Process: 558/2014-T

Date: March 30, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitration decision (Process 558/2014-T) addresses the controversial application of Stamp Tax under item 28.1 of the General Stamp Tax Table (TGIS) to a multi-floor urban property held under vertical ownership regime. The claimant, A, S.A., challenged six Stamp Tax assessments totaling €17,991.80 for the 2013 tax year, arguing that the Tax Authority incorrectly aggregated the patrimonial values of floors 1-9 (totaling €1,799,180) to determine that the €1 million threshold was exceeded, then applied the 1% rate to each floor individually. The central legal dispute concerns whether properties under vertical ownership should be treated as a single taxable unit or whether each floor with independent use constitutes a separate unit for item 28.1 GITS purposes. The claimant contends that none of the individual floors exceeds €1 million in taxable patrimonial value when considered separately, and therefore item 28.1 should not apply. The claimant further argues that the Tax Authority's interpretation creates an inconsistency, as for other taxes (IMI, CIT, PIT), individual fractions are treated separately regardless of ownership structure. The case was brought before the Administrative Arbitration Centre (CAAD) under Decree-Law 10/2011, with the claimant requesting annulment of all six liquidations. The arbitration tribunal was constituted on October 1, 2014, and the decision deadline was set for March 31, 2015. This case highlights critical interpretative issues regarding the application of Stamp Tax to high-value real estate and the distinction between horizontal and vertical ownership regimes for tax purposes.

Full Decision

ARBITRATION DECISION

Process No. 558/2014-T

Claimant: A, S.A., joint-stock commercial company with headquarters at Rua …, in Lisbon, legal entity …

Respondent: Tax and Customs Authority

ARBITRATION DECISION

I. Report

  1. A, S.A., joint-stock commercial company with headquarters at Rua …, in Lisbon, legal entity …, having been notified of the Stamp Duty assessments No. 2014 … of 17.03.14, in the amount of € 2,157.90, 2014 … of 17.03.14, in the amount of € 3,993.10, 2014 … of 17.03.14, in the amount of € 2,157.90, 2014 … of 17.03.14, in the amount of € 2,157.90, 2014 … of 17.03.14, in the amount of € 2,157.90, 2014 … of 17.03.14, in the amount of € 5,367.10, relating to the year 2013, in the total amount of € 17,991.80 (seventeen thousand nine hundred and ninety-one euros and eighty cents), hereby requests, pursuant to the combined provisions of articles 2, no. 1, subsection a), 3, no. 1, 5, no. 2, subsection a), 10, no. 1, subsection a), and 24, no. 5, of Decree-Law no. 10/2011, of 20 January ("RJAT"), articles 44, no. 5, and 49, no. 3, of the Stamp Duty Code ("CIS"), article 120, no. 1, of the Municipal Tax Code on Real Property ("CIMI"), the latter applicable by virtue of article 44, no. 3, of the CIS, and articles 99 and 102, no. 1, subsection a), of the Code of Tax Procedure and Process ("CPPT"), filed on 30.07.2014 a request for a declaration of illegality of the identified Stamp Duty assessment acts, relating to the year 2013, with its consequent annulment, with the Tax and Customs Authority ("AT") as Respondent.

  2. Pursuant to the provisions of subsection a) of no. 2 of article 6 and subsection b) of no. 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 Ethics Council of the Administrative Arbitration Centre designated Ana Teixeira de Sousa as arbitrator, and the parties, after being duly notified, raised no objection to such designation.

  3. Thus, in accordance with the provision of subsection c) of no. 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 01.10.2014.

  4. The senior official of the Tax and Customs Authority service (hereinafter referred to as "Respondent" or "AT") was notified to, if so wished, within 30 days present its response and request the production of additional evidence, and a response was presented on 07.11.2014, signed by the legal practitioners Ms. … and … in the name and representation of the Respondent.

  5. In light of the AT's Response, the tribunal, by order of 12.02.2015, decided to dispense with the meeting referred to in article 18 of the RJAT, with the legal deadline for issuance of the decision being 31 March 2015.

The Arbitration Ruling Request

  1. In summary, the grounds presented by the Claimant are as follows.

  2. The Claimant is the owner of the urban property under vertical ownership regime located at Rua …, in Lisbon, parish of …, municipality of Lisbon, registered in the respective urban property matrix under article … (former article … of the parish of …).

  3. In March 2014, the Claimant was notified of Stamp Duty ("SD") assessments No. 2014 … of 17.03.14, in the amount of € 2,157.90, 2014 … of 17.03.14, in the amount of € 3,993.10, 2014 … of 17.03.14, in the amount of € 2,157.90, 2014 … of 17.03.14, in the amount of € 2,157.90, 2014 … of 17.03.14, in the amount of € 2,157.90, 2014 … of 17.03.14, in the amount of € 5,367.10, relating to the year 2013, in the total amount of € 17,991.80 (seventeen thousand nine hundred and ninety-one euros and eighty cents), voluntary payment of which was to take place in three instalments, with the first due in April 2014.

  4. The urban property currently registered in the matrix under article …, located at Rua …, parish of …, municipality of Lisbon, owned by the Claimant, is a property intended for residential and commercial use, comprising 12 floors, which is not divided into horizontal ownership.

  5. The use license issued by the Lisbon Municipal Chamber on 29 July 1972 does not specify the use of the fractions comprising said property and, therefore, these were assigned indistinctly to tertiary or residential use.

  6. In the assessment carried out pursuant to articles 38 et seq. of the CIMI, this situation was ignored and, consequently, floors such as the 1st floor were considered assigned to residential use, when the Tax Authority could not ignore that this was not the case, as evidenced by the respective lease agreement, which expressly states that "A certificate is filed, issued by the Tax Office of the Tenth Fiscal District of Lisbon, certifying that the leased location is assigned to commercial activity".

  7. The Tax Authority decided to tax under stamp duty, item 28.1 of the GITS, part of said property, namely, floors 1 to 9 inclusive, and this because it proceeded to sum the patrimonial values of these fractions which it considered assigned to residential use to conclude that the value of one million euros stipulated in said item of the GITS had been exceeded, and in this reasoning logic, it assessed the respective stamp duty on each fraction individually considered although with reference to the set.

  8. Thus, for the AT, having regard to the fact that the TPV of the 9 (nine) floors or divisions with independent use of the property in question totals, if globally considered, the value of € 1,799,180.00 €, taxation is required under item 28.1 of the GITS at the rate of 1%, resulting in the global SD assessment relating to 2013 in the amount of 17,991.80 €, calculated by the AT as follows:

1st floor – TPV € 215,790.00 - € 2,157.90 € (cf. doc. 2);

2nd and 3rd floors – TPV € 399,310.00 – € 3,993.10 (cf. doc. 3);

4th floor – TPV € 215,790.00 - € 2,157.90 € (cf. doc. 4);

5th floor – TPV € 215,790.00 - € 2,157.90 € (cf. doc. 5);

6th floor – TPV € 215,790.00 - € 2,157.90 € (cf. doc. 6);

7th to 9th floors - TPV € 536,710.00 - € 5,367.10 € (cf. doc. 7);

  1. On 25 July 2014, the Claimant made payment, already in fiscal execution, of the amount of € 5,997.28 (five thousand nine hundred and ninety-seven euros and twenty-eight cents), corresponding to the principal debt of the first instalment of stamp duty allegedly due, increased by late interest and costs in the amount of € 90.35, as per copy of the payment receipt.

  2. On the same date, that is, 25 July 2014, the Claimant made payment of the amount of € 5,997.26 (five thousand nine hundred and ninety-seven euros and twenty-six cents), corresponding to the principal debt of the second instalment of stamp duty allegedly due, as per copy of the payment receipts.

  3. In the understanding of the Claimant, these 6 tax assessment acts of SD (item 28.1 of the GITS), are illegal due to errors in their respective factual and legal grounds, insofar as none of the floors or independent divisions of this property of the Claimant that the AT assessed under SD, Item 28.1 GITS, has a TPV exceeding € 1,000,000.00 (one million euros) if individually considered.

  4. For the Tax Authority, it is necessary, apparently, to distinguish between urban properties under horizontal ownership regime and urban properties under vertical ownership regime.

  5. In urban properties under horizontal ownership regime, each fraction is considered individually for the purposes of the applicability of this item, whereas in properties under vertical ownership, for the AT, the aggregate matters.

  6. However, this interpretation by the Tax Authority only occurs under item 28.1 of the GITS, since, for the purposes of IMI, CIT, PIT, the fractions are treated individually, whether or not the property is constituted in horizontal ownership.

  7. Contrary to the AT's understanding, in the taxation of properties there is no distinction based on the type of ownership – vertical or horizontal – but only based on use – residential, commercial, services or other – and the tax treatment is always carried out fraction by fraction, with or without autonomous nature.

  8. The Claimant sets out the legal provisions that support and define the applicability of the incidence rule provided for in item 28.1 of the Stamp Duty Code, to conclude that, for the tax legislator, the situation of the property under vertical or horizontal ownership was not relevant, as no reference or distinction is made between one and the other in the rules of the IMI Code, applicable by referral from the Stamp Duty Code, namely no. 7 of article 23 of the Stamp Duty Code.

  9. Considering that the registration in the property matrix of properties under vertical ownership, consisting of different floors with independent use, pursuant to the CIMI, complies with the same registration rules of properties constituted in horizontal ownership, and their respective IMI, as well as SD, are levied individually in relation to each of the parts, there is no doubt that the legal criterion to define the incidence of the new tax must be the same.

  10. That is, in the case of the property owned by the Claimant, there would only be place to the incidence of Item 28.1 of the GITS, if some of the parts, floors or divisions with independent use presented a TPV exceeding € 1,000,000.00 (one million euros).

  11. The AT cannot consider as the reference value for the incidence of the new item 28 of the GITS the total value of 9 of the 12 floors of the urban property in question, when the legislator itself established a different rule under the CIMI, and this is the Code applicable to matters not regulated regarding Item no. 28.1 of the GITS.

  12. The criterion sought by the AT, of considering the value of the sum of the TPVs attributed to the parts, floors or divisions with independent use, on the argument that the property is not constituted under the horizontal ownership regime, finds no legal support and is contrary to the criterion applicable under the CIMI and, by referral, under SD.

  13. It is therefore the understanding of the Claimant that, in situations such as the present one, by nature item 28.1 of the GITS is inapplicable, not only because the nature of partly commercial, partly residential, excludes from the outset the application of this rule by virtue of the prohibition on analogy, but, above all, because defending the application of this rule to properties under vertical ownership, consisting of fractions whose global patrimonial value equals or exceeds one million euros, violates the principles of equality, the prevalence of substantive truth over legal-formal reality and the principle of tax capacity.

  14. In truth, the legislator, in introducing this legislative innovation, clearly sought to tax "luxury homes", with patrimonial value equal to or exceeding € 1,000,000.00, which began to be subject to a special rate of stamp duty, intending to introduce a principle of taxation on wealth evidenced in the ownership of luxury properties with residential use allocation.

  15. Clearly, the legislator understood that this value, when attributed to a residential dwelling (house, autonomous fraction or floor with independent use) reflects a tax capacity above average and, as such, susceptible to determining a special contribution to ensure the fair distribution of tax burden.

  16. Which is not the case with the property in question, where all the floors have a value far inferior to the limit of one million euros.

  17. On the other hand, the tax legislator cannot treat equal situations differently.

  18. Indeed, if the property were under the horizontal ownership regime, none of its residential fractions would be subject to the new tax.

  19. Substantive truth is what imposes itself as the determining criterion of tax capacity and not the mere legal-formal reality of the property.

  20. Consequently, the discrimination operated by the AT constitutes arbitrary and illegal discrimination; moreover, nothing in the law imposes the constitution of horizontal ownership.

  21. For all these reasons, the Claimant requests that the arbitration ruling request be judged well-founded, consequently annulling the impugned assessment acts with the legal consequences arising therefrom.

  22. The Claimant made payment of the first and second instalments of SD, item 28.1 of the GITS, relating to 2013, relating to the 9 floors of its property and allegedly due by the AT, and by the end of November 2014 shall proceed to payment of the third and final instalment.

  23. Having the Claimant made payment of the alleged stamp duty debt subject to the present request for a declaration of illegality to avoid both the continuation of fiscal execution proceedings regarding the first instalment and the institution of a new executive proceeding regarding the second instalment, should also be recognized its right to compensatory interest, until full reimbursement of the amounts paid, pursuant to article 43 of the General Tax Law.

  24. The Claimant concludes by requesting the tribunal that, in case of success, pursuant to articles 43 and 100 of the GTL and 24, no. 5, of the RJAT, be returned and reimbursed to the Claimant:

i) the amount of € 5,997.28 (five thousand nine hundred and ninety-seven euros and twenty-eight cents), increased by compensatory interest, calculated from 25/07/2014 until full reimbursement, corresponding to the principal debt of the first instalment of stamp duty allegedly due, as well as the late interest and costs paid in the amount of € 90.35;

ii) the amount of € 5,997.26 (five thousand nine hundred and ninety-seven euros and twenty-six cents), increased by compensatory interest, calculated from 25/07/2014 until full reimbursement, corresponding to the principal debt of the second instalment of stamp duty allegedly due;

iii) the amount of € 5,997.26 (five thousand nine hundred and ninety-seven euros and twenty-six cents), corresponding to the third instalment of stamp duty allegedly due, should payment occur before the decision in the present proceeding is handed down, increased by compensatory interest, calculated from the date on which payment occurs until full reimbursement.

Response of the Tax and Customs Authority

  1. The Tax and Customs Authority (or Respondent) presented a response maintaining the impugned assessments based, in summary, on the following arguments.

  2. Contrary to what is argued by the Claimant, it results unequivocally from the letter of the law that the legislator intended to tax under item 28.1 of the GITS properties as a single legal-tax reality.

  3. In the Respondent's view, what is at issue here is, exclusively, a set of assessments relating to a single property, resulting from the direct and immediate application of the legal rule, which translates into objective elements, without any subjective or discretionary appreciation.

  4. However, the thesis defended by the Claimant lacks legal support, since although the assessment of SD, in the situations provided for in item no. 28.1 of the GITS, is carried out in accordance with the rules of the CIMI, the truth is that the legislator reserves the aspects that require the necessary adaptations, namely those in which, as is the case of properties in full ownership, even with floors or divisions susceptible to independent use (although IMI is assessed in relation to each part susceptible to independent use) for SD purposes the property in its entirety is relevant, since the divisions susceptible to independent use are not considered as property, but only autonomous fractions under the horizontal ownership regime, as per no. 4 of article 2 of the CIMI.

  5. For the Respondent, what expressly results from the letter of the law is that the legislator intended to tax under item 28.1 in question properties as a single legal-tax reality.

  6. Indeed, the subjection to stamp duty of item 28.1 of the General Table attached to the CIS results from the combination of two facts: residential use allocation and the patrimonial value of the urban property registered in the matrix being equal to or greater than € 1,000,000.00.

  7. According to the rules of the CIMI, where the property is under full ownership regime, not having autonomous fractions, to which the tax law attributes the qualification of property, because from the notion of property in article 2 of the CIMI, only autonomous fractions of property under the horizontal ownership regime are deemed to be properties - no. 4 of the cited article 2 of the CIMI.

  8. From the foregoing, the defect of violation of law due to error as to legal grounds must be judged unsubstantiated, maintaining in the legal order the impugned assessments as they constitute a correct application of the law to the facts.

  9. Nor is the argument of violation of the principle of tax equality persuasive, because this principle prohibits arbitrary or unjustified discriminations but not discriminations possibly justified by the more evolved character of the institutes or by the coherence of the tax system.

  10. Taxation under Stamp Duty follows the criterion of adequacy, aiming at the taxation of wealth embodied in the ownership of high-value properties, arising in a context of economic crisis that cannot be ignored.

  11. The Tax and Customs Authority notes that the separate registration of each part susceptible to independent use is not autonomous, per matrix, but is listed under a discretion in the matrix of the property in its entirety.

  12. What is intended to be concluded is that these rules, procedures of assessment, the rules on separate property registration, and also the rules on the assessment of parts susceptible to independent use, do not allow affirming that there must be an equation of the property under full ownership regime to the vertical ownership regime, because, as already mentioned, it would be illegal and unconstitutional.

  13. These civil-legal regimes are different, and tax law respects them!

  14. Indeed, the Respondent considers, the constitution in horizontal ownership determines the division/splitting of full ownership and the independence or autonomy of each of the fractions composing it, for all legal purposes, pursuant to no. 2 of article 4 of the CIMI and articles 1414 et seq. of the CC, whereas a property in full ownership constitutes, for all purposes, a single legal-tax reality.

  15. Since the taxable fact of stamp duty of item 28.1 consists in the ownership of urban properties whose taxable patrimonial value registered in the matrix, pursuant to the C.I.M.I., is equal to or greater than € 1,000,000.00, the patrimonial value relevant for the purposes of the incidence of the tax is, thus, the total patrimonial value of the urban property and not the patrimonial value of each of the parts composing it, even when susceptible to independent use.

  16. And this interpretation of the rule of incidence to stamp duty results from the combination of the other rule of incidence to IMI which is article 1, according to which IMI is levied on the taxable patrimonial value of urban properties, having regard to the notion of property in article 2 and of urban property contained in article 4 and also to the classes of urban properties described in article 6.

  17. By concluding that the Respondent believes the assessments are correct and must be maintained and the arbitration ruling request must be judged unsubstantiated, absolving the Respondent entity from the request.

  18. As to the right to compensatory interest provided for in no. 1 of article 43 of the GTL, derived from judicial annulment of an assessment act, depends on it having been demonstrated in the proceeding that such act is affected by error attributable to the services from which resulted payment of tax debt in an amount exceeding the legally due.

  19. For the AT, the assessment effected was based on the applicable law, to which the Administration is bound, with the tax administration, pursuant to article 55 of the GTL and following the principle set forth in article 266, nos. 1 and 2 of the CRP, "… pursuing the public interest, with respect for the rights and legally protected interests of citizens" and its "… administrative bodies and agents … are subject to the Constitution and the law …" and must "… act, in the exercise of their functions, with respect for the principles of equality, proportionality, justice, impartiality and good faith".

  20. Being thus, the Tax Administration bound by the principle of legality, cannot fail to give full compliance to the rules created by the ordinary legislator and which are in force in the legal order and also by virtue of article 55 of the GTL.

  21. Therefore, compensatory interest is not due under article 43 of the General Tax Law.

Object of the Request

  1. The question that the Claimant wishes to have decided is:

· Legality of the assessment of Stamp Duty provided for in item 28.1 of the GITS (added by article 4 of Law no. 55-A/2012, of 29 October) regarding the total taxable patrimonial value of a building, corresponding to the sum of the taxable patrimonial values of various floors or divisions susceptible to independent use.

Clarification

  1. The arbitral tribunal is substantively competent, pursuant to the provisions of articles 2, no. 1, subsection a) of the Legal Framework for Arbitration in Tax Matters.

  2. The parties enjoy judicial personality and capacity and have standing pursuant to article 4 and no. 2 of article 10 of the Legal Framework for Arbitration in Tax Matters (RJAT), and article 1 of Ordinance no. 112-A/2011, of 22 March.

  3. The proceeding does not suffer from any nullity nor were any exceptions raised by the parties that would prevent the appreciation of the merits of the case, so the conditions are met for the issuance of the arbitration decision.

II. REASONING

Proven Facts

Based on the documents submitted by the Claimant (arbitration ruling request, Doc. no. 1 to 15 attached to that Request and documents attached subsequently regarding the third instalment of SD of 2013; Response of the A.T.), the following factuality is established:

  1. The Claimant is the owner of the urban property under vertical ownership regime located at Rua …, in Lisbon, parish of …, municipality of Lisbon, registered in the respective urban property matrix under article … (former article … of the parish of …) (cf. Doc. 1, which is given here as fully reproduced).

  2. In March 2014, the Claimant was notified of Stamp Duty ("SD") assessments No. 2014 … of 17.03.14, in the amount of € 2,157.90, 2014 … of 17.03.14, in the amount of € 3,993.10, 2014 … of 17.03.14, in the amount of € 2,157.90, 2014 … of 17.03.14, in the amount of € 2,157.90, 2014 … of 17.03.14, in the amount of € 2,157.90, 2014 … of 17.03.14, in the amount of € 5,367.10, relating to the year 2013, in the total amount of € 17,991.80 (seventeen thousand nine hundred and ninety-one euros and eighty cents), voluntary payment of which was to take place in three instalments, with the first due in April 2014, as per documents numbered 2 to 7 and which are given here as fully reproduced for legal purposes.

  3. The urban property currently registered in the matrix under article …, located at Rua …, parish of …, municipality of Lisbon, owned by the Claimant, is a property intended for residential and commercial use, comprising 12 floors, which is not divided into horizontal ownership (as per copy of the property notebook which constitutes document no. 1).

  4. The use license issued by the Lisbon Municipal Chamber on 29 July 1972, which was attached as Doc. 8 and is given here as fully reproduced, does not specify the use of the fractions comprising said property and, therefore, these were assigned indistinctly to tertiary or residential use.

  5. The Tax Authority assessed under stamp duty, item 28.1 of the GITS, part of said property, namely, floors 1 to 9 inclusive, having proceeded to the sum of the patrimonial values of these fractions which it considered assigned to residential use to conclude that the value of one million euros stipulated in said item of the GITS had been exceeded.

  6. The AT proceeded to assess, under item 28.1 of the GITS, at the rate of 1%, SD relating to 2013 in the amount of 17,991.80 €, calculated by the AT as follows:

1st floor – TPV € 215,790.00 - € 2,157.90 € (cf. doc. 2);

2nd and 3rd floors – TPV € 399,310.00 – € 3,993.10 (cf. doc. 3);

4th floor – TPV € 215,790.00 - € 2,157.90 € (cf. doc. 4);

5th floor – TPV € 215,790.00 - € 2,157.90 € (cf. doc. 5);

6th floor – TPV € 215,790.00 - € 2,157.90 € (cf. doc. 6);

7th to 9th floors - TPV € 536,710.00 - € 5,367.10 € (cf. doc. 7);

  1. The assessments referred to the year 2013, indicated as ground item 28.1 of the GITS, applied the rate of 1% to the patrimonial value of the property subject to IMI, but taking into account the global TPV of the property where each of the assessed properties was located.

  2. On 25 July 2014, the Claimant made payment, already in fiscal execution, of the amount of € 5,997.28 (five thousand nine hundred and ninety-seven euros and twenty-eight cents), corresponding to the principal debt of the first instalment of stamp duty, increased by late interest and costs in the amount of € 90.35, as per copy of the payment receipt which it attached as Doc. no. 9 and which is given here as fully reproduced for legal purposes.

  3. Also on 25 July 2014, the Claimant made payment of the amount of € 5,997.26 (five thousand nine hundred and ninety-seven euros and twenty-six cents), corresponding to the principal debt of the second instalment of stamp duty allegedly due, as per copy of the payment receipts which were attached as Doc. nos. 10 to 15 and which are given here as fully reproduced for legal purposes.

  4. On 13 February 2015 the Claimant attached to the proceeding, in a request admitted by the tribunal and not contested by the AT, 6 documents evidencing the assessment of SD of 2013, relating to the property identified above in point 63 of this decision, corresponding to the third instalment, in the amount of € 5,997.26 (five thousand nine hundred and ninety-seven euros and twenty-six cents) to be paid in November, as well as the receipt of payment of this SD on 18 November 2014.

  5. Unproven Facts

The unproven facts are considered irrelevant for the appreciation of the merits of the case.

The Applicable Law

The Scope of Incidence of Item 28 of the General Table of Stamp Duty

  1. It results from the positions of the Parties that the essential question in the present proceedings is whether in the case of properties in full ownership, with floors or divisions of independent use but not constituted under the horizontal ownership regime, the TPV to be considered for the purposes of incidence of Stamp Duty provided for in item 28.1 of the GITS should correspond to the TPV of each floor or division with residential allocation and independent use or to the sum of the TPVs corresponding to the floors or divisions of independent use with residential allocation. That is, whether the TPV relevant as criterion of incidence of the tax corresponds to the sum of the taxable patrimonial value attributed to the different parts or floors (global TPV) or, instead, the TPV attributed to each of the residential parts or floors.

  2. This question has already been considered in various proceedings within the scope of Tax Arbitration [1], and so far no arguments have been identified that would break the unanimity that has been achieved in the decisions handed down.

  3. Beginning by referring to the legal provisions relevant to the tribunal's decision-making.

  4. Item 28 of the General Table of Stamp Duty, attached to the Stamp Duty Code (CIS), was added by article 4 of Law no. 55-A/2012, of 29 October, with the following content:

"28 – Ownership, usufruct or right of superficies of urban properties whose taxable patrimonial value registered in the matrix, pursuant to the Municipal Tax Code on Real Property (CIMI), is equal to or greater than € 1,000,000 – on the taxable patrimonial value for the purpose of IMI:

28-1 – For property with residential allocation – 1%;

28.2 – For property, when the taxpayers who are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, listed in the list approved by ordinance of the Minister of Finance – 7.5%."

  1. According to the amendments to the Stamp Duty Code introduced by article 3 of Law no. 55-A/2012, of 29/10, the stamp duty provided for in item 28 of the GITS is levied on a legal situation (no. 1 of article 1 and no. 4 of article 2 of the CIS), in which the respective taxpayers are those referred to in article 8 of the CIMI (no. 4 of article 2 of the CIS), upon whom falls the tax burden (subsection u) of no. 3 of article 3 of the CIS).

  2. The provision in the CIS, in the wording given by Law no. 55-A/2012, both in article 4, no. 6 ("In the situations provided for in item 28 of the General Table, the tax is due whenever properties are located in Portuguese territory"), and in article 23, no. 7 ("For the tax due for the situations provided for in item no. 28 of the General Table, the tax is assessed annually, in relation to each urban property, by the central services of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in the CIMI"), combined with article 1 of the CIMI, considers the property itself as the taxable fact (the situation that triggers taxation) provided that it reaches the value stipulated in item 28 of the General Table of Stamp Duty, regardless of the number of taxpayers, possessors (as owners, usufructuaries or superficiaries) of the goods in question [2].

  3. As to the rates, subsection f) of no. 1 of the same article 6, of Law no. 55-A/2012, provides for the application in 2012 of a rate lower than the rate of 1%, stipulated in item 28.1 of the GITS for properties with residential allocation, distinguishing further between cases of properties assessed pursuant to the IMI Code (rate of 0.5%) and properties with residential allocation not yet assessed pursuant to the IMI Code (rate of 0.8%).

  4. From 2013 onwards the normally applicable rate is 1%.

The Concept of Property Used in Item 28 of the GITS

  1. The concept of "properties with residential allocation" used in item 28.1 [3] is not expressly defined in any provision of the CIS nor in the CIMI, the act to which no. 2 of article 67 of the CIS refers.

  2. In the case at hand, whether one takes into account the Claimant's property in vertical ownership or each of its respective autonomous divisions, it is (not contested) a property classified as urban and residential, at least partially, in accordance with the criteria established in articles 2, 4 and 6 of the IMI Code, applicable by referral from article 67 of the CIS.

  3. Thus, only at issue is the exact sense of the application of the "taxable patrimonial value considered for IMI purposes", contained in the incidence rule of stamp duty in the body of item 28: in the case of properties in full ownership but with floors or divisions susceptible to independent use, is the relevant TPV that corresponding to the sum of the TPV of the various divisions/floors, as the AT claims, or what must be taken into account is the TPV of each of the respective autonomous floors or divisions, as the Claimant argues?

  4. Now this provision is integrated into a text that defines as object of incidence of stamp duty the "Ownership, usufruct or right of superficies of urban properties whose taxable patrimonial value registered in the matrix, pursuant to the Municipal Tax Code on Real Property (CIMI), is equal to or greater than € 1,000,000 – on the taxable patrimonial value for the purpose of IMI" (bold ours).

  5. As has been repeatedly invoked and admitted, the IMI Code establishes, both as to separate property registration and discrimination of its taxable patrimonial value, and as to tax assessment, the autonomization of parts of urban property susceptible to independent use and the segregation/individualization of the TPV relating to each floor or part of property susceptible to independent use.

  6. Thus, each property corresponds to a single article in the matrix (no. 2 of article 80 of the CIMI) but, according to no. 3 of article 12 of the same Code, relating to the concept of property matrix (registration of the property, its characterization, location, TPV and ownership), "each floor or part of property susceptible to independent use is considered separately in the separate property registration, which discriminates its taxable patrimonial value", not taking as reference the sum of the taxable patrimonial values attributed to the autonomous parts of the same property, but the value attributed to each of them individually considered.

  7. As to IMI assessment - application of the rate to the taxable base - article 119, no. 1 provides that "the competent collection document" contains the "discrimination of properties, their parts susceptible to independent use, respective taxable patrimonial value and of the collection (…)".

  8. That is, the rule is autonomization, the characterization as "property" of each part of a building, provided it is functionally and economically independent, susceptible to independent use [4], in accordance with the concept of property defined as early as no. 1 of article 2 of the CIMI: property is any fraction (of land, encompassing waters, plantations, buildings and constructions of any nature incorporated or based therein, with a character of permanence) provided it is part of the patrimony of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the circumstances above, endowed with economic autonomy (our presentation and underlining). [5]

  9. Thus, when no. 4 of article 2 provides that "For the purposes of this tax, each autonomous fraction, under horizontal ownership regime, is deemed to constitute a property", it does not actually establish an exceptional or special regime for properties under horizontal ownership.

  10. Each building under horizontal ownership (article 92) has only a single separate property registration (no. 1), generically describing the building and mentioning the fact that it is under the horizontal ownership regime (no. 2) and the separate property registration autonomy is realized in the attribution to each of the autonomous fractions, detailed and individualized, of a capital letter, according to alphabetical order (no. 3). This appears to be the specificity of buildings under horizontal ownership; in other cases, of properties in vertical or full ownership, the divisions or floors with autonomy but without the status of horizontal ownership, the matrix also establishes autonomy but evidencing the units with indication of the floor type/story.

  11. On the other hand, the argument that "taxation under Stamp Duty follows the criterion of adequacy, aiming at the taxation of wealth embodied in the ownership of high-value properties, arising in a context of economic crisis that cannot be ignored", is not acceptable, because the distinct treatment of properties in horizontal and vertical ownership regimes is neither justified as "a discrimination imposed by the need to impose coherence to the tax system" (what coherence?) nor can it free itself from the qualification of arbitrary by treating differently realities that are largely identical, and, if they are different, with risk even of treating in a more onerous way situations generally related to lower tax capacity than those that would have more beneficial treatment.

  12. Nor is the Respondent's argument persuasive that in the case of properties in full ownership, even with floors or divisions susceptible to independent use, notwithstanding IMI being assessed in relation to each part susceptible to independent use, the taxable patrimonial value upon which the incidence of the Stamp Duty of item no. 28.1 of the General Table depends had to be, as it was, the global patrimonial value of the properties, and not that of each of its floors or independent parts, because item no. 28.1 of the GITS is applied according to the rules of the CIMI but "with the proviso of aspects that require the necessary adaptations". (our underlinings).

  13. There is therefore no reason apparent in the law approved to, in the matter of incidence of Stamp Duty provided for in item 28.1 of the GITS, give to fractions of properties in "vertical ownership", endowed with autonomy, treatment different from that granted to properties under horizontal ownership, when in any of those situations IMI is applied to the taxable patrimonial value evidenced in the matrix for each of the autonomous units.

  14. The interpretation above sustained, resulting from the analysis of the letter of the law and its insertion in the set of other applicable tax rules, is the most consonant with the spirit of the legislative amendments introduced by Law no. 55-A/2012, of 29 October.

  15. As has already been evidenced in other arbitration decisions, "the legislator, in introducing this legislative innovation, considered as the determining element of tax capacity urban properties, with residential allocation, of high value (luxury), more precisely, of value equal to or exceeding €1,000,000.00 upon which a special rate of stamp duty began to apply, intending to introduce a principle of taxation on wealth evidenced in the ownership, usufruct or right of superficies of urban properties of luxury with residential allocation. For this reason, the criterion was the application of the new rate to urban properties with residential allocation, whose TPV is equal to or exceeding €1,000,000.00". (...) "The basis of the measure designated 'special tax on the highest value residential urban properties' rests on the invocation of the principles of social equity and fiscal justice, calling upon to contribute in a more intense way the holders of high-value properties intended for residence, imposing the new special rate on 'houses of value equal to or exceeding 1 million euros. Clearly the legislator understood that this value, when attributed to a residential dwelling (house, autonomous fraction or floor with independent use) reflects a tax capacity above average and, as such, susceptible to determining a special contribution to ensure the fair distribution of tax burden." [6]

  16. Now, it seems to completely lack adherence to reality the sustainability of the thesis that possession of fractions deprived of the status of horizontal ownership evinces greater tax capacity than if they are provided with such nature.

  17. On the contrary, in most cases, as evidenced by Arbitration Decision no. 50/2013, "many of the properties existing in vertical ownership are old, with indisputable social utility, as in many cases they house tenants with modest and more accessible rents, factors that necessarily must be taken into account."

  18. Thus, the correct interpretation is considered to be that item 28 of the GITS does not encompass each of the floors, divisions or parts susceptible to independent use when only from their sum does a TPV superior to that provided for in the same item result.

  19. As decided in other arbitration proceedings, this tribunal understands that as regards the date of constitution of the tax obligation, tax nexus, determination of the taxable base, assessment and payment of the stamp duty in question, the corresponding rules of the CIMI are applicable, by express referral of articles 5, no. 1, subsection u), 4, no. 6, 23, no. 7, 44, no. 5, 46, no. 5 and 49, no. 3, of the CIS.

  20. To subject to the new stamp duty parts autonomous without the legal status of horizontal ownership, that is, while vertical ownership is maintained, and not subject any of the residential fractions if the property were under the horizontal ownership regime would constitute a violation of the constitutional principle of equality, treating equal situations differently.

  21. In the case at hand, given that none of the "fractions" of any of the buildings in question present, per se, "value equal to or exceeding 1 million euros", there is no place for the incidence of item 28 provided for in the General Table of Stamp Duty.

Of Compensatory Interest

  1. Alongside the annulment of the assessments and reimbursement of the amounts of tax improperly paid, the Claimant further requested that compensatory interest be assessed, pursuant to the provision of article 43 of the GTL.

  2. In accordance with the provision in subsection b) of article 24 of the RJAT, the arbitration decision on the merits of the claim that is not subject to appeal or impugnation binds the tax administration from the end of the period provided for appeal or impugnation, and the latter must, in the exact terms of the success of the arbitration decision in favor of the taxpayer and until the end of the period provided for the spontaneous execution of sentences of judicial tax courts, "restore the situation that would have existed if the tax act subject of the arbitration decision had not been performed, adopting the acts and operations necessary for that purpose".

  3. Such is compatible with the provision of article 100 of the GTL [applicable by virtue of the provision in subsection a) of no. 1 of article 29 of the RJAT] which establishes that "the tax administration is obliged, in case of total or partial success of claim, judicial impugnation or appeal in favor of the taxpayer, to the immediate and full restoration of the legality of the act or situation subject of the dispute, including the payment of compensatory interest, if applicable, from the end of the period for execution of the decision".

  4. It is the understanding of the tribunal, accompanied by arbitration jurisprudence, that arbitral tribunals functioning in the CAAD integrate within the scope of their jurisdiction the powers that in judicial impugnation proceedings are attributed to tax courts.

  5. The judicial impugnation proceeding, despite being essentially a proceeding of annulment of tax acts, admits the condemnation of the Tax Administration to the payment of compensatory interest, as emerges from article 43, no. 1, of the GTL, in which it is established that "compensatory interest is due when it is determined, in amicable claim or judicial impugnation, that there was error attributable to the services from which resulted payment of the tax debt in an amount exceeding the legally due".

  6. Thus, no. 5 of article 24 of the RJAT, in stating that "payment of interest is due, regardless of its nature, pursuant to the terms provided in the general tax law and the Code of Tax Procedure and Process" must be understood as permitting the recognition of the right to compensatory interest in arbitration proceedings.

  7. In the present case, and in the logical consequence of the tribunal's recognition of the illegality of the SD assessments subject of the initial petition, there will be place for reimbursement of the tax, by force of the aforementioned articles 24, no. 1, subsection b), of the RJAT and 100 of the GTL, since such is essential to "restore the situation that would have existed if the tax act subject of the arbitration decision had not been performed".

  8. Since the illegality of the tax assessment acts of SD is attributable to the Tax and Customs Authority, which, on its own initiative performed them, in manifest defect of violation of substantive law, embodied in error as to legal grounds.

  9. Consequently, the Claimant has the right to compensatory interest, pursuant to article 43, no. 1, of the GTL and article 61 of the CPPT, calculated on the amounts that it paid improperly.

  10. Thus, the Tax and Customs Authority should execute this decision, pursuant to article 24, no. 1, of the RJAT, determining the amount to be returned to the Claimant and calculating the respective compensatory interest, at the legal supplementary rate of civil debts, pursuant to articles 35, no. 10, and 43, nos. 1 and 5, of the GTL, 61 of the CPPT, 559 of the Civil Code and Ordinance no. 291/2003, of 8 April (or act or acts that succeed it).

  11. Compensatory interest is due from the dates of the payments and on the respective amounts until the date of processing of the credit note in which they are included (article 61, no. 5, of the CPPT).

Conclusion

Thus, this arbitral tribunal concludes that the assessments of Stamp Duty, based on item 28/28.1 of the GITS, relating to each of the floors or parts susceptible to independent use, property of the Claimant, subject of the present proceedings, are affected by illegality, because the said provisions cannot be interpreted in the sense of their application to floors or parts susceptible to independent use of a property in vertical ownership, when only from the sum of each of these floors or parts is it possible to obtain a TPV equal to or exceeding € 1,000,000.00 (one million Euros), not exceeding the TPV of each of the said floors or parts that legal threshold.

And, as results from the factuality established, none of the floors intended for residence, of the property, in vertical ownership, subject of this proceeding, has patrimonial value equal to or exceeding €1,000,000.00, it is concluded that the legal presupposition of incidence of SD provided for in Item 28 of the GITS does not occur.

Decision

In the terms and with the grounds set out above, the arbitral tribunal decides to judge the arbitration ruling request well-founded with the consequent annulment of the impugned assessments, with all legal consequences.

Case Value

In accordance with the provisions of no. 2 of article 315 of the CPC, subsection a) of no. 1 of article 97-A of the CPPT and also no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings, the case is assigned the value of €17,991.80 (seventeen thousand nine hundred and ninety-one euros and eighty cents).

Costs

For the purposes of the provision of no. 2 of article 12 and no. 4 of article 22 of the RJAT and no. 4 of article 4 of the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is set at € 1,224.00 (one thousand two hundred and twenty-four euros), in accordance with Table I attached to said Regulation, to be borne entirely by the Respondent.

Let notification be made.

Lisbon, 30 March 2015

The Arbitrator

(Ana Teixeira de Sousa)

[Text drawn up by computer, pursuant to article 131, number 5 of the Code of Civil Procedure (CPC), applicable by referral from article 29, no. 1, subsection e) of the Legal Framework for Tax Arbitration. The drafting of this decision is governed by old Portuguese spelling.]

[1] Regarding the application of item 28 of the GITS in the case of properties in vertical ownership, decisions are already publicized on the CAAD website, namely, in Proceedings 50/2013-T; 132/2013-T; 181/2013-T; 183/2013-T; 185/2013-T; 248/2013-T; 240/2013-T; 280/2013-T, available at www.caad.org.pt.

[2] The provision in Law no. 55-A/2012, of 29 October, regarding the new item 28 of the General Table of Stamp Duty, came into force on the day following publication of the law, that is, 30 October 2012. Article 6 of Law no. 55-A/2012 provides for transitional provisions by virtue of which, in that first year of effectiveness, that is, 2012: the taxable fact occurs on 31 October (when, in accordance with article 8 of the CIMI, applicable by referral from no. 4 of article 2 of the CIS, it would be on 31 December); the taxpayer of the tax is the holder of the property (no. 4 of article 2 of the CIS) also on that 31 October; the taxable patrimonial value to be used in the assessment of the tax corresponds to that resulting from the rules provided for in the CIMI by reference to the year 2011; the assessment of the tax by the AT is carried out by the end of November 2012; the tax must be paid in a single instalment, by the taxpayers, by 20 December of that year 2012.

[3] The wording of this number was amended by Law no. 83-C/2013, of 31 December, moving to use the concept "residential property", but the assessments subject of the present proceedings refer to the year 2012.

[4] On this aspect, and in line with the commentary cited in the previous note, see the reasoning contained in decision no. 248/2013-T: "The autonomization in the matrix of the parts functionally and economically independent of a property in full ownership is related to reasons of a tax and non-tax nature. On the tax level, such autonomization is related to the very determination of the taxable patrimonial value, which constitutes the taxable base of IMI, given that the formula for determining that value, provided for in article 38 of the same Code, contains indices that vary depending on the use attributed to each of these parts. On the non-tax level, such autonomization continues to find justification in the relevance attributed to the taxable patrimonial value of properties and their autonomous parts in urban rental legislation." It also mentions no. 1 of article 15-O of Decree-Law no. 287/2003, of 12/11, added by Law no. 60-A/2011, of 30/11 (providing that the safeguard clause relating to the increase in IMI taxation resulting from the general assessment of urban properties is applicable per property or part of urban property that is the subject of such assessment) as confirming the individualization, for tax purposes, of the autonomous parts of urban properties.

[5] As observed in Proc. 132/2013: "The rules (...) listed enshrine the principle of autonomization of the independent parts of an urban property, even when not constituted in horizontal ownership. That is, each part susceptible to independent use must be, for IMI purposes, valued in light of its specificities and use allocation, resulting in an autonomous TPV, individualizable and corresponding to each part susceptible to independent use."

[6] Excerpts from the Decision in proceeding no. 50/2014-T, also referring to the Arbitration Decision in proceeding no. 48/2013-T, regarding the analysis of the Discussion of the legislative proposal in the Assembly of the Republic.

Frequently Asked Questions

Automatically Created

What is the Stamp Tax (Imposto do Selo) obligation under verba 28.1 of the Tabela Geral do Imposto do Selo (TGIS)?
Under verba 28.1 of the Tabela Geral do Imposto do Selo (TGIS), Stamp Tax is levied annually at a rate of 1% on urban properties or their autonomous fractions intended for residential use with a taxable patrimonial value (valor patrimonial tributário) exceeding €1,000,000. This provision, introduced as part of fiscal consolidation measures, applies to high-value residential real estate and is assessed based on the patrimonial value determined under the Municipal Real Property Tax Code (CIMI). The key interpretative question in this case concerns whether the €1 million threshold applies to each individual floor or division with independent use, or whether it applies to the aggregate value of multiple floors in a building under vertical ownership regime.
Can taxpayers challenge Stamp Tax liquidations on real estate through CAAD arbitration under Decree-Law 10/2011?
Yes, taxpayers can challenge Stamp Tax liquidations on real estate through arbitration at the Centro de Arbitragem Administrativa (CAAD) under Decree-Law 10/2011 (RJAT). Article 2(1)(a) of the RJAT grants jurisdiction to the arbitration tribunal over acts of tax assessment, including Stamp Tax. Additionally, Article 44(5) of the Código do Imposto do Selo and Article 49(3) explicitly provide for the possibility of contesting Stamp Tax assessments through administrative arbitration. Article 120(1) of the CIMI is applicable by virtue of Article 44(3) CIS. The claimant in this case successfully invoked these provisions, combined with Articles 99 and 102(1)(a) of the CPPT, to request arbitration and seek annulment of the six contested liquidations for the 2013 tax year.
How does Article 44 of the Código do Imposto do Selo interact with the CIMI for property-related Stamp Tax assessments?
Article 44 of the Código do Imposto do Selo establishes critical procedural and substantive connections with the CIMI for property-related Stamp Tax assessments. Specifically, Article 44(3) CIS makes Article 120(1) of the CIMI applicable to Stamp Tax, meaning that challenges to the taxable patrimonial value (valor patrimonial tributário) follow the procedures established in the CIMI. Article 44(5) CIS provides that Stamp Tax liquidations may be contested through the same channels as other taxes. The substantive assessment of property value for Stamp Tax purposes relies on the patrimonial valuation carried out pursuant to Articles 38 et seq. of the CIMI. This integration means that the taxable base for item 28.1 GITS is directly derived from the CIMI valuation system, creating a unified approach to real estate taxation across different tax types, though interpretative disputes may arise regarding the taxable unit.
What procedural steps must a company follow to request annulment of multiple Stamp Tax liquidations at CAAD?
To request annulment of multiple Stamp Tax liquidations at CAAD, a company must follow these procedural steps: (1) File a formal arbitration request citing the combined provisions of Articles 2(1)(a), 3(1), 5(2)(a), 10(1)(a), and 24(5) of Decree-Law 10/2011, along with relevant substantive provisions (Articles 44(5) and 49(3) CIS, Article 120(1) CIMI applicable via Article 44(3) CIS, and Articles 99 and 102(1)(a) CPPT); (2) Identify all contested liquidations with their respective numbers, dates, and amounts; (3) Designate the Tax and Customs Authority as Respondent; (4) Specify the legal and factual grounds for illegality; (5) Make any required advance payments or provide guarantees if seeking suspension of enforcement; (6) Accept or object to the arbitrator designated by the Ethics Council; (7) Submit evidence and documentation supporting the claim; and (8) Respond to any procedural orders from the tribunal. In this case, the claimant filed on July 30, 2014, contesting six liquidations totaling €17,991.80.
What are the legal grounds for declaring the illegality of Stamp Tax liquidations under verba 28.1 TGIS for the 2013 tax year?
The legal grounds for declaring illegality of Stamp Tax liquidations under verba 28.1 GITS for 2013 in this case center on errors in factual and legal basis (vícios de facto e de direito). The claimant argues: (1) Incorrect determination of the taxable unit – none of the individual floors or autonomous divisions has a taxable patrimonial value exceeding €1,000,000 when considered individually, which is the proper interpretation; (2) Improper aggregation methodology – the Tax Authority erroneously summed the values of multiple floors (€1,799,180 total) to determine the threshold was exceeded, then paradoxically applied the tax to each floor separately; (3) Inconsistent treatment – the AT applies different criteria for Stamp Tax versus IMI, CIT, and PIT, where fractions are always treated individually regardless of ownership structure; (4) Misapplication of property use classification – at least one floor (1st floor) was incorrectly classified as residential when it was actually commercial; and (5) Unjustified distinction between vertical and horizontal ownership regimes, as taxation should be based on use (residential, commercial, services) rather than ownership structure.