Process: 460/2015-T

Date: March 23, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

Process 460/2015-T addresses a critical dispute regarding Stamp Tax (Imposto do Selo) under Item 28.1 of the General Stamp Tax Table (TGIS), which imposes annual stamp duty on residential properties with patrimonial values of €1,000,000 or more. The claimants, co-owners of an urban property in Lisbon comprising five independently usable residential units, challenged stamp tax assessments totaling €8,493.84. While no individual unit exceeded the €1 million threshold, the combined patrimonial value of all residential units was €1,132,480. The central legal question is whether Item 28.1 applies to each independent unit separately or to the entire property held in full ownership as a single taxable unit. The claimants argued that independent units should be taxed autonomously, consistent with Municipal Property Tax (IMI) treatment under CIMI, and that the tax targets luxury dwellings, not modest units. They contended that differential treatment between full ownership and condominium regimes violates principles of legal certainty, good faith, and substance over form. The Tax Authority countered that the relevant patrimonial value is the total property value, not individual units, and raised a procedural exception regarding the challengeability of the assessments, arguing that stamp duty assessment is a single act that cannot be challenged through multiple payment objections. The case highlights fundamental issues about how Portuguese tax law treats properties with multiple independent units under different ownership structures and the competence of the Tax Arbitration Court (CAAD) to adjudicate such disputes.

Full Decision

ARBITRAL DECISION

Claimants:

A…,

B…, and

C…

Respondent: TIA - Tax and Customs Authority

I - REPORT

  1. Petition

A…, taxpayer no. …, resident at Street … no. …, ..., …-… …; B…, taxpayer no. …, resident at Street … no. …, … …, and C…, taxpayer no. …, resident at Street … no. … – …, …-… …, (hereinafter referred to as the claimants), acting jointly pursuant to Article 3, no. 1 of the Legal Framework for Tax Arbitration, filed on 20-07-2015, under the terms of Article 2, no. 1, paragraph a) and Article 10 of Decree-Law no. 10/2011, of 20 January, which approves the Legal Framework for Tax Arbitration in Tax Matters (RJAT), a petition for arbitral decision, in which the TIA - Tax and Customs Authority is the respondent, seeking the annulment of the acts assessing Stamp Duty (IS) assessed under item 28.1 of the General Schedule of Stamp Duty (TGIS), evidenced in the documents:

  • 2015 …
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  • 2015 …
  • 2015 …
  • 2015 …
  • 2015 …
  • 2015 …
  • 2015 …
  • 2015 …
  • 2015 …
  • 2015 …
  • 2015 …
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To support their petition, the claimants allege, in summary:

The claimants are owners of the urban property held in full ownership located at Street … nos. …-…, Lisbon, registered in the tax real property roll of the parish of … – Lisbon, under property no. …, which is composed of five units capable of independent use, all for residential purposes;

The claimants were notified of the aforementioned assessments, which are based on Item 28.1 of the General Schedule of Stamp Duty (TGIS);

Through item 28.1 of the TGIS, which imposes stamp duty on urban properties with residential use which have a patrimonial value equal to or greater than one million euros, the legislator intends only "luxury units" and those of "high patrimonial value", and never, with respect to modest dwellings such as those which compose the property in question;

Just as in its predecessor legislation, the current Municipal Property Tax Code (CIMI) provides that the units capable of independent use which compose properties in full ownership are taxed autonomously, which means they should also be so in the context of Stamp Duty.

Accordingly, only the tax patrimonial value of each independent unit is relevant for determining the applicability of item 28.1 of Stamp Duty;

The units capable of independent use which compose properties in full ownership have always been taxed in a manner analogous to autonomous units of properties in condominium ownership, without ever being required to constitute the properties in condominium ownership;

A taxation that penalizes the regime of full ownership in relation to that of condominium ownership, without prior information being given to the taxpayers and without them having the opportunity to change the legal form of ownership would not be in accordance with the principles of legal certainty and good faith which should govern the relationship between the Administration and individuals, enshrined principally in Articles 59 of the General Tax Law and 7 of the Code of Administrative Procedure, provisions which originated from Articles 22, 266 and 267 of the Constitution of the Republic;

It is incompatible with no. 1 of Article 59 of the General Tax Law "the image of a Tax Administration that is all-powerful before a taxpayer in a position of mere subjection."

Subjecting such dwellings to Stamp Duty solely because of the absence of the legal instrument that would formalize and formalizes condominium ownership is to entirely deny the principle that governs Tax Law of "substance over form."

  1. Reply

In its reply, the respondent TIA – Tax and Customs Authority begins by alleging, by exception, the non-challengeability of the subject matter of the dispute, arguing that the act of assessment of item 28 of Stamp Duty is unique and each payment cannot be challenged separately.

Thus, the dilatory exception provided for in paragraph c), no. 1, Article 89 of the Code of Administrative Court Procedure (CPTA), subsidiarily applicable to these proceedings by Article 29, no. 1, paragraph c) of the RJAT, would be satisfied, which would preclude knowledge of the merits of the case and would result in the dismissal of the respondent from the proceedings.

And by way of challenge, the respondent alleges, briefly, the following:

The taxable event, in the case of item 28.1 of the TGIS, is the ownership, usufruct or right of superficies of urban properties whose tax patrimonial value recorded in the roll, pursuant to the Municipal Property Tax Code (CIMI), is equal to or greater than €1,000,000;

The patrimonial value relevant for purposes of the incidence of the tax is thus the total patrimonial value of the urban property and not the patrimonial value of each of the units which compose it, even when capable of independent use;

The fact that, pursuant to the CIMI, the units of the property must be valued separately and taxed separately for purposes of that tax, does not mean that the property ceases to be just one;

The legislator's choice to submit properties in condominium ownership and full ownership to different regimes is justified by the fact that there are two distinct civil law regimes.

  1. Meeting provided for in Article 18 of the RJAT and Submissions

With the agreement of the parties, the Tribunal determined to dispense with the holding of the meeting provided for in Article 18 of the RJAT.

The parties, by their choice, did not submit final submissions.

II. PROCEDURAL MATTERS

The sole arbitrator tribunal was regularly constituted on 05-10-2015, the arbitrator having been appointed by the Deontological Council of CAAD, all respective legal and regulatory formalities having been complied with (Articles 11, no. 1, paragraphs a) and b) of the RJAT and 6 and 7 of the Deontological Code of CAAD), and is competent ratione materiae in accordance with Article 2 of the RJAT.

The parties have legal standing and capacity and are regularly represented.

The joinder of claimants is admissible in light of Article 3, no. 1 of the RJAT.

No procedural defects were identified.

III. ISSUES FOR DECISION

The following are the issues to be decided by the Tribunal:

  • Whether the exception of lack of competence of the Arbitral Tribunal invoked by the respondent is well-founded;

  • Whether item 28.1 of the TGIS is applicable to urban properties in full ownership formed by units capable of independent use considered as a whole, with the consequence that the tax patrimonial value to be taken into account for purposes of the incidence of the tax shall be, in the event of an affirmative answer, the tax patrimonial value of the property.

IV. GROUNDS

  1. Factual Matters

The following are the facts considered proven as relevant to the decision:

  • The claimants were, at the date of the alleged taxable event, co-owners of the urban property located at Street … nos. …-…, Lisbon, registered in the tax real property roll of the parish of … – Lisbon, under property no. …;

  • This is a property described as urban, in full ownership, composed of units capable of independent use;

  • The units are identified separately in the tax real property roll and each has quantified its respective tax patrimonial value;

  • None of the units has a tax patrimonial value equal to or greater than €1,000,000;

  • The tax patrimonial value of all the units of the property with residential use is €1,132,480.00;

  • The respondent was notified of the assessment of Stamp Duty, under item 28.1 of the respective General Schedule, on the independent units of the aforementioned property with residential use;

  • The total amount of tax assessed in the aforementioned assessments is €8,493.84;

The facts indicated were considered proven on the basis of the documentation attached to the file.

There are no alleged facts considered unproven as relevant to the decision of the case.

  1. Law

a. Whether the exception of lack of competence of the Arbitral Tribunal invoked by the respondent is well-founded

In the preamble of the initial petition, it is stated that the claimants "hereby submit a petition for arbitral decision in tax matters (…) seeking the declaration of illegality [of the act] of the assessments of Stamp Duty of item 28.1 of the TGIS, of the year 2014, in the total amount of €8,493.84 (…)":

There is no doubt whatsoever that the subject matter of the petition for arbitral decision is the declaration of illegality of acts of assessment of a tax, which are challengeable through the arbitration procedure, pursuant to Article 2, no. 1, paragraph a) of the RJAT.

No basis is seen for the assertion, sustained by the respondent, that the petition for arbitral decision has as its subject matter the annulment "of the tax payments."

Therefore, the exception invoked is not well-founded.

b. On the issue of the legality of the assessment acts

The issue to be decided in the present proceedings has until now been the subject of numerous arbitral decisions.

The jurisprudential trend of these arbitral decisions is not entirely uniform.

Part of this jurisprudence tends to consider contrary to the constitutional principle of equality the interpretation which the respondent makes of item 28.1 of the TGIS, in the case of vertical properties in full ownership composed of units capable of independent use, which consists in taking the sum of the tax patrimonial values of the units with residential use to determine the incidence of item 28.1 of the TGIS. This trend was followed, among others, by the arbitral decisions rendered in cases 181/2013-T, 182/2013-T, 183/2013-T, 218/2013-T, 14/2014-T, among others.

Recently, the Constitutional Court, in decisions nos.: 590/2015, of 11 November; 692/2015, of 16 December 2015; and 83/2016, of 4 February 2016, ruled on the constitutionality of the tax incidence provision contained in item 28.1 of the General Schedule of Stamp Duty, when interpreted to mean that it includes urban residential properties in full ownership composed of units capable of independent use and considered separately in the real property roll registration.

We do not believe that the Constitutional Court is correct in this jurisprudence, as it appears to us to be flagrantly violative of the principle of equality to subject to taxation a vertical property composed of units capable of independent use and not to subject a property with the same physical characteristics, with the same economic function and with the same patrimonial value, which is not constituted in condominium ownership.

Let us recall and emphasize that tax equality has as its parameter the capacity to pay, as the Constitutional Court itself has repeatedly recognized, which is absolutely unrelated, in this case, to the legal form of ownership.

Nevertheless, the Supreme Administrative Court ruled on this same issue, in its decision of 09-09-2015, rendered in case no. 47/15.

In this decision, which we take as the basis for our decision in the present proceedings, the Supreme Administrative Court states:

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

From the letter of the law nothing unequivocal follows, moreover, since it itself, in using a concept which it did not define and which was also not defined in the statute to which it referred in a subsidiary manner, unnecessarily lent itself to ambiguities, in a matter – of tax incidence – in which certainty and legal security should also be paramount concerns of the legislator."

And the Court continues:

"(…) The present subject matter is, from the outset by virtue of Article 67, no. 2 of the Stamp Duty Code, subject to the norms of the Municipal Property Tax Code – 'to matters not regulated in the present code relating to item 28 of the General Schedule, the Municipal Property Tax Code shall apply subsidiarily.'

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

Now, Article 12, no. 3 of the Municipal Property Tax Code establishes that 'each floor or unit of a property capable of independent use is considered separately in the real property roll registration, which also discriminates the respective tax patrimonial value.'

The legislator, in the terms previously mentioned, downplaying any prior constitution of condominium or full ownership.

Indeed, for the legislator, what matters is the material reality underlying its existence as an urban property and its use.

It should be noted that the Tax Authority itself appears to agree with the criterion set forth, which is why the assessments which it itself issues are very clear in their essential elements, from which it follows that the value of incidence is the corresponding value of the tax patrimonial value of each floor and the assessments are individualized.

Therefore, if the legal criterion requires the issuance of individualized assessments for the autonomous units of properties in full ownership, in the same way as it establishes for properties in condominium ownership, it has clearly established the criterion, which must be unique and unequivocal, for the definition of the rule of incidence of the new tax.

Thus, there would only be incidence of Stamp Duty (under Item no. 28 of the TGIS) if any of the units, floors or divisions with independent use presented a tax patrimonial value exceeding €1,000,000.00.

The Tax Authority cannot consider as the reference value for the incidence of the new tax the total value of the property, when the legislator itself established a different rule with respect to the Municipal Property Tax (and, as mentioned previously, this is the code applicable to matters not regulated with respect to Item no. 28 of the TGIS).

In conclusion, the current legal framework does not impose the obligation to constitute condominium ownership, which is why the conduct of the Tax Authority amounts to arbitrary and illegal discrimination.

In fact, the Tax Authority cannot distinguish where the legislator itself chose not to do so, under penalty of violating the coherence of the tax system, as well as the principle of tax legality provided for in Article 103 of the Constitution of the Portuguese Republic, and also the principles of tax justice, equality and proportionality.

In the case at hand, the property or properties in question were, at the relevant date of the facts, constituted in full ownership and had […] units with independent use, as appears from the documents […].

Given that none of these units has a tax patrimonial value equal to or greater than €1,000,000.00, as appears from the documents attached to the file, it is concluded that the legal prerequisite for incidence is not met."

We consider that the jurisprudence of the Supreme Administrative Court is based on correct grounds, which is why we understand that we should apply it to the case sub judice, without any modification.

In the context of the Municipal Property Tax, the legislator clearly established, in Article 12, no. 2 of the Municipal Property Tax Code, that the units of a property with independent use are valued separately, with this value being taken as the basis for the assessment of tax.

In the context of Stamp Duty, Article 13, no. 1 of its Code provides that "the value of real property is the tax patrimonial value recorded in the roll in accordance with the Municipal Property Tax Code."

Therefore, it appears clear that the legislator intended that the tax patrimonial value of the units with independent use be considered.

The Tax and Customs Authority appears to conform its conduct with this understanding, by issuing acts of assessment of Stamp Duty individualized with respect to each unit.

Furthermore, in accordance with Article 9, no. 1 of the Civil Code, interpretation should not be limited to the letter of the law, but should reconstruct from the text the legislative intent, taking into account above all the unity of the legal system, the circumstances in which the law was enacted and the specific conditions of the time in which it is applied. Now, the subjective element of interpretation, to be drawn from the historical elements which are well known in this matter, and which are partially reproduced in the decision of the Supreme Administrative Court cited, clearly indicates the legislator's intention to subject to taxation residential homes of high value.

In accordance with all the interpretative elements mentioned, it should be considered that, being faced with a property in full ownership formed by units capable of independent use, there is only incidence of Stamp Duty (under Item no. 28 of the TGIS) if any of the units, floors or divisions with independent use presents a tax patrimonial value equal to or exceeding €1,000,000.00.

For all the foregoing, it must be concluded that the stamp duty assessments challenged are illegal, for violation of tax law, in that they incide on independent units of properties in full ownership but taking as a basis the tax patrimonial value of the sum of such units and when none of these units has a tax patrimonial value equal to or greater than €1,000,000.00.

IV. DECISION

For the grounds set forth, the petition for annulment of the challenged acts of assessment is fully upheld;

The economic value of the case is set at €8,493.84 (eight thousand, four hundred and ninety-three euros and eighty-four cents).

Costs: Pursuant to Article 22, no. 4 of the RJAT, the amount of costs is set at €918.00, in accordance with Schedule I attached to the Regulations of Costs in Tax Arbitration Proceedings, to be borne by the respondent.

Let this arbitral decision be recorded and notified to the parties.

Lisbon, Centre for Administrative Arbitration, 23 March 2016

The Arbitrator

(Nina Aguiar)

Frequently Asked Questions

Automatically Created

What is Verba 28.1 of the Portuguese Stamp Tax General Table (TGIS) and how does it apply to residential properties valued over one million euros?
Verba 28.1 of the Portuguese Stamp Tax General Table (TGIS) imposes an annual stamp duty on urban properties designated for residential use with a patrimonial tax value equal to or exceeding €1,000,000 as recorded in the property tax assessment matrix pursuant to the Municipal Property Tax Code (CIMI). The tax rate is 1% of the property's patrimonial value. This provision was introduced to target high-value luxury residential properties. The taxable event occurs upon ownership, usufruct, or surface rights over qualifying properties. The key interpretative issue is determining the relevant 'property' for valuation purposes: whether it refers to each independently usable unit within a building held in full ownership, or to the entire building as a single property. The Tax Authority's position is that for properties in full ownership (propriedade total), the aggregate patrimonial value of all residential units determines tax liability, even when individual units are separately valued for IMI purposes and could theoretically function independently.
Are independently usable divisions in a single-ownership building taxed separately or as a whole for Stamp Tax purposes?
Under the Tax Authority's interpretation applied in Process 460/2015-T, independently usable divisions (divisões suscetíveis de utilização independente) within a single property held in full ownership are taxed as a whole for Stamp Tax purposes under Item 28.1 TGIS, not separately. This differs from Municipal Property Tax (IMI) treatment, where Article 6 and following provisions of CIMI require separate valuation and taxation of each independent unit, even within properties in full ownership. The claimants argued this creates an inconsistency: while IMI recognizes independent units as separate taxable objects regardless of ownership structure, Stamp Tax Item 28.1 allegedly treats the entire building as one unit solely because it hasn't been legally converted to horizontal property (propriedade horizontal/condominium). The Tax Authority justified this distinction by noting that full ownership and condominium ownership are different civil law regimes under Portuguese law, warranting different tax treatment. The practical effect is that a building in full ownership with combined value exceeding €1M triggers stamp duty, while identical units legally constituted as separate condominiums would not if individually valued below the threshold.
Can property owners challenge Stamp Tax assessments on high-value residential properties before the Portuguese Tax Arbitration Tribunal (CAAD)?
Yes, property owners can challenge Stamp Tax assessments on high-value residential properties before the Portuguese Tax Arbitration Court (Centro de Arbitragem Administrativa - CAAD), as demonstrated in Process 460/2015-T. The Legal Framework for Tax Arbitration (RJAT - Decree-Law 10/2011) provides jurisdiction under Article 2(1)(a) for challenging tax assessment acts, including stamp duty liquidations. However, the Tax Authority raised a procedural exception (exceção dilatória) of non-challengeability, arguing that Item 28.1 stamp duty assessment constitutes a single indivisible act, and therefore individual payment notices cannot be separately contested. This exception invokes Article 89(1)(c) of the Administrative Court Procedure Code (CPTA), applied subsidiarily under RJAT Article 29(1)(c). If sustained, this exception would result in dismissal without examination of merits. The arbitral tribunal's competence ratione materiae was established under RJAT Article 2, and the tribunal was properly constituted with an arbitrator appointed by CAAD's Deontological Council. The case demonstrates both the availability of arbitral challenge mechanisms and potential procedural barriers to such challenges.
How does the tax treatment of independent units in total ownership differ from autonomous fractions in horizontal ownership under Portuguese tax law?
The tax treatment of independent units in total/full ownership (propriedade total) differs significantly from autonomous fractions in horizontal ownership (propriedade horizontal) under Portuguese tax law, creating the central dispute in Process 460/2015-T. For Municipal Property Tax (IMI), both regimes are treated equivalently: independent units within full ownership properties are separately valued and taxed just as condominium units are, pursuant to CIMI provisions. However, for Stamp Tax Item 28.1 purposes, the Tax Authority applies divergent treatment. Properties in horizontal ownership are treated as separate properties for each autonomous fraction, meaning the €1 million threshold applies to each condominium unit individually. In contrast, properties in full ownership are treated as single units, with all independent divisions aggregated for threshold determination. The claimants argued this violates the 'substance over form' principle fundamental to tax law, as economically identical situations receive different treatment based solely on the civil law formalization of ownership structure. They contended this creates an unjustified penalty for maintaining full ownership rather than establishing condominium regimes, potentially violating constitutional principles of equality and taxpayer protection under Articles 266-267 of the Portuguese Constitution and Article 59 of the General Tax Law (LGT).
What are the grounds for annulment of Stamp Tax liquidation acts under Process 460/2015-T regarding properties with multiple independent housing units?
The grounds for annulment of Stamp Tax liquidation acts advanced in Process 460/2015-T regarding properties with multiple independent housing units include: (1) Incorrect interpretation of Item 28.1 TGIS - arguing the provision targets 'luxury units' of high individual value, not aggregated modest dwellings, and should apply to each independent unit separately as under CIMI; (2) Violation of systematic coherence - independent units in full ownership have historically been taxed analogously to condominium units without requiring formal condominium constitution, and differential treatment lacks justification; (3) Breach of legal certainty and legitimate expectations - retrospectively penalizing full ownership structures without prior notification or opportunity to restructure violates principles enshrined in LGT Article 59 and Administrative Procedure Code Article 7, derived from Constitutional Articles 22, 266-267; (4) Violation of substance over form doctrine - taxing economically identical situations differently based solely on legal formalization contradicts fundamental tax law principles; (5) Disproportionate administrative power - subjecting taxpayers to tax liability based on ownership formalities beyond their reasonable control contradicts LGT Article 59(1)'s rejection of taxpayer subjection to all-powerful administration. These arguments fundamentally challenge whether the assessments correctly applied Item 28.1's scope and complied with constitutional and legal principles governing tax administration.