of the CIMI.

The Arbitral Tribunal's understanding does not also take into account the arguments surrounding articles 12 paragraph 3 and 119 of the CIMI, relating, respectively, to the concept of property roll and to the liquidation of the tax.

In fact, it is not by mere autonomous registration determined by article 12 paragraph 3 that the stories or divisions susceptible of independent use acquire the quality of property that is not conferred on them by article 2 of the same CIMI.

Property tax rolls are registries in which, namely, the characterization of properties appears (article 12 paragraph 1 CIMI). Of that description are an integral part, in the case of properties in total ownership, the stories or parts of property susceptible of independent use, which the law determines (paragraph 3 of the same article) are separately considered in the same property registration.

As for properties in the regime of horizontal ownership, the law goes further: article 92 of the CIMI establishes that each building in the regime of horizontal ownership corresponds also to only one registration, but each of the autonomous fractions that compose it is detailed and individualized by the letter that corresponds to it.

And even if it were considered that, as to the question of property registration, the treatment between properties in the regime of total ownership and properties in the regime of horizontal ownership is substantially similar, such would not, it is considered, overcome the fact that parts of properties are not specifically contained in article 2 of the CIMI, unlike what happens with autonomous fractions.

Additionally, for each "property" registered in the roll, a property booklet is delivered to its respective owner (article 93 paragraph 1 of the CIMI). Now, there does not exist, for each story or division susceptible of independent use of property in total ownership, an autonomous property booklet, for the clear reason of not being subsumed in the concept of property defined for purposes of this tax.

As to the liquidation of IMI (article 119), the collection document necessarily contains the discrimination of the properties and their parts susceptible of independent use. Such because, under the provisions of article 7 paragraph 2 letter b) of the CIMI, each part susceptible of independent use has the taxable property value calculated separately, as previously indicated.

Consequently, the Applicant's request for declaration of nullity of the assessments at issue based on lack of legal presupposition of the tax event does not proceed: as has been demonstrated, the tax event exists (ownership of urban property with taxable property value exceeding €1,000,000.00).

  • Therefore it is understood that the assessments contested do not suffer from illegality.

Subsequent Proceedings

By order of 25 December 2016, after obtaining the consent of the Parties, the Tribunal determined the dispensation with the holding of the meeting provided for in article 18 of the RJAMT and with arguments.

II – SANCTIONING

The sole Arbitral Tribunal was regularly constituted on 19-10-2016, with the arbitrator being designated by the Deontological Council of CAAD, with all respective legal and regulatory formalities complied with (articles 11, paragraph 1, letters a) and b) of the RJAMT and 6 and 7 of the CAAD Deontological Code).

The Parties have legal personality and capacity, are legitimate and are regularly represented, pursuant to articles 4 and 10 of the RJAMT and article 1 of Ordinance no. 112-A/2011, of 22 March.

The cumulation of claims is admissible under article 3 of the RJAMT.

No nullities were identified in the proceedings.

III – QUESTIONS TO BE DECIDED

A principal question and a subsidiary question are raised.

The principal question raised is that of the incidence of the tax of item 28.1 of the General Table of Stamp Duty on divisions of urban property in total ownership, with residential allocation and susceptible of independent use and as such considered in the tax property roll.

The subsidiary question, to be analyzed only if the Tribunal considers the Applicant's position inadmissible as to the principal question, is that of the constitutionality of the norm contained in item 28.1 of the General Table of Stamp Duty, when interpreted in the sense of encompassing properties in total ownership composed of divisions susceptible of independent use, namely in view of the constitutional principles of tax equality and proportionality.

IV – FACTS PROVEN

The following are the facts proven considered relevant for the decision:

  • The Applicant appeared at the date of the tax events in the tax property register as owner of the property located on Rua do…, nos …, …, …, …, …, and …, registered in the urban property roll under article U … of the parish … …– Lisbon;

  • The said property is described as property in total ownership with 71 stories or divisions susceptible of independent use;

  • Of the 71 divisions susceptible of independent use, 60 have residential allocation. The remaining ones have commercial allocation (commerce or services);

  • No part with independent use with residential allocation has a taxable property value equal to or exceeding 1,000,000.00 euros;

  • The Respondent assessed stamp duty on the taxable property values of the stories or parts susceptible of independent use with residential use, at the rate of 1%, pursuant to the provisions of item 28.1 of the General Table of Stamp Duty (TGIS) relating to the year 2015;

  • The Respondent did not assess stamp duty on the taxable property values of the stories or parts susceptible of independent use with "industrial" or "services" allocation;

  • The sum total of the tax assessed is € 36,289.73;

V - REASONING

1) Question of the applicability of item 28.1 of the General Table of Stamp Duty inciding on divisions of urban property in total ownership, with residential allocation susceptible of independent use

The principal question to be examined and decided is whether the tax of item 28.1 of the General Table of Stamp Duty incides on divisions of urban property in total ownership, with residential allocation susceptible of independent use and as such considered in the tax property roll.

The delimitation of the question to be decided in this case requires additional justification, since the delimitation of the question to be decided touches the core of the entire problem involving the question of the legality or illegality of the assessments contested.

It is not, according to our understanding, a matter of the incidence of the tax on a property in its entirety, but rather on the parts of that property that have residential allocation, separately considered.

The issuance of autonomous assessment acts for the various parts of the property with residential allocation would already be indicative of this, if not conclusive.

But to this aspect – which could be considered merely procedural and formal – there is added another of substantial value.

Although the Tax Administration alleges that it interprets the norm of incidence contained in item 28.1 of the TGIS in the sense that the tax incides on the "property in total ownership" and that it considers, for purposes of incidence, the property as a whole, this is not true, as the Tax Administration excludes from incidence the parts of the property that are not allocated to residential use.

If what were at issue were the incidence – and the consequent taxation – of property as a whole, the Tax Administration could not exclude from incidence the fractions that do not have residential allocation, taxing only part of the property.

One can therefore only conclude that the assessments actually incide on the parts of the property and not on the property as a whole.

On this same question the Supreme Administrative Court has ruled on various occasions, with the doctrine being established that, where a property is constituted in total ownership, the incidence of IS must be determined, not by the taxable property value resulting from the sum of the taxable property value of all the divisions or stories susceptible of independent use (individualized in the property article), but by the taxable property value assigned to each of those stories or divisions intended for residential use.

The basis for this doctrine can be found in one of the first rulings that the Supreme Court delivered on this matter, on 09-09-2015, in case no. 47/15. In this judgment, the Supreme Administrative Court states:

"The concept of 'property (urban) with residential allocation' was not defined by the legislator. Neither in Law no. 55-A/2012, which introduced it, nor in the Property Tax Code, to which paragraph 2 of article 67 of the Stamp Duty Code (equally introduced by that Law) refers subsidiarily. And it is a concept that, probably owing to its imprecision – a fact all the more serious given that it is in function of it that the scope of objective incidence of the new taxation is delimited –, had a short life, given that it was abandoned upon the entry into force of the Law on the State Budget for 2014 (Law no. 83-C/2013, of 31 December), which gave new wording to that item no. 28 of the General Table, and which now delimits its objective scope of incidence through the use of concepts that are legally defined in article 6 of the Property Tax Code.

From the letter of the law nothing inequivocal follows, in fact, as it itself, in using a concept that it did not define and that also was not defined in the instrument to which it referred subsidiarily, lent itself, unnecessarily, to equivocations, in a matter – of tax incidence – in which certainty and legal security should also be paramount concerns of the legislator."

And the Court continues:

"(…)This subject matter is, by force of article 67, paragraph 2 of the Stamp Duty Code, subject to the norms of the Property Tax Code, - 'to matters not regulated in this code relating to item 28 of the General Table the Property Tax Code applies subsidiarily'.

As such, and as has been mentioned so many times, in the understanding of this Court, the mechanism for determining the taxable property value relevant for purposes of the aforementioned item is that which is found established in the Property Tax Code.

Now, article 12, paragraph 3 of the Property Tax Code establishes that 'each story or part of property susceptible of independent use is considered separately in the property registration, which also discriminates the respective taxable property value'.

The legislator devaluing, pursuant to the terms previously mentioned, any prior constitution of horizontal or vertical ownership.

In fact, for him (the legislator), what matters is the material truth underlying its existence as an urban property and its utilization.

It should be noted that the Tax Administration itself appears to agree with the criterion set forth, which is why the assessments that it itself issues are very clear in their essential elements, from which it results that the value subject to incidence is the corresponding to the VPT of each of the stories and the assessments individualized.

Thus, if the legal criterion imposes the issuance of individualized assessments for the autonomous parts of properties in vertical ownership, in the same manner as it establishes for properties in horizontal ownership, clearly it established the criterion, which must be unique and unequivocal, for the definition of the rule of incidence of the new tax.

Thus, there would only be place for incidence of IS (within the scope of Item no. 28 of the TGIS) if some of the parts, stories or divisions with independent use presented a VPT exceeding € 1,000,000.00.

The Tax Administration not being able to consider as the reference value for the incidence of the new tax the total value of the property, when the legislator himself established a different rule under IMI (and, as previously mentioned, this is the code applicable to matters not regulated as regards Item no. 28 of the TGIS).

In conclusion, the current legal regime does not impose the obligation to constitute horizontal ownership, wherefore the action of the Tax Administration translates into an arbitrary and illegal discrimination.

In fact, the Tax Administration cannot distinguish where the legislator himself understood not to do so, on pain of violating the coherence of the tax system, as well as the principle of fiscal legality provided for in article 103 of the Constitution of the Portuguese Republic, and also the principles of justice, equality and tax proportionality.

In the case at hand, the property/properties in question were, at the relevant date of the facts, constituted/constituted in total ownership and had [...] fractions with independent use, as follows from the documents [...].

Given that none of these fractions has a taxable property value equal to or exceeding € 1,000,000.00, as follows from the documents attached to the case file, it is concluded that the legal presupposition for incidence is not met."

We consider that the case law of the Supreme Administrative Court rests on correct grounds, wherefore we understand that we should apply it to the case sub judice, without any modification.

Under the Municipal Property Tax (IMI), the legislator clearly established, in article 12, paragraph 2 of the CIMI, that parts of property with independent use are valued separately, with this value being taken as the basis for tax assessment.

Under Stamp Duty, article 13, paragraph 1 of its respective code provides that "the value of immovables is the taxable property value contained in the roll pursuant to the CIMI".

Therefore, it appears clear that the legislator intended that the taxable property value of the parts with independent use be considered.

The Tax Administration - Tax Authority and Customs Authority appears to conform its action with this understanding, in issuing Stamp Duty assessment acts individualized in relation to each part.

The Tax Administration - Tax Authority and Customs Authority, contrary to what it alleges, does not consider, for purposes of incidence, the property as a whole, but only the independent parts with residential allocation. Therefore, it considers the parts, and not the whole, as the object of the tax.

If it did not consider the independent parts as an autonomous object of tax, then it would be taking as the object of taxation parts of property and not properties as a whole, which would have no legal basis whatsoever and, consequently, would constitute a violation of the principle of fiscal legality.

Moreover, in accordance with article 9, paragraph 1 of the Civil Code, interpretation should not confine itself to the letter of the law, but reconstruct from the texts the legislative thought, taking especially into account the unity of the legal system, the circumstances in which the law was drawn up and the specific conditions of the time in which it is applied. Now, the subjective element of interpretation, to be drawn from the historical elements that are abundantly known in this matter, and which are partially reproduced in the Supreme Court judgment cited, clearly indicates the legislator's intention to subject to taxation residential units ("homes") of high value.

In harmony with all the interpretive elements mentioned, it should be considered that, where a property in total ownership is formed by parts susceptible of independent use, there is only place for incidence of IS (within the scope of Item no. 28 of the TGIS) if some of the parts, stories or divisions with independent use presents a taxable property value equal to or exceeding 1,000,000.00 euros.

As to the arbitral decision that the Respondent invokes in favor of its thesis, we believe that the core of that decision is the conclusion that the CIMI does not equate, for determination of the taxable property value, parts of properties susceptible of independent use with properties.

However, the decision cited does not resolve the difficulty that remains when the Tax Authority, as in the case here under discussion, applies the tax not to the whole of the property but to the set of divisions that have residential allocation and which are only a part of the property.

Put in other terms, the following question is not resolved: being the property in total ownership the only reality to which the term "property" can be applied, but being that property formed by divisions susceptible of independent use, how is the allocation of the property to be determined?

Now, if the concept of property is a central element of the norm of incidence at issue, so too is residential allocation. And what is verified is that residential allocation can only be determined by reference to each independent division, and not to the property as a whole, wherefore the norm could never apply to properties composed of divisions susceptible of independent use, by it being impossible to ascertain in relation to the property as a whole one of the presuppositions for incidence, residential allocation.

For all the above, it must be concluded that the stamp duty assessments impugned are illegal, by violation of tax law, in that they incide on independent parts of properties in total ownership but taking as basis the taxable property value of the sum of such parts and when none of those parts has a taxable property value equal to or exceeding 1,000,000 euros.

2) Question of the constitutionality of the norm of incidence contained in item 28.1 of the TGIS when interpreted in the sense of encompassing properties in total ownership composed of divisions susceptible of independent use, namely in view of the constitutional principles of tax equality and proportionality

Having concluded that item 28.1 of the TGIS is not applicable to properties in total ownership composed of divisions susceptible of independent use, it becomes unnecessary to answer the question formulated subsidiarily, regarding the constitutionality of the norm of incidence contained in item 28.1 of the TGIS when interpreted in the sense of encompassing properties in total ownership composed of divisions susceptible of independent use, namely in view of the constitutional principles of tax equality and proportionality.

V – DECISION

We hold that the Tribunal decides:

  • To declare the illegality and annul all the Stamp Duty assessments contested, relating to the year 2015, inciding on the divisions with residential allocation of the urban property located on Rua…, nos …, …, …, …, … and … registered in the urban property roll under article U … of the parish … …– Lisbon, with the numbers: 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 … 2016 …;

Value of the economic utility of the proceedings: The value of the economic utility of the proceedings is fixed at € 36,289.73 euros.

Costs: In accordance with article 22, paragraph 4 of the RJAMT, the amount of costs is fixed at € 1,836.00 pursuant to Table I attached to the Regulation on Costs in Tax Arbitration Proceedings, to be borne by the Respondent.

Register and notify this arbitral decision to the parties.

Lisbon, Administrative Arbitration Center, 15 February 2017

The Arbitrator

(Nina Aguiar)

Frequently Asked Questions

Automatically Created

What is Imposto do Selo (Stamp Tax) on urban property divisions with independent use in Portugal?
Imposto do Selo on urban property divisions is an annual tax introduced by Law 55-A/2012 under item 28 of the General Table, applying to properties with taxable values equal to or exceeding €1,000,000. Item 28.1 targets residential properties specifically, calculated on the taxable property value used for IMI purposes. When properties are in total ownership regime with independent divisions, controversy arises whether the tax applies to the entire property or each unit separately, especially in mixed-use buildings where individual units don't meet the threshold. According to CIMI article 12(3), each independent unit must be registered separately with discriminated taxable values, supporting the interpretation that the €1,000,000 threshold applies per unit rather than to aggregate property value.
How does total ownership (propriedade total) of a building with independent divisions affect Stamp Tax liability?
Total ownership with independent divisions creates complexity because the property is registered as one unit but comprises multiple independent divisions. CIMI article 7(1) requires properties with multiple types to have each economically independent part valued according to respective rules, while article 12(3) mandates separate registration of each independent unit with discriminated values. This structure raises whether item 28.1 applies to the entire property or each division. The applicant argued that article 67(2) CIS, which applies CIMI subsidiarily to item 28 matters, requires individual assessment of each unit, meaning the €1,000,000 threshold applies per division. This interpretation prevents taxation of ordinary apartments simply because they're part of a larger valuable property, aligning with the legislative intent to tax luxury homes.
Can multiple Stamp Tax assessments on divisions of the same property be challenged together at CAAD?
Yes, multiple Stamp Tax assessments on divisions of the same property can be challenged together at CAAD under article 3(1) RJAMT, which permits cumulation when assessments share common factual or legal elements. In this case, 60 assessments were successfully cumulated because they all: related to residential units within the same property in total ownership regime, were based on item 28.1 of the General Table, and raised identical legal questions about proper interpretation and application of the provision. This procedural efficiency allows taxpayers to challenge systematic errors across related assessments in a single arbitration, avoiding multiple proceedings on identical legal issues and ensuring consistent resolution.
What are the legal grounds for declaring Stamp Tax liquidations illegal under Portuguese tax law?
Stamp Tax liquidations can be declared illegal on several grounds: (1) insufficient reasoning when the tax authority fails to clearly explain the legal basis and factual circumstances; (2) erroneous qualification of facts when the authority mischaracterizes the property's legal nature; (3) wrong application of law when provisions are applied outside their scope. In this case, the applicant alleged the assessments failed to explain how a mixed-use property qualified as 'residential property,' erroneously qualified a property with both residential and commercial units as residential, and wrongly applied item 28.1 to units below the €1,000,000 threshold. Additionally, assessments must comply with the legality principle, meaning taxes can only be levied as expressly provided by law, including proper interpretation of subsidiary legislation like CIMI.
How does the distinction between residential and commercial use divisions impact Stamp Tax on urban properties?
The distinction between residential and commercial divisions is critical because item 28.1 specifically applies to 'residential property' (propriedade habitacional), while other subitems cover different types. CIMI article 6 classifies urban properties by allocation (residential, commercial/industrial/services, construction land, others), and article 7(1) requires properties with multiple types to have each economically independent part valued according to respective rules. When a property in total ownership contains both residential (60 units) and commercial/service units (11 units), it cannot be classified simply as residential. The applicant argued item 28.1 applies only to purely residential properties or, in mixed-use buildings, to individual residential units independently meeting the €1,000,000 threshold, preventing improper aggregation across use types and ensuring alignment with legislative intent to tax luxury homes.