Stamp Tax on Vertical Property: CAAD Rules on VPT Threshold for Properties Not Under Horizontal Ownership

ARBITRAL DECISION

REPORT

1. A…, S.A., taxpayer no. …, with registered office at Rua …, no.…, …, in Lisbon, requested the constitution of an arbitral tribunal in tax matters with a view to declaring the illegality of stamp duty assessment acts in the total amount of € 15,656.10, relating to an urban property, not registered under a horizontal property regime, registered in the respective real estate register of the parish of União das Freguesias de … and … under article… . The said assessment, effected on the basis of the rule of article 1 of the Stamp Duty Code, combined with Entry 28 of the respective General Table, relates to the year 2014.

2. As the basis for the request, the Claimant alleges, in summary, that the taxation provided for in the aforementioned rules has as its object urban properties, with residential use, whose taxable property value used for IMI purposes is equal to or greater than € 1,000,000. In the case of properties not registered under a horizontal property regime but comprised of parts or divisions susceptible of independent use, the patrimonial value used for IMI purposes, and consequently, relevant for the purposes of the incidence of stamp duty, is, in accordance with the rule cited above, that determined in relation to each of those parts or divisions.

3. For its part, the Respondent - Tax and Customs Authority (AT) - in response to the allegations states its position for the rejection of the request and, consequently, for the maintenance of the contested assessment acts, on the grounds that it is a single urban property, and what is relevant for the purposes of the incidence of stamp duty is the sum of the taxable patrimonial values attributed to the various parts that comprise it.

4. However, such position of the Respondent, formulated by objection "and as a precaution," does not preclude the preliminary issue raised by it, relating to the material incompetence of the Arbitral Tribunal. This is based on the circumstance that, in its view, the request for an arbitral decision has as its object the "annulment of the stamp duty collection notices for the 1st instalment, year 2014."

5. The request for constitution of the arbitral tribunal, presented on 29 July 2015, was accepted by the President of CAAD and notified to the Respondent on 31 August following.

6. In accordance with the provisions of paragraph a) of article 6, subsection 2, and paragraph b) of article 11, subsection 1, of Decree-Law no. 10/2011, of 20 January, with the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council appointed as arbitrator of the singular arbitral tribunal the signatory, who communicated acceptance of the assignment within the applicable deadline, and notified the parties of this appointment on 19 October 2015.

7. Duly notified of this appointment, the parties did not manifest a will to refuse the appointment of the arbitrator, in accordance with the combined terms of article 11, subsection 1, paragraphs a) and b) of the Tax Arbitration Regulation and articles 6 and 7 of the Deontological Code.

8. Thus, in accordance with what is prescribed in paragraph c) of article 11, subsection 1, of the Tax Arbitration Regulation, with the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the singular arbitral tribunal was constituted on 3 November 2015.

9. Duly constituted, the arbitral tribunal, without prejudice to what it decides regarding the exception invoked by the Respondent, is materially competent, in view of what is prescribed in articles 2, subsection 1, paragraph a), of the Tax Arbitration Regulation.

10. The parties have legal personality and capacity and have standing (articles 4 and 10, subsection 2, of the Tax Arbitration Regulation, and article 1 of Ordinance no. 112-A/2011, of 22/03).

11. No oral arguments were made as they were unnecessary. The proceedings do not suffer from any nullities and no other issues have been raised that would prevent the examination of the merits of the case, with the conditions being met for a final decision to be rendered.

STATEMENT OF FACTS

1. With relevance for the examination of the issues raised, the following factual elements are highlighted:

12.1. The Claimant is the owner of the urban property located at Rua …, no.…, União das Freguesias de … and …, registered in the respective real estate register under article… .

12.2. The said property, in full ownership with storeys or divisions susceptible of independent use, is comprised of a basement, ground floor, porter's lodge, garage and 5 storeys, for a total of 7 floors.

12.3. In accordance with the respective property registration, the sum of the taxable patrimonial values of the various parts that comprise the said property is € 1,565,610.00, as itemized in the following table:

12.4. For payment in April 2015, collection notices relating to the first instalment of the assessments in question were sent to the Claimant (Documents 2 to 11).

12.5. Following the aforementioned communication, the Claimant filed the present request for an arbitral decision, arguing for the declaration of illegality of the contested stamp duty assessments and consequent annulment.

PRELIMINARY ISSUE

1. Having summarized the relevant factual elements and the positions that, in matters of interpretation of applicable law, are sustained by the parties, it is important, first of all, to analyze and decide the preliminary issue raised by the Respondent which, as referred to above, concerns the material incompetence of the arbitral tribunal to examine and decide on the object of the request.

2. The Respondent considers that the present proceedings have as their object not the annulment of a tax act, but rather the annulment of the payment of an instalment - the first - of a tax act, set forth in collection notices that the Claimant attaches to its request.

3. According to the Respondent, this is a matter that does not at all figure in the set of rules that delimit the competence of tax arbitral tribunals, contained in article 2 of the Tax Arbitration Regulation.

4. From which, further according to what is alleged by the Respondent, it follows that the object of the request for an arbitral decision goes beyond the competence of the arbitral tribunal.

5. In support of its thesis, the Respondent cites various arbitral decisions, to the effect that payments of tax instalments are not susceptible of autonomous challenge.

6. However, from a simple reading of the request for constitution of the Arbitral Tribunal, it is evident that its object is the stamp duty assessments relating to a specific property, identified therein, and for the year 2014, in the total amount of € 15,656.10, being this the value attributed to the proceedings.

7. In these terms, and without need for more detailed inquiry, the Tribunal considers the exception of material incompetence invoked by the Respondent to be entirely without merit.

MATTERS OF LAW

1. As already referred to above, in the request for an arbitral decision, the Claimant argues, in essence, that the rule of Entry 28 of the General Table of Stamp Duty is not applicable to properties in full ownership comprised of parts or divisions susceptible of independent use whenever the taxable patrimonial value attributed to each one that is intended for residential use does not exceed € 1,000,000.

2. In addition to directly questioning the rule of tax incidence in the interpretation underlying the contested assessments, the Claimant invokes the violation of the constitutional principle of equality that follows from articles 13 and 104, subsection 3, of the Portuguese Constitution.

3. To what was alleged by the Claimant, the AT responded, in summary, that Entry 28 of the General Table of Stamp Duty applies to urban properties with residential use and that the taxable patrimonial value on which the application of that legal rule depends is, as expressly results from the law, the patrimonial value of each property and not of its distinct parts, even if susceptible of independent use. Concluding, thus, that the tax act in question, having violated no legal rule, should be maintained.

4. From the positions expressed by the Claimant and Respondent, summarized above, it follows that there is at issue the examination of a matter of strictly legal nature, being unnecessary the production of evidence beyond the documentary elements attached to the proceedings.

5. In fact, the question to be decided centers solely on knowing whether within the scope of the incidence of stamp duty referred to in Entry 28 of the General Table of Stamp Duty are contained, or not, residential urban properties which, although not registered under a horizontal property regime, are comprised of storeys or divisions susceptible of independent use, whenever the taxable patrimonial value attributed to each of those distinct parts does not exceed the value of € 1,000,000.

6. In other words, the question is whether the quantitative element relevant to the aforementioned rule should be considered based on the taxable patrimonial value attributed to each of the parts, as the Claimant argues, or whether that element is what results from the sum of the patrimonial values attributed to them, as the AT contends.

7. It is thus important, first of all, to carry out an analysis, albeit brief, of the conditions for the incidence of stamp duty on urban properties with residential use, resorting to the relevant tax rules for the definition of the respective legal concepts.

TAX INCIDENCE

1. Through Law no. 55-A/2012, of 29/10, Entry 28 was added to the General Table of Stamp Duty, subjecting to this tax urban properties whose taxable patrimonial value contained in the register, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than € 1,000,000.

2. The taxable base consists of the taxable patrimonial value considered for IMI purposes, with that tax being assessed annually by the AT in relation to each urban property (Stamp Duty Code, article 23, subsection 7), at the rate of:

• 1%, for urban property with residential use;
• 7.5%, for a property, when the passive subjects, not being natural persons, are resident in a country, territory or region subject to a regime that is clearly more favorable, as contained in the list approved by ordinance of the Minister of Finance.

1. The passive subjects and debtors of the tax are the owners, usufructuaries or surface-holders of the properties on 31 December of the year to which the tax relates, as follows from article 8 of the Municipal Property Tax Code, by express reference in articles 3, subsection 3, paragraph u), and 2, subsection 4, of the Stamp Duty Code.

2. Regarding the date of constitution of the tax obligation, tax connection, determination of the taxable base, assessment and payment of the stamp duty in question, the corresponding rules of the Municipal Property Tax Code apply, by express reference in articles 5, subsection 1, paragraph u), 4, subsection 6, 23, subsection 7, 44, subsection 5, 46, subsection 5, and 49, subsection 3, of the Stamp Duty Code. In general, by reference to article 67, subsection 2, of the same Code, the provisions of the Municipal Property Tax Code apply supplementarily to matters not specifically regulated.

3. It not being questioned, in the present case, the type of property in question, classified as urban and with residential use, in accordance with the criteria established in articles 2, 4, and 6 of the Municipal Property Tax Code, the only question is what is the exact meaning of "patrimonial value considered for IMI purposes" contained in the rule of incidence of stamp duty.

4. It is thus necessary to resort to the rules of the Municipal Property Tax Code relating to the treatment which, in the context of this tax, is given to parts of urban properties susceptible of independent use, particularly regarding the determination of the respective taxable patrimonial value and rules applicable to the assessment and payment of the respective tax.

5. In accordance with subsection 3 of article 12 of the said Code, which establishes the concept of real estate register, "each storey or part of a property susceptible of independent use is considered separately in the property registration, which discriminates the respective taxable patrimonial value."

6. The autonomy in the register of the functionally and economically independent parts of a property in full ownership is linked to reasons of fiscal and extrafiscal nature. On the fiscal plane, this autonomy is related to the determination of taxable patrimonial value itself, which constitutes the taxable base of IMI, given that the formula for determining that value, provided for in article 38 of the same Code, includes indices that vary according to the use assigned to each of those parts; on the extrafiscal plane, this autonomy continues to find justification in the relevance attributed to the taxable patrimonial value of properties and their autonomous parts in urban rental legislation.[1]

7. However, in the economy of IMI, the autonomy of parts of urban property susceptible of independent use is not limited to their separation in the property registration and discrimination of the respective taxable patrimonial value. This autonomy extends to the assessment itself.

8. In fact, article 119, subsection 1, of the mentioned Code, determines that the tax collection document must contain the discrimination of the properties, their parts susceptible of independent use and respective taxable patrimonial value. For compliance with this rule, the assessment of IMI, in the strict sense of application of the rate to the taxable base, does not take as reference the sum of the patrimonial values attributed to the autonomous parts of the same property, but the value attributed to each of them individually considered.

9. In the same sense of individualization, for tax purposes, of the autonomous parts of urban properties, the rule of subsection 1 of article 15-O of Decree-Law no. 287/2003, of 12 November, added by Law no. 60-A/2011, of 30 November, is also relevant.

10. In accordance with what is prescribed in the aforementioned rule, the safeguard clause relating to the increase in IMI taxation resulting from the general assessment of urban properties applies per property or part of urban property that is the object of the said assessment.

11. It thus follows, from the relevant rules of the Municipal Property Tax Code, applicable by reference to stamp duty, that the autonomous parts of urban properties assume full autonomy in terms of evaluation and description in the register and assessment of the tax.

12. In referring to the patrimonial value considered for IMI purposes, the rule of incidence and quantification of stamp duty referred to in Entry 28 of the respective Table can only appeal to the reality described above, that is, to the taxable patrimonial value considered in the context of IMI in relation to each part of urban property susceptible of independent use.

13. As is, moreover, reflected in the assessments that are contested in the present request for an arbitral decision: the Tax Authority, after, without legal support, operating the sum of the taxable patrimonial values of the various autonomous parts of the property in order to extract therefrom the quantitative condition for the incidence of stamp duty, carries out the assessment with reference to each of those parts even though, individually, none of them reaches that value.

14. It is noted that the question raised in this proceeding is, in all respects, identical to those that were raised and decided in numerous arbitral decisions[2], to whose conclusion, in the sense of the illegality of the Tax Authority's decision to subject to taxation the residential parts of a property in full ownership based on the global taxable patrimonial value of the property and not on that which is actually attributed to each part, full agreement is given.

DECISION

In these terms, and with the grounds set forth, the Arbitral Tribunal decides:

a) To dismiss the exception invoked by the Respondent;

b) To uphold the request for an arbitral decision, with the consequent annulment of the contested assessments.

Value of the proceedings: € 15,656.10.

Costs: Under article 22, subsection 4, of the Tax Arbitration Regulation and in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, I set the amount of costs at € 918.00, to be borne by the Respondent (AT).

Lisbon, 21 February 2016.

The Arbitrator, Álvaro Caneira.

[1] See Silvério Mateus and Leonel Corvelo de Freitas, "Taxes on Real Estate Property and Stamp Duty Commented and Annotated," Engifisco, Lisbon 2005, pp. 159 and 160.

[2] Among many others and referring only to the more recent ones: 207/2015-T, 236/2015-T, 237/2015-T, 238/2015-T, 250/2015-T, 253/2015-T, 263/2015-T, 273/2015-T, 280/2015-T, 302/2015-T, 305/2015-T, 306/2015-T, 311/2015-T, 323/2015-T, 329/2015-T, 340/2015-T, 399/2015-T, 411/2015-T, 449/2015-T, 461/2015-T, 463/2015-T