Process: 442/2015-T

Date: March 21, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD arbitration case 442/2015-T addresses the application of Item 28.1 of the Portuguese General Stamp Tax Table (TGIS), which imposes stamp tax on ownership of urban properties with taxable property values (VPT) equal to or exceeding €1,000,000. The claimant, a company owning an urban property registered as a single article but composed of 8 independent residential units, challenged stamp tax assessments totaling €11,825.90 for 2014. The central legal dispute concerned whether the tax authority could aggregate the VPTs of all independent units within the same property article to reach the €1,000,000 threshold, or whether each unit should be taxed separately. The claimant argued for separate treatment since no individual unit exceeded €1,000,000, and also alleged procedural defects including omission of prior hearing. The Tax Authority contended that Article 2(4) of the Municipal Property Tax Code (CIMI) defines independent units within the same article as a single urban property for tax purposes, requiring summation of all VPTs. The tribunal analyzed the legislative evolution of Item 28.1, introduced by Law 55-A/2012 and amended by Law 83-C/2013, and prioritized examining substantive defects over procedural issues per Article 124 of CPPT, focusing on whether the tax authority's interpretation constituted an error as to legal prerequisites.

Full Decision

ARBITRATION DECISION

1. Report

A..., S.A., legal entity no. ..., registered under the same number in the Commercial Registry Office of..., with registered office at Rua..., no...., ... and..., submitted to the Administrative Arbitration Centre (CAAD) a request for constitution of an arbitral tribunal with a view to the annulment of the tax act assessing item no. 28.1 of the General Stamp Tax Table (TGIS) of 2014, in the total amount of €11,825.90, relating to the urban property registered in the urban property register under article... (originating from ...) of the parish of....

The Claimant petitions for the annulment of the tax acts, advancing arguments that are summarized below:

a) Omission of prior hearing;

b) Error as to legal prerequisites;

c) Error as to factual prerequisites;

d) Omission of prior hearing;

The Tax Authority, for its part, argued, in summary, that no legal norm has been violated, insofar as areas of independent use relating to the same article do not constitute an urban property within the meaning of no. 4 of article 2 of the IMI Code, and therefore the PTVs of all such areas or independent use floors cannot fail to be summed, concluding for the lack of merit of the annulment request filed by the Claimant.

The sole arbitrator was appointed on 15.09.2015.

In compliance with the provisions of article 11, no. 1, subsection c) of the RJAT, the singular arbitral tribunal was constituted on 30.09.2015.

Given the positioning of the Claimant and Respondent, the Tribunal dispensed with holding the first arbitral meeting, as well as the filing of pleadings.

2. Purging

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

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

The request for constitution and decision by arbitral tribunal is timely and no exceptions have been raised by the parties that would prevent examination of the merits of the case.

The cumulation of claims made in the present request for arbitral decision, in which tax assessments of the same tax (Stamp Tax) are involved, based on the same factual basis and applying the same legal rules, is fully justified in light of the principle of procedural economy enshrined in article 3 of the RJAT, nothing thus preventing the examination of the defects alleged against the tax acts by the Claimant.

There are no exceptions that would prevent examination of the merits of the request filed, relating to the illegality in concrete terms imputed to the tax act subject of these proceedings, and therefore the conditions are met for rendering an arbitration decision on this matter.

3. Factual Matters

3.1. Proven Facts:

Having examined the documentary evidence produced, the following facts are considered proven and relevant to the decision of the case:

1. The Claimant is the owner of the urban property article registered in the urban property register of the Parish of..., under article...;

2. The Claimant was notified to pay the 1st, 2nd and 3rd instalments relating to the Stamp Tax of 2014, item 28.1 of the TGIS, through collection documents nos. 2015..., 2015..., 2015..., 2015..., 2015..., 2015..., 2015..., 2015..., 201..., 2015..., 2015..., 2015..., 2015... and 2015..., 2015..., 2015..., 2015..., 2015..., 2015... and 2015...;

3. The identified urban property was, at the end of 2014, under a regime of total/vertical ownership, being composed of 8 floors or divisions capable of independent use;

4. Of the 8 floors or divisions capable of independent use, 7 have residential use with the following PTVs:

- Ground Floor D - €147,260.00;

- Ground Floor E - €111,850.00;

- 1st Floor E - €147,820.00;

- 1st Floor DT - €152,500.00;

- 1st Floor E - €147,820.00;

- 2nd Floor DT – €152,500.00;

- 2nd Floor E - €147,820.00;

- 3rd Floor DT - €322,840.00;

None of the floors or divisions capable of independent use with residential use of the urban article... has a taxable property value equal to or exceeding €1,000,000.00;

On 15.07.2015 the Claimant filed the present Request for Arbitral Decision and on that date proceeded with payment of the initial court fee due;

On 17.07.2015 the request for constitution and decision by arbitral tribunal was accepted.

No other facts with relevance to the decision of the case were proven.

3.2. Substantiation of the Factual Matters Held as Proven and Not Proven:

The arbitrator's conviction was based on the documentary evidence attached to the proceedings.

4. Legal Matters:

4.1. Object and Scope of the Present Proceedings

The questions before the Tribunal relate essentially to the interpretation and application of legal rules.

The request for arbitral decision has as its object the declaration of illegality of the tax assessment acts for Stamp Tax for the year 2014, under the provisions of item 28.1 of the TGIS, expressed in collection documents (1st, 2nd and 3rd instalments), in the total amount of €11,825.90.

The request for arbitral decision has as its object the declaration of illegality of the tax assessment acts for Stamp Tax, in the amount of €11,825.90, with the Claimant pointing to the tax acts in question formal and substantive defects, to the extent that the latter intend to put into question the essence of the foundation underlying the taxation carried out by the tax act sub judice, in this case, the applicability or otherwise of the legal norm already referred to in light of the factual reality that exists, and furthermore, defects of a formal or procedural nature such as the omission of notification for prior hearing.

Having regard to the provisions of article 124 of the CPPT, applicable by force of subsection a) of no. 1 of Decree-Law 10/2011, of 20 January (RJAT), it is firmly held that the defects above called "substantive" are those which, if upheld, would determine a more stable and effective protection of the injured interests, and therefore examination cannot fail to begin with the defect pointed out by the Claimant relating to error as to the prerequisites upon which the Stamp Tax assessments allegedly rested.

4.2. As to the Alleged Illegality of the Stamp Tax Assessments, Item 28.1 of the TGIS, Due to Error as to Legal Prerequisites:

In summary, the question is whether the interpretation made by the Tax and Customs Authority in the sense of using, as a legal criterion for purposes of subjection to Item 28.1 of the TGIS, the sum of the PTVs of all floors or independent use divisions with residential use relating to the same property article is or is not consistent with the applicable legal framework.

In this regard, it is important to take into account the legislative succession relating to Item 28.1 of the TGIS.

Item 28.1 of the TGIS was added to the General Stamp Tax Table by Law no. 55-A/2012, of 29 October.

Subsequently, the legislature altered the initial normative wording given by the aforementioned law, by way of article 194 of Law no. 83-C/2013, of 31 December (State Budget for 2014), which is applicable here to the tax acts, since it entered into force on 1 January 2014, the year to which the taxes now subject to arbitral scrutiny relate.

Let us therefore examine first the legal framework for the Stamp Tax assessments in question:

Item 28.1 of the TGIS provides in the wording given by the last legislative instrument to address it, as follows:

28 – Ownership, usufruct or right of superficies of urban properties whose taxable property value contained in the register, in accordance with the Municipal Tax Code on Real Property (CIMI), is equal to or greater than €1,000,000 – on the taxable property value used for purposes of IMI:

28.1 – Per residential property or per building land whose construction, authorized or planned, is for residential purposes, in accordance with the provisions of the IMI Code – 1%"

For its part, article 67, no. 2 of the Stamp Tax Code, added by Law no. 55-A/2012, of 29 October, provides that "to matters not regulated in this code relating to item 28 of the General Table, the CIMI is applied subsidiarily."

The rule of incidence refers to urban properties, the basic concept of which is rooted in the provisions of article 2 of the CIMI, with the determination of PTV complying with the terms of article 38 et seq. of the same code.

Being that, in accordance with that legal provision:

"1 - For purposes of this Code, property is any fraction of territory, encompassing waters, plantations, buildings and constructions of any nature incorporated therein or built thereon, with the character of permanence, provided that it forms part of the patrimony of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the circumstances above, endowed with economic autonomy in relation to the land on which they are located, although situated on a fraction of territory that constitutes an integral part of a different patrimony or does not have patrimonial nature." (our emphasis)

Clarifying, for its part, article 6 of the CIMI, that:

"1 - Urban properties are divided into:

a) Residential;

2 - Residential, commercial, industrial or service properties are buildings or constructions licensed for such purposes or, in the absence of a license, that have as their normal destination each of these purposes." (our emphasis)

The legislature's concept regarding properties and the subsequent division into urban is, for tax purposes, undoubtedly a criterion based on economic value and functional autonomy in relation to purpose.

That is, we are dealing with a concept of material or substantive root and not with a concept of juridical-formalistic nature, as the Respondent AT appears to intend.

Now, in the case of the proceedings, the Respondent AT does not even question that the floors or divisions with independent use and with residential use relating to the property article do not have those same characteristics (functional autonomy and economic value) highlighted by the legislature, nor could it do so since it is the AT itself that confirmed as correct and had that same information registered in the respective property card of the property article to which the floors or divisions capable of independent use relate.

Adding to this that, precisely because such floors or divisions have such characteristics of autonomy, both in functional terms and in terms of economic value, it is understood that the legislature intended the attribution of taxable property values for each of those floors, areas or divisions capable of independent use.

What contradicts the thesis of the AT according to which, not being expressly stated in no. 4 of article 2 of the CIMI the floors or divisions capable of independent use, the legislature intended to exclude such a figure from the concept of property.

Thus, the Respondent not even questioning that we are dealing with a residential property and not equally questioning the functional autonomy and economic value of those same independent areas or divisions, moreover fiscally reflected in their respective PTVs and whose characteristics are transposed to the respective property cards of the property article under the designation of floors or divisions capable of independent use, we cannot but conclude that in material and substantive terms those same floors or divisions are covered by the notion of property contained in no. 1 article 2 of the CIMI and of urban property contained in subsection a) of no. 1 and no. 2 of article 6, both of the CIMI.

The introduction into the tax legal order of the present Item 28.1 of the TGIS had as a relevant and determining factor the incidence upon high-value residential urban properties, also usually referred to as luxury homes, more precisely, of value equal to or exceeding €1,000,000.00, upon which Stamp Tax began to be levied.

The legislature thus intended to introduce a principle of taxation on wealth manifested in the ownership, usufruct or right of superficies of any and all residential urban property, with the legislative criterion applying such stamp tax to urban properties with residential use, whose PTV is equal to or exceeding €1,000,000.00.

This conclusion can be drawn from an analysis of the discussion of bill no. 96/XII in the Assembly of the Republic, available for consultation in the Journal of the Assembly of the Republic, Series I, no. 9/XII/2, of 11 October 2012.

The justification for the measure designated as "special tax on the highest value residential urban properties" is based on the invocation of the principles of social equity and fiscal justice, calling upon the owners of high-value properties intended for housing to contribute in a more intense manner, with the new special tax being applied to "properties of value equal to or greater than 1 million euros."

In this way, it appears clear that the legislature understood that properties having certain characteristics assessed quantitatively through the PTV should determine a special contribution to ensure fair apportionment of the tax burden.

But no less evident, it reflects a line of legislative choice that intended to specifically burden high-end, luxury or premium residential urban properties.

It should be noted that, regardless of more or less subjective conceptions about the concept of luxury homes, high-end properties or expressions of equivalent meaning, it is certain that taxable property value has been, since the 2003 reform of taxation on patrimony, measured on the basis of objective elements, such as area, location, comfort level, among others.

This means to say that, and regardless of the ideological considerations that may be made about such a political choice, the legislature had a concrete and defined objective: to subject to Stamp Tax the highest-value residential urban properties, which in practice translated into the fixing of a threshold measurable through the PTV: value equal to or exceeding €1,000,000.00.

Moreover, the legislature ensured through various coefficients (reductive and augmentative) the objectivity in the calculation of that same PTV.

Now, none of the floors or divisions capable of independent use here in question and on which the assessments subject to the present request for arbitral decision fell, individually reach the value of €1,000,000.00, and each of those independent floors or divisions represents in the tax system a property in itself, which is why the AT incurred error as to the prerequisites in subjecting item 28.1 of the TGIS by disregarding that each of those same areas or divisions represents, in accordance with the IMI Code and consequently under Stamp Tax, an urban property.

For which reason those areas or divisions relating to the same property article could not be subject to summing for the calculation of the PTV of that property article.

Which means to say that, taking into account the ratio legis to be stated, the floors or divisions capable of independent use do not meet the prerequisite relating to taxation in the sphere of the rule of incidence provided for in item 28.1 of the TGIS, for which reason, also in light of what has been said, one cannot but conclude for the legal non-conformity of the interpretation of the AT in subjecting to Item 28.1 of the TGIS the floors or divisions capable of independent use, since they do not individually meet the minimum quantitative criterion for such subjection.

4.3. Other Defects Invoked by the Claimant:

Having the singular arbitral tribunal accepted the understanding of the non-applicability of Item 28.1 of the TGIS to the case at hand, the examination of the remaining defects alleged and from which the tax act put into question may suffer becomes prejudiced as procedurally unnecessary.

Thus the examination of all other matters raised for the purpose of annulment of the tax act arbitrally scrutinized is prejudiced.

5. DECISION:

In these terms and with the substantiation set forth above, this arbitral tribunal decides:

To adjudge as having merit, proven, the request for declaration of illegality of the tax assessment acts for Stamp Tax of 2014, relating to the property identified by the urban property article contained in section 1 and better identified in section 3, for defect of violation of law as to the norm contained in Item 28.1 of the TGIS, based on the existence of error as to the legal prerequisites and, in consequence, to annul these same tax assessment acts;

To condemn the Respondent in the payment of costs in accordance with Table I of the RCPTA, calculated on the basis of the aforementioned value of the claim - articles 4-1 of the RCPTA and 6-2/a) and 22-4 of the RJAT - €11,825.90.

Value of the claim: €11,825.90 – articles 97-A of the CPPT, 12 of the RJAT (Decree-Law 10/2011), 3-2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

Let this arbitration decision be notified to the parties and, in due course, let the proceedings be filed.

Lisbon, 21 March 2016.

The sole arbitrator

Luís Ricardo Farinha Sequeira

Text prepared by computer, in accordance with article 138, no. 5 of the Code of Civil Procedure (CPC), applicable by reference from article 29, no. 1, subsection e) of the Regime for Tax Arbitration, with blank lines and reviewed by me.

Frequently Asked Questions

Automatically Created

What is Verba 28.1 of the Portuguese Stamp Tax General Table (TGIS) and how does it apply to high-value properties?
Verba 28.1 of the General Stamp Tax Table (TGIS) is a provision introduced by Law 55-A/2012 and amended by Law 83-C/2013 (State Budget for 2014) that imposes stamp tax on ownership, usufruct, or superficies rights over urban properties whose taxable property value (VPT) in the property register equals or exceeds €1,000,000. The tax applies to residential properties and building land, calculated on the VPT used for Municipal Property Tax (IMI) purposes. This provision targets high-value real estate and entered into force on January 1, 2014.
Can the taxable values (VPT) of independent units within the same urban property be assessed separately for Stamp Tax purposes?
The key dispute in CAAD case 442/2015-T concerned whether independent units within the same property article can be taxed separately. The Tax Authority argued that areas of independent use relating to the same property article do not constitute separate urban properties under Article 2(4) of the IMI Code (CIMI), and therefore the VPTs of all independent units must be summed to determine if the €1,000,000 threshold is met. The claimant contended that each of the 8 independent residential units should be assessed separately, and since none individually exceeded €1,000,000, no stamp tax was due. This interpretation determines whether properties structured under total/vertical ownership regimes face aggregated or disaggregated taxation.
Is the tax authority required to provide a prior hearing (audição prévia) before issuing a Stamp Tax assessment under Verba 28.1?
The claimant alleged omission of prior hearing (audição prévia) as a procedural defect in the stamp tax assessment. Prior hearing is a fundamental procedural guarantee in Portuguese tax law that allows taxpayers to present their views before adverse administrative decisions. However, the tribunal applied Article 124 of the Tax Procedure Code (CPPT), which establishes a hierarchy for examining defects, prioritizing substantive defects (errors as to legal or factual prerequisites) over formal/procedural defects. The tribunal reasoned that substantive defects, if upheld, provide more stable and effective protection of taxpayer rights, so examination focused first on whether the tax authority's interpretation of Verba 28.1 constituted an error as to legal prerequisites.
How does Article 2(4) of the Portuguese Municipal Property Tax Code (CIMI) define an urban property for Stamp Tax liability?
Article 2(4) of the Portuguese Municipal Property Tax Code (CIMI) provides the legal definition of 'urban property' that is central to interpreting Verba 28.1 of TGIS. The Tax Authority relied on this provision to argue that independent units or floors within the same property article registered in the urban property register constitute a single urban property for tax purposes, not separate properties. This interpretation means that for properties under total/vertical ownership regimes composed of multiple independent units, the taxable property values of all units sharing the same article number must be aggregated to determine if the €1,000,000 stamp tax threshold is met, rather than treating each unit as a distinct taxable entity.
What are the grounds for annulling a Stamp Tax assessment before the CAAD tax arbitration tribunal in Portugal?
Grounds for annulling a Stamp Tax assessment before the CAAD arbitration tribunal include both procedural and substantive defects. Procedural defects include omission of prior hearing (audição prévia), failure to provide proper notification, and other violations of administrative procedure. Substantive defects include error as to legal prerequisites (misinterpretation or misapplication of tax law) and error as to factual prerequisites (incorrect determination of facts). Under Article 124 of CPPT, tribunals must examine substantive defects first, as these provide more effective protection of taxpayer rights. In case 442/2015-T, the claimant invoked all these grounds, challenging both the legal interpretation of whether VPTs should be aggregated and the procedural regularity of the assessment process.