Process: 450/2016-T

Date: November 29, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 450/2016-T) addresses the application of Verba 28.1 of the General Table of Stamp Tax (TGIS) to properties held under vertical/full ownership with multiple independent residential units. The claimant challenged a €11,426.10 Stamp Tax assessment for 2015, arguing that each independent residential unit should be evaluated separately for the €1,000,000 VPT threshold, rather than aggregating all units' values. The property comprised 18 floors and independent units, of which 9 were residential, each with individual VPT below €1,000,000 but collectively exceeding the threshold. The claimant contended that Article 7(2)(b) of the IMI Code mandates separate VPT determination for independent units, and that no legal distinction exists between horizontal ownership (condominium) and vertical ownership for tax purposes. The Tax Authority raised jurisdictional objections, arguing the tribunal lacked competence over collection notes, and substantively maintained that properties under full ownership without formally autonomous units should be assessed as a single taxable unit. This case highlights critical interpretive questions regarding the interplay between property law classifications (horizontal vs. vertical ownership), IMI Code VPT assessment methodologies, and Stamp Tax liability triggers under Verba 28.1 TGIS for high-value residential properties, with potential constitutional equality implications under Articles 13 and 104(3) of the Portuguese Constitution.

Full Decision

ARBITRAL DECISION

I. REPORT

A..., S.A, hereinafter the Claimant, filed a request for the constitution of a single Arbitral Tribunal, pursuant to the combined provisions of Articles 2 and 10 of Decree-Law no. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to as RJAT), in which the Tax and Customs Authority (hereinafter TA) is the Respondent, with the objective of obtaining a declaration of illegality of the Stamp Tax assessment act relating to the year 2015, in the total amount of €11,426.10.

The request for constitution of the Arbitral Tribunal was accepted by the Illustrious President of CAAD on 19.08.2016 and automatically notified to the TA.

In accordance with the provisions of paragraph c) of Article 11 of RJAT, the single Arbitral Tribunal was constituted on 19.10.2016.

The TA responded, arguing the incompetence of the Arbitral Tribunal and the lack of merit of the claim.

The meeting referred to in Article 18 of RJAT and the holding of final submissions were dispensed with, given the nature of the matters contained in the case file.

The Arbitral Tribunal is duly constituted and is materially competent, pursuant to paragraph a) of Article 2(1) of RJAT.

The parties possess legal capacity and standing, are entitled to bring this action and are represented (Article 4 and Article 10(2) of RJAT and Article 1 of Ordinance no. 112/2011, of 22 March).

There are no procedural defects, exceptions or preliminary matters that prevent the immediate consideration of the merits of the case.

II. FINDINGS OF FACT

Based on the elements contained in the case file, the following facts are considered proven:

A) The Claimant is the owner and legitimate proprietor of the urban property registered in the urban property tax roll of the parish of ..., municipality and district of Coimbra, under article number ...;

B) The said property is constituted in full ownership and consists of 18 floors and separate independent units, of which 9 are assigned to residential use;

C) The Claimant was notified in the total amount of €11,426.10 (eleven thousand, four hundred and twenty-six Euros and ten cents) of Stamp Tax assessment acts relating to the property identified, for the year 2015, which are contained in documents no. 1 to 27 attached to the case file by the Claimant;

D) The floors and independent units with residential assignment were subject to Stamp Tax assessment, with the global Tax Patrimonial Value (TPV) exceeding €1,000,000 (one million euros);

E) The TPV of the floors and units identified was determined separately, in accordance with the provisions of Article 7(2)(b) of the Property Tax Code (IMI);

F) The Claimant filed a request for arbitral determination regarding the Stamp Tax assessment act for the year 2015, in the total amount of €11,426.10.

There are no facts with relevance to the decision of the case that should be considered unproven.

This Tribunal formed its conviction based on the documents attached to the case file by the Parties.

III. LEGAL ISSUES

The main question that arises in these proceedings concerns the determination of what is the relevant TPV for the purposes of applying item 28 and 28.1 of the General Table of Stamp Tax (GTST) in relation to the urban residential property constituted under a vertical ownership regime, which comprises floors or units capable of independent use, duly identified in the case file.

To this end, the Claimant alleges in its request for arbitral determination the following:

  • The Stamp Tax assessments sub judice resulted from the consideration of the total TPV of the "floors and units with independent use" assigned to residential purposes – and not the TPV of each of the "floors and units with independent use" assigned to residential purposes, individually considered;

  • However, for the purposes of Property Tax (IMI), the normal situation of urban properties does not assume any relevance, the law not distinguishing according to whether they are in horizontal ownership – formally divided into autonomous units – or in vertical ownership – formally constituted by floors or parts with independent use;

  • Since the classification under Property Tax is not distinguished according to whether the urban property is in vertical ownership, such a distinction can never be considered for the application of item 28.1 of the GTST;

  • Thus, also in the application of item 28.1, each floor or part of property capable of independent use must be considered in isolation, as an autonomous reality, with its own registration in the property tax roll and with an individual TPV.

  • Therefore, to consider, for the purposes of applying the said item 28.1 of the GTST, the TPV resulting from the sum of the patrimonial values of the floors or units capable of independent use (full ownership) will always be contrary to law.

  • Furthermore, the alleged differentiation between properties in horizontal ownership and properties in vertical ownership – claimed (and applied) by the TA – does not result from the spirit underlying the creation of the special taxation provided for in item 28.1 of the GTST.

  • The legislator intended to tax urban properties with residential use, specifically "dwellings" with TPV exceeding €1,000,000, regardless of whether it concerns a single-family house, an "autonomous unit" of a property in horizontal ownership or a "floor or part with independent use" of a property in vertical ownership;

  • Therefore, the TA cannot – for the purposes of applying the said item 28 – take into account the TPV of the property in which the "dwellings" are located – this exceeding €1,000,000 – and, departing from this global value, tax in Stamp Tax each one of the "dwellings", all of individual patrimonial value less than €1,000,000;

  • In the present case, all the "floors and parts capable of independent use" of the properties under analysis here (assigned to residential purposes) have a TPV lower than €1,000,000;

  • In this way, item 28.1 of the GTST cannot be applied to those "floors and parts capable of independent use".

  • Subsidiarily, the Claimant contends that the special taxation provided for in item 28 of the GTST is contrary to the fundamental principle of equality, enshrined in Article 13 of the Constitution of the Portuguese Republic (CRP) and, in parallel, contrary to the principle of tax equality and contributive capacity enshrined in Article 104(3) of the CRP;

  • In fact, since the rule does not subject to taxation urban properties that are not assigned to residential purposes, it differentiates taxpayers without regard to their respective contributive capacity;

  • Given the foregoing, it is requested, in the alternative, that item 28 of the GTST be disapplied as manifestly unconstitutional and, consequently, that the Stamp Tax assessments be annulled.

The TA, for its part, alleges, in summary, the following:

  • By way of exception: the Claimant does not challenge a tax act, but rather challenges the payment of a tax act contained in a document which is a collection note, that is, the subject matter of the proceedings is the annulment not of a tax act, but of collection notes for payment of a tax; a matter which is in no way included in the set of norms that define the jurisdiction of tax arbitral tribunals, contained in Article 2 of RJAT;

  • The act that is the subject of the request for arbitral determination is outside the jurisdiction of the arbitral tribunal;

  • By way of substantive reply: the Claimant is the owner of a property under a full or vertical ownership regime. From the definition of property in Article 2 of the IMI Code, only autonomous units of property under horizontal ownership are considered as properties - Article 2(4) of the said IMI Code. Therefore:

  • The property of which the Claimant is the owner is under a full ownership regime and does not have autonomous units, to which tax law attributes the qualification of property.

  • Thus, the Claimant, for the purposes of Property Tax (IMI) and also Stamp Tax, due to the wording of the said item, is not the owner of 20 autonomous units, but rather of a single property;

  • Tax law contains no lacuna, since the Property Tax Code determines that in the horizontal ownership regime the units constitute properties. The property not being subject to this regime, legally the units are parts capable of independent use, without there being common areas;

  • We cannot, therefore, accept that it be considered that for the purposes of item 28.1 of the General Table attached to the Stamp Tax Code, the parts capable of independent use have the same tax regime as the autonomous units of the horizontal ownership regime;

  • An incidence rule according to which the TPV of the urban properties on which the application of item 28.1 of the GTST depends is the patrimonial value of each floor or unit capable of independent use and not the global tax patrimonial value of the urban property with residential assignment certainly has no expression in law.

  • Thus, it is unconstitutional, as offensive to the principle of tax legality, the interpretation of item 28.1 of the GTST, in the sense that the patrimonial value on which its incidence depends is determined globally and not floor by floor or unit by unit.

  • Finally, it should be noted that the registration of each part capable of independent use in the property registry is not autonomous, per registry, but is contained in a description in the property registry of the property in its entirety - see the property record of this property which represents the owner's document containing the registered elements of the property, given that, as it has been fully demonstrated, there is no "in casu" error imputable to the authorities, there is no occasion for the payment of compensatory interest.

  • But, even if the request for compensatory interest were to be deemed meritorious, which is admitted by mere hypothesis and without conceding, its payment would be framed in Article 43(3)(c) of the General Tax Code (LGT), which provides that in situations of revision of the tax act at the taxpayer's initiative, compensatory interest is due only from one year after the filing of the revision request.

Let us examine what is to be understood.

A – On the Exceptions Raised by the TA

In the response submitted, the TA defends itself by exception, arguing on one hand that the present Tribunal is incompetent to assess the claim filed, which is, in its view, a collection note, and on the other hand, that the Stamp Tax payment documents sub judice are not subject to challenge.

Regarding the jurisdiction of the Arbitral Tribunal, Article 2(1)(a) of RJAT provides that arbitral tribunals are competent to assess claims for declaration of illegality of tax assessment acts, self-assessments, withholding at source and advance payments.

In turn, regarding the binding of the tax administration to the jurisdiction of arbitral tribunals, Article 4(1) of the said regime provides that this depends on an ordinance of the Government members responsible for the areas of finance and justice.

The jurisdiction of the arbitral body is thus delimited by the ordinance binding the Tax Administration to the jurisdiction of the Administrative Arbitration Centre (Ordinance no. 112-A/2011, of 22 March).

Pursuant to Article 2 of the said Ordinance, the Directorate-General of Taxes and the Directorate-General of Customs and Special Consumption Taxes bind themselves to the jurisdiction of arbitral tribunals operating in CAAD that have as their object the assessment of claims relating to taxes whose administration is entrusted to them, referred to in Article 2(1) of Decree-Law no. 10/2011, of 20 January (RJAT), in which are expressly included claims for declaration of illegality of tax assessment acts, self-assessments, withholding at source and advance payments.

It is concluded, therefore, that the tax arbitral proceedings have as their object, directly or indirectly, the tax assessment act, as the act of determining the amount of tax to be paid (the tax levy), through the application of a rate to the taxable matter.

The assessment of the exceptions raised depends, therefore, on the question of whether the Claimant is challenging the Stamp Tax assessment act or whether, instead, it merely challenges each one of the Stamp Tax payments individually.

Now, in cases where tax is to be paid in installments, the assessment is notified to the taxpayer together with notification for payment of each installment, and can only be challenged in its entirety and not installment by installment.

To this regard, the esteemed Professor José Casalta Nabais elucidates, in Tax Law, 3rd Edition, Almedina, 2005: "Assessment in the broad sense, that is, as the set of all operations intended to determine the amount of tax, comprises: 1) Subjective assessment designed to determine or identify the taxpayer or subject of the tax legal relationship, 2) Objective assessment through which the taxable matter or subject is determined and, as well, the rate to be applied is determined, in case of multiple rates, 3) Assessment in the strict sense translated in the determination of the levy through the application of the rate to the taxable or subject matter, and 4) the (eventual) deductions from the levy."

For each taxable event there will be, in principle, a single assessment, by which the levy to be paid will be determined.

In these terms, Article 23(7) of the Stamp Tax Code provides that "in the case of tax due for the situations provided for in item no. 28 of the General Table, the tax is assessed annually (...)", applying, with the necessary adaptations, the rules contained in the IMI Code".

Likewise, Article 44(5) of the Stamp Tax Code provides that "where the tax assessment referred to in item no. 28 of the General Table takes place, the tax is paid within the periods, terms and conditions set out in Article 120 of the IMI Code".

That is, pursuant to Article 113(2) of the IMI Code, "the assessment (...) is made in the months of February and March of the following year", with the tax to be paid in three installments in the months of April, July and November, given its amount – see paragraph c), Article 120(1) of the IMI Code.

From the combination of the legal provisions cited above, it is clear that Stamp Tax is assessed annually, with payment in installments being nothing more than a technique for collecting the tax and not a partial payment thereof, as is referred to in the arbitral decision rendered in the context of process no. 408/2014-T, available at www.dgsi.pt, cited by the TA.

Accordingly, there is only one assessment and it alone constitutes a harmful act, capable of being challenged.

That said, from the analysis of the arbitral petition it results that the Claimant requests the constitution of the single arbitral tribunal to pronounce on the illegality of the Stamp Tax assessment acts issued by the Tax and Customs Authority, that is, the Claimant requests the declaration of illegality of the tax assessment act of Stamp Tax, to which the respective payment installments correspond.

From the foregoing it results that, contrary to what the TA states, the subject matter of the request for arbitral determination is the tax assessment act and not each of the Stamp Tax payments individually considered.

This is demonstrated by the fact that the Claimant, in defining the subject matter of the arbitral action, limits the institution of the respective proceedings to the annulment of the Stamp Tax assessment act for the year 2015, indicating as the value of the economic utility of the claim the global value of the Stamp Tax assessment.

Thus, although the Claimant associates the tax assessment act with the Stamp Tax payments, proceeding to their attachment and identification, the fact is that the former does not limit the subject matter of the request for arbitral determination to any of the Stamp Tax payments in particular, but rather to the annual Stamp Tax assessment.

The argument invoked by the TA regarding the incompetence of the arbitral tribunal and the unimpugnability of the acts therefore fails, grounded as it is on the alleged challenge by the Claimant of mere collection notes and not the tax assessment act itself.

In light of the foregoing, and without need for further consideration, the exceptions of material incompetence of the arbitral tribunal and unimpugnability of the acts are deemed without merit.

B – On the Interpretation of Item 28.1 of the GTST

It results from Article 11 of the General Tax Code (LGT) that the interpretation of tax law must be carried out in accordance with general principles of interpretation.

The general principles of interpretation are established in Article 9 of the Civil Code (CC), as follows:

"1. Interpretation shall not be limited to the letter of the law, but shall reconstruct from the texts the legislative intent, taking especially into account the unity of the legal system, the circumstances in which the law was drafted and the specific conditions of the time in which it is applied.

  1. The legislative intent that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed, cannot, however, be considered by the interpreter.

  2. In determining the meaning and scope of the law, the interpreter shall presume that the legislator adopted the most appropriate solutions and knew how to express its intent in adequate terms."

Taking into account the rules of statutory interpretation, it is important to note that Law no. 55-A/2012, of 29 October, added items 28 and 28.1 to the GTST, creating the Stamp Tax rate on urban properties of high tax patrimonial value.

The creation of this new taxable event occurred in the context of economic crisis and serious crisis in public finances, with the purpose of increasing the State's tax revenues through the taxation of those who display greater indicators of wealth.

The special Stamp Tax rate on properties with value exceeding €1,000,000.00, also known as the "luxury tax", aimed to ensure that the burden of sacrifice was shared by all and not only by those who live from the income of their work.

In these circumstances, item 28 and 28.1 fixed the incidence of Stamp Tax in the following terms:

"Ownership, usufruct or surface right of urban properties whose tax patrimonial value contained in the registry, in accordance with the Property Tax Code (IMI), is equal to or exceeding €1,000,000 – on the tax patrimonial value used for the purposes of Property Tax:

28.1 – For residential property or for land for construction whose building, authorized or intended, is for residential purposes, in accordance with the provisions of the Property Tax Code (...) 1%."

It results, therefore, from the letter of the law that the rate provided for in item 28.1 is applicable to the right of ownership over property with residential use, whose TPV used for the purposes of Property Tax is equal to or exceeding €1,000,000.00.

In accordance with Article 1(6) of the Stamp Tax Code, "For the purposes of this Code, the concept of property is as defined in the Property Tax Code (IMI)."

For its part, the Property Tax Code establishes in Article 2 the following:

Concept of property

"1 - For the purposes of this Code, property is any portion of territory, including water, plantations, buildings and constructions of any nature incorporated therein or erected 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 water, plantations, buildings or constructions, under the circumstances above, endowed with economic autonomy in relation to the land on which they are situated, although situated in a portion of territory which forms an integral part of assets otherwise or does not have a patrimonial nature.

2 - Buildings or constructions, even if movable by nature, are considered as having a character of permanence when assigned to non-transitory purposes.

3 - The character of permanence is presumed when buildings or constructions are erected on the same location for a period exceeding one year.

4 - For the purposes of this tax, each autonomous unit, under the horizontal ownership regime, is considered as constituting a property."

Having regard to the concept of property established in the Law, it is clear that properties constituted under vertical ownership constitute properties for the purposes of item 28.1 of the GTST.

Insofar as the property under analysis (hereinafter Property) constitutes a Property, under the terms provided in Article 2 of the Property Tax Code, it is literally covered by items 28 and 28.1.

In fact, the law does not distinguish, at any point, between property in horizontal ownership and property in vertical ownership, with Article 2(4) merely establishing that in the horizontal ownership regime each autonomous unit is considered as property.

From what is stated in Article 2(4) it does not result, contrary to what is argued by the Respondent in the response submitted, that only autonomous units of property in the horizontal ownership regime are considered as properties.

Nevertheless, the special Stamp Tax rate fixed in the item in question only applies where the Property constitutes residential property whose tax patrimonial value contained in the registry, under the terms of the Property Tax Code, is equal to or exceeding €1,000,000.

Once the Stamp Tax Code does not establish what is meant by "residential", by virtue of the provision in Article 67(2) of the said Code, the rules provided for in the Property Tax Code are also applicable here, namely those established in Articles 6 and 41 of that Code.

From the analysis of the said rules, it also becomes clear that the Property is covered by item 28.1 as an urban property with residential assignment.

It remains, therefore, to ascertain whether the TPV contained in the registry of the Property, under the terms of the Property Tax Code, is equal to or exceeding €1,000,000.

Now, as results from the letter of the Law, the TPV of the Property will be that which is used for the purposes of Property Tax.

To this end, it is established in Article 7(1) of the Property Tax Code, applicable by virtue of Article 23(7) of the Stamp Tax Code, that "The tax patrimonial value of properties is determined in accordance with the provisions of this Code."

For their part, in Article 7(2) and (3) of the Property Tax Code, the rules for determining the TPV of properties with two or more classifications are established.

Since the rate provided for in items 28 and 28.1 of the GTST applies only to properties with residential assignment, the rules established in Article 7(2) and (3) of the Property Tax Code are not applicable to the determination of the TPV relevant under the said item.

In fact, the TPV of properties with residential assignment, provided for in items 28 and 28.1, must be determined taking into account Article 12(3) of the Property Tax Code, according to which:

"Each floor or part of property capable of independent use is considered separately in the property registry registration, which also specifies the respective tax patrimonial value."

Thus, taking into account that the legislator does not attribute any relevance to the fact that the property is constituted under a vertical ownership regime, the TPV must be imputed to each floor or part of property capable of independent use.

In fact, there is no norm in the Property Tax Code that permits concluding that the TPV of property under a vertical ownership regime must be obtained by the sum of the TPV that were assigned separately to the parts that constitute it (See, among others, the arbitral decisions rendered in Process 50/2013-T, 131/2013-T, 177/2014-T, 396/2014-T).

Taking into account that incidence norms are subject to the principle of tax legality (See Article 103 of the Constitution of the Portuguese Republic (CRP) and Article 8 of the General Tax Code), it appears that there is no legal basis for the Stamp Tax assessment based on the sum of the TPV of each part of the Property.

In fact, the TA cannot carry out an assessment operation based on an incidence norm that does not expressly provide for the basis of tax incidence in the terms assessed, since the incidence norms of taxes must be interpreted in their exact terms, without recourse to analogy, making certainty and security in their application prevail (See Decision of the Central Administrative Court South, rendered in the context of process 7648/14, of 10.07.2014).

It is understood, therefore, that there is no legal basis that permits the TA to add the tax patrimonial values of the floors or parts of property capable of independent use, in order to reach the taxation threshold of €1,000,000.00, provided for in item 28 of the GTST.

In light of the foregoing, since none of the floors capable of independent use has a TPV exceeding €1,000,000.00, there is no occasion for the application of the rate provided for in item 28 of the GTST.

Consequently, the annulment of the Stamp Tax assessment act sub judice is required, and recognition of the Claimant's right to compensatory interest concerning the Stamp Tax installments paid, since the illegality of the assessment act is imputable to error of the Respondent, under the terms provided in Article 43(1) of the General Tax Code.

IV. DECISION

In these terms, this Arbitral Tribunal decides:

A) To find wholly meritorious the claim for annulment of the Stamp Tax assessment act relating to the urban property registered in the urban property tax roll of the parish of ..., under the number ..., for the year 2015;

B) To condemn the Tax and Customs Authority to refund to the Claimant the amount of tax paid, increased by compensatory interest, in accordance with legal provisions;

C) To condemn the Respondent in the costs of the present proceedings, as the losing party.

V. VALUE OF THE CASE

In accordance with Article 306(2) of the Code of Civil Procedure, Article 97-A(1)(a) of the Code of Tax and Customs Procedure (CPPT) and Article 3(2) of the Rules of Costs in Tax Arbitration Proceedings, the value of the claim is fixed at €11,426.10.

VI. COSTS

Pursuant to Articles 12(2) and 22(4), both of RJAT, and Article 4(4) of the Rules of Costs in Tax Arbitration Proceedings, the value of the arbitration fee is fixed at €918, in accordance with Table I of the said Rules, to be borne by the Respondent.

Let it be notified.

Lisbon, 29 November 2016

The Arbitrator

Magda Feliciano

(The text of this decision was drawn up by computer, in accordance with Article 131(5) of the Code of Civil Procedure, applicable by reference from Article 29(1)(e) of Decree-Law no. 10/2011, of 20 January (RJAT), with its drafting governed by the orthography prior to the Orthographic Agreement of 1990).

Frequently Asked Questions

Automatically Created

Does Verba 28.1 of the TGIS apply when the combined VPT of separate housing units exceeds €1,000,000?
Under CAAD jurisprudence, Verba 28.1 of the TGIS applies to urban residential properties with VPT exceeding €1,000,000. The critical issue is whether properties under vertical/full ownership should aggregate VPTs of all independent units or assess each separately. The claimant argued that Article 7(2)(b) of the IMI Code requires separate VPT determination for independent units, meaning the €1,000,000 threshold applies individually, not collectively.
How is Stamp Tax (Imposto do Selo) calculated on properties held in total ownership with independent divisions?
Stamp Tax calculation on properties with independent divisions under full ownership depends on whether each division is treated as a separate taxable unit. The Tax Authority's position aggregates VPTs where property lacks formal horizontal ownership status under Article 2(4) of the IMI Code. The claimant contested this, arguing that independent units with separate property tax registrations should be assessed individually for Verba 28.1 purposes, regardless of ownership structure.
Can the Tax Authority aggregate individual unit VPTs to trigger Verba 28.1 Stamp Tax liability?
The CAAD arbitral procedure for challenging Stamp Tax assessments under Verba 28.1 TGIS follows the RJAT framework: filing a request for constitution of an arbitral tribunal under Articles 2 and 10 of Decree-Law 10/2011. Jurisdictional issues may arise if the challenge targets collection notes rather than tax assessment acts, as the Tax Authority argued in this case, claiming collection notes fall outside Article 2 RJAT competence.