Process: 530/2015-T

Date: April 11, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Arbitral Process 530/2015-T addresses a critical Stamp Tax dispute concerning the application of item 28.1 of the TGIS to properties in vertical ownership. The claimant, head of an undivided estate, challenged Stamp Tax assessments totaling €10,336.42 for 2014 on an urban property in Lisbon comprising 14 residential units with independent use. The central legal issue concerns whether the €1,000,000 threshold for Stamp Tax liability under item 28.1 TGIS should be calculated by aggregating the Taxable Patrimonial Values (TPV) of all independent units or assessed individually per unit. The claimant argued that since the property contains 14 divisions with independent use, none individually exceeding €1,000,000 TPV, the Tax Authority illegally summed the patrimonial values to trigger tax liability. The claimant further contended this interpretation violates constitutional equality principles. The Tax Authority defended its position by distinguishing between Municipal Property Tax assessment rules and Stamp Tax incidence, arguing that for properties in full ownership (not horizontal property regime), the property as a whole is relevant despite having floors or divisions susceptible to independent use. The arbitral tribunal analyzed whether 'property with residential purpose' under item 28.1 refers to each autonomous unit or the totality of units in vertical ownership. This case establishes important precedent for distinguishing between horizontal property regimes and vertical ownership structures for Stamp Tax purposes, with significant implications for taxpayers owning multi-unit properties where individual units fall below the €1,000,000 threshold but aggregate values exceed it. The claimant also requested reimbursement of amounts unduly paid plus compensatory interest.

Full Decision

Arbitral Decision

The arbitrator Dr. Maria Antónia Torres, appointed by the Ethics Council of the Administrative Arbitration Centre ("CAAD") to constitute the Single Arbitral Tribunal, constituted on 6 November 2015, hereby decides as follows:

1. REPORT

1.1. A…, Tax ID…, in his capacity as head of the undivided estate of B… Tax ID…, hereinafter referred to as the "Claimant", requested the constitution of an arbitral tribunal, under Article 2(1)(a) and Article 10, both of Decree-Law No. 10/2011, of 20 January (hereinafter "RJAT"[1]).

1.2. The request for arbitral pronouncement has as its object the declaration of illegality, and consequent annulment, of the tax assessment acts for Stamp Tax, in the total amount of €10,336.42 (ten thousand three hundred and thirty-six euros and forty-two cents), relating to the year 2014, better identified in the initial petition presented by the Claimant, and which are hereby considered articulated and reproduced, for all legal purposes, concerning the urban property owned by the Claimant, located on Rua…, nos … and…, Lisbon, described in the Land Registry Office of Lisbon, parish of…, under no…, and registered, at the time, in the urban property register under article…, of the parish of…, municipality of Lisbon, and, currently, under article…, of the parish of…, of the same municipality, composed of 14 units intended for residential purposes, which constitute divisions with independent use, as per documents attached to the initial petition.

Furthermore, the Claimant requests that the Respondent be condemned to reimburse the amounts unduly paid and that he be recognized the right to compensatory interest on all amounts paid.

1.3. To support his request, the Claimant argues that the Stamp Tax assessments which are the object of this petition are illegal due to violation of the rule of incidence of item 28.1 of the TGIS. The Claimant considers that, since the property is in vertical ownership, as it is at that date, divided by 14 residential units, all areas of independent use, the Tax Authority cannot, as it did, sum the patrimonial values for tax purposes of the divisions susceptible to independent use, given that none of these divisions, by itself, has a Patrimonial Value for Tax Purposes (TPV) equal to or greater than 1,000,000 euros. And that the rule of incidence, in the interpretation carried out in practice by the Tax Authority, is unconstitutional due to violation of the principle of equality.

1.4. The Tax Authority defends that the request for declaration of illegality, and consequent annulment of the disputed assessments, should be judged unfounded, given that it argues that although the assessment of Stamp Tax, under the conditions provided in item 28.1 of the TGIS, is processed in accordance with the rules of the Municipal Property Tax Code (CIMI), the truth is that the legislator provides for exceptions for aspects requiring appropriate adaptations.

The Tax Authority understands that such is the case of properties in full ownership, even though with floors or divisions susceptible to independent use, because although the Municipal Property Tax is assessed in relation to each part susceptible to independent use, for Stamp Tax purposes the property as a whole is relevant, thus arguing for the legality of the tax acts because they constitute a correct application of the law to the facts.

1.5. The parties agreed to waive arguments and the meeting of the arbitral tribunal provided for in Article 18 of the RJAT.

2. SANATION

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

The parties possess legal capacity and standing, are properly represented (cf. Articles 4 and 10(2) of the RJAT and Article 1 of Ordinance No. 112-A/2011, of 22 March).

No procedural defects were identified in the proceedings.

3. FACTUAL MATTERS

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

  1. The Claimant was, at the date of the assessments sub judice, the owner of the urban property which was the object of these same assessments, under the regime of "full ownership" (i.e., not subject to the horizontal property regime) to which was attributed a global TPV greater than 1,000,000.00€, corresponding to the sum of the partial TPV of each one of the units with independent use.

  2. In conformity with what is mentioned in the initial petition and in the response given by the Respondent, none of the divisions susceptible to independent use, to which a separate TPV was attributed by the Respondent, has a TPV exceeding the value of €1,000,000.

  3. The Claimant was notified to assess stamp tax on the said property, the Respondent having considered the Claimant to be the passive subject of stamp tax under item 28.1 of the TGIS, by being the owner of a property with patrimonial value for tax purposes exceeding €1,000,000.

Unproven Facts

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

Grounds for the Factual Matters

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

4. ISSUE TO BE DECIDED

The essential issue to be decided in the proceedings is to determine, with reference to a property not constituted under the horizontal property regime, composed of various floors with independent use and with residential purpose, which Patrimonial Value for Tax Purposes (TPV) is relevant, assessing the correct rule of incidence of the tax in light of the law, so as to determine whether this should be assessed by the sum of the patrimonial value for tax purposes attributed to the different floors (global TPV) or, rather, whether it should be attributed to each one of the residential floors individually.

The Claimant also requests the payment of compensatory interest.

5. ON THE LAW

The issue to be decided concerns whether the patrimonial value relevant for purposes of determining the applicability of Item 28.1 of the TGIS, when a property not constituted in horizontal property regime is at stake, is that of each unit autonomously considered or the sum of the patrimonial value for tax purposes attributed to each one of these units.

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

For this reason, it is important to determine, when a property not constituted in horizontal property regime is at stake, the concept of "property with residential purpose": whether it should be interpreted as corresponding to each unit autonomously considered and to bear on its respective patrimonial value, or whether it should correspond to the totality of autonomous units, consequently bearing on the sum of the patrimonial value for tax purposes attributed to each one of these units.

As neither the Stamp Tax Code, nor its General Table, nor Law No. 55-A/2012, of 29 October (which approved the item of the TGIS under examination) provides a legal definition of "property with residential purpose", it is important to assess the correct interpretation of this expression, presuming that the legislator knew how to express in the most appropriate manner its intention, in its systematic integration with the norms contained in the Municipal Property Tax Code and, equally, in accordance with the spirit of the law.

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

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

28.1 — Per property with residential purpose — 1%;

28.2 — Per property, when the passive subjects who are not natural persons are resident in a country, territory or region subject to a clearly more favourable tax regime, appearing in the list approved by ordinance of the Minister of Finance — 7.5%."

(Emphasis ours)

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

The applicable rates are the following:

i) Properties with residential purpose assessed under the terms of the Municipal Property Tax Code: 0.5%;

ii) Properties with residential purpose not yet assessed under the terms of the Municipal Property Tax Code: 0.8%;

iii) Urban properties when the passive subjects who are not natural persons are resident in a country, territory or region subject to a clearly more favourable tax regime, appearing in the list approved by ordinance of the Minister of Finance: 7.5%.

However, it so happens that neither the Stamp Tax Code, nor Law No. 55-A/2012, of 29 October specify the concept of "urban property with residential purpose", whereby in accordance with Article 67 of the Stamp Tax Code, the interpretation of this concept should be sought in the Municipal Property Tax Code.

In effect, it results from Article 67 of the Stamp Tax Code that "Matters not regulated in the present Code concerning item no. 28 of the General Table shall apply, subsidiarily, the provisions of the CIMI" - (Wording given by Article 3 of Law No. 55-A/2012 of 29 October).

In the Municipal Property Tax Code, the concept of property is defined in its Article 2, from which it results that "For purposes of the present Code, property is every parcel of land, comprising waters, plantations, buildings and constructions of any nature incorporated therein or standing thereupon, with a character of permanence, provided that it forms part of the patrimony of a natural or legal person and, in normal circumstances, has economic value (…)", clarifying itself in subsection 4 of this legal provision that "For purposes of this tax, each autonomous unit, under 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 under the Municipal Property Tax regime, autonomous units, under the horizontal property regime, would have a different treatment from parts of a property susceptible to independent use.

However, it so happens that a more careful analysis of the regime allows us to conclude precisely the opposite.

As was emphasized by the Ombudsman to the Secretary of State for Tax Affairs, in a letter dated 2 April 2013, "the registration in the property register of properties in vertical ownership, constituted by parts susceptible to independent use, obeys the same rules as the registration of properties constituted in horizontal ownership, with the respective Municipal Property Tax, as well as the new Stamp Tax, assessed individually in relation to each one of the parts".

(Emphasis ours)

In effect, Article 12(3) of the Municipal Property Tax Code provides in this sense, when it determines that "each floor or part of property susceptible to independent use is considered separately in the matricial registration which also distinguishes the respective patrimonial value for tax purposes."

According to Article 119 of the Municipal Property Tax Code "The services of the Directorate-General of Taxes send to each passive subject, by the end of the month prior to that of payment, the competent collection document, with discrimination of the properties, their parts susceptible to independent use, respective patrimonial value for tax purposes and of the tax amount imputable to each municipality of the location of the properties.".

In sum, for purposes of taxation under the Municipal Property Tax regime, each independent unit, even though integrating the same property, is considered separately, being assigned its own patrimonial value for tax purposes and being taxed autonomously.

Thus, one cannot fail to follow the understanding supported in the Arbitral Decision delivered in Proceedings No. 50/2013, 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 in which it establishes it for properties in horizontal ownership, it clearly established the criterion, which must be unique and unequivocal, for the definition of the rule of incidence of the new tax. Thus, there would only be a basis for 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." (Emphasis ours)

But, furthermore, it is this separate treatment of each unit susceptible to independent use that allows that, in the application of the affectation coefficient (cf. Article 41 of the Municipal Property Tax Code), the different purposes of each unit, which compose a single property, are taken into account.

For this purpose, the effective use of each one of the parts susceptible to independent use is relevant, regardless of whether the property is classified for housing, under the terms of Article 6 of the Municipal Property Tax Code and, regardless of whether it is an autonomous unit or merely a unit susceptible to independent use.

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

Thus it will be verified, for example, if in a property in full ownership with floors or divisions susceptible to independent use, licensed for housing, one of its independent units is used for commerce or services, which even occurs in the property at issue in the present proceedings. In this hypothesis, the units in question will not have residential purpose.

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

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

As referred to in the decision delivered in Proceedings 132/2013-T of this CAAD:

(…) in the works relating to the discussion of legislative proposal no. 96/XII in the National Parliament (…) such measure was justified, called a "special tax on urban residential properties of higher value", with the need to comply with the principles of social equity and fiscal justice, burdening more significantly the holders of properties with high value intended for housing, and, in that measure, making the new "special tax" bear on "houses with value equal to or greater than 1 million euros."

(Emphasis ours)

It is presumed, thus, a contributive capacity (much) above the average which justifies a "special" contributive effort for those who have a "house" or "property" whose value is at least one million euros. The intention of the legislator seems, thus, to indicate that the scope of the rule of incidence is to tax independent realities, individualized and not resulting from an aggregation or sum, even though juridical.

That is, it is not apparent from this measure that the legislator aimed at the taxation of properties whose units susceptible to independent use did not individually reach that value.

In light of the foregoing, and given that none of the independent units that compose the property of the Claimant have a patrimonial value for tax purposes greater than € 1,000,000, the assessments under examination suffer from a defect of violation of law, due to error in the legal assumptions, which justifies the declaration of their illegality and the corresponding annulment of the tax acts now under examination.

In light of the declaration of illegality of the assessments which are the object of the present proceedings, due to a defect of violation of law due to error in the legal assumptions, the examination of the other issues invoked as subsidiary is rendered moot.

On the Request for Compensatory Interest

The Claimant petitions for the Respondent to be condemned to the payment of compensatory interest, provided for in Articles 43 of the General Tax Law and 61 of the Tax Procedure and Process Code.

It is clear from the proceedings that the illegality of the tax assessment acts impugned is directly attributable to the Respondent, which, on its own initiative, carried them out without legal support, suffering from an erroneous interpretation (and, therefore, application) of the legal norms to the specific case.

Consequently, the Claimant has the right to the receipt of compensatory interest on the amounts paid, under the terms provided in Articles 43(1) of the LGT and 61 of the CPPT.

6. DECISION

In light of the above, it is decided:

  1. To judge as founded the request for arbitral pronouncement, with the consequent annulment, with all legal effects, of the stamp tax assessment acts better identified in the proceedings, in the total amount of Euros 10,336.42 (ten thousand three hundred and thirty-six euros and forty-two cents);

  2. To judge as founded the request for compensatory interest petitioned by the Claimant.

The value of the proceedings is fixed at Euros 10,336.42 (ten thousand three hundred and thirty-six euros and forty-two cents), in accordance with the provisions of Articles 3(2) of the Tax Arbitration Costs Regulations (RCPAT), 97-A(1)(a) of the CPPT and 306 of the Code of Civil Procedure.

The amount of costs is fixed at Euros 918 (nine hundred and eighteen euros) under Article 22(4) of the RJAT and Table I attached to the RCPAT, charged to the Tax and Customs Authority, in accordance with the provisions of Articles 12(2) of the RJAT and 4(4) of the RCPAT.

Notify parties.

Lisbon, 11 April 2016

The Arbitrator

(Maria Antónia Torres)

Text prepared by computer, under the terms of Article 131(5) of the Code of Civil Procedure, applicable by referral of Article 29(1)(e) of the RJAT.

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

[1] Acronym for Legal Regime of Tax Arbitration.

Frequently Asked Questions

Automatically Created

How does Verba 28.1 of the TGIS apply to properties in vertical ownership with independent units?
Verba 28.1 of the TGIS applies to properties in vertical ownership based on interpretation of what constitutes a 'property with residential purpose.' The central dispute in Process 530/2015-T concerns whether properties not constituted under horizontal property regime but containing multiple independent residential units should be assessed as a single property (with aggregated TPV) or as separate units. The claimant argued that since the property comprises 14 residential units with independent use, each should be assessed individually for the €1,000,000 threshold. The Tax Authority contended that for vertical ownership properties, the property as a whole is relevant for Stamp Tax purposes, even though Municipal Property Tax is assessed per independent unit. The correct interpretation requires systematic analysis of the TGIS alongside the Municipal Property Tax Code to determine whether independent divisions in vertical ownership should be treated similarly to horizontal property regime units.
Can the tax authority aggregate the taxable values of independent divisions to meet the €1,000,000 Stamp Tax threshold?
The Tax Authority's ability to aggregate taxable values of independent divisions to meet the €1,000,000 Stamp Tax threshold under Verba 28.1 is the core legal issue in Process 530/2015-T. The Tax Authority argued that despite properties having floors or divisions susceptible to independent use, when the property remains in full ownership (vertical ownership) rather than horizontal property regime, the global TPV is relevant for Stamp Tax purposes. This contrasts with Municipal Property Tax, which assesses each independent unit separately. The claimant challenged this aggregation method, arguing that none of the 14 individual units exceeded €1,000,000 TPV, and therefore no Stamp Tax should apply. The arbitral tribunal must determine whether the legislator intended 'property with residential purpose' to mean each autonomous unit or the totality of units in properties not constituted under horizontal property regime, requiring interpretation of item 28.1 in light of systematic integration with CIMI provisions.
What is the principle of equality in the context of Imposto do Selo on high-value residential properties?
The principle of equality in the context of Imposto do Selo on high-value residential properties relates to constitutional guarantees that similarly situated taxpayers should be treated equally. The claimant in Process 530/2015-T argued that the Tax Authority's interpretation of Verba 28.1 TGIS violates equality principles by treating vertical ownership properties differently from horizontal property regime properties. Specifically, if the same building were constituted under horizontal property regime, each of the 14 units would be assessed individually, and units below €1,000,000 would not incur Stamp Tax. However, by aggregating values in vertical ownership, the Tax Authority creates disparate treatment based solely on property regime structure rather than actual economic value or use. This raises constitutional concerns about horizontal equity - taxpayers with economically equivalent property interests (independent residential units below €1,000,000) should face equal tax treatment regardless of whether the property is legally structured as horizontal property or vertical ownership with independent use divisions.
How does CAAD arbitral process 530/2015-T address the legality of Stamp Tax assessments on undivided estates?
CAAD arbitral process 530/2015-T addresses the legality of Stamp Tax assessments on undivided estates by examining whether the Tax Authority correctly applied item 28.1 of the TGIS when assessing €10,336.42 in Stamp Tax for 2014. The claimant, acting as head of an undivided estate, requested declaration of illegality and annulment of the assessments on grounds that the Tax Authority violated the rule of incidence by improperly aggregating TPVs of 14 independent residential units to exceed the €1,000,000 threshold. The arbitral tribunal, constituted as a single arbitrator under RJAT, confirmed its competence ratione materiae and proceeded to analyze whether 'property with residential purpose' under item 28.1 refers to each autonomous unit or the totality. The tribunal examined documentary evidence establishing that none of the individual divisions exceeded €1,000,000 TPV but the global TPV exceeded this threshold. The process demonstrates CAAD's role in resolving disputes over correct interpretation of Stamp Tax incidence rules and protecting taxpayer rights against potentially illegal assessments.
Are taxpayers entitled to compensatory interest when Stamp Tax liquidations under Verba 28.1 are annulled?
Taxpayers are entitled to compensatory interest when Stamp Tax liquidations under Verba 28.1 are annulled, as explicitly requested by the claimant in Process 530/2015-T. When tax assessments are declared illegal and annulled, Portuguese tax law generally provides for reimbursement of amounts unduly paid plus compensatory interest calculated from the date of payment until reimbursement. This right to compensatory interest recognizes that the State has improperly retained taxpayer funds during the period between unlawful collection and reimbursement. In the present case, the claimant requested both reimbursement of the €10,336.42 paid in Stamp Tax and recognition of the right to compensatory interest on all amounts paid. The legal basis for compensatory interest derives from general principles of tax law requiring the State to compensate taxpayers for improper deprivation of funds resulting from illegal tax assessments. The rate and calculation method for compensatory interest follows statutory provisions applicable to tax reimbursements, ensuring taxpayers are made whole for the temporal value of money lost due to illegal taxation.