Process: 499/2016-T

Date: April 24, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration case (499/2016-T) addresses the application of Stamp Tax under item 28.1 of the General Stamp Duty Table (TGIS) to properties held in vertical ownership. The taxpayer owned a property comprising two independent dwellings with separate patrimonial values of €206,290 and €967,940, totaling over €1,000,000. The Tax Authority assessed Stamp Tax on the entire property value, arguing that vertical ownership properties are taxed as single units, unlike horizontal ownership where autonomous fractions are taxed separately. The claimant challenged this interpretation, contending that independent units should be assessed individually, with neither exceeding the €1,000,000 threshold that triggers item 28.1. The taxpayer argued this differential treatment between horizontal and vertical ownership violates constitutional equality principles and contradicts the law's purpose of taxing luxury properties. The case raises fundamental questions about property classification for tax purposes, the autonomization of independent units in vertical ownership regimes, and whether aggregating separate dwelling values for Stamp Tax assessment is legally justified. The taxpayer also sought compensatory interest for amounts paid under the contested assessments. This decision has significant implications for owners of high-value properties structured under vertical ownership, particularly regarding how tax patrimonial values should be calculated when multiple independent residential units exist within a single registered property.

Full Decision

ARBITRAL DECISION

1. Report

A - General

1.1. A…, with registered office at …, …, …, …-… Estoril, with single registration number of legal person and registered at the commercial registry … (hereinafter referred to as the "Claimant"), filed, on 10.08.2016, a request for constitution of a sole arbitral tribunal in tax matters, which was accepted, seeking, on the one hand, a declaration of illegality of tax acts relating to Stamp Duty assessments for the year 2015, relating to item 28.1 of the General Stamp Duty Table (hereinafter "GSDT"), concerning a property of which it is the owner, as will be better seen below, and, on the other hand, recognition of the right to compensatory interest for unduly paid tax obligations.

1.2. Pursuant to the provisions of paragraph (a) of number 2 of article 6 and paragraph (b) of number 1 of article 11 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council of the Administrative Arbitration Centre (CAAD) appointed the undersigned as arbitrator, the parties, after being duly notified, having not raised any objection to such appointment.

1.3. By order dated 26.09.2016, the Tax and Customs Administration (hereinafter referred to as the "Respondent") appointed Dr. B… and Dr. C… to intervene in the present arbitral proceedings, on behalf of and in representation of the Respondent.

1.4. In accordance with the provisions of paragraph (c) of number 1 of article 11 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the arbitral tribunal was constituted on 09.11.2016.

1.5. On the same date 09.11.2016, the highest officer of the Respondent's departments was notified to submit to the Arbitral Tribunal a copy of the administrative file that might exist and, if so inclined, within 30 days, to submit a response and request additional evidence.

1.6. On 09.12.2016 the Respondent submitted its response.

B – Position of the Claimant

1.7. The Claimant is the owner of the urban property under vertical ownership regime, registered in the urban property matrix of the parish of … and …, under article …, to which reference is made in the property record attached to the request for arbitral decision as document 2, the content of which is considered reproduced (hereinafter, the "Property").

1.8. The Property consists of two dwellings, one with two storeys and a tax patrimonial value (hereinafter "TPV") of € 206,290.00 (two hundred and six thousand two hundred and ninety euros) and another with three storeys, 12 rooms, caretaker's house, two swimming pools, machinery house and kennels, with a TPV of € 967,940.00 (nine hundred and sixty-seven thousand nine hundred and forty euros).

1.9. Both dwellings are capable of independent use and are actually used independently.

1.10. Although the Property has a TPV exceeding € 1,000,000.00 (one million euros), neither of the dwellings capable of independent use and actually used independently has a TPV equal to or exceeding that amount.

1.11. The Claimant was notified of the Stamp Duty assessments (hereinafter referred to as "SD") mentioned in articles 12 and 14 of the request for arbitral decision and to which reference is made in the documents attached thereto with numbers 1 and 4 as well as those presented by it in the Motion of 27.10.2016, admission of their annexation being permitted, the contents of which are considered reproduced, relating to the Property, which were based on article 1 of the Stamp Duty Code (hereinafter the "SDC"), on item 28.1 of the GSDT, whose payment deadlines refer to the end of April, July and November 2016, in the total amount of € 11,742.30 (eleven thousand seven hundred and forty-two euros and thirty cents).

1.12. The Claimant paid the said collection notes, and for this reason it also requests recognition of the right to receive compensatory interest.

1.13. The Claimant argues that autonomization of the storeys or units capable of independent use was necessary for purposes of Stamp Duty assessment, there not resulting from law the correspondence of the TPV of a property composed of several independent units to the sum of the TPV of the storeys or units capable of independent use.

1.14. In the view of the Claimant, a property under vertical ownership is materially identical to a property under horizontal ownership regime, there being no legal justification for differentiated treatment, which, if any, would be affected by unconstitutionality by violation of the principle of equality.

1.15. If the law intends to tax high-value property (luxury property), the reasons that led the Respondent to apply item 28.1 of the GSDT to units valued at less than € 1,000,000.00 (one million euros) are not understood.

C – Position of the Respondent

1.16. The Respondent expresses the view that the interpretation which the Claimant makes of item 28.1 of the GSDT does not correspond to its wording, the challenged assessments resulting from direct application of the legal provision in question.

1.17. The Respondent argues that in properties under total ownership regime, there are no autonomous units to which tax law can attribute the qualification of property.

1.18. The subjection to Stamp Duty of item 28.1 of the GSDT results only from the combination of two facts: residential designation and the patrimonial value of the urban property registered in the matrix being equal to or exceeding € 1,000,000.00 (one million euros), which is the case regarding the Property, any other interpretation being in violation of the wording and spirit of the said item and of the principle of legality of the essential elements of the tax, as enshrined in number 2 of article 103 of the Fundamental Law.

D – Clarification and Conclusion of the Report

1.19. By order dated 13.03.2017, the arbitral tribunal dispensed with the hearing provided for in article 18 of the Legal Framework for Arbitration in Tax Matters (hereinafter, "LFATM"), since the parties had already brought into the proceedings the necessary and sufficient factual elements for the rendering of the decision, which was expected to take place by 24.04.2017.

1.20. The arbitral tribunal is materially competent, pursuant to the provisions of article 2, number 1, paragraph (a) of the LFATM.

1.21. The parties possess legal personality and capacity and have standing, pursuant to article 4 and number 2 of article 10 of the LFATM, and article 1 of Ordinance no. 112-A/2011, of 22 March.

1.22. The cumulation of claims made in the present request for arbitral decision, in respect of the principle of procedural economy, is justified since the challenged assessment acts are based on the same factual basis and call for the application of the same rules of law, the claim for compensation formulated being also acceptable, in theory, since article 3 of the LFATM, by expressly admitting the possibility of "cumulation of claims even if relating to different acts", accommodates, without hermeneutical abuse, the consideration of a claim that follows, of necessity, from the judgment which the arbitral tribunal makes regarding the validity of the assessments at issue.

1.23. The proceedings do not suffer from any nullity nor have the Parties raised any objections to the consideration of the merits of the case, therefore the conditions are met for the rendering of the arbitral decision.

2. Factual Matters

2.1. Proven Facts

The following facts are hereby proved:

2.1.1. The Claimant is the owner of the Property (doc. no. 2, attached with the request for arbitral decision).

2.1.2. The Property has a total TPV exceeding € 1,000,000.00 (one million euros) – (docs. nos 1, 2 and 4 attached with the request for arbitral decision and also the docs. that were presented by the Claimant in the Motion of 27.10.2016).

2.1.3. None of the storeys or units capable of independent use and designated for residential purposes has a TPV equal to or exceeding € 1,000,000.00 (one million euros) (docs. nos 1, 2 and 4 attached with the request for arbitral decision and also the docs. that were presented by the Claimant in the Motion of 27.10.2016).

2.1.4. The Respondent, for purposes of applying item 28.1 of the GSDT to the Property, proceeded to the arithmetic sum of the patrimonial values of each of the storeys or units with residential designation.

2.1.5. The Claimant was notified of the Stamp Duty assessments to which docs. nos 1 and 4 refer, attached with the request for arbitral decision and the docs. presented with the Claimant's Motion of 27.10.2016.

2.1.6. The Claimant paid all the tax payments that were required of it, in the total amount of € 11,742.35 (eleven thousand seven hundred and forty-two euros and thirty cents) (docs. nos 1 and 4, attached with the request for arbitral decision and docs. presented with the Claimant's Motion of 27.10.2016).

2.2. Unproven Facts

There are no facts relevant to the consideration of the merits of the case that have been found unproven.

2.3. Reasoning for the Establishment of Factual Matters

The facts were proved based on the documents attached to the file by the Parties and on the positions assumed by them in the pleadings presented.

3. Legal Matters

3.1. Issues to be Decided

It follows from what has been stated above that the issues to be considered are, in essence, two:

a) Whether a property constituted under total or vertical ownership, but with storeys or units with independent uses, is a "residential property" for purposes of applying article 1 of the SDC and item 28.1 of the GSDT, added by article 4 of Law no. 55-A/2012, of 29 October, as amended by Law no. 83-C/2013, of 31 December; and

b) To clarify whether, if the claim for declaration of illegality is upheld and consequent annulment of the challenged assessments, the Claimant, in the context of the present arbitral proceedings, may obtain condemnation of the Respondent to pay compensatory interest regarding the amounts paid by it to satisfy the tax illegally demanded.

3.2. Item 28.1 of the GSDT

Law no. 55-A/2012, of 29 October, among several amendments it made to the SDC, added, by its article 4, item 28 to the GSDT, which, after the amendment made to it by Law no. 83-C/2013, of 31 December, had the following wording:

"28 - Ownership, usufruct or right of surface of urban properties whose patrimonial tax value recorded in the matrix, under the Municipal Property Tax Code (MPTC), is equal to or exceeding (euro) 1,000,000 - on the patrimonial value used for purposes of Municipal Property Tax:

28.1 - Per residential property or per plot for construction whose building, authorised or envisaged, is for residential purposes, under the terms provided in the Municipal Property Tax Code - 1%;

28.2 - Per property, when the taxpayers who are not individuals are resident in a country, territory or region subject to a clearly more favourable tax regime, listed in the order approved by the Minister of Finance - 7.5%."

As can be seen, item 28.1 referred at the date of the facts to "residential property" and, before the amendment introduced by Law no. 83-C/2013, of 31 December, it referred to "property with residential designation".

Now, none of these concepts are defined in any provision of the SDC, it being therefore necessary to interpret the said item of the GSDT in light of what the MPTC provides, legislation to which number 2 of article 67 of the SDC expressly refers when issues not regulated in the SDC regarding item 28 are at issue.

Number 1 of article 6 of the SDC divides urban properties into: i) residential; ii) commercial, industrial or for services; iii) plots for construction and, finally, iv) others. Number 2 clarifies that residential are buildings or structures licensed for such purpose or, in the absence of licensing, that are intended for that purpose.

It is therefore necessary to consider whether a building under vertical ownership can be considered a "residential property" for purposes of the provisions of item 28.1 of the GSDT.

3.3. "Vertical Ownership" and the Application of Item 28.1 of the GSDT

Without prejudice to the interest, not merely theoretical, of establishing the meaning and scope of the concept of "residential property", it is necessary to answer the question of whether, for purposes of applying item 28.1 of the GSDT, the TPVs of each storey or unit with independent use of a given building can be summed and considered as being designated for residential use, as the Respondent did with respect to the Property.

a) The property register of properties under total or vertical ownership and the collection of Municipal Property Tax

It is important to clarify from the outset that "each storey or part of property capable of independent use is considered separately in the property registration, which also discriminates the respective patrimonial tax value", as can be read in number 3 of article 12 of the MPTC. Also the Municipal Property Tax, in properties subject to the total ownership regime, gives typical relevance to each storey or part of property capable of independent use (article 119, number 1 of the MPTC).

In other words, it is clear that the legislator, in the MPTC, did not intend to adhere to the rigour of the legal form of real rights affecting properties but rather to the use to which they are put, namely in cases where a property, legally speaking, is composed of different storeys or parts capable of independent use.

It can be said, not without reason, that the legislator, for purposes of taxation under Municipal Property Tax, chose to confer autonomy, independence, to each part or to each storey of a single property, provided that each shows capability for independent use, to the point of providing for individual registration in the matrix of each of these independent parts and of imposing on the Municipal Property Tax taxation an autonomous collection as well. Notwithstanding the legal existence of a single property, it is the legislator itself that not only recommends but imposes autonomous consideration of each independent part for purposes of taxation of assets.

b) The Application of Item 28.1 of the GSDT to Each Independent Part

If this is the case for Municipal Property Tax, as has been sought to be demonstrated, it cannot be otherwise for Stamp Duty, namely for purposes of applying item 28.1 of the GSDT.

Moreover, this problem, if the tax, whether Municipal Property Tax or Stamp Duty, were purely proportional, would not exist or would be harmless, since the sum of the parts would necessarily correspond to the whole. However, this is not the case in the present proceedings.

As has been seen, the Stamp Duty to which item 28.1 of the GSDT applies is only due for residential properties and, for these, only those with a TPV equal to or exceeding € 1,000,000.00 (one million euros).

No reason is seen here for the functional, instrumental disregard of the autonomy of each part capable of independent use of a property, nor can it be concluded that, for purposes of applying item 28.1 of the GSDT, a unity is required which, while undisputed in terms of real rights, is not so in the context of taxation of real property.

We believe that this finding results from the necessary interpretive effort of item 28.1 of the GSDT. Number 1 of article 11 of the General Tax Law provides that in determining the meaning of tax norms and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are to be observed.

Now, number 1 of article 9 of the Civil Code expressly provides that interpretation should not be confined to the letter of the law. The interpreter should, starting from the source, endeavour to discover the norm, that is, the expression of an intended obligation. It is already clear that the literal expression is relevant. However, the interpreter may well feel the need to gather other hermeneutical elements in order to identify the norm. Therefore, the legislator opens the door to the possibility of reconstructing the legislative intent from the texts, having especially regard to 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. This legal opening does not authorise an interpretation that does not have in the letter of the law a minimum of verbal correspondence but aims, clearly, to free the interpreter-applicant from a reading manifestly poorly adjusted and, therefore, unjust, and also because, as clarified in number 3 of article 9 of the Civil Code, the "interpreter shall presume that the legislator adopted the most appropriate solutions".

Unless I am mistaken, considering the spirit of the law (which in our view is not contradicted by its wording), it does not appear that it was the legislator's intention to apply item 28.1 of the GSDT to each part of a property when only from the sum of all of them results a TPV equal to or exceeding that of the legal threshold.

We know that the regime for properties under horizontal ownership is not the same as for those under vertical ownership. However, what is at issue is not merely noting this difference, which is evident in terms of real rights. What matters here, it seems to us, is to determine whether on that difference can rest a different tax treatment, that is, to ascertain whether that dissimilarity should be attributed a tax disparity that corresponds to a defensible and relevant interest. If we do not perceive an admissible criterion that permits us to identify the reason for the difference in tax regime between properties under horizontal ownership and properties under vertical ownership, we can only explain it on the basis of the arbitrary will of the legislator which, in the light of the rules by which normative interpretation must be guided, we believe should be summarily rejected.

c) The Rationale Behind Item 28.1 of the GSDT

What is stated above does not ignore the avowed purpose of the proponent of the legislative amendment already mentioned. The interpretation adopted here is in harmony with what appears to have been the unequivocal original intention of the Government, author of the proposal that resulted in this legislative intervention. Nor does it appear that the wording given to it by Law no. 83-C/2013, of 31 December sought to contradict this understanding.

When presenting and discussing in Parliament the bill no. 96/XII (2nd), the State Secretary for Tax Matters expressly stated[1]:

"The Government proposes the creation of a special tax on high-value urban residential properties. This is the first time in Portugal that special taxation has been created on high-value properties intended for residential use. This tax will be 0.5% to 0.8% in 2012 and 1% in 2013, and will apply to houses valued at equal to or exceeding 1 million euros."

Now, the State Secretary for Tax Matters presented this bill referring, without equivocation, to the expression "houses valued at equal to or exceeding 1 million euros", note.

Thus, despite the unfortunate drafting technique adopted, it clearly results that item 28.1 of the GSDT, even after the amendment introduced by Law no. 83-C/2013, of 31 December, cannot be interpreted as encompassing each of the storeys, units or parts capable of independent use when only from their sum results a TPV equal to or exceeding what the same item provides. In fact, none of the "houses" of the Property to which we have been referring has, in itself, a TPV equal to or exceeding 1 million euros.

d) Conclusion

Based on the above, it is the understanding of the arbitral tribunal that there is illegality affecting the Stamp Duty assessment based on item 28.1 of the GSDT with respect to each part capable of independent use of the Property, because the said item cannot be interpreted as being able to be applied to storeys or parts capable of independent use of a property under total or vertical ownership when only from the sum of each of those storeys or parts is it possible to obtain a TPV equal to or exceeding € 1,000,000.00 (one million euros), the TPV of each of the said storeys or parts not exceeding that legal threshold.

This understanding, for the reasons adduced, does not accept the suggested unconstitutionality of the interpretation now endorsed, because no violation of the principle of tax legality enshrined in number 2 of article 103 of the Constitution is seen in it.

3.4. Of Compensatory Interest

Paragraph (b) of number 1 of article 24 of the LFATM provides that "an arbitral decision on the merits of a claim for which no appeal or challenge is available binds the tax administration from the end of the period provided for appeal or challenge, and the latter must, precisely on the terms of the upholding of the arbitral decision in favour of the taxpayer and until the end of the period provided for voluntary execution of the judgments of the judicial tax courts, restore the situation that would exist if the tax act that is the subject of the arbitral decision had not been performed, adopting the necessary acts and operations for this effect".

It is not ignored that the legislative authorization granted to the Government by article 124 of Law no. 3-B/2010, of 28 April, on the basis of which the LFATM was approved, determines that the tax arbitral process constitutes an alternative procedural means to the judicial challenge process and to the action for recognition of a right or legitimate interest in tax matters. Although paragraphs (a) and (b) of number 1 of article 2 of the LFATM found the competence of arbitral tribunals in "declarations of illegality", it seems reasonable to understand that its competences include the powers that in judicial challenge proceedings are attributed to tax courts, it being certain that in judicial challenge proceedings, in addition to the annulment of tax acts, claims for compensation may be considered, including claims for compensatory interest.

Indeed, the principle of cognoscibility of claims for compensation in gracious complaint or in judicial proceedings is justified whenever the damage sought to be redressed results from a fact attributable to the Tax and Customs Administration. We find expressions of this principle in number 1 of article 43 of the General Tax Law and in article 61 of the Tax Procedure and Process Code.

Thus, since the Claimant paid the tax that was required of it by the challenged assessments, it is entitled to compensatory interest calculated from the date of its payment until its full reimbursement.

4. Decision

On the terms and for the reasons set forth, the arbitral tribunal decides:

a) To uphold the request for arbitral decision with the consequent annulment of the challenged assessments, with all legal consequences, including the reimbursement to the Claimant of the amounts paid by it with respect to the assessments now annulled;

b) To uphold the request for condemnation of the Respondent to pay the Claimant compensatory interest, at the legal rate, calculated from the date of its payment until its full reimbursement.

5. Value of the Case

In accordance with the provisions of number 2 of article 306 of the Code of Civil Procedure, article 97-A of the Tax Procedure and Process Code and number 2 of article 3 of the Costs Regulation in Tax Arbitration Proceedings, the value of the case is fixed at € 11,742.30 (eleven thousand seven hundred and forty-two euros and thirty cents).

6. Costs

For purposes of the provisions of number 2 of article 12 and number 4 of article 22 of the LFATM and number 4 of article 4 of the Costs Regulation in Tax Arbitration Proceedings, the amount of costs is fixed at € 918.00 (nine hundred and eighteen euros), pursuant to Table I attached to the said Regulation, to be borne entirely by the Respondent.

Lisbon, 24 April 2017

The Arbitrator

_______________________________

(Nuno Pombo)

Text prepared by computer, pursuant to number 5 of article 131 of the Code of Civil Procedure, applicable by virtue of paragraph (e) of number 1 of article 29 of the LFATM, following the spelling prior to the said Orthographic Agreement of 1990.

[1] See DAR I Series no. 9/XII -2, of 11 October, p. 32.

Frequently Asked Questions

Automatically Created

Does Verba 28.1 of the TGIS apply to properties held in vertical ownership (propriedade vertical) with independent units?
According to the Tax Authority's position in this case, Verba 28.1 of the TGIS applies to the entire property held in vertical ownership when the total tax patrimonial value exceeds €1,000,000, regardless of whether individual independent units separately meet this threshold. The Tax Authority argues that vertical ownership properties lack autonomous units recognized by tax law, distinguishing them from horizontal ownership where each fraction is taxed independently. The taxpayer contests this interpretation, arguing that materially independent dwellings should be assessed separately, similar to horizontal property regimes, and that aggregating values contradicts the law's purpose of taxing luxury properties over €1,000,000.
How is the taxable value determined for Stamp Tax when a building has multiple independent units with separate patrimonial values?
For Stamp Tax purposes under vertical ownership, the Tax Authority determines taxable value by summing the total tax patrimonial value (TPV) registered in the property matrix for the entire property, not individual units. This differs from horizontal ownership where each autonomous fraction has separate tax treatment. In this case, despite two dwellings having separate TPVs of €206,290 and €967,940 (neither exceeding €1,000,000 individually), the Tax Authority applied item 28.1 based on the combined value exceeding €1,000,000. The taxpayer challenged this methodology, arguing that independent units capable of separate use should be autonomized for assessment purposes, preventing taxation of units below the statutory threshold.
Can a taxpayer claim compensatory interest (juros indemnizatórios) after an unlawful Stamp Tax assessment is annulled?
Yes, taxpayers can claim compensatory interest (juros indemnizatórios) when Stamp Tax assessments are annulled as unlawful. Portuguese tax law provides for compensatory interest on unduly paid tax obligations when administrative or arbitral decisions declare assessments illegal. In this case, the claimant paid the contested Stamp Tax assessments totaling €11,742.30 and specifically requested recognition of the right to receive compensatory interest alongside the declaration of illegality of the tax acts. Article 3 of the Legal Framework for Arbitration in Tax Matters (RJAT) expressly permits cumulation of claims, including consequential claims like compensatory interest that follow from the main decision on assessment validity.
What are the grounds for challenging Imposto do Selo assessments on high-value residential properties before CAAD arbitration?
Grounds for challenging Imposto do Selo assessments on high-value residential properties before CAAD include: (1) incorrect interpretation or application of item 28.1 TGIS regarding property valuation methodology; (2) violation of the constitutional principle of equality when differential treatment lacks reasonable justification (e.g., vertical vs. horizontal ownership); (3) misapplication of the law's ratio legis, particularly when the stated purpose is taxing luxury properties but assessments target units below statutory thresholds; (4) violation of the principle of legality in taxation under Article 103(2) of the Portuguese Constitution; and (5) improper determination of the taxable base by failing to recognize autonomous units. Taxpayers must demonstrate that assessments are legally unfounded, either through incorrect legal interpretation or unconstitutional application.
How does the distinction between horizontal and vertical property ownership affect Stamp Tax liability under Portuguese law?
The distinction between horizontal and vertical property ownership creates significant differences in Stamp Tax liability under Portuguese law. In horizontal ownership (propriedade horizontal), each autonomous fraction constitutes a separate property for tax purposes, with item 28.1 TGIS applied individually to each unit exceeding €1,000,000 patrimonial value. In vertical ownership (propriedade vertical), the Tax Authority treats the entire property as a single taxable unit, aggregating all values regardless of physical or functional independence of constituent parts. This means a vertical property with multiple dwellings, none individually worth €1,000,000, may still be taxed under item 28.1 if the combined value exceeds this threshold. The taxpayer in this case argued this differential treatment lacks legal justification and constitutes unconstitutional discrimination, as both regimes involve materially similar independent residential units.