Process: 440/2016-T

Date: April 20, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 440/2016-T) addresses the application of Stamp Tax under item 28.1 of the General Table of Stamp Duty (TGIS) to properties held in total ownership (propriedade total). The taxpayer challenged assessments on two buildings in Lisbon containing multiple residential units, each valued below €1,000,000 individually, but exceeding this threshold when aggregated (€1,867,810 and €1,477,100 respectively). The central legal question concerns whether the €1,000,000 threshold triggering the 1% stamp duty rate applies to each independent unit or to the total patrimonial value of the entire building. The Applicant argued that stamp tax should only apply if any individual unit reaches €1,000,000, citing Municipal Property Tax Code principles that treat each independent unit separately with autonomous taxable values. The Tax Authority contended that properties in full ownership constitute a single legal-tax reality, distinct from horizontal property regime where each fraction is deemed a separate property under Article 2(4) of the Municipal Property Tax Code. The Applicant alternatively requested that item 28.1 be disapplied for violating the constitutional principle of equality by treating total ownership properties differently from horizontal property. This case highlights the critical distinction between property ownership regimes in Portuguese tax law and their implications for luxury property taxation.

Full Decision

ARBITRAL DECISION

Arbiter Raquel Franco, designated by the Ethics Council of the Administrative Arbitration Center (CAAD) to form the single arbitral tribunal constituted on 19 October 2016, hereby decides as follows:

I. REPORT

On 26-07-2016, the company "A...", Tax Identification Number..., filed a request for constitution of a single arbitral tribunal, in accordance with the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as LFAT), in which the Tax and Customs Authority is the Respondent.

The request for constitution of the arbitral tribunal was accepted by the Excellent President of CAAD and automatically notified to the Tax and Customs Authority on 19-08-2016.

Pursuant to the provisions of subsection a) of paragraph 2 of Article 6 and subsection b) of paragraph 1 of Article 11 of Decree-Law No. 10/2011, of 20 January, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the Ethics Council designated the undersigned as arbiter of the single arbitral tribunal, who communicated acceptance of the assignment within the applicable period, and notified the parties of this designation on 03-10-2016.

Thus, in accordance with the provisions of subsection c) of paragraph 1 of Article 11 of Decree-Law No. 10/2011, of 20 January, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the single arbitral tribunal was constituted on 19-10-2016.

In the present proceeding, the Applicant requests that the Arbitral Tribunal declare the illegality of the contested stamp duty assessment acts, for the defect of violation of law arising from error in the factual and legal grounds. Alternatively, it requests that the norm provided in item 28.1 of the GTSD be disapplied due to unconstitutionality arising from the constitutional principle of equality.

At issue are stamp duty assessments relating to the year 2015, concerning urban properties registered in the respective property register of the parish of..., municipality of Lisbon, under the registration numbers... and..., which are constituted as full ownership.

The property registered under registration number... is composed of 15 units or parts capable of independent use, of which 10 are intended for housing, and the property registered under registration number... is composed of 13 units capable of independent use, all intended for housing.

Each of the units capable of independent use has its own taxable patrimonial value, however below €1,000,000.00.

The sum of the taxable patrimonial values of registration number 1942 corresponds to €1,867,810.00 and the sum of the taxable patrimonial values of registration number 1943 corresponds to €1,477,100.00.

In summary, the Applicant contends that:

- The Tax and Customs Authority assessed the stamp duty provided for in item 28.1 of the General Table of Stamp Duty (GTSD) at a rate of 1% on the total taxable patrimonial value of the fractions intended for housing.

- The Applicant contends that the Tax and Customs Authority's criterion of considering that the global TPV of the units intended for housing determines the imposition of stamp duty is illegal, because stamp duty should only apply in accordance with item 28.1 of the GTSD if any of the parts, storeys or units with independent use presented a TPV equal to or exceeding €1,000,000.00.

- And this is because the Tax and Customs Authority cannot establish as the reference value for the incidence of stamp duty the total value of the property when the legislature established a different rule in the Municipal Property Tax Code, which is the applicable norm to matters not regulated in the Stamp Duty Code with regard to the incidence of item 28.1 of the GTSD.

- Now, for the purposes of the Municipal Property Tax, each unit capable of independent use has an autonomous and individualisable TPV and the assessment is made on that value; consequently, the same should occur in the application of item 28.1 of the GTSD insofar as there is no legal provision that corresponds to the taxable patrimonial value of a property composed of various storeys or units capable of independent use the sum of the respective parts.

- It further adds that the objective underlying the creation of item 28.1 of the GTSD was to tax taxpayers who presented increased taxable capacity through the ownership, usufruct or possession of the right of superficies of luxury dwellings, which does not occur in the present case, in which residential units with individual value below €1,000,000.00 are at issue.

The Respondent replied to the Applicant's claim on the basis of the following arguments:

- The concept of property is defined in Article 2, paragraph 1 of the Municipal Property Tax Code, and it is provided in paragraph 4 thereof that, under the horizontal property regime, each autonomous fraction is deemed to constitute a property.

- In its understanding, it follows from the analysis of that legal provision that a "property in full ownership with storeys or units capable of independent use" is, unequivocally, different from an immovable under the horizontal property regime, constituted by autonomous fractions, that is, by several properties.

- As regards the assessment of Municipal Property Tax, where properties in full ownership are involved, the TPV that serves as the basis for its calculation will be the TPV that the Applicant defines as "global value of the property", because although the assessment of stamp duty, in the situations provided for in item no. 28.1 of the GTSD, proceeds in accordance with the rules of the Municipal Property Tax Code, the truth is that the legislature makes exceptions for aspects that require appropriate adaptations, namely those in which, as is the case with properties in full ownership, even though with storeys or units capable of independent use (although the Municipal Property Tax is assessed with respect to each part capable of independent use) for the purposes of stamp duty, the property as a whole is relevant, since the units capable of independent use are not deemed to be a property, but only autonomous fractions under the horizontal property regime, in accordance with paragraph 4 of Article 2 of the Municipal Property Tax Code.

- The constitution of horizontal property involves merely a legal alteration of the property, with no appraisal taking place (office - circular no. 40.025, of 11.08.200, of the Department of Property Appraisal), but the legislature may, however, subject properties under the horizontal and vertical property regime to a different tax legal framework, in particular, benefiting the legally more evolved institute of horizontal property, without such discrimination needing to be considered necessarily arbitrary.

- The norms on appraisal procedures, the norms on property registration, and also the norms on the assessment of parts capable of independent use do not permit asserting that there must be an equation between the property in the full ownership regime and the vertical property regime.

- The constitution under horizontal property determines the division/division of full ownership and the independence or autonomy of each of the fractions constituting it, for all legal purposes, in accordance with paragraph 2 of Article 4 of the Municipal Property Tax Code and Articles 1414 et seq. of the Civil Code, whereas a property in full ownership constitutes, for all purposes, a single legal-tax reality.

- The property registration of each part capable of independent use is not autonomous, by matrix, but consists of a description in the register of the property as a whole - see the property record of this property which represents the owner's document containing the property registration elements.

II. HEARING AND PLEADINGS COMPLETION

1. The Tribunal is competent and is regularly constituted, in accordance with Articles 2, paragraph 1, subsection a), 5 and 6, all of the LFAT.

2. The parties have legal personality and capacity, are legitimate and are legally represented, in accordance with Articles 4 and 10 of the LFAT and Article 1 of Ordinance No. 112-A/2011, of 22 March.

3. The proceeding does not suffer from defects that would invalidate it.

4. The Applicant requested the joint consideration of various claims, which involve, generically, the consideration of the same factual circumstances and the interpretation and application of the same rules of law. Thus, in accordance with the provisions of Article 3, paragraph 1, of the Regulations on Tax Arbitration Proceedings, the joinder of claims is accepted.

III. FACTUAL MATTERS

Before proceeding to the consideration of the legal questions, it is necessary to present the factual matters relevant to their understanding and decision, which, having examined the documentary evidence attached to the case file and taking into account the facts alleged, is established as follows:

III.1. Established Facts

- The Applicant is the owner of two urban properties in full ownership registered in the urban property register of the parish of..., Lisbon, under the registration numbers... and..., which are constituted in full ownership.

- The property registered under registration number... is composed of 15 units or parts capable of independent use, of which 10 are intended for housing.

- The property registered under registration number... is composed of 13 units capable of independent use, all intended for housing.

- All units capable of independent use have a TPV assigned and separately determined in accordance with subsection b) of paragraph 2 of Article 7 of the Municipal Property Tax Code.

- None of the units capable of independent use has a taxable patrimonial value equal to or exceeding €1,000,000.00.

- The sum of the taxable patrimonial values of registration number... corresponds to €1,867,810.00 and the sum of the taxable patrimonial values of registration number... corresponds to €1,477,100.00.

- It was on these total TPVs that the Tax and Customs Authority assessed the stamp duty of item 28.1 of the General Table, for the year 2015.

III.2. Non-Established Facts

There are no facts relevant to the decision that have been established as non-proven.

IV. THEMA DECIDENDUM

The essential question at issue in the present proceeding is to determine, with reference to an urban property not constituted under the horizontal property regime, composed of various areas with independent use, with housing allocation, whether the TPV relevant for the purposes of taxation under stamp duty under item 28.1 of the GTSD should be that corresponding to the sum of the taxable patrimonial value attributed to the different independent parts or storeys with housing allocation or whether, on the contrary, the TPV attributed to each storey or unit with independent use should be taken into account for the purposes of the incidence of stamp duty under item 28.1 of the GTSD.

V. LEGAL REASONING

Item 28 of the GTSD provided, at the time of the facts, as follows:

28. Ownership, usufruct or right of superficies of urban properties whose taxable patrimonial value contained in the register, in accordance with the Municipal Property Tax Code (MPTC), is equal to or exceeding (euro) 1,000,000 - on the taxable patrimonial value used for the purpose of Municipal Property Tax: (Added by Article 4 of Law No. 55-A/2012 of 29 October)

28.1 For a residential property or for land for construction whose construction, authorized or intended, is for housing, in accordance with the provisions of the Municipal Property Tax Code - 1%

28.2 For a property, when the taxpayers who are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by ordinance of the Minister of Finance (Added by Article 3 of Law No. 55-A/2012 of 29 October) - 7.5%

In the present proceeding it is necessary to decide whether the TPV relevant as a criterion for the incidence of stamp duty in accordance with item 28.1 of the GTSD is that corresponding to the sum of the taxable patrimonial value attributed to the different parts or storeys (global TPV) or, rather, the TPV attributed to each of the housing parts or storeys.

This question has already been considered in various tax arbitration proceedings, and there is no reason to adopt a different understanding from that which was adopted in decisions handed down previously[1]. Thus:

In accordance with paragraph 2 of Article 67 of the Stamp Duty Code, as to "matters not regulated in this code relating to item 28 of the General Table, the Municipal Property Tax Code shall apply subsidiarily." As the incidence norm of item 28.1 of the GTSD relates to urban properties, it is necessary to seek the concept of urban property in the Municipal Property Tax Code.

The Municipal Property Tax Code establishes, in Article 2, paragraph 1, the concept of property. It defines it as "any fraction of territory, including waters, plantations, buildings and constructions of any nature incorporated therein or situated thereon, with a character of permanence, provided that it forms part of the assets of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the circumstances aforesaid, endowed with economic autonomy in relation to the land on which they are situated, although situated in a fraction of territory that constitutes an integral part of assets which are different or do not have a proprietary nature".

Article 4 of the Municipal Property Tax Code establishes that urban properties are "all those that should not be classified as rural, without prejudice to the provisions of the following article".

In turn, Article 6 of the same Code proceeds to classify the various types of urban properties, distinguishing them, in paragraph 1, into four subcategories: "a) Residential; b) Commercial, industrial or for services; c) Land for construction; d) Others". In turn, paragraph 2 provides the criterion used for this distinction, defining that "Residential, commercial, industrial or for services are buildings or constructions licensed for such purposes or, in the absence of a license, that have as normal purpose each of these ends".

With regard to the specific question which is the object of the present decision, it is important to consider Article 12, paragraph 3, of the Municipal Property Tax Code, in accordance with which "each storey or part of a property capable of independent use is considered separately in the property registration, which also discriminates the respective taxable patrimonial value".

Finally, in accordance with Article 119, paragraph 1 of the Municipal Property Tax Code, "The services of the Directorate-General of Taxes send to each taxpayer, by the end of the month prior to that of payment, the relevant billing document, with discrimination of the properties, their parts capable of independent use, respective taxable patrimonial value and the collection attributable to each municipality of the location of the properties."

As recognized by legal scholarship, the fiscal concept of property departs from the civil concept of property, contrary to what the Respondent contends, and "For tax purposes, paragraph 1 of this article [2 of the Municipal Property Tax Code] provides for the existence of three requirements necessary for one to be faced with the concept of property, namely, physical structure, patrimonial nature and economic value." (Cf. J. Silvério Mateus and L. Corvelo de Freitas, Taxes on Real Estate Property, Stamp Duty, Annotated and Commented, Engifisco, 1st edition, 2005, p. 101).

Thus, "the physical element is defined by reference to 'any fraction of territory', including waters, plantations and constructions of any nature incorporated therein or situated thereon with a character of permanence. On the legal plane, relevance is attributed to patrimonial nature. The asset, in the physical sense, must be capable of integration into the assets of a natural or legal person. (...) The requirement of economic value is naturally associated with the requirement of patrimonial nature, resulting therefrom the susceptibility of generating income or other types of utilities for its holder." (op.cit.).

In the present case, it appears to us that all three requirements mentioned are met, in that the parts or units capable of independent use which are the object of the assessment acts in question have physical correspondence with reality, form part of the assets of the Applicant, and possess an economic value which, at the very least, derives from the TPV that was attributed to them by the appraisal conducted by the Tax and Customs Authority.

Thus, it appears to us that the parts or units capable of independent use, fulfilling all the requirements to qualify as a "property", in economic, physical and patrimonial terms, should be considered autonomously for the purposes of the incidence of item 28.1 of the GTSD.

Furthermore, in the incidence rule contained in item 28.1 of the GTSD, the legislature did not consider it relevant to distinguish between properties in horizontal ownership and properties in vertical ownership. And this, in our understanding, because what is ultimately relevant is the economic purpose of the immovable, as also follows from Article 6 of the Municipal Property Tax Code, in light of the constitutional principles inherent in Articles 103, paragraph 1 and 104, paragraph 3, of the Portuguese Constitution. In truth, in terms of economic substance, there is no difference between a building in horizontal ownership and a building in vertical or full ownership constituted by parts or units capable of independent use, thus justifying, in terms of incidence rules – and in particular, the rule contained in item 28.1 of the GTSD – the equal treatment of these two situations. Moreover, the fiscal legislature also determines this equal treatment in Article 119 of the Municipal Property Tax Code, when it establishes that the tax should be assessed individually on each part or unit capable of independent use, taking into account the TPV of each part or unit capable of independent use, individually considered.

It follows from the foregoing that the rule contained in item 28.1 of the GTSD should be applied indiscriminately, both to urban residential properties constituted in horizontal ownership and to those in full or vertical ownership, with the tax inciding on the TPV attributed by the Respondent, through general appraisal, to each of the parts or units capable of independent use (moreover, the Respondent issued, in the case which is the subject of the present proceedings, as many assessment acts as there are parts or units capable of independent use intended for housing).

In view of the foregoing, and given the fact that none of the parts or units capable of independent use which are the object of the contested assessment act has a taxable patrimonial value equal to or exceeding €1,000,000.00, as was demonstrated in the present proceedings, it is concluded that the Applicant's claim is well-founded, considering the contested assessment acts to be illegal, for error in the factual and legal grounds and violation of Article 1, paragraph 1 of the Stamp Duty Code and item 28.1 of the GTSD, and such acts should be annulled.

It should be noted, finally, that the understanding defended here has been endorsed by the Supreme Administrative Court, as can be seen from the recent Decision No. 47/15, of 9/9/2015, in which it was clearly stated that, "where a property is constituted in vertical ownership, the incidence of stamp duty should be determined, not by the TPV resulting from the sum of the TPV of all units or storeys capable of independent use (individualized in the registration), but by the TPV attributed to each of these storeys or units intended for housing." In the same sense, reference can be made to the Supreme Administrative Court Decisions of 2/3/2016 (case 1354/15), and 29/6/2016 (case 498/16). In another decision still, the Supreme Administrative Court refers that "the question that must be decided concerns the interpretation of items 28 and 28.1 of the General Table of Stamp Duty (GTSD) added by Article 4 of Law No. 55-A/2012, of 29/10, in order to define whether it applies to urban properties, with one registration but constituted by parts with independent allocation and use to which independent TPVs were attributed, each of these of value less than one million euros. This question is no longer new in this Supreme Court and has deserved a uniform answer in the sense advocated in the sentencing judgment under appeal [that is, and as synthesized by this decision: «Where a property is constituted in vertical ownership, the incidence of stamp duty should be determined, not by the TPV resulting from the sum of the TPV of all units or storeys capable of independent use (individualized in the registration), but by the TPV attributed to each of these storeys or units intended for housing.»], by all, the decision dated 04.05.2016, appeal no. 0166/16. The Constitutional Court has also pronounced itself on the constitutional dimension of this norm in light of the principles of tax equality, taxable capacity and proportionality, having concluded that the norm contained in items 28 and 28.1 of the General Table of Stamp Duty, added by Article 4 of Law No. 55-A/2012, of 29 October, insofar as it imposes annual taxation on the ownership of urban properties with housing allocation, whose taxable patrimonial value is equal to or exceeding €1,000,000.00, is not unconstitutional, by all the decision 247/2016, dated 04.05.2016. In the present appeal there is no need for consideration of the norm in question in light of such constitutional principles and parameters, before an interpretation must be made that is teleological and systematic thereof, whereby the jurisprudential orientation that has been followed by the ordinary courts, and which shall now be followed, does not tarnish the good doctrine imposed by that Constitutional Court." (cf. the Decision of 24/5/2016, handed down in appeal 1344/15).

Given the foregoing, considering that none of the storeys or units capable of independent use here in question and on which the assessments falling within the present request for arbitral pronouncement were made, individually reaches the value of €1,000,000.00, it is considered established the alleged defect of violation of law for error in the legal grounds, which determines the declaration of illegality and consequent annulment of the assessments made.

Thus, consideration of the questions relating to violation of the principle of tax equality is rendered unnecessary.

VI. DECISION

In accordance with what is set forth above, it is decided to declare the request for arbitral pronouncement well-founded and, consequently, to declare the illegality of the contested stamp duty assessment, with the consequent annulment.

Value: in accordance with the provisions of Article 32 of the Administrative Court Procedure Code and Article 97-A of the Tax Procedure Code, applicable by virtue of the provisions of Article 29, paragraph 1, subsections a) and b), of the LFAT, and Article 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), the value of the proceeding is set at €29,704.60.

Costs: in accordance with the provisions of Article 22, paragraph 4, of the LFAT and in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is set at €1,530.00, to be borne entirely by the Respondent in accordance with Articles 12, paragraph 2, and 22, paragraph 4, both of the LFAT, and Article 4, paragraph 4, of the cited Regulation.

Let it be recorded and notified.

Lisbon, 20 April 2017

The Arbiter,

Raquel Franco

[1] Cf., by way of merely illustrative example, the decisions handed down in cases 50/2013T; 132/2013-T; 181/2013-T; 182/2013-T; 183/2013-T; 185/2013-T; 240/2013-T; 248/2013-T; 268/2013-T; 272/2013-T; 280/2013-T; 14/2014-T; 26/2014-T, 30/2014-T; 72/2014-T; 88/2014-T; 100/2014-T; 177/2014-T, 193/2014-T; 194/2014-T, 206/2014-T, 238/2014-T; 290/2014-T; 292/2014-T; 372/2014-T; 428/2014-T; 450/2014-T.

Frequently Asked Questions

Automatically Created

How does Stamp Tax (Imposto do Selo) apply to properties held in total ownership (propriedade total) under clause 28.1 of the TGIS?
Under item 28.1 of the TGIS, Stamp Tax applies at a 1% rate to residential properties with taxable patrimonial value (TPV) equal to or exceeding €1,000,000. For properties held in total ownership with multiple independent units, the Tax Authority's position is that the threshold applies to the aggregate total TPV of all residential units in the building, not to each unit individually. This contrasts with horizontal property regimes where each autonomous fraction is treated as a separate property under Article 2(4) of the Municipal Property Tax Code.
Is the €1,000,000 threshold for Stamp Tax assessed on each independent unit or on the total patrimonial value of the building?
The €1,000,000 threshold is assessed on the total patrimonial value of the building when held in total ownership, according to the Tax Authority's interpretation. Even though each independent unit may have an individual TPV below €1,000,000 and is separately valued for Municipal Property Tax purposes, properties in full ownership constitute a single legal-tax reality. The Tax Authority argues that only autonomous fractions under horizontal property regime are deemed separate properties, while units in total ownership buildings remain parts of a unified whole for stamp tax purposes.
Can a taxpayer challenge Stamp Tax assessments through CAAD tax arbitration proceedings?
Yes, taxpayers can challenge Stamp Tax assessments through CAAD (Administrative Arbitration Center) arbitration proceedings under the Legal Framework for Arbitration in Tax Matters (RJAT - Decree-Law 10/2011). This case demonstrates the arbitration process: the taxpayer filed a request for constitution of a single arbitral tribunal, an arbiter was designated by the Ethics Council, and the tribunal was constituted to review the legality of the stamp duty assessments, with authority to declare acts illegal or disapply norms based on unconstitutionality.
Does taxing total ownership properties differently from horizontal property (propriedade horizontal) violate the constitutional principle of equality?
The Applicant raised constitutional equality concerns, arguing that taxing total ownership properties based on aggregate value while horizontal property owners are taxed per autonomous fraction creates arbitrary discrimination. However, the Tax Authority defended this distinction, noting that horizontal property involves legal division creating autonomous properties under Article 2(4) of the Municipal Property Tax Code, while total ownership remains a single legal entity. The legislature may subject different property regimes to different tax treatment without necessarily violating constitutional equality principles, particularly given the distinct legal nature of these ownership structures.
What are the legal grounds for annulling Stamp Tax assessments on residential properties with independently valued units below €1,000,000?
Legal grounds for annulling Stamp Tax assessments on residential properties include: (1) violation of law arising from error in factual or legal grounds, specifically arguing that item 28.1 of the TGIS should only apply when individual units reach €1,000,000; (2) incorrect interpretation of the Municipal Property Tax Code, which establishes autonomous TPV for each independent unit; (3) deviation from legislative intent, as item 28.1 was designed to tax luxury dwellings, not multiple modest units; (4) unconstitutionality based on violation of the equality principle by treating economically similar situations (multiple units under €1,000,000) differently based solely on property regime; (5) lack of explicit legal provision authorizing aggregation of TPV values for independent units in total ownership properties.