Process: 454/2014-T

Date: December 4, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitration case (Process 454/2014-T) concerns the application of Stamp Duty under Item 28.1 of the General Stamp Duty Table (TGIS) to a high-value urban property owned by a Real Estate Investment Fund. Law 55-A/2012 introduced Item 28.1 TGIS, imposing a 1% annual stamp duty on properties with residential designation having a taxable property value equal to or exceeding €1,000,000. The disputed property, valued at €1,462,650, was assessed stamp duty of €14,626.50 for 2013. The central legal question is whether a property officially licensed and registered for residential purposes but actually used for commercial services falls within the scope of Item 28.1 TGIS. The petitioner, A… S.A., acting as management company of the Real Estate Investment Fund, argued that because the property currently houses a commercial establishment and its normal effective use is for services, it should not be subject to the residential property tax. The Tax and Customs Authority (ATA) defended the assessment, asserting that the property designation in official records (property register and caderneta predial) is determinative, showing residential use. ATA also raised a preliminary objection regarding the management company's standing to file the arbitration claim, arguing the Fund itself should be the petitioner. The CAAD arbitrator rejected this procedural objection, ruling that under Article 16(3) of the General Tax Law, the management company can exercise rights on behalf of entities without full legal personality. The substantive issue required the tribunal to balance formal property classification against actual use in determining tax liability under Item 28.1 TGIS, a question with significant implications for real estate investment funds holding properties adapted for non-residential purposes.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Process No. 454/2014 – T

Subject: IS – Item 28.1 of the General Stamp Duty Table – Vertical Property

Claimant / Petitioner: A… –, S.A.

Respondent: Tax and Customs Authority (hereinafter ATA)

1. Report

On 30-06-2014, the company A… –, S.A., collective person No. …, with registered office in …, in its capacity as Managing Company of the REAL ESTATE INVESTMENT FUND …, autonomous assets with tax identification number …, hereinafter designated as the Petitioner, submitted to the Administrative Arbitration Centre (CAAD) a request for constitution of an arbitral tribunal with a view to annulling the tax act for assessment of Stamp Duty, item 28.1 of the General Stamp Duty Table, relating to the year 2013, and the urban property owned in full without floors or divisions susceptible to independent use, registered in the urban property matrix of … under article …, described in the Property Register Office of … under No. ….

The Petitioner alleges that the property in question is not designated for residential purposes, since it currently houses the establishment …, and its normal and effective use is for services. The Petitioner contends that the property in question does not fall within the scope of item 28.1 of the TGIS, and therefore the assessment in question is illegal.

The Petitioner further requests the return of the stamp duty paid, and that which is to be paid following the issuance of payment notices relating to the second and third instalments of stamp duty.

Finally, the Petitioner requests that the ATA be ordered to pay compensatory interest in accordance with Article 43 of the General Tax Code.

The Tax and Customs Authority (ATA) submitted its response on 02-10-2014, defending the maintenance of the challenged tax acts, requesting dismissal of the petition, and alleging from the outset the lack of standing of the company A…–, S.A., on the grounds that this entity is not the owner of the property in question. The ATA states that since the Real Estate Investment Fund … has legal personality, it is the Fund that had standing to submit the request for arbitral determination.

As regards the substantive issue, the ATA states that the property in question is designated for residential purposes, as this is what appears in the property record and in the property valuation notified to the taxpayer. The ATA alleges that the Petitioner does not possess any licence or permit that attests to and proves the alleged effective use and designation for services.

Suzana Fernandes da Costa was appointed as sole arbitrator on 18-08-2014. In accordance with Article 11, paragraph 1, letter c) of the TAR, the single arbitral tribunal was constituted on 02-09-2014.

The meeting provided for in Article 18 of the TAR was scheduled for 19-11-2014 at 15:45 hours.

At the meeting, the parties made oral submissions on the matter of exception. It was decided at that time to dispense with the presentation of arguments, and 04-12-2014 was designated for the delivery of the arbitral decision.

The arbitral request is timely, in accordance with Article 10, paragraph 1, letter a) of Decree-Law No. 10/2011 of 20 January and Article 102, paragraph 1, letter a) of the CPPT.

The proceedings are not affected by any nullities and no preliminary issues were raised, with the exception of the lack of standing of the petitioner in the arbitral request.

a) ON THE POSSIBLE LACK OF STANDING OF THE PETITIONER IN THE ARBITRAL REQUEST

In accordance with Article 6 of the Legal Regime of Real Estate Investment Funds (republished by Decree-Law No. 71/2010 of 18 June) "The administration of investment funds is carried out by a real estate investment fund management company…"

The arbitral request identifies the Fund – and not its management company – as the owner of the property. From the interpretation of the procedural document presented, it is clear that at no point is the fund confused with its respective management company, and that the latter acts merely in representation of the fund.

Although the funds have tax personality, we consider that the petitioner company is not a party lacking in standing in this request, and may submit arbitral requests relating to the funds it administers, by virtue of the very legal nature of real estate investment funds.

Article 3 of the CPPT states that legal personality derives from tax personality. This in turn is regulated in Article 15 of the LGT. Article 16, paragraph 3 of the LGT further states that the rights and duties of entities without legal personality are exercised (…) by the persons who administer their respective interests. Now, in accordance with the law, the management company administers the interests of the investment fund, and therefore, in our view, there is no lack of standing.

Accordingly, it must be concluded that the parties possess legal personality and capacity and have standing (Articles 4 and 10, paragraphs 1 and 2 of the TAR and Article 1 of Ordinance No. 112-A/2011 of 22 March), and the exception raised is deemed without merit.

2. Facts

2.1. Proven facts:

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

  1. The REAL ESTATE INVESTMENT FUND …, with tax identification number …, is the owner of the urban property owned in full without floors or divisions susceptible to independent use, registered in the urban property matrix of … under article …, described in the Property Register Office of … under No. …, in accordance with the property record attached to the arbitral request as document 1.

  2. The property holds a certificate of occupancy issued by the Municipal Chamber of … on 31 August 1976, which states that the property is intended for residential purposes.

  3. The REAL ESTATE INVESTMENT FUND … was notified of the Stamp Duty assessment for the year 2013 in the amount of 14,626.50 €, in accordance with the copy attached to the arbitral request as document 2.

  4. The assessment states that the taxable property value of the property is 1,462,650.00€.

  5. The payment deadline for the first instalment was 30-04-2014.

  6. The Petitioner paid the first instalment on 09-04-2014, as evidenced by the receipt attached to the request as document 3.

  7. The property was leased to the company "B…", intended, in accordance with the contract, for establishment of ….

No other facts relevant to the decision of the case were proven.

2.2. Justification of the proven facts:

As regards the proven facts, the arbitrator's conviction was based on the documentary evidence attached to the file.

3. Matter of law:

3.1. Object and scope of the present proceedings

The following constitutes a question to be decided in the present proceedings:

  • to determine whether a property licensed for residential purposes but actually used for a commercial activity has a residential designation for the purposes of item 28.1 of the General Stamp Duty Table.

Let us consider:

Law No. 55-A/2012 of 29 October added item 28 to the General Stamp Duty Table (TGIS) in the following terms:

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

28.1 – For property with residential designation – 1 % (…);

In the transitional provisions of Article 6 of Law No. 55-A/2012, the following rules were established:

c) The taxable property value to be used in the assessment of the tax corresponds to that resulting from the rules set out in the Municipal Property Tax Code by reference to the year 2011; (…)

f) The applicable rates are as follows:

i) Properties with residential designation assessed in accordance with the IMI Code: 0.5 %;

ii) Properties with residential designation not yet assessed in accordance with the IMI Code: 0.8 %;"

Item 28.1 TGIS and sub-items i) and ii) of letter f) of paragraph 1 of Article 6 of Law No. 55-A/2012 contain a concept not used in any other tax legislation, namely that of "property with residential designation".

Article 67, paragraph 2 of the Stamp Duty Code, as added by that Law, provides that "to matters not regulated in this code relating to item 28 of the General Table, the CIMI shall apply subsidiarily."

The rule of incidence refers to urban properties, the concept of which results from Article 2 of the CIMI, with the determination of the VPT following the provisions of Article 38 and subsequent articles of that code.

Article 6 of the CIMI indicates the different types of urban properties, and determines that "residential, commercial, industrial or service properties are buildings or structures licensed for such purposes or, in the absence of a licence, that have as their normal destination each of these purposes." (see letter a) of paragraph 1 of Article 6 CIMI).

On the interpretation to be given to this article, MARTINS ALFARO states, in Código do Imposto Municipal sobre Imóveis Comentado e anotado, áreas Editora, 2004, p. 146. According to this author, when a licence exists but its limits are not respected, "the normal destination is revealed by the terms contained in the licence itself: the property shall be classified as residential if the occupancy licence specifies exclusively such occupation, even if it is in fact used for other purposes" (p. 146, 147).

The property in question is licensed for residential purposes, appears in the matrix as a residential property, and had its VPT calculated as a property with that designation in 2008.

In accordance with Article 13 of the CIMI, the owner of the property should have notified the ATA within 60 days of any events likely to determine a change in the classification of the property, which, given the information available in the file, was not done. Having failed to do so, the owner now seeks to disregard the residential designation of the property in question.

In our opinion, the burden of communicating the change in use of the property rests with the owner. The Fund could have reported the demolition of the previous building and the existence of land for construction first, and the designation for services thereafter.

It should be noted that it may always, in possession of subsequent documentation that retroactively attests to the classification of the property as being for services, file a complaint or challenge to the assessment in question (see Article 70, paragraph 4 CPPT).

In conclusion, since the certificate of occupancy issued by the Municipal Chamber of … on 31 August 1976, which states that the property is intended for residential purposes, remains in effect, the actual use of the property in question for services is irrelevant for the purposes of item 28.1 of the TGIS, and the property should be considered to have a residential designation for the purposes of item 28.1 TGIS.

4. Compensatory interest

Since the Stamp Duty assessment No. 2014 … in the amount of 14,626.50 € is legal, no compensatory interest is due from the date of payment of the tax (first instalment) until full reimbursement by the ATA, in accordance with Articles 43 of the LGT and 61, paragraph 2 of the CPPT.

5. Decision

In view of the above, it is determined:

  • the exception of lack of standing raised by the Tax and Customs Authority is dismissed.

  • the petition for annulment of the Stamp Duty assessment No. 2014 … in the amount of 14,626.50 € is dismissed.

6. Value of the proceedings:

In accordance with Article 306, paragraph 2 of the CPC and Article 97-A, paragraph 1, letter a) of the CPPT and Article 3, paragraph 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the action is fixed at 14,626.50 €.

7. Costs:

In accordance with Article 22, paragraph 4 of the TAR and Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at 918.00 €, payable by the Petitioner in the arbitral request.

Notify.

Lisbon, 4 December 2014.

Document prepared by computer, in accordance with Article 138, paragraph 5 of the Code of Civil Procedure (CPC), applicable by reference of Article 29, paragraph 1, letter e) of the Tax Arbitration Regime, with blank verses and reviewed by me.

The sole arbitrator

Suzana Fernandes da Costa

Frequently Asked Questions

Automatically Created

What is Verba 28.1 of the Tabela Geral do Imposto de Selo and when does it apply to urban properties?
Verba 28.1 of the Tabela Geral do Imposto de Selo (General Stamp Duty Table) was introduced by Law 55-A/2012 of October 29, 2012. It imposes an annual stamp duty of 1% on the ownership, usufruct, or surface rights of urban properties with residential designation whose taxable property value (valor patrimonial tributável) registered in the property matrix equals or exceeds €1,000,000. The tax applies based on the taxable property value used for Municipal Property Tax (IMI) purposes. For the transitional year 2013, the applicable rate was 0.5% for properties with residential designation already assessed under the IMI Code. This tax targets high-value residential real estate and is assessed annually based on official property valuations.
Can a property officially classified as housing be exempt from Verba 28.1 TGIS if it is actually used for commercial services?
This case directly addresses whether actual commercial use can exempt a property from Verba 28.1 TGIS when official records classify it as residential. The petitioner argued that because the property houses a commercial establishment and is effectively used for services rather than housing, it should not fall within the scope of 'properties with residential designation' under Item 28.1. The Tax Authority countered that the property designation appearing in the property register (conservatória do registo predial) and property valuation (avaliação) is determinative, noting the property holds a certificate of occupancy (alvará de utilização) issued for residential purposes. The authority emphasized that no license or permit evidenced the alleged commercial use. The central legal tension is whether 'residential designation' refers to formal administrative classification or actual functional use—a critical distinction for property taxation.
Does a real estate investment fund management company have standing to file an arbitration claim on behalf of the fund?
Yes, the CAAD arbitrator ruled that the real estate investment fund management company has standing (legitimidade) to file arbitration claims on behalf of the fund it administers. Although the Tax Authority argued that because the Real Estate Investment Fund has tax personality under Article 15 of the General Tax Law, the Fund itself should be the petitioner, the tribunal rejected this objection. The arbitrator reasoned that under Article 16(3) of the General Tax Law, rights and duties of entities without legal personality are exercised by those who administer their interests. Since Article 3 of the Legal Regime of Real Estate Investment Funds expressly provides that fund administration is carried out by a management company, and the management company administers the fund's interests, it has standing to represent the fund in tax arbitration proceedings under Article 10 of the CPPT.
How does CAAD arbitration process work for challenging Imposto de Selo liquidation on high-value properties?
The CAAD (Centro de Arbitragem Administrativa) arbitration process for challenging Imposto de Selo liquidation follows the procedures established in the Tax Arbitration Regime (Regime de Arbitragem Tributária). In this case, the petitioner filed the arbitration request on June 30, 2014, which was deemed timely under Article 10(1)(a) of Decree-Law 10/2011 and Article 102(1)(a) of the Tax Procedure Code (CPPT). A sole arbitrator was appointed on August 18, 2014, and the tribunal was formally constituted on September 2, 2014. The Tax Authority submitted its response on October 2, 2014. A hearing under Article 18 of the TAR was held on November 19, 2014, where parties presented oral arguments on preliminary objections. The arbitrator can dispense with written arguments if appropriate. The decision deadline was set for December 4, 2014. The petitioner can request annulment of the tax assessment, return of taxes paid, and compensatory interest under Article 43 of the General Tax Code.
What role does the caderneta predial classification play versus actual property use in determining Verba 28.1 TGIS liability?
The caderneta predial (property registration record) classification plays a central evidentiary role in determining Verba 28.1 TGIS liability, but the case raises questions about whether actual use can override formal classification. Item 28.1 TGIS applies to 'properties with residential designation' (prédios com afetação habitacional). The Tax Authority relied on the property's official classification in the property register and the certificate of occupancy (alvará de utilização) issued in 1976 designating the property for residential purposes. The property valuation (avaliação) notified to the taxpayer also showed residential designation. However, the petitioner argued that actual effective use (utilização normal e efetiva) for commercial services should be determinative, pointing to the lease contract showing the property was rented for establishment of a commercial activity. The absence of administrative licenses or permits authorizing the commercial use became a key factor—the Authority noted no license evidenced the claimed service designation.