Process: 568/2014-T

Date: February 24, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitration case (Process 568/2014-T) addresses the application of Stamp Tax under Item 28.1 of the General Stamp Tax Table (TGIS) to properties in vertical ownership. The taxpayer challenged 18 Stamp Tax assessments for 2013 totaling €2,663.83, arguing that the Tax Administration incorrectly applied the tax regime.

Item 28.1 of the TGIS imposes Stamp Tax on urban properties with residential use when the taxable cadastral value (TCV) equals or exceeds €1,000,000. The core dispute concerns whether vertical property buildings should be assessed as a single unit based on total TCV or whether each independent unit should be taxed separately.

The petitioner's main arguments included: (1) the property has mixed use with 18 residential units and commercial units, thus falling outside Item 28.1's scope which targets luxury residential properties; (2) vertical property should be treated like horizontal property (condominiums) where each autonomous unit is assessed individually for both Municipal Property Tax (IMI) and Stamp Tax; (3) Law 55-A/2012 provides that the Municipal Property Tax Code applies subsidiarily to Item 28 matters, and this Code does not distinguish between vertical and horizontal ownership for assessment purposes; (4) the Tax Administration inconsistently issued separate assessment notices for each residential unit while considering the global TCV for applicability; (5) the wrong rate was applied (1% instead of 0.5% as provided in transitional provisions); and (6) the assessments violate constitutional principles of equity, fiscal legality (Article 103(2) of the Portuguese Constitution), justice, equality, and proportionality.

The Tax Administration countered that vertical property differs from horizontal property, and the relevant TCV for Item 28.1 purposes is the total property value, not individual unit values. The case was processed under the Tax Arbitration Legal Regime (RJAT) at CAAD, with the arbitral tribunal constituted on October 1, 2014, and both parties waiving the oral hearing.

Full Decision

ARBITRAL DECISION

  1. REPORT

1.1. A, taxpayer no. …, having been notified of Stamp Tax assessments (1st installment) for the year 2013 corresponding to the numbers 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …, filed on 29/07/2014 a request for arbitral decision, in which it petitions for a declaration of illegality of the acts of assessment of such tax, in the total amount of € 2,663.83.

1.2. His Excellency the President of the Deontological Board of the Administrative Arbitration Center (CAAD) appointed on 16/09/2014 as arbitrator Francisco Nicolau Domingos.

1.3. On 01/10/2014 the tribunal was constituted with a sole arbitrator.

1.4. In compliance with the provision of article 17, no. 1 of the RJAT, the Tax Administration (TA) was notified on 10/10/2014 to, if so willing, file a reply and request the production of additional evidence.

1.5. On 14/11/2014 the TA filed its reply.

1.6. The tribunal on 09/02/2015, given the absence of any request for production of additional evidence, under the principle of free determination of evidence production procedures, autonomy in case management, and in view of the request for exemption from holding the meeting referred to in article 18, no. 1 of the RJAT by the TA and of final arguments, ordered notification to the Petitioner to state whether it intended to hold the aforementioned meeting and, in case of refusal, to, if so willing, submit its arguments.

1.7. The Petitioner on 12/02/2015 filed a motion in the record in which it renounced the right to submit arguments and to be present at the first meeting of the arbitral tribunal.

1.8. The tribunal on 13/02/2015 decided to dispense with the holding of the meeting referred to in article 18, no. 1 of the RJAT and scheduled the date for pronouncement of the final decision for 24/02/2015, on the basis of the principle of autonomy of the arbitral tribunal in case management and in the determination of the rules to be observed with a view to obtaining, within a reasonable period, a decision on the merits concerning the claims formulated, cf. article 16, paragraph c) of the RJAT.

  1. PRELIMINARY MATTERS

The joinder of claims underlying the request for arbitral decision is admissible, inasmuch as it concerns assessment acts of the same tax, stamp tax. There also exists identity of factual matter and since the grounding of the claim depends on the interpretation of the same legal principles and rules, cf. article 3, no. 1 of the RJAT.

The proceedings are free from nullities, no issues have been raised that preclude consideration of the merits of the case, the arbitral tribunal is regularly constituted and is materially competent to hear and decide the petition, and accordingly the conditions are met for pronouncement of the final decision.

  1. PARTIES' POSITIONS

There are two opposing positions, that of the Petitioner, set forth in the request for arbitral decision, and that of the TA in its reply.

In summary:

The Petitioner submits that:

a) "…there is Stamp Tax liability on item 28.1 of the GTST when two requirements are met: (i) residential use of the property, (ii) the TCV appearing in the register is equal to or exceeds € 1,000,000.";

b) "The legislator in creating this item 28.1 of the GTST intended to tax not real property in itself, but real property of high value or luxury, which is why item 28.1 applies only to property with residential use and not to property with mixed use (as in this case).";

c) "…the property has mixed use, with 18 units capable of independent use having residential use, and the remainder commercial use, which is why it falls outside the scope and applicability of item 28.1 of the GTST.";

d) "To the land registry registration of properties in vertical ownership, even when composed of different units with independent use, under the terms of the Municipal Property Tax Code, the same registration rules apply to properties constituted in horizontal ownership, and accordingly the respective Municipal Property Tax (IMI) and Stamp Tax (IS) are assessed individually in relation to each unit.";

e) "Law 55-A/2012, which amended the Stamp Tax Code, more specifically its article 67, adding thereto no. 2, provides that in all matters not regulated by the Code and concerning item 28, the Municipal Property Tax Code shall apply subsidiarily.";

f) "The truth is that neither article 2 of the Municipal Property Tax Code, which defines the concept of property, nor article 38 of the same statute, concerning the determination of TCV, results in any distinction as to the registration status of the property, that is, whether it is in vertical or horizontal ownership.";

g) "The truth is that the TA issued assessment notices for each unit capable of independent use and with residential use, as it would if the property were constituted in horizontal ownership, however, for purposes of applicability it took into account the global TCV of the property instead of considering the TCV of each fraction.";

h) "…it is precisely the 'TCV appearing in the register' to which the text of the law directs attention to determine the applicability of Stamp Tax of item 28.1 of the GTST.";

i) "…it follows from the transitional provisions of Law 55-A/2012, more specifically from its article 6, that taxation provided for by item 28 of the GTST for the year 2012 should be assessed at the rate of 0.5% on the TCV provided that it is equal to or exceeds € 1,000,000 of urban property with residential use, and not 1% as stipulated by the TA in the assessment acts.";

j) It concludes arguing that: "…it is all too evident that the interpretation by the TA of the taxing rule of item 28.1 of the GTST attached to the Stamp Tax Code and the issuance of the assessment notices is unconstitutional and arbitrary in that it constitutes a blatant violation of the principle of equity, the principle of fiscal legality provided for in no. 2 of article 103 of the CRP as well as the principles of justice, equality and fiscal proportionality also provided for in the Constitution of the Portuguese Republic, which is why such assessment notices should be revoked.".

Otherwise, the TA contends that:

a) "…the Petitioner of the request for arbitral decision alleges that the criterion for taxation of the autonomous parts of property in vertical ownership must be based on the same modality as taxation of property in horizontal ownership.";

b) "The taxable property value relevant for purposes of applicability of the tax is thus the total taxable property value of the urban property and not the taxable property value of each of the parts composing it, even when capable of independent use.";

c) "It is thus not apparent how the assessment of IMI challenged can have violated the literal wording of item 28.1 of the General Table.";

d) "The urban property at issue in the present case is not in the horizontal property regime, in which case each autonomous fraction would be considered a urban property, including for purposes of Stamp Tax liability under item 28.1 of the General Table, but in the vertical property regime.";

e) "It provides, however, as shown in the respective property register, of floors or independent units, assessed under the terms of article 12, no. 3 of the Municipal Property Tax Code, which states that each floor or property capable of independent use is considered separately in the land registry registration, which also specifies the respective taxable property value on which IMI is assessed.";

f) "Such legal provision is relevant, accordingly, for purposes of registration in the property register, to the autonomy that, within the same property, may be attributed to each of its parts, economically and functionally independent.";

g) "In such case, the land registry registration must make reference to each of the parts and also to the taxable property value corresponding to each, determined separately under the terms of articles 37 et seq. of the Municipal Property Tax Code:";

h) "In the present case, the taxable property value on which applicability of Stamp Tax of item 28.1 of the General Table depends had to be, as it was, the total taxable property value of the property and not that of each of its independent parts.";

i) "The fact that the IMI was determined on the basis of the taxable property value of each part of the property with economically independent use does not equally affect the application of item 28, no. 1 of the General Table.";

j) The TA further contends that any other interpretation would be unconstitutional as: "…it would violate (…) the letter and spirit of item 28.1 of the General Table and the principle of legality of the essential elements of the tax provided for in article 103, no. 2 of the Constitution of the Portuguese Republic (CRP).";

k) And would also be offensive: "…to the principle of fiscal legality, the interpretation of item 28.1 of the General Table, in the sense that the taxable property value on which its applicability depends is determined globally and not floor by floor or unit by unit".

  1. FACTUAL MATTER

4.1. FACTS DEEMED PROVEN

4.1.1. The Petitioner is owner of a 1/2 fractional share of the property corresponding to the registration …, …, … (…).

4.1.2. Such property comprises, in particular, 20 floors with independent use, registered in the urban property register of the parish of … (…) as follows:

a) Ground Floor, with a TCV of € 100,080.00, commercial;

b) 1st, with a TCV of € 93,510.00, services;

c) 2nd, with a TCV of € 75,240.00, residential;

d) 3rd, with a TCV of € 72,180.00, residential;

e) 4th Right, with a TCV of € 54,180.00, residential;

f) 4th Left, with a TCV of € 54,180.00, residential;

g) 5th Right, with a TCV of € 56,330.00, residential;

h) 5th Left, with a TCV of € 59,750.00, residential;

i) 6th Right, with a TCV of € 56,330.00, residential;

j) 6th Left, with a TCV of € 59,750.00, residential;

l) 7th Right, with a TCV of € 59,750.00, residential;

m) 7th Left, with a TCV of € 58,040.00, residential;

n) 8th Right, with a TCV of € 56,330.00, residential;

o) 8th Left, with a TCV of € 56,330.00, residential;

p) 9th Right, with a TCV of € 54,910.00, residential;

q) 9th Left, with a TCV of € 59,750.00, residential;

r) 10th Right, with a TCV of € 59,750.00, residential;

s) 10th Left, with a TCV of € 58,040.00, residential;

t) 11th Right, with a TCV of € 56,630.00, residential;

u) 11th Left, with a TCV of € 58,040.00, residential.

4.1.3. The Petitioner was notified of Stamp Tax assessments for the year 2013 (1st installment), in relation to each of such registrations with residential use, in the total amount of € 2,663.83 and which break down as follows:

a) 2nd, document 2014 …, in the amount of € 188.10;

b) 3rd, document 2014 …, in the amount of € 180.45;

c) 4th Right, document 2014 …, in the amount of € 135.45;

d) 4th Left, document 2014 …, in the amount of € 135.45;

e) 5th Right, document 2014 …, in the amount of € 140.83;

f) 5th Left, document 2014 …, in the amount of € 149.38;

g) 6th Right, document 2014 …, in the amount of € 140.83;

h) 6th Left, document 2014 …, in the amount of € 149.38;

i) 7th Right, document 2014 …, in the amount of € 149.38;

j) 7th Left, document 2014 …, in the amount of € 145.10;

l) 8th Right, document 2014 …, in the amount of € 140.83;

m) 8th Left, document 2014 …, in the amount of € 140.83;

n) 9th Right, document 2014 …, in the amount of € 137.28;

o) 9th Left, document 2014 …, in the amount of € 149.38;

p) 10th Right, document 2014 …, in the amount of € 149.38;

q) 10th Left, document 2014 …, in the amount of € 145.10;

r) 11th Right, document 2014 …, in the amount of € 141.58;

s) 11th Left, document 2014 …, in the amount of € 145.10.

4.1.4. The property identified in 4.1.1 was not constituted in the horizontal property regime as of 31 December 2013.

4.2. FACTS NOT DEEMED PROVEN

There are no facts with relevance to the arbitral decision that have not been deemed proven.

4.3. REASONING ON THE FACTUAL MATTER DEEMED PROVEN

The facts deemed proven originate from the documents used for each of the alleged facts and whose authenticity was not contested. In the same manner, uncontested facts were also accepted as established.

  1. THE LAW

There are two matters that the tribunal must decide: first, to determine whether the applicability of the taxing rule of item 28 of the GTST should be concretized by the TCV corresponding to each of the parts, floors or units capable of independent use, or, conversely, by the sum of the TCV of each of such parts. And, second, to determine whether the interpretation that concludes that there is Stamp Tax liability only when the TCV of each of the units capable of independent use exceeds € 1,000,000 violates the principle of legality of the essential elements of the tax provided for in article 103, no. 2 of the CRP.

To carry out this task, it is first necessary to identify the provision on the interpretation of which the parties disagree.

Thus, article 1, no. 1 of the Stamp Tax Code (STC) and item 28 of the General Table of Stamp Tax (GTST), provide that the following are subject to taxation: "Ownership, usufruct or surface right of urban property whose taxable property value appearing in the register, under the terms of the Municipal Property Tax Code (MPTC), is equal to or exceeds € 1,000,000 – on the taxable property value used for purposes of IMT:

28.1 - For property with residential use - 1%..."[1].

First, it is necessary to examine the concept of "property with residential use" to which the provision under interpretation alludes and that of "taxable property value used for purposes of IMT". Now, as it is not possible to resolve the issue using the STC, it is by virtue of the provision of article 67, no. 2 of the STC necessary to apply the provisions of the Municipal Property Tax Code (MPTC).

Accordingly, article 2 of the MPTC provides concerning the concept of property:

"1 - For purposes of this Code, property is any fraction of territory, comprising waters, plantations, buildings and structures of any nature incorporated in or built upon it, with a permanent character, provided that it forms part of the assets of a natural or legal person and, under normal circumstances, has economic value, as well as waters, plantations, buildings or structures, in the aforementioned circumstances, endowed with economic independence in relation to the land on which they are situated, although situated on a fraction of territory that forms an integral part of different assets or has no patrimonial character.

2 - Buildings or structures, even if movable by nature, are deemed to have a permanent character when devoted to non-temporary purposes.

3 - The permanent character is presumed when buildings or structures are established in the same location for a period exceeding one year.

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

Now, the concept of property for purposes of IMT is, as is known, endowed with greater scope in relation to that set forth in article 204, no. 2 of the Civil Code (CC) and encompasses three elements, namely one of a physical nature, the second of a legal character and the last of an economic nature, cf. JOSÉ MARTINS ALFARO, Municipal Property Tax Code – Annotated, Áreas Editora, 2004, pp. 118-123. The first requires reference to a fraction of territory, comprising, in particular, buildings and structures incorporated in it with permanent character. The element of legal character requires that the thing, movable or immovable, belongs to the assets of a natural or legal person. Third, the element of an economic nature requires that the thing have an economic value.

With regard to the concept of urban property, article 6 of the MPTC describes its various categories, and it is essential for classification in each of them the nature of the use, that is, the purpose for which it is intended. And nothing in the structure of article 6, no. 1, paragraph a) of the MPTC prevents the classification of parts of a property in vertical ownership, with units or floors capable of independent use, with residential use, as "property with residential use". What matters, it is repeated, is its use. And a different conclusion cannot be reached through interpretation of article 2, no. 4 of the MPTC which raises each autonomous unit in horizontal property to the category of property. In fact, in this latter provision as well one cannot discern any ground for discriminating between properties in horizontal ownership and properties in vertical ownership with floors or units capable of independent use as to their classification as urban and residential properties in accordance with the entire structure of item 28 of the GTST. 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 either[2].

Quite the contrary, the land registry registration and the determination of TCV clearly demonstrate the similarity of legislative treatment. Indeed, the parts endowed with economic independence must each be subject to separate land registry registration and, consequently, the respective TCV must also appear separately, cf. article 2, no. 4, article 7, no. 2, paragraph b) and article 12, no. 3 all of the MPTC. This has repercussions in the assessment, in that there will be one for each part, unit or floor subject to separate use.

Applying such interpretation to the present case, there are 18 floors of the property with independent residential use which, at the date of the taxable event, 31 December 2013, was still not constituted in horizontal ownership and, therefore, there is no doubt that they should be classified as "property with residential use" of an urban nature.

It is also important to clarify the other textual portion of the STC item under interpretation, that is, the "taxable property value used for purposes of IMT".

In this regard, as already described above, the MPTC provides for the separate treatment of the parts of urban property capable of independent use as to land registry registration and the specification of the respective TCV. Such observation is equally valid with regard to the resulting assessment, as provided by article 113, no. 1 and article 119, no. 1, both of the last-cited statute. Indeed, if the tax is assessed "…on the basis of the taxable property values of the properties (our emphasis) and in relation to the taxpayers appearing in the registers (our emphasis)…" and the collection document must contain the "…specification of the properties, their units capable of independent use, respective taxable property value and collection…", this means that not only the TCV for purposes of application of item 28.1 of the GTST to be considered is that which is subject to separate land registry registration, but also nothing prevents the qualification as "property with residential use" of parts, floors or units with independent use.

Now, if none of the Petitioner's floors with residential use exceeded the TCV of € 1,000,000, the taxing rule at issue cannot be applicable to the present case, under penalty of illegality.

Nevertheless, it should also be added that the Petitioner is not correct in its first line of argument when it contends that the fact that its property incorporates a floor with commercial use and another with service use would automatically exclude the taxing rule under study. What matters, it is repeated, is to determine with regard to each floor with residential use whether the TCV exceeds the amount of € 1,000,000.

In the same way, if the assessments at issue were not illegal, the rate would always be 1% and not 0.5% as the Petitioner contends, noting that the taxable event occurred on 31 December 2013 and not on 31 October 2012.

The TA further contends that the interpretation of item 28.1 of the GTST other than that which concludes that the TCV relevant to such taxing rule must be the total taxable property value of the property and not that of each of its independent parts would be unconstitutional for violation of the principle of legality of the essential elements of the tax. If that were the case, the express reference to "taxable property value used for purposes of IMT" would not be understandable. And that, there is no doubt, is subject to separate treatment in relation to each of the parts capable of independent use. In the same way, we would also find no ground for the issuance of separate assessment notices. Furthermore, given the express cross-reference in article 67, no. 2 of the STC to the MPTC concerning matters not regulated, the parts, floors or units with independence can be classified as properties classified as urban and residential, cf. articles 2, 3 and 6, all of the MPTC. Accordingly, it is understood that the aforementioned interpretation is not unconstitutional.

Finally, if the tribunal accepted the Petitioner's request for a declaration of illegality of the acts of Stamp Tax assessment, the consideration of the remaining defects attributed by it is rendered moot, cf. article 124 of the Tax Procedure Code (CTPT), applicable by virtue of the provision of article 29, no. 1 of the RJAT.

  1. DECISION

On these grounds and with the reasoning described above, the tribunal decides to grant the arbitral petition, with the consequent removal from the legal order of the acts subject to pronouncement.

  1. VALUE OF THE CASE

The value of the case is set at € 2,663.83 (corresponding to the sum of the assessments subject to pronouncement) under article 97-A of the Tax Procedure Code (CTPT), applicable by virtue of the provision of article 29, no. 1, paragraphs a) and b) of the RJAT and article 3, no. 2 of the Regulation on Costs in Tax Arbitration Proceedings (RCPAT).

  1. COSTS

Costs to be borne by the TA, in the amount of € 612, cf. article 22, no. 4 of the RJAT and Table I annexed to the Regulation on Costs in Tax Arbitration Proceedings.

Notify [the parties].

Lisbon, 24 February 2015

The Sole Arbitrator,

Francisco Nicolau Domingos

		[1] In the version in force at the date of the taxable event.


	
		[2] See in this regard the arbitral decision rendered in case no. 50/2013 – T, of 29/10/2013.

Frequently Asked Questions

Automatically Created

What is Verba 28.1 of the Tabela Geral do Imposto do Selo and how does it apply to vertical property?
Item 28.1 of the General Stamp Tax Table (Tabela Geral do Imposto do Selo) imposes annual Stamp Tax on urban properties with residential use when the taxable cadastral value (valor patrimonial tributário) equals or exceeds €1,000,000. In vertical property cases, there is a dispute over whether the tax applies based on the total property's TCV or each independent unit's individual TCV. The Tax Administration argues that vertical property should be assessed as a whole unit using the total TCV, while taxpayers contend that each autonomous unit capable of independent use should be assessed separately, similar to horizontal property (condominium) regimes where each fraction constitutes an independent property for tax purposes.
Can Stamp Tax (Imposto do Selo) liquidations on vertical property buildings be challenged through tax arbitration at CAAD?
Yes, Stamp Tax liquidations on vertical property buildings can be challenged through tax arbitration at the Administrative Arbitration Center (CAAD). This case demonstrates the procedure: the taxpayer filed a request for arbitral decision under the Tax Arbitration Legal Regime (RJAT) after being notified of Stamp Tax assessments. The arbitral tribunal has material competence to hear challenges to Stamp Tax assessments. The procedure involves appointing a sole arbitrator, notifying the Tax Administration to file a reply, conducting an evidence phase, and issuing a final decision. Joinder of multiple assessment acts is admissible when they concern the same tax, involve identical factual matters, and depend on interpretation of the same legal principles.
How are individual units in a vertical property assessed for Stamp Tax under Portuguese law?
Individual units in vertical property are assessed differently depending on the tax purpose. For Municipal Property Tax (IMI), Article 12(3) of the Municipal Property Tax Code provides that each floor or unit capable of independent use is registered separately in the land registry with its own taxable cadastral value. However, for Stamp Tax under Item 28.1 of the TGIS, the Tax Administration's position is that the entire property's total TCV should be considered, not individual unit values. Taxpayers argue that Law 55-A/2012 provides that the Municipal Property Tax Code applies subsidiarily to Item 28 matters, and since that Code does not distinguish between vertical and horizontal ownership, each independent unit should be assessed separately for Stamp Tax purposes as well.
What are the grounds for declaring illegality of Stamp Tax liquidations on residential properties in Portugal?
Grounds for declaring illegality of Stamp Tax liquidations on residential properties include: (1) violation of the principle of fiscal legality under Article 103(2) of the Portuguese Constitution when assessments exceed statutory authority; (2) violation of constitutional principles of equity, justice, equality, and fiscal proportionality; (3) incorrect interpretation of the taxable base, such as applying Item 28.1 to properties with mixed use (residential and commercial) rather than exclusively residential use; (4) treating vertical property differently from horizontal property without legal basis; (5) applying incorrect tax rates, such as using 1% instead of the 0.5% rate provided in transitional provisions; (6) inconsistent application where the Tax Administration issues separate notices for individual units while calculating tax based on total property value; and (7) arbitrary or unconstitutional interpretation of tax law provisions.
What is the procedure for filing an arbitral pronouncement request (pedido de pronúncia arbitral) against Stamp Tax assessments?
The procedure for filing an arbitral pronouncement request against Stamp Tax assessments begins with submitting a request for arbitral decision (pedido de pronúncia arbitral) to CAAD within the statutory deadline after notification of the assessment acts. The request must specify the challenged acts, amounts involved, and legal grounds for illegality. The President of CAAD's Deontological Board appoints a sole arbitrator, and the arbitral tribunal is formally constituted. The Tax Administration is notified to file a reply and may request additional evidence production. Under Article 16(c) and 18 of RJAT, the tribunal has autonomy in case management and may dispense with oral hearings if both parties agree. Parties may submit written arguments. The tribunal then issues a final decision within the scheduled timeframe, applying principles of free determination of evidence procedures and seeking resolution within a reasonable period.