Process: 540/2016-T

Date: March 20, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD arbitration process 540/2016-T examined whether Stamp Tax under item 28.1 of the General Stamp Tax Table (TGIS) applies to a Lisbon building under vertical property (propriedade vertical) not constituted as horizontal property. The estate challenged a €10,851.50 Stamp Tax assessment for 2015 on a property with total patrimonial tax value (VPT) of €1,128,920, arguing the tax basis should be individual unit values rather than the aggregate building value. The property comprised 5 floors with 8 independent units (7 residential, 1 industrial), none individually exceeding €1,000,000. The claimant contended that item 28.1 TGIS, introduced by Law 55-A/2012, requires strict interpretation and cannot extend the tax scope beyond what the law expressly provides. The Tax Authority argued that for full ownership properties, even with independently usable units, the total VPT determines tax liability under adapted IMI assessment rules. The central legal question was whether vertical property taxation follows individual unit valuation or aggregate property valuation when determining the €1,000,000 threshold trigger for Stamp Tax. The arbitral tribunal evaluated the correct interpretation of the objective scope criterion under item 28.1 TGIS for multi-unit buildings not subject to horizontal property regime.

Full Decision

Arbitral Decision

The arbitrator, Dr. Henrique Nogueira Nunes, designated by the Ethics Council of the Administrative Arbitration Centre ("CAAD") to form the Arbitral Tribunal, constituted on 29 November 2016, agrees as follows:

1. REPORT

1.1. The Estate of A..., with the tax identification number..., represented by B..., head of the aforementioned Estate, with the tax identification number..., hereinafter referred to as the "Claimant", requested the constitution of the Arbitral Tribunal under the terms of Articles 2, No. 1, paragraph a) and 10 of Decree-Law No. 10/2011, of 20 January (hereinafter "RJAT").

1.2. The request for arbitral ruling has as its object the declaration of illegality, and consequent annulment, of the Stamp Duty assessment, in the total value of €10,851.50 (ten thousand, eight hundred and fifty-one Euros and fifty cents), relating to the year 2015, whose payment notices referring to the 2nd instalment were attached by the Claimant with the arbitral petition, those referring to the 1st instalment were attached by request dated 18 October 2016 and those referring to the 3rd instalment were attached by request dated 14 November 2016, and which are hereby considered as articulated and reproduced, for all legal purposes, which concern the urban property located at ..., Rua, Nos...,...,..., and..., Lisbon, registered in the urban property registry of the Parish of ..., under article ..., composed of 5 floors, with 8 units with independent use, not being subject to the horizontal property regime, of which 7 units are allocated to housing and 1 to warehouses and industrial activity.

1.3. In support of its request, the Claimant alleges that the Stamp Duty assessment subject of this petition suffers from the defect of violation of law by violation of the scope rule of item 28.1 of TGIS. It considers that it does not make sense to distinguish in law what the law itself does not distinguish, wherefore, it maintains, fixing as the reference value for the scope the total taxpayer value of the property has no legal basis whatsoever. It contends, in summary, for the annulment of the Stamp Duty assessment in question in these proceedings, for the reimbursement of the amounts paid, plus compensatory interest.

1.4. The AT [Tax Authority], in turn, defends that the request for declaration of illegality, and consequent annulment of the disputed assessment, should be judged to be without merit, given that it contends that with regard to the IMI assessment, in the case of properties under full ownership, the value that serves as the basis for the tax calculation is, indisputably, that registered in the property register as being the total taxpayer value and that, although the Stamp Duty assessment, under the conditions provided for in item 28.1 of TGIS, is processed in accordance with the rules of CIMI, the truth is that the legislator makes exceptions for aspects that require the appropriate adaptations.

It argues that this corresponds to the case of properties under full ownership, even though with floors or units susceptible to independent use, for although IMI is assessed in relation to each part susceptible to independent use, for Stamp Duty purposes the property as a whole is relevant, thus contending for the legality of the tax acts because they constitute a correct application of law to the facts, concluding for the maintenance of the assessment act and, consequently, for the dismissal of the Claimant's request.

1.5. The Tribunal understood, in accordance with what was petitioned by the Respondent, and which met with no opposition from the Claimant, to dispense with the holding of the first meeting of the Arbitral Tribunal, in accordance with the provisions of Article 18 of RJAT. No exceptions were identified.

Both parties were equally dispensed from presenting Arguments considering the evidence produced in the proceedings.

A deadline was set for the issuance of the arbitral decision until 31 March 2017.

* * *

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

The parties have legal personality and capacity, are shown to be legitimate and are regularly represented (cf. Articles 4 and 10, No. 2 of RJAT and Article 1 of Order No. 112-A/2011, of 22 March).

No procedural nullities were identified.

2. QUESTION TO BE DECIDED

The thema decidendum is to determine, with reference to a property under full ownership, not subject to the horizontal property regime, made up of various floors with independent use, in this case, with residential allocation, what Taxpayer Value (VPT) is relevant, assessing the correct tax scope criterion under law, in order to determine whether it should be assessed by the sum of the taxpayer value attributed to the different floors (total VPT) or, rather, whether it should be attributed to each of the residential floors individually considered.

3. FACTS OF THE CASE

With relevance for the appraisal and decision on the merits, the following facts are considered to be proven:

A) On the date of the assessment in question, the urban property subject of the disputed assessment, was under full ownership (not subject to the horizontal property regime) located at ..., Rua, Nos...,...,..., and..., Lisbon, registered in the urban property registry of the Parish of ..., under article ..., to which was attributed a total VPT of €1,128,920.00, corresponding to the sum of the VPT of each of the units with independent use (cf. Urban Property Register attached by the Claimant with the arbitral petition).

B) The property identified above is composed of 5 floors, with 8 units with independent use, of which 7 are allocated to housing (cf. Urban Property Register attached by the Claimant with the arbitral petition).

C) None of the floors susceptible to independent use, to which an autonomous VPT was attributed by the Respondent, and regardless of its actual use - residential or other - has an individualized VPT that exceeds the value of €1,000,000.00 (cf. Urban Property Register attached by the Claimant with the arbitral petition).

D) The Claimant was notified to make payment of the stamp duty assessed based on item 28.1 of TGIS, on the aforementioned property (cf. Documents of stamp duty assessment relating to the year 2015 attached by the Claimant with the arbitral petition and in requests dated 18 October and 14 November 2016).

E) The total value of the Stamp Duty assessment relating to the year 2015 is €10,851.50.

F) The AT, considering the total VPT attributed to the property in question in these proceedings, understood that the objective requirements for the Stamp Duty assessment were met, arising from item No. 28 of TGIS, added by Article 4 of Law No. 55-A/2012, of 29/10.

G) On 01 September 2016, the Claimant filed a request for constitution of the Arbitral Tribunal with CAAD – cf. electronic request in the CAAD system.

4. FACTS NOT PROVEN

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

5. REASONING FOR THE DECISION ON THE FACTS

As for the essential facts, the established matter is shaped identically by both parties and the Tribunal's conviction was formed based on the documentary (official) elements attached to the proceedings and discriminated above, whose authenticity and veracity were not questioned by either party.

6. ON THE LAW

Given the positions assumed by the parties in the arguments presented, the central issue to be resolved by this arbitral tribunal consists of assessing the legality of the Stamp Duty assessment relating to the year 2015.

The question to be decided concerns determining whether the taxpayer value relevant for purposes of the objective scope of item 28.1 of TGIS, when a property not subject to the horizontal property regime is at issue, is that of each floor or independently used unit individually considered, or, if instead, should correspond to the sum of the taxpayer value attributed to each of those floors or independent units.

The decisions issued by this same Arbitral Tribunal in Proceedings Nos. 390/2016-T, 417/2016-T and 483/2016-T will be closely followed, which ruled on the same fundamental legal issue at hand in the present proceedings.

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

Therefore, it is important to determine, when a property not subject to the horizontal property regime is at issue, whether the concept of "property with residential allocation" should be interpreted as corresponding to each autonomous unit considered individually and taxing the respective taxpayer value or if, instead, it should correspond to the totality of the autonomous units, and consequently tax the sum of the taxpayer value attributed to each of those units.

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

"28 - Ownership, usufruct or surface right of urban properties whose taxpayer value recorded in the registry, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than €1,000,000 — on the taxpayer value used for IMI purposes: 28.1 — Per property with residential allocation — 1%; 28.2 — Per property, when the taxable persons are not natural persons and are resident in a country, territory or region subject to a clearly more favourable tax regime, appearing in the list approved by order of the Minister of Finance — 7.5%."

However, neither the Stamp Duty Tax Code, nor Law No. 55-A/2012, of 29 October specify the concept of "urban property with residential allocation".

It results from the provision of No. 2 of Article 67 of the Stamp Duty Tax Code that "To matters not regulated in this Code concerning item No. 28 of the General Table, the provisions of CIMI shall apply, subsidiarily." - Wording given by Article 3 of Law No. 55-A/2012 of 29 October.

In turn, in the IMI Code the concept of property is defined in No. 1 of its Article 2, from which it results that "For purposes of this Code, property is any plot of land, including waters, plantations, buildings and constructions of any nature incorporated therein or situated thereon, with a character of permanence, provided that it forms part of the heritage of a natural or legal person and, under normal circumstances, has economic value (...)."

And clarifying itself in No. 4 of this legal provision that "For purposes of this tax, each autonomous fraction, 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 for purposes of IMI, the autonomous fractions, under the horizontal property regime, would have a distinct treatment from the parts of a property susceptible to independent use.

However, a more careful analysis of the regime allows one to conclude precisely the opposite.

As was emphasized by the Ombudsman to the Secretary of State for Tax Affairs, in an office dated 2 April 2013, "the registration in the property registry of immovable property in vertical ownership, composed of parts susceptible to independent use, follows the same rules as the registration of property constituted under horizontal ownership, with the respective IMI, as well as the new Stamp Tax, being assessed individually in relation to each of the parts."

Indeed, in this same sense Article 12, No. 3 of the IMI Code provides that "each floor or part of a property susceptible to independent use is considered separately in the property registration, which likewise discriminates the respective taxpayer value."

In accordance with Article 119 of the IMI Code "The services of the Tax Authority send to each taxable person, until the end of the month preceding the payment month, the respective assessment notice, with discrimination of the properties, their parts susceptible to independent use, respective taxpayer value and the tax amount charged to each municipality of the location of the properties."

In light of all the above, for purposes of taxation under IMI, each independent unit, even if forming part of the same property, is considered separately, being assigned its own taxpayer value and being taxed autonomously.

Endorsing the understanding supported in the Arbitral Decision issued in Proceeding No. 50/2013-T, according to which "if the legal criterion requires the issuance of individualized assessments for the autonomous parts of properties in vertical ownership, in the same manner as it establishes for properties in horizontal ownership, it clearly established the criterion, which must be unique and unequivocal, for the definition of the rule of scope of the new tax. Thus, there would only be a taxable event of the new stamp duty if any of the parts, floors or units with independent use presented a VPT exceeding €1,000,000.00."

Given that the registration in the property registry of property in vertical ownership, for purposes of the IMI Code, follows the same registration rules as property constituted under horizontal ownership, with the respective IMI, as well as the Stamp Duty Tax, being assessed individually in relation to each of the parts, it does not seem to this tribunal that there is any doubt that the legal criterion for defining the scope of the new tax must be the same.

In this context, if the law requires, regarding IMI, the issuance of individualized assessment notices for the autonomous parts of properties in vertical ownership, in the same manner as it establishes for properties in horizontal ownership, it will require, in the same terms, regarding the rule of scope of Item No. 28 of TGIS.

And it should further be said that this was precisely the understanding adopted by the Respondent, when it issued, as it did, individualized assessment notices, referring to each of the units or floors susceptible to autonomous use, demonstrating that, in its opinion, the aforementioned units, although not legally constituted under horizontal ownership, would be, for all purposes, independent from each other. However, the latter overlooked that it could not, by virtue of the framework previously set out, proceed to sum the individual VPT's of the aforementioned floors, seeking to reach a value that would already fall under the scope of the basis of taxation of item No. 28 of TGIS.

In summary, the criterion established by the AT, of considering the sum value of the individual VPT's attributed to the parts, floors or units with independent use, taking advantage of the fact that the property in question in these proceedings is not constituted under the horizontal property regime, finds, in the tribunal's understanding, no legal basis, being, in particular, contrary to the criterion applicable under IMI and, by referral (in accordance with the aforementioned terms), under Stamp Duty Tax.

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

Being, as it is, a property constituted in vertical ownership, the scope of Stamp Duty Tax must be determined, not by the taxpayer value resulting from the sum of the taxpayer value of all floors or units susceptible to independent use (individualized as such in the property registry article), but rather by the taxpayer value attributed to each of those floors.

In this same sense correspond the majority of the decisions issued by this Arbitration Centre, and also by the Courts, standing out, by way of mere example, the Decisions issued by the Supreme Administrative Court in proceedings with the numbers 01534/15; 01354/15 and 047/15, and, more recently, with the number 01219/16.

In light of the foregoing, and considering that none of the floors or independent units that make up the property in question in these proceedings has a taxpayer value exceeding €1,000,000, the disputed assessment suffers from the defect of violation of law due to error in the legal assumptions, which justifies the declaration of its illegality and the corresponding annulment of all tax acts in question in these proceedings concerning the Stamp Duty collected under item No. 28.1 of TGIS relating to the year 2015.

As to the right to compensatory interest, petitioned by the Claimant, it should be noted that paragraph b), of No. 1, of Article 24 of RJAT provides that the Arbitral Decision on the merits of the claim, which is not subject to appeal or challenge, binds the Tax Authority from the expiry of the deadline for appeal or challenge, and this must - in the exact terms of the success of the arbitral decision in favor of the taxable person and until the expiry of the deadline for spontaneous execution of sentences of the courts of tax tribunals - restore the situation that would exist if the tax act subject of the arbitral decision had not been enacted, adopting the necessary acts and operations for such purposes.

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

In turn, Article 43, No. 1 of the General Tax Law provides that "compensatory interest is due when it is determined, in administrative challenge or judicial proceedings, that there was an error attributable to the services from which results payment of the tax debt in an amount greater than that legally due."

From the analysis of the evidentiary elements in the file, it is possible to conclude that the Respondent had complete and full knowledge of the relevant factual elements to proceed with the correct assessment of the tax, having not done so and choosing to maintain the assessment tainted by error in the legal assumptions, and therefore illegal, being thus obliged to compensate.

Therefore, having regard to the provisions of Article 61 of CPPT and considering that the requirements for the right to compensatory interest are met, that is, verified the existence of an error attributable to the services from which results payment of the tax debt in an amount greater than that legally due, as provided for in No. 1 of Article 43 of LGT, the Claimant is entitled to compensatory interest, at the legal rate, calculated on the amounts already paid, having, however, to prove the respective payment, in the value of €10,851.50, from the date the payment was made until its full reimbursement.

7. DECISION

In light of the foregoing, this Singular Arbitral Tribunal agrees in:

- To judge the request for arbitral ruling to be well-founded and to declare the consequent annulment, due to the defect of violation of law due to error in the legal assumptions, of the Stamp Duty Tax assessment, relating to 2015, better identified in the file, in the total value of Euros 10,851.50.

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The value of the case is set at Euro 10,851.50, in accordance with the provisions of Articles 3, No. 2 of the Regulation on Costs in Tax Arbitration Proceedings (RCPAT), 97-A, No. 1, paragraph a) of CPPT and 306 of CPC.

The amount of costs is set at Euro 918.00, under Article 22, No. 4 of RJAT and Table I attached to RCPAT, charged to the Respondent, in accordance with the provisions of Articles 12, No. 2 of RJAT and 4, No. 4 of RCPAT.

Notify.

Lisbon, 20 March 2017.

The Arbitrator,

Dr. Henrique Nogueira Nunes

Text prepared by computer, in accordance with Article 131, No. 5 of the Code of Civil Procedure, applicable by referral from Article 29, No. 1, paragraph e) of RJAT.

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

Frequently Asked Questions

Automatically Created

What is Verba 28.1 of the Portuguese General Stamp Tax Table (TGIS) and how does it apply to high-value residential properties?
Item 28.1 of the Portuguese General Stamp Tax Table (TGIS), introduced by Law 55-A/2012 of October 29, establishes an annual Stamp Tax on high-value residential properties. The tax applies to urban properties or fractions allocated to residential use with a patrimonial tax value (VPT) exceeding €1,000,000. The assessment follows rules established in the Municipal Property Tax Code (CIMI), though with specific adaptations for Stamp Tax purposes. The rate structure is progressive based on property value tiers.
How is Stamp Tax (Imposto do Selo) calculated for buildings in vertical property (propriedade vertical) not constituted under horizontal property regime?
For buildings in vertical property (propriedade vertical) not constituted under horizontal property regime, the key issue is whether Stamp Tax calculation uses the total aggregate VPT of the entire building or the individual VPT of each independently usable unit. In process 540/2016-T, the property had a total VPT of €1,128,920 comprised of 8 independent units, none individually exceeding €1,000,000. The claimant argued taxation should apply unit-by-unit, while the Tax Authority contended the aggregate building value determines liability for properties under full ownership.
Can the global patrimonial tax value (VPT) of an undivided building be used as the basis for Stamp Tax instead of individual unit values?
The Tax Authority's position was that for properties under full ownership (não sujeita ao regime de propriedade horizontal), even when composed of floors or units with independent use, the global patrimonial tax value serves as the assessment basis. This interpretation treats the entire building as a single taxable unit for Stamp Tax purposes under item 28.1 TGIS, despite IMI being assessed separately for each independently usable part. The Authority argued this represents a necessary adaptation when applying CIMI rules to Stamp Tax.
What was the outcome of CAAD arbitration process 540/2016-T regarding the annulment of Stamp Tax on a multi-unit Lisbon property?
Process 540/2016-T was initiated on September 1, 2016, by an estate challenging Stamp Tax assessments totaling €10,851.50 for 2015 on a multi-unit Lisbon property. The arbitral tribunal, formed under Decree-Law 10/2011 (RJAT) and presided by Dr. Henrique Nogueira Nunes, was constituted on November 29, 2016. The case centered on whether the €1,000,000 threshold in item 28.1 TGIS applies to individual residential units or the aggregate building value when the property is not subject to horizontal property regime.
Are taxpayers entitled to a refund with compensatory interest when Stamp Tax is unlawfully levied on vertical property under Verba 28.1 TGIS?
Under Portuguese tax law, when Stamp Tax is unlawfully levied, taxpayers are entitled to reimbursement of amounts paid plus compensatory interest (juros indemnizatórios). In process 540/2016-T, the claimant specifically requested annulment of the assessment, reimbursement of paid amounts, and compensatory interest. The legal basis for such interest derives from the State's obligation to compensate taxpayers for the financial loss caused by improper retention of tax amounts when the assessment is subsequently declared illegal and annulled by arbitral or judicial decision.