Process: 561/2015-T

Date: March 15, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitration case (Process 561/2015-T) addresses whether Stamp Tax under Verba 28.1 of the General Table of Stamp Tax (TGIS) applies to urban properties held in vertical property with independent units. The Claimant challenged 2014 Stamp Tax assessments, arguing that Verba 28.1—which taxes residential urban properties with tax patrimonial value (VPT) equal to or exceeding €1,000,000—should apply only to individual floors or divisions capable of independent use, not the property as a whole. The Claimant contended that each independent unit constitutes a separate property under Article 2(2) of the Municipal Property Tax Code (CIMI), similar to autonomous fractions in horizontal property. Therefore, only units individually valued at €1,000,000 or more should be taxed. Subsidiarily, the Claimant argued constitutional violations of tax equality and progressivity principles. The Tax Authority countered that vertical property differs fundamentally from horizontal property with autonomous fractions. Under Article 12 of CIMI, properties in full ownership with independent floors represent a single legal-tax reality, not separate properties. The legislature intended to tax the property as a whole when its total registered VPT meets the €1,000,000 threshold, regardless of internal divisions. The Authority emphasized that only autonomous fractions under horizontal property regime qualify as separate properties for tax purposes. The case turned on interpreting whether 'property' in Verba 28.1 means the entire building in vertical ownership or each independently usable unit, with significant implications for high-value property taxation in Portugal.

Full Decision

ARBITRAL DECISION

  1. REPORT

1.1. A..., S.A., taxpayer no. ... (hereinafter referred to as the Claimant), filed on 31/08/2015 a request for arbitral decision, in which it requests, namely, the annulment of the Stamp Tax assessment acts relating to the year 2014.

1.2. The Honorable President of the Code of Ethics Council of the Administrative Arbitration Centre (CAAD) appointed on 02/11/2015 as arbitrator, Francisco Nicolau Domingos.

1.3. On 17/11/2015 the arbitral tribunal was constituted.

1.4. In compliance with the provision of art. 17, no. 1 of Decree-Law no. 10/2011 of 20 January (RJAT), the Respondent was notified on 19/11/2015 to, if it wished, present its reply and request the production of additional evidence.

1.5. On 15/12/2015 the Respondent presented its reply in which it contends that the assessments in question did not violate any legal or constitutional provision.

1.6. The Claimant on 11/01/2016 filed a motion in which it requests the attachment of the power of attorney with ratification of the proceedings, as it had protested to do in its request for arbitral decision.

1.7. The tribunal on 23/02/2016 decided to waive the holding of the meeting to which art. 18, no. 1 of RJAT refers, based on the principle of the tribunal's autonomy in conducting the proceedings and in determining the rules to be observed in order to obtain, within a reasonable period, a substantive decision on the claims filed, see art. 16, para. c) of RJAT, granted a period for the parties, if they wished, to present their written final arguments and scheduled for 15/03/2016 the rendering of the final decision.

1.8. The Claimant presented its written final arguments on 08/03/2016, requesting the annulment of the acts in question.

1.9. The Respondent in its written final arguments of 15/03/2016 argued that the request for arbitral decision should be judged entirely without merit.

  1. PRELIMINARY EXAMINATION

The cumulation of claims underlying the present proceedings is admissible, inasmuch as it concerns assessment acts relating to the same tax, Stamp Tax. As there is also identity between the matter of fact and the success of the claim depends on the interpretation of the same principles and rules of law, see art. 3, no. 1 of RJAT.

The proceedings do not suffer from nullities, no issues have been raised that would prevent the assessment of the merits of the case, the arbitral tribunal is regularly constituted and is materially competent to know and decide the claim, and consequently, the conditions for the final decision to be rendered are verified.

  1. SUBJECT MATTER OF THE DISPUTE

The Claimant understands that the Stamp Tax assessments with source in item 28.1 of the General Table of Stamp Tax (TGIS) and relating to the year 2014 are illegal, in so far as such item is not applicable to urban properties in full ownership, with floors or divisions susceptible to independent use that do not comprise any floor or division whose tax patrimonial value (VPT) is superior to €1,000,000.00.

More specifically, it argues that the objective incidence is delimited by the type of property – residential urban property and by the VPT used for the purpose of Municipal Tax on Real Estate (IMI) – equal to or greater than €1,000,000.00, and, as such, in the concrete case, the floors or divisions that comprise the property, susceptible to independent use, each one constitutes a true property in the concept of art. 2, no. 2 of the Code of Municipal Tax on Real Estate (CIMI).

It adds that the option for the normative treatment of such floors or divisions with independent use, similar to autonomous fractions of a property constituted under the horizontal property regime results from the rules respecting the determination of its VPT, its consideration in matricial registration (art. 12, no. 3 of CIMI) and the collection rule (art. 119, no. 1 of CIMI).

Thus, it concludes that the property subject to the incidence of item 28.1 of TGIS is, in the present case, each one of the floors or divisions susceptible to independent use and the VPT to be considered is that of each one of these floors or divisions.

It further adds to its argumentation that the conclusion referred to above is also reached when one resorts to the reasons that were at the genesis of the legislative provision of item 28.1 of TGIS. Or, in other words, to create special taxation on properties of high value, focusing "...on houses valued at equal to or greater than 1 million euros".

Subsidiarily to the allegation of the defect of violation of law, it also invokes that art. 28.1 of TGIS is materially unconstitutional, for violation of the principle of tax capacity, corollary and expression of the principle of equality provided for in articles 13 and 104, no. 3, both of the Constitution of the Portuguese Republic (CRP), inasmuch as owners with identical wealth and tax capacity have different treatment in respect of the incidence of the item under analysis.

In such scope it sustains that, with respect to objective incidence, if item 28.1 of TGIS provides that the following are subject to Stamp Tax, the ownership, usufruct or right of superficies of residential urban properties with VPT recorded in the registry, equal to or greater than €1,000,000.00, a specific category of properties is being taxed and, as such, violative of the principle of tax equality, in its uniformity dimension.

In the domain of unconstitutionality, the Claimant further argues that the interpretation effected violates the principle of progressivity, provided for in articles 103 and 104, no. 1 and 3, both of the CRP, given that the item of TGIS under analysis does not bear any degree of progressivity, it merely taxes at a single rate the urban properties that meet the elements of the subjection.

Finally, it petitions the payment of indemnitary interest, given that the acts in question result from error attributable to the Respondent's services and from which resulted the payment of tax wholly undue.

For its part, the Respondent states that a property in full ownership, with floors or divisions susceptible to independent use is different from a property under the horizontal property regime, constituted by autonomous fractions. Thus, art. 12 of CIMI provides for the concept of property registry, and its no. 3 concerns solely and exclusively the manner of registering the matricial data.

It further adds in its reply that the Claimant's thesis that there is no rule stipulating that the VPT of a property composed of several floors or divisions, susceptible to independent use, corresponds to the sum of the respective parts, is devoid of sense, inasmuch as, although the assessment of Stamp Tax (item 28.1 of TGIS) is carried out in accordance with the rules of CIMI, the truth is that the legislator reserves the aspects that require the necessary adaptations, such as the example of floors or divisions susceptible to independent use that are not considered as property for purposes of Stamp Tax.

In such line of argumentation it further states that what results from the letter of the law is that the legislator wished to tax with item 28.1 of TGIS properties as a single legal-tax reality. Thus, the subjection to Stamp Tax in this scenario results from the conjunction of two elements: i) residential affectation and ii) the VPT registered in the registry being equal to or greater than €1,000,000.00.

Therefore it argues, with respect to the case sub judice that, the property being in full ownership regime and not having autonomous fractions, to which tax law attributes such qualification (because from the notion of property of art. 2, no. 4 of CIMI, only autonomous fractions of property under the horizontal property regime are considered as such), the assessments do not suffer from the defect of violation of law due to error regarding the legal presuppositions.

Furthermore, the Respondent enumerates a series of arguments to argue that the interpretation effected of item 28.1 of TGIS does not violate the constitutional principle of tax equality and tax capacity.

Specifically, it states that the matricial registration of each part susceptible to independent use is not autonomous, by registry, but appears in a description of the property in its entirety. Secondly, the norms on matricial registration, the evaluation procedure and also those relating to the assessment of parts susceptible to independent use do not allow one to affirm that there should be an equalization of property in full ownership to the horizontal property regime. In sum, it sustains that we are faced with two different legal-civil regimes and tax law respects them.

Thus, if item 28.1 of TGIS constitutes a general and abstract norm, applicable indistinctly to all cases in which its respective factual and legal presuppositions are verified and the different valuation and taxation of a property in full ownership as compared to one constituted under the horizontal property regime results from the different legal effects inherent to these two figures, one cannot conclude an alleged discrimination in violation of the principle of constitutional equality, given that we are faced with distinct realities valued by the legislator differently.

Finally, the Respondent emphasizes that taxation for purposes of Stamp Tax follows a criterion of suitability, in the exact measure in which it aims at the taxation of wealth embodied in the ownership of properties of high value, in context of economic crisis, thus aiming at maximum effectiveness, as to the objective to be achieved, with the minimum harm to other interests considered relevant. In this manner, it observes that the choice of this mechanism for obtaining revenue, in face of the principle of proportionality, would only be legally censurable if it resulted indefensible. A condition which, in its judgment, is not verified, given that the measure is applicable indistinctly to all holders of properties with residential affectation valued at greater than €1,000,000.00.

  1. MATTER OF FACT

4.1. FACTS CONSIDERED PROVEN

4.1.1. The Claimant is the owner of the property registered in the property registry under no. ..., urban, parish of ..., Lisbon.

4.1.2. Such property comprises, namely, 14 floors or divisions with independent use, registered as follows:

a) CV 81, with a VPT of €16,227.08, residential;

b) CV 83, with a VPT of €241,708.78, residential;

c) RC 83, with a VPT of €241,708.78, residential;

d) RC 81E, with a VPT of €12,699.45, residential;

e) 1 81, with a VPT of €24,693.38, residential;

f) 1 83, with a VPT of €258,702.73, residential;

g) 2 81, with a VPT of €24,693.38, residential;

h) 2 83, with a VPT of €258,580.03, residential;

i) 3 81, with a VPT of €24,693.38, residential;

j) 3 83, with a VPT of €258,580.03, residential;

k) 4 81, with a VPT of €24,693.38, residential;

l) 4 83, with a VPT of €257,506.40, residential;

m) 5 81, with a VPT of €24,693.38, residential;

n) 5 83, with a VPT of €257,506.40, residential.

4.1.3. The Claimant was notified of the Stamp Tax assessments, relating to the year 2014, in relation to each one of such floors or divisions, with residential affectation, in the total amount of €19,266.84 and which break down as follows:

a) CV 81, in the amount of €162.27;

b) CV 83, in the amount of €2,417.09;

c) RC 83, in the amount of €2,417.09;

d) RC 81E, in the amount of €126.99;

e) 1 81, in the amount of €246.93;

f) 1 83, in the amount of €2,587.03;

g) 2 81, in the amount of €246.93;

h) 2 83, in the amount of €2,585.80;

i) 3 81, in the amount of €246.93;

j) 3 83, in the amount of €2,585.80;

k) 4 81, in the amount of €246.93;

l) 4 83, in the amount of €2,575.06;

m) 5 81, in the amount of €246.93;

n) 5 83, in the amount of €2,575.06.

4.1.4. The property identified in 4.1.1 was not constituted under the horizontal property regime on 31 December 2014.

4.2. FACTS NOT CONSIDERED PROVEN

4.2.1. The Claimant proceeded to pay the total value of the assessments subject of the present proceedings in the amount of €19,266.84.

4.3. REASONING OF THE MATTER OF FACT CONSIDERED PROVEN

The matter of fact deemed proven has its genesis in the documents used for each one of the facts alleged and whose authenticity was not questioned.

4.4. REASONING OF THE MATTER OF FACT NOT CONSIDERED PROVEN

The matter of fact deemed not proven results from the failure to attach to the proceedings any proof of payment of Stamp Tax for the year 2014 and relating to the floors and divisions identified in 4.1.3 of the present arbitral decision.

  1. THE LAW

Firstly, there are three questions that the tribunal must address: i) to determine whether the subjection to the norm of incidence of item 28.1 of TGIS should be materialized by the VPT corresponding to each one of the parts susceptible to independent use, or if, on the contrary, by the sum of the VPT of each one of such parts, ii) to determine whether the interpretation that concludes that the incidence of item 28.1 of TGIS occurs when the sum of the VPT of each one of the parts susceptible to independent use of a property in vertical ownership is superior to €1,000,000.00, violates the constitutional principle of equality and tax capacity or that of progressivity and iii) to analyze whether the Claimant has a right to indemnitary interest.

Thus, it is first necessary to verify whether the subjection to item 28.1 of TGIS should be determined by the VPT of each one of the floors or divisions susceptible to independent use or by the sum of each one of such parts.

To accomplish such task it is necessary to search for the norm on whose parts the parties disagree in its interpretation.

Art. 1, no. 1 of the Code of Stamp Tax (CIS) and item 28 of TGIS provide that the following are subject to taxation: "Ownership, usufruct or right of superficies of urban properties whose tax patrimonial value recorded in the registry, under the terms of the Code of Municipal Tax on Real Estate (CIMI), is equal to or greater than €1,000,000 – on the tax patrimonial value used for purpose of IMI:

28.1 - For residential property (...) – 1%...".

Thus, it is necessary to examine the concept of "residential property" to which the norm under interpretation alludes and that of "tax patrimonial value used for purpose of IMI". Now, as it is not possible to resolve the question by resorting to CIS it is by force of the provision of art. 67, no. 2 of such statute necessary to apply the norms of CIMI.

Consequently, art. 2 of CIMI provides on the concept of property:

"1 - For purposes of this Code, property is any fraction of territory, encompassing waters, plantations, buildings and constructions of any nature incorporated into or resting upon it, with character of permanence, provided that it constitutes part of the patrimony of a natural or juridical person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the circumstances above, endowed with economic autonomy in relation to the land where they are implanted, even though situated in a fraction of territory that constitutes an integral part of a patrimony different or does not have patrimonial nature.

2 - Buildings or constructions, even though movable by nature, are deemed to have character of permanence when affected to non-transitory purposes.

3 - The character of permanence is presumed when buildings or constructions are resting in the same location for a period exceeding one year.

4 - For purposes of this tax, each autonomous fraction, under the horizontal property regime, is deemed to constitute a property".

The concept of property for purposes of IMI is, as we know, endowed with greater breadth in relation to that set forth in art. 204, no. 2 of the Civil Code (CC) and encompasses three elements, more specifically, one of physical nature, the second of legal character and the last of economic nature, J. SILVÉRIO MATEUS/L. CORVELO DE FREITAS, Os impostos sobre o património imobiliário. O Imposto do Selo, Engisco, 2005, pág. 101 a 103 e JOSÉ MARTINS ALFARO, Código do Imposto Municipal sobre Imóveis – Comentado e Anotado, Áreas Editora, 2004, pág. 118 a 123. The first requires reference to a fraction of territory, encompassing, in particular, buildings and constructions incorporated into it with character of permanence. The element of legal character requires that the thing, movable or immovable, belongs to the patrimony of a natural or juridical person. In third place, the element of economic nature requires that the thing have economic value.

As concerns the concept of urban property, art. 6 of CIMI describes its various categories, being fundamental for the subsumption in each of them, the nature of the use, that is, the purpose to which it is intended. And, nothing in the economy of art. 6, no. 1, para. a) of CIMI prevents the classification of the parts of a property in vertical ownership, with floors or divisions susceptible to independent use, with residential use, as "residential property".

Relevant is, it is repeated, its use. And a different conclusion is not possible to reach by the interpretation of art. 2, no. 4 of CIMI which elevates each autonomous fraction, under the horizontal property regime to the category of property. In truth, in this last normative also one cannot perceive any foundation for discriminating between properties in horizontal ownership and properties in vertical ownership, with floors or divisions susceptible to independent use, as regards their subsumption as urban and residential properties, in accordance with the entire economy of item 28 of TGIS. In other words, if the legislator did not treat differently properties in vertical ownership in relation to those constituted in horizontal ownership, the interpreter should not do so[1].

Quite the contrary, the matricial registration and the determination of VPT demonstrate the similarity of legislative treatment. Indeed, the parts endowed with economic independence must, each one of them, be subject to separate matricial registration and, consequently, the respective VPT should equally appear autonomously, see art. 2, no. 4, art. 7, no. 2, para. b) and art. 12, no. 3 all of CIMI. What has refraction for purposes of assessment, in so far as there will be one for each floor or division subject to separate use.

Reverting such interpretation to the present proceedings, there exist 14 floors or divisions with independent residential use which, at the date of the tax event, that is, 31 December 2014, were still not constituted in horizontal property and, consequently, from the outset, no doubts exist that the same should be classified as residential properties of urban nature.

It is also important to clarify the other graphic segment of the item of CIS under interpretation, that is, the "tax patrimonial value used for purpose of IMI".

In this regard, as already described, CIMI provides for the autonomization of the parts of urban property susceptible to independent use as regards matricial registration and the specification of the respective VPT. Such observation is equally valid with respect to the consequent assessment, as provided by art. 113, no. 1 and art. 119, no. 1, both of the last statute cited. Indeed, if the tax is assessed "...on the basis of the tax patrimonial values of the properties (our emphasis) and in relation to the taxpayers that appear in the registries (our emphasis)..." and the collection document must contain the "...specification of the properties, their parts susceptible to independent use, respective tax patrimonial value and of the collection...", this means that, not only is the VPT for purposes of application of item 28.1 of TGIS to be considered that subject to separate matricial registration, but also nothing prevents the qualification as "residential property" of floors or divisions with independent use.

Now, if none of the floors or divisions with residential affectation exceeded the VPT of €1,000,000.00, the norm of incidence in question cannot be applicable to the present case, under penalty of illegality. It is repeated that, relevant is, to define the scope of such norm, that the parties disagree in its interpretation: i) that the floor or division susceptible to independent use have a VPT greater than €1,000,000.00 and ii) that it have residential affectation.

This is also the conclusion of the jurisprudence with respect to delimiting the incidence of item 28.1 of TGIS when it observes that: "In the case of a property constituted in vertical ownership, the incidence of Stamp Tax should be determined, not by the VPT resulting from the sum of the VPT of all divisions or floors susceptible to independent use (individualized in the matricial article), but by the VPT attributed to each one of those floors or divisions intended for residential use", as per the Decision of the Supreme Administrative Court of 9/9/2015, rendered in the context of case no. 047/15 and in which Counselor FRANCISCO ROTHES was the Reporting Judge.

Thus, if the tribunal accepted the Claimant's request for a declaration of illegality of the Stamp Tax assessment acts, knowledge of the question here identified as ii) is prejudiced.

Lastly, the Claimant petitions the payment of indemnitary interest by the Respondent as a function of error attributable to its services.

In truth, art. 43, no. 1 of the LGT provides that: "Indemnitary interest is due when it is determined, in gracious reclamation or judicial challenge, that there was error attributable to the services from which resulted payment of the tax debt in amount superior to that legally due". In other words, there are three requisites of the right to such interest: i) existence of an error in a tax assessment act attributable to the services; ii) determination of such error in a process of gracious reclamation or judicial challenge and iii) payment of a tax debt in amount superior to that legally due.

In this manner, it is possible to formulate a question at the outset: is it admissible to determine the payment of indemnitary interest in tax arbitration proceedings? The answer to the question is affirmative. Indeed, art. 24, no. 5 of RJAT provides that: "Payment of interest is due, regardless of its nature, under the terms provided for in the General Tax Law and in the Code of Tax Procedure and Process".

Addressing the question, the illegality of the acts in question is attributable to the Respondent, in view of the lack of normative support at the time of their making. However, the proceedings do not demonstrate the existence of any payment made by the Claimant, thus, solely and exclusively, with such ground the tribunal cannot recognize the right to such interest.

  1. DECISION

In these terms and with the reasoning described above it is decided to judge the arbitral petition well founded, with the consequent annulment of the acts subject of the decision, with all legal consequences.

  1. VALUE OF THE PROCEEDINGS

The value of the proceedings is fixed at €19,266.84 (corresponding to the sum of the assessments subject of the decision), under the terms of art. 97-A of CPPT, applicable by force of the provision in art. 29, no. 1, para. a) of RJAT and of art. 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

  1. COSTS

Costs to be borne by the Respondent, in the amount of €1,224, see art. 22, no. 4 of RJAT and of Table I attached to RCPAT, in so far as the petition was entirely upheld.

Notify.

Lisbon, 15 March 2016

The Arbitrator,

Francisco Nicolau Domingos

[1] See in this sense the arbitral decision rendered in case no. 50/2013 – T, of 29/10/2013, in which Dr. MARIA DO ROSÁRIO ANJOS assumed the functions of arbitrator.

Frequently Asked Questions

Automatically Created

Does Verba 28.1 of the TGIS apply to urban properties held in vertical property (propriedade vertical)?
Yes, according to the Tax Authority's position in this case, Verba 28.1 of the TGIS applies to urban properties held in vertical property (full ownership) when the total tax patrimonial value (VPT) registered equals or exceeds €1,000,000. The Tax Authority argued that vertical property with independent floors or divisions constitutes a single legal-tax reality for Stamp Tax purposes. Unlike horizontal property with autonomous fractions, vertical property is not subdivided into separate taxable units. Therefore, the €1,000,000 threshold applies to the entire property's VPT, not to individual floors or divisions. This interpretation means properties in full ownership regime are taxed on their aggregate value under Verba 28.1.
Can Stamp Tax (Imposto do Selo) be challenged through tax arbitration at CAAD for property-related assessments?
Yes, Stamp Tax (Imposto do Selo) assessments can be challenged through tax arbitration at CAAD (Centro de Arbitragem Administrativa). This case demonstrates that taxpayers may request arbitral decisions to contest Stamp Tax liquidations, including those based on Verba 28.1 of the TGIS for property-related assessments. The arbitration process allows taxpayers to challenge both the legality of tax assessments (including errors in legal interpretation) and constitutional issues. CAAD provides an alternative dispute resolution mechanism to administrative and judicial courts for resolving tax controversies, with arbitral tribunals having jurisdiction to annul unlawful tax acts and order reimbursement of unduly paid taxes plus indemnity interest.
What is the difference between horizontal property and vertical property for Stamp Tax purposes under Portuguese law?
The fundamental difference for Stamp Tax purposes under Portuguese law is that horizontal property consists of autonomous fractions legally constituted under the horizontal property regime, where each fraction is treated as a separate property under Article 2(4) of CIMI. Each autonomous fraction has its own matricial registration and individual VPT. In contrast, vertical property (propriedade vertical) refers to buildings in full ownership with floors or divisions susceptible to independent use but not legally constituted as autonomous fractions. The Tax Authority's position is that vertical property remains a single legal-tax unit despite having independent divisions, whereas horizontal property is subdivided into multiple distinct properties. This distinction is critical for applying Verba 28.1 of TGIS, as it determines whether the €1,000,000 threshold applies to the whole building or to individual units.
How are urban properties with independent units taxed under Verba 28.1 of the Tabela Geral do Imposto do Selo?
Under Verba 28.1 of the Tabela Geral do Imposto do Selo, urban properties with independent units are taxed differently depending on their legal constitution. If constituted as horizontal property with autonomous fractions, each fraction valued at €1,000,000 or more is taxed separately on the ownership, usufruct, or superficies right. However, if held as vertical property (full ownership) with independent floors or divisions not legally constituted as autonomous fractions, the Tax Authority's interpretation is that the entire property is taxed as a single unit when the total registered VPT reaches €1,000,000. The tax applies annually at rates specified in Verba 28.1, based on the VPT recorded in the matricial registry. The distinction between these property types determines the taxable base and whether individual units or the aggregate property triggers the tax threshold.
What are the grounds for annulling Stamp Tax liquidations on properties not constituted as horizontal property?
Grounds for annulling Stamp Tax liquidations on properties not constituted as horizontal property include: (1) Error in legal interpretation—arguing that Verba 28.1 requires each independent floor/division to be valued at €1,000,000 individually, not collectively; (2) Violation of the principle of tax equality under Articles 13 and 104(3) of the Portuguese Constitution, as owners with identical wealth receive different treatment based on property structure; (3) Violation of tax progressivity principles under Articles 103 and 104 of the Constitution, since Verba 28.1 applies a flat rate without progressive taxation; (4) Misapplication of CIMI provisions regarding property definition and VPT determination. Taxpayers may argue that treating independent units in vertical property differently from autonomous fractions creates arbitrary discrimination and that legislative intent was to tax high-value individual residences, not aggregate property values.