Process: 463/2016-T

Date: February 6, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

In Process 463/2016-T, the CAAD arbitral tribunal addressed whether the Portuguese Tax Authority can aggregate the Patrimonial Tax Values (VPT) of independent units within a single property in full ownership for Stamp Tax purposes under Item 28.1 of the TGIS. The taxpayer, owner of a building with 6 floors and 12 independently usable units on Avenue Lisbon, was assessed Stamp Tax of €11,740.90 for 2014. The Tax Authority summed the VPT of all units, reaching over €1,000,000, and applied the 1% Stamp Tax rate. The taxpayer contested this, arguing that Item 28.1 TGIS requires each individual property unit to have a VPT equal to or exceeding €1,000,000, and since none of the units individually met this threshold, no Stamp Tax was due. The Tax Authority defended its position, asserting that for properties in full ownership (not under condominium regime), the entire property should be considered as one taxable unit, regardless of independently usable parts. The central legal issue concerned the interpretation of 'property with residential use' under Item 28.1 TGIS—whether it refers to each autonomous unit or the building as a whole. The tribunal analyzed the systematic integration with the Municipal Property Tax Code (CIMI) and the legislative intent, noting that neither the Stamp Tax Code nor the TGIS provides a clear definition. The taxpayer also sought restitution of amounts paid and compensatory interest. This decision carries significant implications for owners of vertically divided properties in Portugal, clarifying whether Stamp Tax liability arises from individual unit values or aggregate property values.

Full Decision

Arbitral Decision

The Arbitrator Dr. Maria Antónia Torres, appointed by the Ethics Council of the Administrative Arbitration Centre ("CAAD") to constitute the Single Arbitral Tribunal, established on 19 October 2016, decides as follows:

1. REPORT

1.1 A…, widow, taxpayer number…, hereinafter referred to as the "Applicant", with residence at Avenue…, … …, Lisbon, requested the constitution of an arbitral tribunal, under article 2, no. 1, paragraph a), and article 10, both of Decree-law no. 10/2011, of 20 January (hereinafter "RJAT"[1]).

1.2. The request for arbitral decision concerns the declaration of illegality, and consequent annulment, of the tax acts of stamp tax liquidation, in the amount of €11,740.90 (eleven thousand seven hundred and forty euros and ninety cents), relating to the year 2014, better identified in the initial petition presented by the Applicant, and which are hereby considered articulated and reproduced, for all legal purposes, which concern the urban property owned by the Applicant, located at Avenue…, no. … and Avenue…, no…, registered in the urban property register of the Parish of…, Municipality and District of Lisbon under article no. … .

The Applicant further requests the condemnation of the Respondent to the restitution of the amounts unduly paid and that it be recognized the right to compensatory interest on all amounts paid.

1.3. To substantiate its request, the Applicant alleges that the stamp tax liquidations that are the subject of this petition are illegal due to violation of the taxable scope rule of item 28.1 of the TGIS. The Applicant considers that, given that the property is in full ownership, as it is on that date, consisting of 6 floors and 12 parts capable of independent use, the Tax Authority cannot, as it did, sum the patrimonial values of the floors and parts capable of independent use, given that none of those floors or parts, by itself, has a Patrimonial Tax Value equal to or exceeding 1,000,000 euros.

1.4. The Tax Authority argues that the request for declaration of illegality, and consequent annulment of the disputed liquidations, should be judged unfounded, given that it contends that although the stamp tax liquidation, under the conditions provided for in item 28.1 of the TGIS, is carried out in accordance with the rules of the Municipal Property Tax Code, the truth is that the legislator reserves the aspects that require the necessary adaptations.

The Tax Authority understands that this is the case for properties in full ownership, even if they have floors or parts capable of independent use, since although the municipal property tax is liquidated in relation to each part capable of independent use, for the purposes of stamp tax, the property in its entirety is relevant, thus arguing for the legality of the tax acts because they constitute a correct application of the law to the facts.

1.5. The meeting of the arbitral tribunal provided for in article 18 of the RJAT was dispensed with, as there was no need for additional presentation of evidence.

2. SANCTION

The Tribunal was regularly constituted and is competent ratione materiae, in accordance with article 2 of the RJAT.

The parties have legal standing and capacity, are shown to be legitimate, and are regularly represented (see articles 4 and 10, no. 2 of the RJAT and article 1 of Ministerial Order no. 112-A/2011, of 22 March).

No procedural defects were identified in the proceedings.

3. FACTS

With relevance to the decision on the merits, the Tribunal considers the following facts to be proven:

1) The Applicant was, on the date of the liquidations sub judice, owner of the urban property that is the subject of those same liquidations, under the regime of "full ownership" (i.e., not subject to the condominium regime) to which was assigned a global Patrimonial Tax Value exceeding 1,000,000.00€, corresponding to the sum of the partial Patrimonial Tax Values of each of the floors with independent use.

2) In accordance with what was mentioned in the initial petition and in the response given by the Respondent, none of the parts capable of independent use, to which was assigned an autonomous Patrimonial Tax Value by the Respondent, and regardless of its destination - residential or otherwise -, has a Patrimonial Tax Value that exceeds the amount of €1,000,000.

3) The Applicant was notified to liquidate stamp tax on the aforementioned immovable property, the Respondent having considered the Applicant to be a taxpayer of stamp tax under item 28.1 of the TGIS, for being the owner of a property with a patrimonial tax value exceeding €1,000,000.

4) The Applicant submitted a Gracious Claim on 11 August 2015, which was expressly dismissed by the Tax Authority, such dismissal being received by the Applicant on 9 May 2016;

Unproven Facts

No essential facts with relevance to the assessment of the merits of the case were found which were not proven.

Reasoning on the Facts

The conviction about the facts deemed proven was based on the documentary evidence submitted by the Applicant, whose authenticity and correspondence to reality were not questioned by the Respondent.

4. ISSUE TO BE DECIDED

The essential issue to be decided in the case is to determine, with reference to a property not constituted under the condominium regime, integrated by various floors and parts with independent use, what the Patrimonial Tax Value (VPT) is relevant, assessing the criterion of correct tax incidence under the law, in order to determine whether it should be assessed by the sum of the patrimonial tax value assigned to the different parts or floors (global VPT) or, instead, whether it should be assigned to each of the parts or residential floors.

The Applicant also requests the payment of compensatory interest.

5. ON THE LAW

As previously identified, the issue to be decided is whether the patrimonial value relevant for the purpose of determining the applicability of item 28.1 of the TGIS, when a property not constituted under the condominium regime is at issue, is that of each unit autonomously considered or the sum of the patrimonial tax value assigned to each of those units.

The issue arises in virtue of the taxation for stamp tax purposes of the ownership, usufruct or surface right of urban properties whose patrimonial tax value contained in the register is equal to or greater than € 1,000,000, the tax being due, at the rate of 1% on the patrimonial tax value used for the purpose of Municipal Property Tax, per property with residential use.

Therefore, it is important to determine, when a property not constituted under the condominium regime is at issue, the concept of "property with residential use": whether it should be interpreted as corresponding to each unit autonomously considered and applying to its respective patrimonial value or whether it should correspond to the totality of autonomous units, thus needing to apply to the sum of the patrimonial tax value assigned to each of those units.

Since neither the Stamp Tax Code, nor its respective General Table, nor Law no. 55-A/2012, of 29 October (which approved the item of the TGIS under consideration) provides a legal definition of "property with residential use", it is important to assess the correct interpretation of this expression, it being presumed that the legislator knew how to express its thinking in the most adequate way (see article 9, no. 3, final part, of the Civil Code), in its systematic integration with the norms contained in the Municipal Property Tax Code and, likewise, in the spirit of the law.

Item 28 of the TGIS under consideration was added by Law no. 55-A/2012, of 29 October with the following wording:

"28 - Ownership, usufruct or surface right of urban properties whose patrimonial tax value contained in the register, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than € 1,000,000 — on the patrimonial tax value used for the purpose of Municipal Property Tax:

28.1 — For property with residential use — 1%;

28.2 — For property, when taxpayers other than natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by order of the Minister of Finance — 7.5%."

(Emphasis ours)

Item 28.1 was subsequently amended by Law no. 83-C/2013 of 31 December, although the amendment is, however, not relevant in the case under consideration.

Law no. 55-A/2012, of 29 October entered into force on 30 October 2012, in accordance with its article 7, no. 1 which determined its entry "into force on the day following its publication".

It happens, however, that neither the Stamp Tax Code nor Law no. 55-A/2012, of 29 October clarifies the concept of "urban property with residential use", so in accordance with article 67 of the Stamp Tax Code, the interpretation of this concept should be sought in the Municipal Property Tax Code.

Indeed, it follows from article 67 of the Stamp Tax Code that "To matters not regulated in the present Code relating to item no. 28 of the General Table, the provisions of the CIMI apply, subsidiarily" - (Amended by article 3 of Law no. 55-A/2012 of 29 October.).

In the Municipal Property Tax Code, the concept of property is defined in its article 2, from which it follows that "For the purposes of this Code, property is any portion of land, encompassing waters, plantations, buildings and constructions of any kind incorporated or located therein, with a permanent character, provided that it forms part of the patrimony of a natural or legal person and, under normal circumstances, has economic value (…), it being clarified in no. 4 of this legal provision that "For the purposes of this tax, each autonomous unit, under the condominium regime, is considered as constituting a property"."

From the isolated reading of this legal provision we could be led, in a somewhat biased interpretation, to understand that for the purposes of Municipal Property Tax, autonomous units under the condominium regime would receive different treatment from the parts of a property capable of independent use.

It happens, however, that a more careful analysis of the regime allows us to conclude precisely the opposite.

As highlighted by the Ombudsman to the Secretary of State for Tax Affairs, in an official communication dated 2 April 2013, "the registration in the property register of properties in vertical ownership, consisting of parts capable of independent use, follows the same rules as the registration of properties constituted under the condominium regime, the respective Municipal Property Tax, as well as the new Stamp Tax, being liquidated individually in relation to each of the parts".

(Emphasis ours)

Indeed, article 12, no. 3 of the Municipal Property Tax Code provides in this sense, determining that "each floor or part of a property capable of independent use is considered separately in the property register entry which also discriminates the respective patrimonial tax value."

In accordance with article 119 of the Municipal Property Tax Code "The services of the General Directorate of Taxes send to each taxpayer, by the end of the month preceding that of payment, the respective collection document, with discrimination of the properties, their parts capable of independent use, respective patrimonial tax value and the collection imputed to each municipality of the location of the properties."

In summary, for the purposes of taxation under Municipal Property Tax, each independent unit, even if integrated in the same property, is considered separately, being assigned its own patrimonial value and being taxed autonomously.

Thus, one cannot but continue to follow the understanding upheld in the Arbitral Decision rendered in Case no. 50/2013, and by many other subsequent decisions of this same Tribunal, according to which "if the legal criterion imposes the issuance of individualized liquidations for the autonomous parts of properties in vertical ownership, in the same manner as it establishes for properties in horizontal ownership, it 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 be occasion for the incidence of the new stamp tax only if some of the parts, floors or divisions with independent use presented a Patrimonial Tax Value exceeding € 1,000,000.00".

(Emphasis ours)

But, furthermore, it is this separate treatment of each unit capable of independent use that allows, in the application of the use coefficient (see article 41 of the Municipal Property Tax Code), attention to be paid to the different purposes of each unit, which compose a single property.

What is relevant for this purpose is the actual use of each of the parts capable of independent use, regardless of whether the property is classified for residential use, in accordance with article 6 of the Municipal Property Tax Code and, regardless of whether it is an autonomous unit or merely a unit capable of independent use.

Moreover, in accordance with this logic of the system, an urban property classified as residential may be composed of several independent units, in which one or more may have a non-residential use, in accordance with article 41 of the Municipal Property Tax Code.

This will be the case, for example, if in a property in full ownership with floors or parts capable of independent use, licensed for residential purposes, one of its independent units is used for commerce or services or another purpose. In this hypothesis, the units in question will not have residential use.

From this analysis it can be concluded that the concept of "property with residential use", used in Item 28 of the TGIS, encompasses each of the autonomous units, with independent use, of properties in full ownership, with units capable of independent use, which have that use.

In light of the above, one cannot follow the understanding of the Respondent, which would result, among other things, in a violation of the principle of equality, of tax justice and of tax capacity, constitutionally enshrined.

As referred to in the decision rendered in case 132/2013-T of this CAAD:

(...) in the work relating to the discussion of the bill no. 96/XII in the National Assembly (...) such measure, called the "special tax on the highest-value residential urban properties", was justified by the need to comply with the principles of social equity and fiscal justice, placing a more significant burden on the holders of high-value properties intended for residential use, and, to that extent, applying the new "special tax" to "houses with a value equal to or exceeding 1 million euros."

(Emphasis ours)

It is thus presumed that there is a tax capacity (well) above average that justifies a "special" tax burden for those who have a "house" or "property" whose value is at least one million euros. The legislator's intention thus seems to suggest that the scope of the taxable scope norm is to tax independent, individualized realities and not resulting from an aggregation or sum, albeit a legal one.

That is, it does not follow from this measure that the legislator intended to tax properties whose units capable of independent use did not individually reach that value.

In light of the above, and given that none of the independent units that make up the Applicant's property have a patrimonial value exceeding € 1,000,000, the liquidations under consideration are defective due to violation of law, due to an error in the legal premises, which justifies the declaration of their illegality and the corresponding annulment of the tax acts now under consideration.

In light of the declaration of illegality of the liquidations that are the subject of this proceeding, due to a defect of violation of law due to an error in the legal premises, the examination of the other issues raised on a subsidiary basis is foreclosed.

On the Request for Compensatory Interest

The Applicant requests the condemnation of the Respondent to payment of compensatory interest, provided for in articles 43 of the General Tax Law and 61 of the Tax Procedure and Process Code.

It is clear in the record that the illegality of the contested tax liquidation acts is directly attributable to the Respondent, which, on its own initiative, carried them out without legal support, suffering from a mistaken interpretation (and therefore application) of the legal norms to the concrete case.

Consequently, the Applicant is entitled to receive compensatory interest on the amounts paid, in accordance with the provisions of articles 43, no. 1, of the General Tax Law and 61 of the Tax Procedure and Process Code.

6. DECISION

In light of the above, it is decided:

1) To judge the request for arbitral decision well-founded, with the consequent annulment, with all legal effects, of the stamp tax liquidation acts, relating to 2014, better identified in the record, in the total amount of Euros 11,740.90 (eleven thousand seven hundred and forty euros and ninety cents);

2) To judge well-founded the request for compensatory interest requested by the Applicant.

* * *

The value of the case is fixed at Euros 11,740.90 (eleven thousand seven hundred and forty euros and ninety cents), in accordance with the provisions of articles 3, no. 2 of the Costs Regulation for Tax Arbitration Proceedings (RCPAT), 97-A, no. 1, paragraph a) of the Tax Procedure and Process Code and 306 of the Civil Procedure Code.

The costs are fixed at Euros 918 (nine hundred and eighteen euros) under article 22, no. 4 of the RJAT and Table I attached to the RCPAT, at the expense of the Tax and Customs Authority, in accordance with the provisions of articles 12, no. 2 of the RJAT and 4, no. 4 of the RCPAT.

Let notification be made.

Lisbon, 6 February 2017

The Arbitrator

(Maria Antónia Torres)

Text produced by computer, in accordance with article 131, no. 5 of the Civil Procedure Code, applicable by reference in article 29, no. 1, paragraph e) of the RJAT.

The writing of this arbitral decision is governed by the spelling prior to the 1990 Orthographic Agreement.

[1] Acronym for Legal Regime for Tax Arbitration.

Frequently Asked Questions

Automatically Created

What is Verba 28.1 of the Tabela Geral do Imposto de Selo (TGIS) and how does it apply to high-value properties?
Item 28.1 of the Tabela Geral do Imposto de Selo (TGIS) imposes a 1% annual Stamp Tax on the ownership, usufruct, or surface rights of urban properties with a Patrimonial Tax Value (VPT) equal to or exceeding €1,000,000 as registered for Municipal Property Tax (IMI) purposes. This tax targets high-value residential properties and applies to the VPT used for IMI calculation. The tax was introduced by Law 55-A/2012 of 29 October and represents an additional annual wealth tax on luxury real estate holdings in Portugal.
Can the Portuguese Tax Authority aggregate the taxable heritage values (VPT) of independent units in a vertical property for Stamp Tax purposes?
The central dispute in this arbitral decision concerns whether the Tax Authority can aggregate VPT values of independent units in a vertical property (not constituted as a condominium) for Stamp Tax purposes. The Tax Authority argued that for properties in full ownership with multiple floors or independently usable parts, the entire property should be considered as one taxable unit, justifying the summation of VPT values. The taxpayer contested this approach, asserting that each independent unit must individually meet the €1,000,000 threshold. The tribunal's determination hinges on interpreting 'property with residential use' under Item 28.1 TGIS in conjunction with the Municipal Property Tax Code.
How does the CAAD arbitral tribunal treat properties in total ownership with independently usable divisions under Stamp Tax law?
The CAAD arbitral tribunal examined properties in full ownership (propriedade plena) with independently usable divisions that are not organized under the horizontal property/condominium regime. The key distinction is that while Municipal Property Tax (IMI) is assessed on each independently usable unit, the tribunal must determine whether Stamp Tax follows the same logic or applies to the property as an undivided whole. The tribunal considered the systematic interpretation of tax law, noting that when a property has not been formally subdivided into autonomous fractions under condominium law, the question arises whether tax incidence should respect the economic reality of independent units or the legal unity of ownership.
What is the difference between IMI and Imposto de Selo taxation for buildings with multiple independent units?
For IMI (Municipal Property Tax) purposes, each independently usable unit or fraction of a property receives its own Patrimonial Tax Value (VPT) and is taxed separately, even within a single building. However, Item 28.1 of the TGIS creates ambiguity for Stamp Tax purposes when a property in full ownership contains multiple independent units. The Tax Authority's position was that Stamp Tax should apply to the aggregate VPT of all units if their sum exceeds €1,000,000, treating the property as a single taxable entity. This differs from IMI treatment where each unit is assessed independently. The tribunal's role was to clarify whether Stamp Tax follows IMI's unit-by-unit approach or requires a global property valuation.
Is a property owner entitled to a refund and compensatory interest when Stamp Tax is illegally assessed on aggregated VPT values below €1,000,000?
Yes, when Stamp Tax is assessed illegally, Portuguese taxpayers are entitled to both restitution of amounts unduly paid and compensatory interest (juros indemnizatórios) on those amounts. In this case, the taxpayer explicitly requested both remedies, having paid €11,740.90 in Stamp Tax based on the Tax Authority's aggregation methodology. If the tribunal rules that Item 28.1 TGIS requires each independent unit to individually meet the €1,000,000 threshold—and none did—the liquidations would be declared illegal and annulled. The Tax Authority would then be obligated to refund the tax paid plus compensatory interest calculated from the payment date until restitution, compensating the taxpayer for the improper deprivation of funds.