Process: 565/2017-T

Date: April 2, 2018

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 565/2017-T) addresses the application of Stamp Tax under Article 28.1 of the General Stamp Tax Table (TGIS) to housing cooperatives holding surface rights over urban property with a taxable property value exceeding €1,000,000. Two housing cooperatives challenged the 2015 Stamp Tax assessment of €55,103.95 on property comprising 99 independent housing units under vertical (total) ownership regime. The cooperatives argued they should be exempt from Stamp Tax as public utility entities pursuing constitutional housing objectives, and that the Tax Authority incorrectly aggregated the values of independent units to reach the €1,000,000 threshold. The Tax Authority defended that cooperative exemptions under Article 66-A(12) of the Tax Benefits Statute apply only to gratuitous transfers and not to the ownership-based tax of item 28.1, which has limited exemptions under Article 44 EBF per Article 7(6) of the Stamp Tax Code. The Authority also contested that vertical ownership creates a single property for tax purposes, not separate autonomous fractions as under horizontal property regime. The case examines whether housing cooperatives qualify for Stamp Tax exemptions, the proper interpretation of taxable property value aggregation under vertical ownership structures, and the scope of public utility status exemptions. The tribunal had to determine if the assessment violated legal provisions and whether reimbursement plus compensatory interest was due.

Full Decision

Arbitral Decision [1]

REPORT

A…, CRL, legal entity no. … and B…, CRL, legal entity no. … (hereinafter referred to as the Claimants), requesting parties affiliated pursuant to Article 72 of the CPPT, both with registered offices at Rua …, in …, came, under the provisions of Article 2, no. 1, paragraph a) and Articles 10 et seq. of the Legal Framework for Tax Arbitration, provided for in Decree-Law no. 10/2011, of 20 January, as amended by Article 228 of Law no. 66-B/2012, of 31 December (hereinafter abbreviated as "RJAT") and Articles 1 and 2 of Ordinance no. 112-A/2011, of 22 March, to submit a request for an arbitral decision on the legality of the assessment of Stamp Duty (IS) – item 28.1 of the General Table annexed to the Stamp Duty Code (TGIS) – on the property registered in the urban property register under article …º of the parish of …, relating to the year 2015, seeking a declaration of illegality of said assessment and consequent annulment as well as the reimbursement of the amount unduly paid, plus compensatory interest.

The Tax and Customs Authority (AT) is the Respondent.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 24.10.2017.

The Claimants did not proceed to appoint an arbitrator, wherefore, pursuant to paragraph a) of no. 2 of Article 6 and paragraph b) of no. 1 of Article 11 of the RJAT, the President of the Deontological Council of CAAD designated the undersigned as arbitrator of the sole arbitral tribunal, who communicated acceptance of the assignment within the applicable period.

On 15-12-2017, the parties were duly notified of this designation, and did not manifest any intention to challenge the arbitrator's appointment, pursuant to the combined provisions of Article 11, no. 1, paragraphs a) and b), of the RJAT and Articles 6 and 7 of the Deontological Code.

Thus, in accordance with the provision in paragraph c) of no. 1 of Article 11 of the RJAT, the Arbitral Tribunal was constituted on 08.01.2018.

Duly notified, the Tax and Customs Authority submitted a response in which it defended the inadmissibility of the claim, defending itself solely by way of objection.

As it was understood that there is no controversy regarding the essential and relevant facts for the decision and which have sufficient documentary support, the hearing referred to in Article 18 of the RJAT was dispensed with.

The date of 11.04.2018 was fixed for the pronouncement of the final decision.

Only the Claimants submitted written submissions, pronouncing themselves on the evidence produced, reiterating and developing their respective legal position.

The Claimants request that the nullity of the assessment of IS – item 28.1 of the TGIS, relating to the year 2015, in the amount of € 55,103.95, as well as of the act of rejection of the administrative complaint they filed – proc. …2016… – order of 23 June 2017, which resulted from the request for annulment of said assessment, be declared, alleging, in summary:

  1. The Claimants are Housing Cooperatives, having, in their raison d'être, the creation of housing for persons of economic minority with a view to eradicating shantytowns in the area of …, and pursuing the constitutional purposes and aims set out in nos. 1 and 2 paragraph d) of Article 65, 85, 61 and no. 4 of Article 82 all of the Constitution of the Portuguese Republic (CRP).

  2. The Claimants are superficiaries of the urban property registered in the respective property register of the parish of …, municipality of …, under article …º, property constituted under the regime of total property, also designated as vertical.

  3. Said property comprises 99 parts susceptible of independent utilization, intended for housing, one of them intended for services, as appears from the respective property record.

  4. The taxable property value was determined separately, pursuant to Article 7, no. 2, paragraph b), of the Municipal Property Tax Code (CIMI), the total taxable property value being € 5,109,610.00, according to the property record enclosed by the Claimants.

  5. The AT assessed stamp duty from item 28.1 of the General Table, at the rate of 1%.

  6. The Claimants do not agree with said assessment, considering it illegal for violation of law, as they understand that:

  • as cooperatives and pursuing public utility purposes, they are exempt from various taxes, namely IS, a legal framework which, in their view, the AT disregarded;

  • by summing the value of all autonomous and independent divisions, the AT created a Taxable Property Value (VPT) without legal support and in clear violation of item 28 of the TGIS which mandates the application of the provisions in no. 3 of Article 12 of the CIMI.

  1. For which reason they now seek the annulment of the act of assessment of IS as well as of the act of rejection of the administrative complaint request and consequently, the reimbursement of the tax paid by them, plus compensatory interest, pursuant to Article 43 of the LGT.

For its part, the Respondent came in response to allege, in summary:

  1. Housing cooperatives do not enjoy exemption from item 28.1, because the taxable event of item 28.1 of the TGIS is not covered by the exemption provision of no. 12 of Article 66-A.

  2. The exemption provision relating to cooperatives and as regards stamp duty consists, therefore, exclusively, of no. 12 of Article 66-A of the EBF, with the following wording: "cooperatives are exempt from stamp duty on acts, contracts, documents, titles and other facts, including gratuitous transfers of assets, when this tax constitutes their charge".

  3. The stamp duty of item 28.1 applies to ownership, usufruct or surface rights of urban properties whose taxable property value appearing in the register, pursuant to the CIMI, when the VPT used for IMI purposes is equal to or greater than € 1,000,000.00.

  4. We must therefore conclude that this is not stamp duty on gratuitous transfers, even if of immovable property.

  5. Article 7 of the Stamp Duty Code (CIS), on other exemptions, clearly states: "6 - The exemptions provided for in Article 44 of the Tax Benefits Statute are still applicable to the situations provided for in item no. 28 of the General Table" (EBF).

  6. Therefore, item 28 only has the exemption provided for in Article 44 of the EBF foreseen, there being no place for analogue integration.

  7. Thus, without the exemption of no. 12 of Article 66-A of the EBF extending to this item the exemption it provides for cooperatives, or without the provision of no. 6 of Article 7 of the CIS allowing item 28 to comprise any other exemption than that of Article 44 of the EBF, the Claimants are taxable persons subject to stamp duty of item 28.1.

  8. But the Claimants also understand that they are legal entities of public utility, pursuant to Decree-Law no. 460/77, of 7 November, and therefore enjoy the exemption from IS provided for in Article 6, paragraph c) of the CIS.

  9. However, the Claimants do not prove this, certainly because they were not declared as such.

  10. Finding that the property of which they are superficiaries is constituted under the regime of total ownership, the Claimants do not possess 99 autonomous fractions to which fiscal law attributes the qualification of property, but rather a single property.

  11. As is well known, horizontal property is a specific legal regime of property provided for in Article 1414 et seq. of the Civil Code (CC), the mode of constitution of which is provided for there as well as the other rules on the rights and obligations of co-owners.

  12. It cannot be accepted that one considers, for the purposes of item 28.1 of the TGIS, that the parts susceptible of independent utilization have the same fiscal regime as the autonomous fractions of the horizontal property regime.

  13. The unity of urban property in vertical ownership composed of various floors or divisions is not affected by the fact that all or part of these floors or divisions are susceptible of independent economic utilization.

  14. The registration in the property register of each part susceptible of independent utilization is not autonomous, by register, but appears in a description in the register of the property in its entirety - see the property record of this property which represents the owner's document containing the registration elements of the property.

  15. The fact that the IMI was calculated on the basis of the taxable property value of each part of property with independent economic utilization does not equally affect the application of item 28.1 of the TGIS.

  16. The procedural rules for assessment, property registration and assessment of the parts susceptible of independent utilization do not allow one to affirm that there is an equating of property under the regime of total ownership to the regime of horizontal property.

  17. The taxable property value relevant for the purposes of the incidence of the tax is therefore the total taxable property value of the urban property and not the taxable property value of each of the parts that compose it, even if susceptible of independent utilization.

  18. Any other interpretation would violate the letter and spirit of item 28.1 of the TGIS and the principle of legality of the essential elements of the tax provided for in Article 103, no. 2, of the CRP.

  19. All considered, it must necessarily be concluded that the tax acts in question did not therefore violate any legal or constitutional provision and should therefore be upheld, as should the decision rejecting the administrative complaint.

HOUSEKEEPING

The parties have legal personality and capacity, are entitled as to the request for an arbitral decision and are duly represented, pursuant to the provisions of Articles 4 and 10 of the RJAT and Article 1 of Ordinance no. 112-A/2011, of 22 March.

No exceptions or nullities are present, wherefore it is necessary to proceed to examine the merits of the claim.

3. MERITS

3.1. FACTUAL MATTERS

3.1.1. Established Facts

The following facts are established:

a) The Claimants are Housing Cooperatives, having, in their raison d'être, the creation of housing for persons of economic minority with a view to eradicating shantytowns in the area of ….

b) The Claimants are superficiaries of the urban property registered in the respective property register of the parish of …, municipality of …, under article …º, property constituted under the regime of total ownership, also designated as vertical.

c) Said property comprises 99 parts susceptible of independent utilization, 98 intended for housing and one intended for services, as appears from the respective property record.

d) The taxable property value was determined separately, pursuant to Article 7, no. 2, paragraph b), of the CIMI, the total taxable property value being € 5,109,610.00, according to the property record enclosed by the Claimants.

e) None of the fractions or parts, considered individually, has a taxable property value exceeding € 1,000,000.00.

f) The total taxable property value of the fractions or parts intended for housing amounts to € 5,065,240.00.

g) Since fractions or parts intended for housing were involved and because the total taxable property value was greater than one million euros, the AT assessed stamp duty from item 28.1 of the TGIS, at the rate of 1%.

h) From these stamp duty assessments, with reference to the year 2015, a total amount of € 55,103.95 in IS resulted, of which the first installment as of the date of submission of the arbitral request was paid.

i) The AT did not take into account in its assessments the legal nature of the Claimants.

j) The Claimants submitted an administrative complaint against said stamp duty assessments, which was rejected as appears from the administrative file enclosed by the Respondent.

3.1.2. Unproven Facts

There are no other facts with relevance for examination of the merits of the case that have not been established.

3.1.3. Reasoning on Factual Matters

Regarding the proven factual matters, the conviction of the Arbitral Tribunal was founded on the free assessment of the positions taken by the Parties (on factual matters) and on the tenor of the documents enclosed in the proceedings, not contested by the Parties, as well as on the analysis of the administrative file attached by the Respondent.

3.2. MATTERS OF LAW

3.2.1. Principal Issue

The substantive issue to be examined in this proceeding resides in the interpretation to be given to item 28.1 of the TGIS, in the version of Law no. 55-A/2012 of 29 October, in order to establish, in relation to properties not constituted under the regime of horizontal property that include floors or divisions susceptible of independent utilization, whether the taxable property value relevant for the purposes of application of the tax is that attributed individually to each of them or, on the contrary, is that corresponding to the sum of all of them.

Item 28 of the TGIS provides:

  • "Ownership, usufruct or surface rights of urban properties whose taxable property value appearing in the register, pursuant to the Municipal Property Tax Code, is equal to or greater than € 1,000,000.00 – on the taxable property value for IMI purposes:

28.1 – Per property with residential use – 1%

(…)".

Article 6 of said Law no. 55-A/2012 provides that the taxable property value to be considered in the assessment of stamp duty corresponds to that resulting from the rules of the CIMI, with no. 2 of Article 67 of the CIS adding that "to matters not regulated in this Code relating to item no. 28 of the General Table, the provisions of the CIMI shall apply subsidiarily".

For its part, Article 2 of the CIMI gives us the concept of property, with Article 6 of the same code, in its no. 2, providing that "residential, commercial, industrial or service-purpose buildings or constructions are those licensed for such purpose or, failing a license, that have as their normal purpose each of these objectives".

It is with recourse to these provisions that the answer to the question to be decided must be found.

Being certain that the only comparison that the CIMI makes between properties under horizontal property regime or total property regime can be found in no. 4 of Article 2 when it prescribes that "each autonomous fraction, under the horizontal property regime, is regarded as constituting a property". In compliance with what, in defining the concept of property registers, no. 3 of Article 12 of the CIMI provides that "each floor or part of property susceptible of independent utilization is considered separately in the property registration, which also discriminates the respective taxable property value".

No relevance whatsoever is thus given by the legislator to the fact that a property is constituted under the horizontal property regime or vertical regime, relevance being given only to the material truth underlying its existence as an urban property and its utilization.

That is, there is nothing in the law that permits the conclusion that the taxable property value of property under the total ownership regime is obtained by the sum of those attributed individually to the parts that compose it, according to an understanding that has come to be accepted by various arbitral decisions[2] to which we fully adhere and, for this reason, we subscribe.

The AT cannot make distinctions where the legislator itself understood not to do so, at the risk of violating the coherence of the tax system, as well as the principle of tax legality provided for in Article 103, no. 2 of the CRP, and also the principles of tax justice, equality and proportionality.

Wherefore we understand that the position of the AT cannot merit acceptance, in seeking to establish as the reference value for the incidence of stamp duty the total value of the property in question, as the CIMI does not admit this, which is, as already mentioned, the legal remissive basis supporting that.

As none of the parts susceptible of independent utilization has taxable property value greater than one million euros, there is thus no incidence of item 28.1 provided for in the TGIS.

3.2.2. Compensatory Interest

In accordance with the provision of paragraph b) of Article 24 of the RJAT, the arbitral decision on the merits of the claim as to which no recourse or challenge is available binds the Tax Administration from the end of the period provided for recourse or challenge, the latter being obliged, in the exact terms of the success of the arbitral decision in favor of the taxable person and until the end of the period provided for spontaneous execution of sentences of tax courts, to "restore the situation that would exist if the tax act subject of the arbitral decision had not been performed, adopting the acts and operations necessary for the purpose", which is in line with the provision of Article 100 of the LGT [applicable by force of the provision in paragraph 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 an administrative complaint, judicial challenge or recourse in favor of the taxable person, to the immediate and full restoration of the legality of the act or situation subject of the dispute, comprising the payment of compensatory interest, if applicable, from the end of the period of execution of the decision".

Although Article 2, no. 1, paragraphs a) and b), of the RJAT uses the expression "declaration of illegality" to define the jurisdiction of the arbitral tribunals operating in CAAD, not making reference to condemnatory decisions, it should be understood that the powers which in judicial challenge proceedings are attributed to tax courts are comprised in its jurisdiction, this being the interpretation that is in line with the sense of the legislative authorization on which the Government based itself to approve the RJAT, in which it proclaims, as a first directive, that "the tax arbitral proceeding must constitute an alternative procedural means to judicial challenge proceedings and to the action for the recognition of a right or legitimate interest in tax matters".

The judicial challenge proceeding, despite being essentially an annulment proceeding for tax acts, admits the condemnation of the Tax Administration in the payment of compensatory interest, as appears from Article 43, no. 1, of the LGT, in which it is established that "compensatory interest is due when it is determined, in an administrative complaint or judicial challenge, that there was an error attributable to the services resulting in payment of the tax debt in an amount exceeding that legally due" and Article 61, no. 4 of the Code of Tax Procedure and Process (CPPT) (in the version given by Law no. 55-A/2010, of 31 December, which corresponds to no. 2 in the initial version), which provides that "if the decision recognizing the right to compensatory interest is a judicial decision, the payment period is counted from the beginning of the period for its spontaneous execution".

Thus, no. 5 of Article 24 of the RJAT, when stating that "payment of interest, regardless of its nature, is due in accordance with the terms provided for in general tax law and in the Code of Tax Procedure and Process", should be understood as permitting the recognition of the right to compensatory interest in the arbitral proceeding.

In the case at hand, it is manifest that, as a consequence of the illegality of the assessment act, there is occasion for payment of compensatory interest, as the assessment is attributable to the AT, which, on its own initiative, performed it without legal support.

Consequently, the Claimants are entitled to compensatory interest, pursuant to Articles 24, no. 5 of the RJAT, 43, no. 1 of the LGT and 61 of the CPPT, to be determined by the Tax and Customs Authority in execution of this decision.

3.2.3. Questions with Prejudicial Knowledge

As the request for an arbitral decision proceeds from a defect of violation of law, which provides effective protection of the interests of the Claimants, the examination of the other questions raised is made futile [Article 130 of the Code of Civil Procedure (CPC)].

4. DECISION

For the foregoing reasons, this Arbitral Tribunal decides:

a) To find well-founded, for the defect of violation of law, the request for annulment of the tax act subject to the arbitral request corresponding to the assessment of Stamp Duty, relating to the year 2015, respecting article …º of the parish of …, in …, as well as the request for payment of compensatory interest;

b) To condemn the Tax and Customs Authority to reimbursee the claimant the amount of tax paid, plus the respective compensatory interest;

c) To condemn the Respondent in the payment of the costs of this proceeding.

5. VALUE OF THE PROCEEDING

In accordance with the provision of Article 306, no. 2 of the CPC, 97-A, no. 1, paragraph a) of the CPPT and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceeding is fixed at € 55,103.95.

6. COSTS

Pursuant to Article 22, no. 4 of the RJAT, the amount of costs is fixed at € 2,142.00, in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Respondent.

Let notification be made.

Lisbon, 2 April 2018

The Arbitrator,

Cristina Aragão Seia

[1] The drafting of this decision is governed by the spelling prior to the 1990 Orthographic Agreement, except with respect to transcriptions made.

[2] Among others, those delivered in Proc. 50/2013-T, 131/2013-T, 177/2014, 181/2013-T, 185/2013-T, 206/2014-T, 710/2014-T, 593/2016-T.

Frequently Asked Questions

Automatically Created

What is the Stamp Tax (Imposto de Selo) under Article 28.1 of the General Stamp Tax Table (TGIS) and how does it apply to urban property?
Stamp Tax under Article 28.1 of the TGIS applies to ownership, usufruct, or surface rights over urban properties with a taxable property value (VPT) equal to or exceeding €1,000,000 as registered under the Municipal Property Tax Code (CIMI). The tax rate is 1% and applies annually based on the property valuation appearing in the property register. This tax targets high-value property ownership rather than transactions, making it distinct from transfer-based stamp duties. The taxable property value is determined according to CIMI provisions, and for properties under vertical ownership regimes, the aggregation methodology of independent units becomes crucial for determining if the threshold is met.
Can cooperatives (cooperativas) challenge Stamp Tax liquidations on property through tax arbitration at CAAD?
Yes, cooperatives can challenge Stamp Tax liquidations through tax arbitration at CAAD (Centro de Arbitragem Administrativa). Under the Legal Framework for Tax Arbitration (RJAT - Decree-Law 10/2011), cooperatives as legal entities have standing to request arbitral decisions on the legality of tax assessments. The process involves submitting a request that is accepted by the CAAD President, who designates an arbitrator to constitute a sole arbitral tribunal. Parties can respond, submit evidence, and present legal arguments. CAAD provides an alternative dispute resolution mechanism that is faster and more specialized than judicial courts for resolving tax controversies, including those involving cooperative entities contesting assessments they consider illegal.
What are the grounds for declaring the illegality and annulment of a Stamp Tax assessment under Portuguese tax law?
Grounds for declaring illegality and annulment of a Stamp Tax assessment include: (1) incorrect application of exemptions provided by law, such as those for cooperatives under Article 66-A of the Tax Benefits Statute or public utility entities under Article 6(c) of the Stamp Tax Code; (2) improper determination of taxable property value, including incorrect aggregation of property units or misapplication of CIMI valuation rules referenced in item 28 of TGIS; (3) violation of constitutional principles when taxing entities pursuing constitutional objectives; (4) procedural irregularities in the assessment process; and (5) misinterpretation of property law concepts (such as vertical versus horizontal ownership regimes) that affect tax liability. Taxpayers must demonstrate the legal violation through documentary evidence and legal argumentation before the arbitral tribunal.
How does the CAAD arbitral tribunal process work for contesting Stamp Tax (Imposto de Selo) liquidations in Portugal?
The CAAD arbitral tribunal process for contesting Stamp Tax liquidations follows these steps: (1) the taxpayer submits a request for arbitral decision under RJAT Articles 2 and 10; (2) the CAAD President accepts the request and notifies the Tax Authority; (3) an arbitrator is designated by the President of the Deontological Council if parties don't appoint one; (4) parties are notified and may challenge the arbitrator within statutory periods; (5) the tribunal is formally constituted; (6) the Tax Authority submits a response defending the assessment; (7) the tribunal may dispense with hearings if facts are undisputed and documented; (8) parties submit written conclusions presenting their legal positions; and (9) the tribunal issues a final decision within the established deadline, determining the legality of the assessment and ordering appropriate remedies.
Are taxpayers entitled to reimbursement and compensatory interest (juros indemnizatórios) after a successful annulment of a Stamp Tax liquidation?
Yes, taxpayers are entitled to reimbursement and compensatory interest (juros indemnizatórios) after successful annulment of a Stamp Tax liquidation. Under Article 43 of the General Tax Law (LGT), when a tax assessment is annulled due to illegality, the Tax Authority must reimburse amounts unduly paid. Compensatory interest accrues automatically on reimbursements to compensate taxpayers for the State's temporary use of funds that were not legally due. The interest rate and calculation method are established by law. This remedy ensures taxpayers are made whole after wrongful tax collection. The arbitral tribunal's decision declaring nullity of the assessment triggers the obligation to reimburse the principal amount plus compensatory interest from the payment date until reimbursement, without requiring separate administrative proceedings for interest calculation.