Process: 488/2016-T

Date: March 20, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

In Process 488/2016-T, three taxpayers challenged stamp duty assessments levied by the Portuguese Tax Authority on property allegedly acquired through adverse possession (usucapião). The claimants had purchased two-thirds of a rural property in 1991, paying stamp duty at that time. After a verbal division among co-owners, they formalized this arrangement through a public deed of justification by usucapião in May 2015. The Tax Authority then assessed stamp duty treating this as a 'free transfer' of property. The claimants argued they were merely formalizing an existing division, not acquiring new property rights, since they had already acquired ownership through the 1991 purchase deed registered in the Land Registry. The Tax Authority defended the assessments, arguing that the usucapião deed transformed undivided co-ownership into full ownership of newly autonomous properties. Under Article 1(3)(a) and Article 5(r) of the Stamp Duty Code, acquisitions by adverse possession are taxable events, treated fictionally as free transfers per Entry 1.2 of the General Table. The Authority emphasized that usucapião is an original acquisition method, not a derivative transfer, creating new rights distinct from the prior co-ownership arrangement. This case highlights the controversial taxation of usucapião under Portuguese law and demonstrates taxpayers' right to challenge such assessments through tax arbitration at CAAD (Centre for Administrative Arbitration), as established under the RJAT legal framework.

Full Decision

ARBITRATION DECISION

I – Report

  1. On 2 August 2016, the Claimants, A..., divorced, with tax identification number ..., resident at street ..., no. ..., ..., ..., in ...; B..., widower, with tax identification number ..., resident at Street ..., no. ..., in ... and C..., married, with tax identification number ..., resident at street ..., no. ..., ..., ..., in ..., requested the CAAD for the constitution of an arbitral tribunal, pursuant to article 10 of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to as "LFATM"), with the Tax and Customs Authority as Respondent, with a view to annulling the following stamp duty assessments, levied on the basis of property acquisition by adverse possession:

  1. Having as the passive subject the first Claimant, on the basis of taxable matter of €32,242.12, the assessment of €3,224.21, to be paid in ten monthly instalments of €322.43 each, with payment deadline for the first instalment on 30.09.2015, with the possibility for the Claimant to benefit from a discount of €435.27 in case of prompt payment.

  2. Having as the passive subject the second Claimant, on the basis of taxable matter of €24,181.59, the assessment of €2,418.16, to be paid in ten monthly instalments, the first being €241.87 and the remaining nine of €241.81 each, with payment deadline for the first instalment on 30.09.2015, with the possibility for the Claimant to benefit from a discount of €326.44 in case of prompt payment.

  3. Having as the passive subject the third Claimant on the basis of taxable matter of €8,060.53, the assessment of €806.05, to be paid in full by 30.09.2015.

The Claimants further petition for a declaration of illegality of the tacit dismissal of the administrative appeals they filed against the aforementioned assessments.

The first and second Claimants, alleging that they have already paid instalments of the assessments levied against them, further petition for reimbursement of such amounts, plus compensatory interest.

The third Claimant, alleging that she has paid the full amount of tax levied against her, further requests reimbursement of the amount in question, plus the respective compensatory interest.

  1. The request for constitution of the arbitral tribunal was accepted by His Excellency the President of CAAD and notified to the Tax and Customs Authority.

Pursuant to the provisions of article 6, paragraph 1, of the LFATM, by decision of the President of the Deontological Council, duly communicated to the parties within the legally applicable deadlines, the undersigned was appointed as arbitrator, and communicated to the Deontological Council and to the Centre for Administrative Arbitration the acceptance of the appointment within the regularly applicable deadline.

The Arbitral Tribunal was constituted on 04-11-2016.

  1. The grounds presented by the Claimant in support of her claim were, in summary and in essence, as follows:

In 1991, by public deed of purchase and sale, the first and second Claimants and their respective spouses acquired in common two-thirds of a rural property designated as ... in the Parish of ..., municipality of ... registered in the respective cadastral record under article ..., of section ... to ....

For this acquisition, stamp duty was levied by the Tax Office of ....

The third claimant acquired the right of ownership in 2015 by succession on the death of her mother D....

As early as 1991, the 1st and 2nd claimants and the other co-owners of the property in question proceeded to divide it verbally.

On 6 May 2015, the Claimants executed a public deed of justification and division of the property by adverse possession.

The Respondent, in a notification of 29 January 2016, came to recognize the Claimants as registered owners of article ..., section ...-... and that the requested severance gave rise to the registration of two new properties.

Also at an earlier date (August 2015) the Tax Authority notified the Claimants of the assessment of stamp duty relating to "free transfer" with reference to "acquisition by adverse possession".

The Claimants cannot accept paying tax again for the acquisition of ownership when in truth what they had justified by public deed was a division, and it is certain that they did not require any justification for the right of ownership, evidenced by the public deed of purchase and sale enforceable erga omnes, and registered in the Land Register.

The claimants validly acquired the right of ownership by public deed of purchase and sale, as follows from the application of articles 874 and 875 of the Civil Code, and for that reason could not acquire a part of the land that was already theirs, therefore there was no free transfer by way of the justification deed, whereby the assessments are illegal and, consequently, should be annulled.

  1. The Tax and Customs Authority, called upon to respond, contested the Claimants' claim, defending itself by impugning the claim, in summary, with the following grounds:

The present Claimants prior to the public deed of justification by adverse possession were co-owners in common and without determination of part or share of the original property.

Which cannot be confused with the "acquisition" of full ownership of the new property detached from the original.

This public deed of justification by adverse possession was the relevant legal fact that gave rise to the assessments now impugned.

The Claimants, by resorting to a public deed of justification by adverse possession in order to proceed with the division of common property, obtained the autonomization of a new property that was described in the cadastral record with no. ... of Section ... to ..., parish of ... – ..., from which resulted new rights and obligations of full ownership, different from the co-ownership in which they stood with reference to article ... of the same section and parish.

Given its original character, acquisitions by adverse possession are never true transfers, since the adverse possessor does not succeed to the rights of any previous holder of the right of ownership (nor any other real right of enjoyment) over the property acquired by adverse possession.

Hence, acquisition by adverse possession is never considered as free or paid, as a result of its original and non-derivative character, given that it is not necessary to have any contractual source underlying it.

Now, from the entry into force of the Stamp Duty Code, acquisitions by adverse possession came to be taxed, because they were included in the respective objective scope of tax rules (no. 1 of art. 1 combined with the final part of subparagraph a) of no. 3 of the same provision of the Code in question) and, based on subparagraph r) of art. 5 of the same Code, the moment of the birth of the tax obligation occurred, in this case, on the date of the justification deed, that is, on 26/05/2015.

In other words, the legislator "fictionally treated" the acquisition by adverse possession as a free transfer of property, since it included it in this legal category, an idea that is reinforced by the provision in entry 1.2 of the General Table of Stamp Duty.

In summary, the act in question does not suffer from any illegality.

  1. As there was no situation provided for in article 18, paragraph 1, of the LFATM that would make necessary the arbitral meeting provided therein, its performance was dispensed with, on the ground of the prohibition of useless acts.

The parties presented written submissions in which, in essence, they reiterated the positions and arguments already presented in the request for arbitral opinion and in the response.

  1. The tribunal is materially competent and is regularly constituted pursuant to the LFATM.

The parties have legal personality and capacity, are legitimate and are legally represented.

The proceedings do not suffer from defects that would invalidate it.

  1. The following issues must be resolved:

Whether the acts of assessment sub judice suffer from the defect of violation of law due to error in the factual or legal premises.

Whether, in case of annulment of the assessments, the Respondent should be ordered to restore to the claimant the amounts allegedly paid plus compensatory interest at the legal rate.

II – Relevant Factual Matter

  1. The following facts are considered proven:

On 5 February 1991, by public deed of purchase and sale executed at the ... Notarial Office of ..., E... and his wife A..., married under the community of acquired property regime, and B... and his wife D..., also married under the community of acquired property regime, purchased in common, for the price of thirty-six million five hundred thousand escudos from F..., G... and his wife, H..., and I... and his wife J..., two-thirds of an undivided rural property with a total area of three hundred and six hectares, three thousand one hundred fifty square meters, located at ... in the Parish of ..., municipality of ..., registered in the respective cadastral record under article ..., of section ... to ..., with the patrimonial value corresponding to the fraction of five million one hundred thirteen thousand and ninety-two escudos.

For this acquisition, stamp duty was levied by the Tax Office of ....

On 6 May 2015, at the Notarial Office of ..., A..., divorced, B..., widower, and C..., married under the community of acquired property regime with K..., executed by notarial deed of justification, in which they declared that, to the exclusion of others, they are lawful possessors, in the proportion of one-half for A... and one-half for B... and C..., in common and without determination of part or share of the rural property located at "..." or "..." or "...", parish of ..., municipality of ..., with an area of one million eight hundred seventy-six thousand one hundred fifty square meters, registered in the cadastral record under part of article ..., section ...-..., and that as early as 1991 A... and E..., then her husband, and B... and his wife D..., who had since died, and the other co-owners of the property of the rural properties registered in the cadastral record under article ..., section ...-..., proceeded among themselves and by common agreement to divide and demarcate the property that is the subject matter of the justification deed, and that thus, since 1990, A... and her husband, and she after the date of her divorce, and B... and his wife D..., until her death, upon which her heirs B..., her widower, and C..., her daughter, acceded, had been possessing the identified property, not under the co-ownership regime but by exercising possession over the immovable property that is the subject matter of the justification deed, without interruption, without violence and without opposition from anyone whatsoever, openly, in view and with the knowledge of everyone, reflected in material acts of enjoyment, always acting in a manner consistent with the exercise of the right of ownership, and that this possession in their own name, peaceful, continuous, public and in good faith for more than twenty years, which led to the acquisition of the property already divided by adverse possession, which they invoked, since given the form of verbal division they did not have the justifying parties any document proving it, nor the possibility of obtaining it by the normal extrajudicial means.

With reference to the justification deed identified, the Claimants made, for stamp duty purposes, the notifications numbers ..., ... and ... (1st Claimant, 2nd and 3rd, respectively), and following these the Respondent made, on 10.07.2015, on the basis of acquisition by adverse possession, the following stamp duty assessments:

1-Having as the passive subject the first Claimant, on the basis of taxable matter of €32,242.12, the assessment of €3,224.21, to be paid in ten monthly instalments of €322.43, with payment deadline for the first instalment on 30.09.2015, with the possibility for the Claimant to benefit from a discount of €435.27 in case of prompt payment.

2-Having as the passive subject the second Claimant, on the basis of taxable matter of €24,181.59, the assessment of €2,418.16, to be paid in ten monthly instalments, the first being €241.87 and the remaining nine of €241.81 each, with payment deadline for the first instalment on 30.09.2015, with the possibility for the Claimant to benefit from a discount of €326.44 in case of prompt payment.

3-Having as the passive subject the third Claimant on the basis of taxable matter of €8,060.53, the assessment of €806.05, to be paid in full by 30.09.2015.

On 25 January 2016 the 1st and 3rd Claimants filed an administrative appeal against the assessments levied against them.

On 27 January 2016 the 2nd Claimant filed an administrative appeal against the assessment levied against him.

On 16 February 2016 the Respondent notified the Claimants of the draft dismissal of the administrative appeals.

On 2 March 2016, the Claimants exercised the right to be heard regarding the draft dismissal of the administrative appeals.

Until the date of presentation of the request for arbitral opinion, the Claimants were not notified of the decision on the administrative appeals.

The first Claimant, not having opted to pay the full assessment amount promptly, paid two instalments of the same, on 29 September 2015 and 27 March 2016, in the amounts of €322.43 and €322.42 respectively.

The second Claimant, not having opted to pay the full assessment amount promptly, paid three instalments of the same, on 28 September 2015, 31 March 2016 and 18 February 2017, in the amounts of €241.87 for the first and €241.81 for the second and third.

The third Claimant paid on 30 September 2015 the full amount of the tax in the amount of €806.05.

With interest for the resolution of the case, there are no unproven facts.

  1. The Tribunal's conviction regarding the resolution of the factual matter was based on the documents contained in the file, which were not subject to any challenge by the parties, namely the identified public deeds, notifications of the impugned assessments, copies of the administrative appeals, notifications of the draft dismissal thereof, document evidencing the exercise of the prior right to be heard by the Claimants, and documents evidencing the payments.

III – Applicable Law

Article 1 of the Stamp Duty Code (hereinafter "SDC") establishes the following:

1 - The stamp duty tax is levied on all acts, contracts, documents, titles, papers and other facts or legal situations provided for in the General Table, including free transfers of property.

2 – (...).

3 - For the purposes of entry 1.2 of the General Table, free transfers are considered, namely those whose subject matter is:

a) The right of ownership or fractional figures of that right over immovable property, including acquisition by adverse possession;

In turn, entry 1.2 of the general table of stamp duty has the following wording:

| Free acquisition of property, including by adverse possession, to be added, where applicable, to that of entry 1.1 | 10% |

On the other hand, article 5 of the SDC provides the following:

1 - The tax obligation is considered to be constituted:

(...)

r) In acquisitions by adverse possession, on the date on which the action for judicial justification becomes final, the notarial justification deed is executed, or at the moment the decision rendered in justification proceedings becomes final pursuant to the Land Register Code;

As can be read in the judgment of the Supreme Administrative Court of 2 May 2012, case 0746/11[1]:

"when the legislator came, in article 1, no. 3, of the SDC, to state that for the purposes of entry 1.2 of the General Table, free transfers are considered, namely "acquisition by adverse possession", it was not unaware that adverse possession does not constitute a derivative acquisition of ownership, nor did it wish to alter that nature. The legislator's objective, aiming to broaden the objective scope of the stamp duty tax, was to equate, for stamp duty purposes, adverse possession with free transfers. It is, therefore, a legal fiction for tax purposes."

It can also be read in the judgment of the Supreme Administrative Court of 9 July 2014, case 0269/14[2]:

"Adverse possession is an original acquisition of the right of ownership recognized to those who have had possession of the immovable property for a lapse of time – article 1287 of the Civil Code –"

In the case at hand, by deed executed in 1991, E... and his wife A..., married under the community of acquired property regime, and B... and his wife D..., married under the community of acquired property regime, purchased in common, by purchase, two-thirds of an undivided rural property with a total area of three hundred and six hectares, three thousand one hundred fifty square meters, located at ... in the Parish of ..., municipality of ..., registered in the respective cadastral record under article ..., of section ... to ....

On the other hand, the present Claimants, by notarial deed of justification executed in 2015, on the basis of adverse possession, which they expressly invoked in that notarial act for acquisitive purposes, became owners, in the proportion of one-half for A... and one-half for B... and C..., in common and without determination of part or share, of a rural property located at "..." or "..." or "...", parish of ..., municipality of ..., with an area of one million eight hundred seventy-six thousand one hundred fifty square meters, registered in the cadastral record under part of article ..., section ... -....

The Claimants contend that they had already validly acquired the right of ownership of the rural property that is the subject matter of the notarial deed of justification, by the public deed of purchase and sale executed in 1991, as follows, in their understanding, from the application of articles 874 and 875 of the Civil Code, and for that reason could not acquire by the notarial deed of justification executed in 2015 a part of the land that was already theirs, whereby, in their perspective, the taxable event provided for in article 1, nos. 1 and 3, of the Stamp Duty Code and entry 1.2 of the respective general table did not occur.

Let us examine this.

Objectively, the immovable property and the right transferred by the public deed of purchase and sale executed in 1991 does not coincide with the immovable property and the right of ownership that is the subject matter of the deed of justification executed in 2015.

In fact, the immovable property that is the subject matter of the deed of purchase and sale was a rural property with a total area of three hundred and six hectares, three thousand one hundred fifty square meters, and the right transferred was two-thirds undivided thereof. The immovable property that is the subject matter of the notarial justification deed by adverse possession was a rural property with an area of one million eight hundred seventy-six thousand one hundred fifty square meters (187.615 hectares) and the right constituted therein was the entirety thereof for the justifying parties and not, obviously, two-thirds, as had been acquired through the public deed of purchase and sale executed in 1991.

Thus, manifestly, we are not dealing with the same right. Furthermore, only in this way is the necessity of resorting to acquisition by adverse possession evidenced by the public deed of justification executed in 2015 understood. Through this the Claimants acquired, legally, a right that previously, obviously, they were not holders of, either from the perspective of the immovable property itself, or from the perspective of the share that they hold over it.[3]

Thus, the argument of the Claimants is without merit, and the Claimants' claim for annulment cannot but fail.

Furthermore, independently of the reasons just set forth, another reason that relates to the partial non-coincidence between the persons who acquired the rights that are the subject matter of the 1991 deed and those who acquired the rights that are the subject matter of the justification deed of 2015, would always have caused the thesis that the justified right had already been acquired by the justifying parties by the 1991 purchase deed to founder, and consequently, to the failure of the Claimants' claim.

In fact, in the deed of purchase and sale of 1991, E... and his wife A..., married under the community of acquired property regime, intervened as purchasers, whereby the right acquired, both by virtue of the intervention in the deed and by virtue of the property regime, entered the legal sphere of both.

Differently, in the justification deed only A..., in the civil status of divorced, intervened as a justifying party. Also for this reason the thesis that the justified right already existed in the legal sphere of the Claimants in light of the deed of purchase and sale lacks support, since, in light of that deed, one-half of the acquired right belonged in common to both spouses and, differently, by the justification deed no right was attributed to E...[4]

As the Claimants' claim for annulment is unfounded, the requests for reimbursement of the taxes paid, as well as for compensatory interest, are consequently unfounded.

IV – Decision

Thus, the Arbitral Tribunal decides to judge the request for arbitral opinion to be totally unfounded.

Value of the action: €6,500 (six thousand five hundred euros) pursuant to the provisions of article 306, no. 2, of the Code of Civil Procedure and 97-A, no. 1, subparagraph a), of the Code of Tax Procedure and 3, no. 2, of the Regulation of Costs in Arbitration Proceedings.

Costs payable by the Claimants, in the amount of €612 (six hundred twelve euros) pursuant to no. 4 of article 22 of the LFATM.

Notification shall be made.

Lisbon, CAAD, 20.03.2017

The Arbitrator

Marcolino Pisão Pedreiro

[1] Available at www.dgsi.pt.

[2] Also available at www.dgsi.pt.

[3] The facts of this case are, therefore, different from the factual matter in the proceedings on which the judgment of the Central Administrative Court of the North, of 18.09.2014 (case 00635/07.0BEBRG), mentioned by the Claimants, was based, where it can be read that "when on 03/02/2006 the Appellants execute a public deed of justification, they could not acquire again the same right of ownership by adverse possession, since the right of ownership had already been previously acquired by purchase and sale. Moreover, that was not even the objective of the execution of the deed, but solely to restore the chain of title and to proceed with the registration of the property in their favour for the purposes of article 34 of the Land Register Code.

What was actually intended, and which besides also results from the public deed of 03/02/2006, and is moreover established as proven in the file, was "[s]olely and exclusively for the purpose of restoring the chain of title and proceeding with registration in their favour with the Land Register Office...".

It becomes, moreover, necessary to distinguish cases of justification by adverse possession for obtaining first registration in the register (as is the case here) or for establishing a new chain of title, from cases in which it is merely a matter of restoring the chain of title (case of the judgment of the Central Administrative Court of the North, of 18.09.2014), since, as Fernando Neto Ferreirinha writes, "It is only incumbent upon notaries, as we have said, to assess the stamp duty of no. 15.1 of the Table at the time of executing the deed, having nothing to do with the assessment of the duty of this entry no. 1.2, to which only the justifying parties of deeds for obtaining first registration or for establishing a new chain of title, with invocation of adverse possession, are subject, not the justifying parties of deeds for restoration of the chain of title." (Paper presented at the Conference on Real Rights, held at the Faculty of Law of Coimbra, on 28 and 29 November 2003, within the framework of the Celebrations of the 35th Anniversary of the Civil Code, https://www.google.pt/?gws_rd=ssl#q=reatamento+do+trato+sucessivo&*)

[4] It should be noted that the act of notarial justification does not legally constitute a division. The deed in question constitutes an acquisitive title by adverse possession of the rural property located at "..." or "..." or "...", parish of ..., municipality of ..., with an area of one million eight hundred seventy-six thousand one hundred fifty square meters, registered in the cadastral record under part of article ..., section ... -... for the Claimants, but does not constitute it for the other co-owners of the original rural property, with respect to the remaining part. Nor could this occur since not all the other co-owners intervened in the deed but only one did and in the mere capacity of declarant.

For the rest, if this were a division, such would constitute a taxable event for purposes of the Municipal Tax on Onerous Transfers of Immovable Property in light of article 2, no. 5, subparagraph c) of the Code on the Municipal Tax on Onerous Transfers of Immovable Property, which, evidently, is not referenced in the notarial act in question.

Frequently Asked Questions

Automatically Created

Is stamp tax (Imposto de Selo) due on property acquired through adverse possession (usucapião) in Portugal?
Yes, stamp tax is due on property acquired through usucapião in Portugal. Under Article 1(3)(a) of the Stamp Duty Code (Código do Imposto do Selo), acquisitions by adverse possession fall within the tax's objective scope. The law treats usucapião as a 'free transfer' of property for tax purposes, as specified in Entry 1.2 of the General Table of Stamp Duty, despite its original (non-derivative) nature. The tax obligation arises on the date of the justification deed formalizing the usucapião, pursuant to Article 5(r) of the Code.
How is the taxable base calculated for stamp tax on property acquired by usucapião?
The taxable base for stamp tax on usucapião acquisitions is calculated based on the patrimonial value (valor patrimonial tributário - VPT) of the property acquired. In Process 488/2016-T, the assessments were: €32,242.12, €24,181.59, and €8,060.53 for the respective claimants. The applicable rate is 10% (as per Entry 1.2 of the General Table), resulting in tax amounts of €3,224.21, €2,418.16, and €806.05 respectively. The value corresponds to the portion of property over which full ownership is obtained through the usucapião process.
Can taxpayers challenge stamp tax assessments on usucapião acquisitions through tax arbitration at CAAD?
Yes, taxpayers can challenge stamp tax assessments on usucapião acquisitions through tax arbitration at CAAD (Centro de Arbitragem Administrativa). Process 488/2016-T demonstrates this right under the RJAT (Regime Jurídico da Arbitragem em Matéria Tributária), established by Decree-Law 10/2011 of 20 January. Taxpayers may request constitution of an arbitral tribunal pursuant to Article 10 of RJAT to seek annulment of assessments, including those based on adverse possession. The arbitration procedure provides an alternative to judicial courts for resolving tax disputes.
Are compensatory interest (juros indemnizatórios) available when stamp tax on usucapião is annulled?
Yes, compensatory interest (juros indemnizatórios) are available when stamp tax on usucapião is annulled. In Process 488/2016-T, the claimants who had already paid their assessments (in full or in instalments) specifically requested reimbursement plus compensatory interest. Under Portuguese tax law, when taxes are collected unlawfully and subsequently annulled by administrative or judicial decision, the Tax Authority must refund the amounts paid together with compensatory interest calculated from the payment date until reimbursement, compensating taxpayers for the State's undue retention of funds.
What is the procedure for filing a gracious complaint (reclamação graciosa) against a stamp tax assessment in Portugal?
The procedure for filing a gracious complaint (reclamação graciosa) against a stamp tax assessment in Portugal involves submitting a written administrative appeal to the Tax Authority within the legal deadline (typically 120 days from notification of the assessment). The reclamação graciosa is filed with the tax office that issued the assessment or the competent regional tax authority. The Authority must decide within a specified timeframe; failure to decide constitutes tacit dismissal (indeferimento tácito). In Process 488/2016-T, the claimants filed administrative appeals that were tacitly dismissed before proceeding to CAAD arbitration, requesting declaration of illegality of such dismissals.