Process: 483/2016-T

Date: March 17, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Decision 483/2016-T addresses whether the Portuguese Tax Authority can aggregate taxable patrimonial values (VPT) of multiple independent units within a vertically-owned property to meet the €1,000,000 threshold for Stamp Tax under Verba 28.1 of the General Stamp Tax Table (TGIS). The taxpayers owned a Lisbon property with 9 independent units totaling €2,545,860 in combined VPT, though no single unit exceeded €1,000,000. The Tax Authority assessed €25,458.72 in Stamp Tax, summing all unit values. Taxpayers argued this violated legal principles since the property remained in full ownership (propriedade total) rather than horizontal property regime, contending each unit should be evaluated separately. They claimed mixed residential-commercial use further precluded classification as residential property under Verba 28.1. The Authority countered that for full ownership properties, the aggregate patrimonial value determines tax incidence, distinguishing Stamp Tax treatment from IMI assessment rules. The arbitral tribunal's core question examined whether the correct legal criterion required summing all unit VPTs (global approach) or assessing each residential unit independently. This decision carries significant implications for owners of high-value properties not constituted under horizontal property regimes, clarifying when the €1,000,000 threshold applies to aggregated versus individual unit valuations for luxury real estate Stamp Tax purposes.

Full Decision

ARBITRAL DECISION

The arbitrator, Dr. Henrique Nogueira Nunes, designated by the Ethics Council of the Administrative Arbitration Centre ("CAAD") to form the Arbitral Court, constituted on 11 November 2016, decides as follows:

1. REPORT

1.1

A…, with tax identification number …, B…, with tax identification number…, C…, with tax identification number … and D…, with tax identification number…, hereinafter referred to as "Requesters", have requested the constitution of the Arbitral Court under articles 2, paragraph 1, subsection a) and 10 of Decree-Law no. 10/2011, of 20 January (hereinafter "RJAT").

1.2

The request for arbitral ruling concerns the declaration of illegality, and consequent annulment, of the Stamp Tax assessment act, in the total amount of €25,458.72 (twenty-five thousand, four hundred and fifty-eight Euros and seventy-two cents), relating to the year 2015, whose payment notices relating to the payment of the first and second instalments were submitted by the Requesters with the arbitral petition under documents no.s 1 to 72, and which are hereby considered articulated and reproduced for all legal purposes, which concern the urban property located at …, n.°…, in Lisbon, under land registration article n.° … of the parish of …, municipality of Lisbon, composed, in the part subject to the assessment in dispute in the proceedings, of 9 units susceptible of independent use.

1.3

To support their request, the Requesters allege that the Stamp Tax assessment, subject of the arbitral petition, suffers from the defect of violation of law by violation of the incidence rule of item 28.1 of the TGIS. They consider that, since the property is in full ownership, as it was at the date of the tax fact at issue in the proceedings, the AT cannot, as it did, sum the patrimonial values of the floors and divisions susceptible of independent use, given that none of these floors or divisions, by itself, has a TPN equal to or greater than €1,000,000. On the other hand, they argue that properties with mixed use, residential and commercial, cannot be classified as residential property, or whose purpose is, exclusively, housing, to collectively integrate the notion of property with residential use. They advocate for the violation of the principles of legality, tax equality and the prevalence of material truth over legal-formal reality, and also for the payment of compensatory interest on the amounts unduly assessed and already paid, plus the restitution thereof.

1.4

The AT, in turn, contends that the request for declaration of illegality, and consequent annulment of the contested assessment, should be ruled unfounded, given that it argues that with regard to the IMI assessment, in the case of properties in full ownership, the value that serves as the basis for the calculation of the tax is, indisputably, the one entered in the land registry as being the total patrimonial value and that, although the Stamp Tax assessment, under the conditions provided for in item 28.1 of the TGIS, proceeds in accordance with the rules of the CIMI, the truth is that the legislator reserves those aspects that require proper adaptations.

It argues that this corresponds to the case of properties in full ownership, even though with floors or divisions susceptible of independent use, because although the IMI is assessed in relation to each part susceptible of independent use, for purposes of Stamp Tax what matters is the property in its entirety, thus advocating for the legality of the tax acts because they constitute a correct application of law to facts, concluding for the maintenance of the assessment act and, consequently, for the unfoundedness of the Requesters' claim.

1.5

The Court, in accordance with the terms petitioned by the Respondent, and which did not meet with opposition from the Requester, decided to dispense with the holding of the first meeting of the Arbitral Court, in accordance with the provisions of article 18 of the RJAT. No exceptions were identified.

Both parties were equally dispensed from presenting Arguments.

By Arbitral Order entered in the Case Management System on 22 February 2017, the Requesters were notified to submit to the proceedings the Documents numbered 75, 76, 77, 78 to 89 and Documents numbered 1 a) to 36 a) and 37 a) to 72 a) which they identified in the Arbitral Petition, but which they did not submit, after confirmation by CAAD.

By Arbitral Order entered in the Case Management System on 7 March 2017, the deadline for issuing the arbitral decision was extended and fixed until 17 March 2017.

1.6

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

The parties have legal personality and capacity, show themselves to be legitimate and are regularly represented (cf. articles 4 and 10, paragraph 2 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March).

No procedural irregularities were identified.

2. QUESTION TO BE DECIDED

The thema decidendum is to determine, with reference to a property in full ownership, not constituted under the horizontal property regime, comprised of various floors with independent use, in this case, with residential use, which Taxable Patrimonial Value (TPV) is relevant, assessing the criterion of tax incidence correct under law, in order to determine whether this should be assessed by the sum of the taxable patrimonial value assigned to the different floors (global TPV) or, rather, whether it should be assigned to each of the residential floors individually considered.

3. FACTUAL MATTER

With relevance to the appreciation and decision of the merits, the following facts are deemed proven:

A) At the date of the assessment sub judice, the urban property subject of the contested assessment was in the regime of full ownership located at …, n.°…, in Lisbon, under land registration article n.° … of the parish of …, municipality of Lisbon, comprised of 9 units susceptible of independent use, to which was assigned a total TPV in the amount of €2,545,860.00, corresponding to the sum of the TPV of each of the divisions with independent use (see. Payment Notices of the Stamp Tax assessment submitted by the Requesters under numbers 1 to 72, inclusive).

B) The property identified above was assessed for tax in relation to 9 of its independent units (see. Payment Notices of the Stamp Tax assessment submitted by the Requesters under numbers 1 to 72, inclusive).

C) In relation to the 9 independent units that were assessed for tax, none presents an autonomous TPV, and regardless of its actual use - residential or otherwise – that exceeds the amount of €1,000,000.00 (see. Payment Notices of the Stamp Tax assessment submitted by the Requesters under numbers 1 to 72, inclusive).

D) The Requesters were notified to make payment of the stamp tax effected based on item 28.1 of the TGIS, on the aforementioned property relating to the 1st and 2nd instalments, in the amount of €16,972.56, and did so. (see. Payment Notices of the Stamp Tax assessment submitted by the Requesters under numbers 1 to 72, inclusive, and Instructional Report of Administrative Process no. …/2016, submitted by the AT, confirming such payment).

E) The total amount of the Stamp Tax assessment with reference to the year 2015 is €25,458.72 (see. Instructional Report of Administrative Process no. …/2016, submitted by the AT).

F) The AT, considering the global TPV assigned to the property at issue in the proceedings, understood that the objective requirements for the assessment of Stamp Tax were met, arising from item no. 28 of the TGIS, amended by article 4 of Law no. 55-A/2012, of 29/10.

G) On 29 July 2016, the Requesters submitted a request for constitution of the Arbitral Court to CAAD – see. electronic request in the CAAD system.

4. FACTS NOT PROVEN

It should be noted that despite being notified to do so, the Requesters failed to submit to the proceedings the Documents which they identified in the Arbitral Petition under numbers 75, 76, 77, 78 to 89 and numbers 1 a) to 36 a) and 37 a) to 72 a), so that the Court does not draw any legal consequence regarding the alleged facts to which those Documents refer, in particular regarding what the Requesters allege in the Arbitral Petition.

There are no other facts with relevance to the decision on the merits that have not been proven.

5. GROUNDS FOR THE DECISION ON FACTUAL MATTERS

As to the essential facts, the settled matter is similarly shaped by both parties and the Court's conviction was formed on the basis of the documentary (official) elements submitted to the proceedings and discriminated above, whose authenticity and truthfulness were not questioned by either party.

6. ON THE LAW

Considering the positions of the parties assumed in the pleadings presented, the central question to be resolved by this arbitral court consists in assessing the legality of the Stamp Tax assessment act relating to the year 2015.

The question to be decided concerns determining whether the patrimonial value relevant for purposes of objective incidence item 28.1 of the TGIS, when a property not constituted under horizontal property regime is at issue, is that of each floor or independent division autonomously considered, or, if instead, it should correspond to the sum of the taxable patrimonial value assigned to each of these floors or independent divisions.

This Court will closely follow the Decisions issued by this same Arbitral Court rendered in Cases no.s 390/2016-T and 417/2016-T, which pronounced on the same fundamental legal question at issue in the present proceedings.

Law no. 55-A/2012, of 29 October, amended article 1 of the Stamp Tax Code, and added to the General Table of Stamp Tax, Item 28, creating a new taxable reality, embodied in the ownership, usufruct or surface right of urban properties whose taxable patrimonial value recorded in the matrix, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than €1,000,000.00.

Therefore, it is important to determine, when a property not constituted under horizontal property regime is at issue, whether the concept of "property with residential use" should be interpreted as corresponding to each unit autonomously considered and apply to its respective patrimonial value or if, instead, it should correspond to the entirety of the autonomous units, and consequently apply to the sum of the taxable patrimonial value assigned to each of these units.

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 taxable patrimonial value recorded in the matrix, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than €1,000,000 — on the taxable patrimonial value used for purposes of IMI: 28.1 — For property with residential use — 1%; 28.2 — For property, when the taxable persons who are not natural persons are resident in a country, territory or region subject to a clearly more favourable tax regime, included in the list approved by ordinance of the Minister of Finance — 7.5%."

It happens, however, that neither the Stamp Tax Code, nor Law no. 55-A/2012, of 29 October specifies the concept of "urban property with residential use".

It follows from the provision in number 2 of article 67 of the Stamp Tax Code that "To matters not regulated in this 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 turn, in the IMI Code the concept of property is defined in number 1 of its article 2, from which it follows that "For purposes of this Code, property is any portion of territory, including waters, plantations, buildings and constructions of any nature incorporated or situated therein, 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 (…)."

And it is clarified in no. 4 of this legal provision that "For purposes of this tax, each autonomous fraction, in the horizontal property 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 purposes of IMI, autonomous fractions, in the horizontal property regime, would have a different treatment from parts of a property susceptible of independent use.

However, a more careful analysis of the regime allows us to conclude precisely the contrary.

As was highlighted by the Ombudsman to the Secretary of State for Tax Affairs, in a letter dated 2 April 2013, "the registration in the matrix of properties in vertical ownership, comprised of parts susceptible of independent use, follows the same rules as the registration of properties constituted in horizontal ownership, with the respective IMI, as well as the new Stamp Tax, assessed individually in relation to each of the parts."

In effect, in this same sense, article 12, no. 3 of the IMI Code provides, by determining that "each floor or part of property susceptible of independent use is considered separately in the land registration which also discriminates the respective taxable patrimonial value."

In accordance with article 119 of the IMI Code "The services of the Tax Directorate General send to each taxable person, by the end of the month prior to payment, the respective payment document, with discrimination of the properties, their parts susceptible of independent use, respective taxable patrimonial value and the tax levy charged to each municipality of the location of the properties."

Given all the above, for purposes of taxation in the context of IMI, each independent unit, even if integrating the same property, is considered separately, being assigned its own patrimonial value and being taxed autonomously.

Following the understanding endorsed in the Arbitral Decision rendered in Case no. 50/2013-T, according to which "if the legal criterion imposes the issuance of individualized assessments 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 unambiguous, for the definition of the incidence rule of the new tax. Thus, there would only be grounds for the incidence of the new stamp tax if any of the parts, floors or divisions with independent use presented a TPV exceeding €1,000,000.00."

Taking into account that the registration in the matrix of properties in vertical ownership, for purposes of the IMI Code, follows the same rules of registration of properties constituted under horizontal ownership, with the respective IMI, as well as the Stamp Tax, assessed individually in relation to each of the parts, it does not seem to this court that there is any doubt that the legal criterion for defining the incidence of the new tax will have to be the same.

In this context, if the law requires, with respect to IMI, the issuance of individualized payment notices for the autonomous parts of properties in vertical ownership, in the same manner as it establishes for properties in horizontal ownership, it will require, in the same terms, with respect to the incidence rule of Item no. 28 of the TGIS.

Furthermore, it should be noted that this was indeed the understanding adopted by the Respondent, as it issued, as it did, individualized payment notices, relating to each of the divisions or floors susceptible of autonomous use, demonstrating that, in its opinion, those divisions, despite not being legally constituted under horizontal ownership, would be, for all purposes, independent of one another. However, the latter overlooked the fact that it could not, in virtue of the framework previously set forth, proceed to the sum of the individual TPVs of the aforementioned floors, seeking to reach a value that would fall under the scope of the incidence base of item no. 28 of the TGIS.

In summary, the criterion established by the AT, of considering the value of the sum of the individual TPVs assigned to the parts, floors or divisions with independent use, availing itself of the fact that the property at issue in the proceedings was not constituted under the horizontal ownership regime, finds, in the understanding of the court, no legal sustenance, being, in particular, contrary to the criterion applicable in the context of IMI and, by reference (in the terms mentioned above), in the context of Stamp Tax.

In this context, this court considers that the criterion defended by the Respondent violates the principles of legality and tax equality.

Being, as it is, a property constituted in vertical ownership, the incidence of the Stamp Tax should be determined, not by the taxable patrimonial value resulting from the sum of the taxable patrimonial value of all floors or divisions susceptible of independent use (individualized as such in the land registration), but rather by the taxable patrimonial value assigned to each of these floors.

In this same sense has corresponded the majority of decisions issued by this Arbitration Centre, and, also, by the Judicial Courts, highlighting, by way of mere example, the Judgments issued by the Supreme Administrative Court in cases numbered 01534/15; 01354/15 and 047/15, and, more recently, numbered 01219/16.

In view of the foregoing, and considering that none of the floors or independent divisions that make up the property at issue in the proceedings, subject of the Stamp Tax assessment in dispute in the proceedings, has a patrimonial value exceeding €1,000,000, the contested assessment suffers from the defect of violation of law by error in the legal assumptions, which justifies the declaration of its illegality and the corresponding annulment of all tax acts at issue in the proceedings with reference to the Stamp Tax collected under item no. 28.1 of the TGIS relating to the year 2015.

As to the right to compensatory interest, petitioned by the Requesters, it should be noted that subsection b), of no. 1, of article 24 of the RJAT provides that the Arbitral Decision on the merits of the claim from which no appeal or challenge lies binds the Tax Administration from the end of the period provided for appeal or challenge, and the latter - in the exact terms of the successfulness of the arbitral decision in favor of the taxable person and until the end of the period provided for the spontaneous execution of sentences of tax judicial courts - must restore the situation that would exist if the tax act subject of the arbitral decision had not been carried out, adopting the acts and operations necessary to that effect.

Such provision is in line with the provision in article 100 of the LGT, applicable to the case by virtue of the provision in subsection a), of no. 1, of article 29 of the RJAT, in which it is established that "The tax administration is obliged, in case of total or partial success of complaints or administrative appeals, or of judicial proceedings in favor of the taxable person, to the immediate and full restoration of the situation that would exist if the illegality had not been committed, including the payment of compensatory interest, in accordance with the terms and conditions provided for in law."

Article 43, no. 1, of the General Tax Law provides, in turn, that "compensatory interest is due when it is determined, in an amicable appeal or judicial challenge, that there was error attributable to the services resulting in payment of the tax debt in an amount exceeding that legally due."

From the analysis of the evidentiary elements contained in these proceedings it is possible to conclude that the Respondent had complete and full knowledge of the factual elements relevant to proceed with the correct assessment of the tax, and did not do so, instead opting to maintain the assessment tainted by error in the assumptions, and therefore illegal, being therefore obliged to indemnify.

Accordingly, in view of the provision in article 61 of the CPPT and considering that the requirements for the right to compensatory interest are met, that is, the existence of error attributable to the services resulting in payment of the tax debt in an amount exceeding that legally due is verified, as provided in no. 1 of article 43 of the LGT, the Requesters are entitled to compensatory interest, at the legal rate, calculated on the amounts already paid in the amount of €16,972.56, counting from the date the payment was made until its complete reimbursement.

7. DECISION

In view of the foregoing, this Singular Arbitral Court agrees to:

  • Rule as founded the request for arbitral ruling and declare the consequent annulment, for defect of violation of law by error in the legal assumptions, of the Stamp Tax assessment act, relating to 2015, better identified in the proceedings, in the total amount of Euros 25,458.72.

The value of the case is set at Euro 25,458.72, in accordance with the provisions of articles 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), 97-A, no. 1, subsection a) of the CPPT and 306 of the CPC.

The amount of costs is set at Euro 1,530.00, under article 22, no. 4 of the RJAT and Table I attached to the RCPAT, charged to the Respondent, in accordance with the provisions of articles 12, no. 2 of the RJAT and 4, no. 4 of the RCPAT.

Notice is given.

Lisbon, 17 March 2017.

The Arbitrator,

Dr. Henrique Nogueira Nunes

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

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

Frequently Asked Questions

Automatically Created

Can the Portuguese Tax Authority sum the taxable heritage values (VPT) of independent units in a vertical property to apply Verba 28.1 of the General Stamp Tax Table?
The CAAD examined whether the Tax Authority can sum VPTs of independent units in vertical property for Verba 28.1 TGIS application. The Authority argued that for properties in full ownership (propriedade total), the aggregate patrimonial value determines tax incidence, even when comprising units with independent use. Taxpayers contested this interpretation, arguing that since the property was not constituted under horizontal property regime, individual unit values—none exceeding €1,000,000—should govern. The tribunal identified this aggregation methodology as the central legal question requiring determination under the applicable incidence rules.
Does Stamp Tax under Verba 28.1 TGIS apply when no individual unit in a building exceeds €1,000,000 in taxable value?
This case directly addresses whether Stamp Tax under Verba 28.1 TGIS applies when a property's total VPT exceeds €1,000,000 but no individual unit reaches this threshold. The Tax Authority assessed tax on a property with combined VPT of €2,545,860 from 9 units, none individually exceeding €1,000,000. The Authority's position supports taxation based on aggregate value for full ownership properties. Taxpayers argued this violated the incidence rule since no autonomous unit met the statutory threshold. The tribunal's decision would establish whether the €1,000,000 criterion applies globally or per independent unit in vertical property structures.
How does the CAAD treat mixed-use properties (residential and commercial) for purposes of Stamp Tax on high-value residential real estate?
The taxpayers specifically raised that properties with mixed residential and commercial use cannot be classified as exclusively residential property under Verba 28.1 TGIS. They argued that mixed-use properties should not collectively integrate the concept of 'property with residential use' required for this Stamp Tax provision. However, the decision excerpt does not reveal the tribunal's analysis of this mixed-use argument or whether the property's actual composition included commercial units. This issue intersects with whether the legislation requires exclusive residential purpose or merely predominant residential character for luxury property Stamp Tax application.
What is the legal distinction between total ownership (propriedade total) and horizontal property (propriedade horizontal) for Stamp Tax purposes in Portugal?
The case highlights a critical distinction for Stamp Tax purposes: properties in full ownership (propriedade total) versus horizontal property (propriedade horizontal). For IMI, properties in full ownership with independent units are assessed per unit despite unified ownership. However, the Tax Authority argued that Stamp Tax under Verba 28.1 TGIS requires different treatment—considering the property's total value even when comprising independently usable units. This differs from horizontal property regime where separate ownership fractions exist. The taxpayers contended this distinction should mean individual unit values determine Stamp Tax incidence, not aggregated totals, when horizontal property regime is absent.
Are taxpayers entitled to compensatory interest (juros indemnizatórios) when a Stamp Tax assessment under Verba 28.1 TGIS is annulled by the CAAD?
The taxpayers explicitly requested compensatory interest (juros indemnizatórios) on amounts unduly assessed and paid (€16,972.56 of the total €25,458.72 assessment). Under Portuguese law, taxpayers are entitled to compensatory interest when tax assessments are annulled and amounts were paid. This compensates for the State's use of funds later determined to be unlawfully collected. The tribunal would need to address this ancillary claim if ruling in taxpayers' favor on the primary illegality claim. Compensatory interest runs from payment date until restitution, calculated according to applicable legal rates for tax overpayments.