Process: 606/2015-T

Date: April 21, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

Process 606/2015-T addresses a critical Stamp Tax dispute regarding Verba 28.1 of the General Stamp Tax Table (TGIS), which imposes a 1% annual tax on urban properties with tax patrimonial value (VPT) equal to or exceeding €1,000,000. The claimant, owner of an urban property article comprising 11 independent residential units held in total ownership, challenged €12,297.71 in Stamp Tax assessments for 2014. The central legal question concerned whether the €1,000,000 threshold applies per individual independent unit or to the aggregated VPT of all units within a single property matrix article. Each of the 10 residential units had individual VPTs ranging from €91,370 to €171,720, none exceeding €1,000,000 individually, but their sum surpassed the threshold. The Tax Authority (AT) argued that independent units within the same property article do not constitute separate 'urban properties' under Article 2(4) of the Municipal Property Tax Code (CIMI), requiring aggregation of all VPTs. The claimant contended this interpretation was incorrect, violating the legislative intent of Verba 28.1 and constitutional principles of equality under Articles 13 and 104 of the Portuguese Constitution. The arbitral tribunal, constituted under the CAAD (Administrative Arbitration Center) on December 1, 2015, examined whether subjection to Stamp Tax should be determined by individual VPT per unit or by summing all independent use areas. The case exemplifies the interpretative challenges arising from Law 83-C/2013 (2014 State Budget), which modified the original Verba 28.1 framework, with Article 67(2) of the Stamp Tax Code establishing subsidiary application of CIMI provisions for matters not expressly regulated.

Full Decision

ARBITRAL DECISION

1. Report

A…, S.A., legal entity no…, with registered office in … …, …-… Lisbon, hereinafter referred to as the Claimant, submitted to the Administrative Arbitration Center (CAAD) a request for constitution of an arbitral tribunal with a view to the annulment of the tax acts establishing the assessment of item 28.1 of the General Stamp Tax Table (TGIS) of 2014 (payable in 3 installments), in the total amount of € 12,297.71, relating to the urban property article of the parish of…, with no.….

The Claimant bases the illegality of the tax act on the following defects:

a) Incorrect interpretation by the Tax Authority (AT) of item 28.1 of the General Stamp Tax Table (TGIS), insofar as subjection to Stamp Tax (IS) is determined by the Tax Patrimonial Value (VPT) of each individual property and not by the sum of all independent use areas of an urban property article;

b) Unconstitutional interpretation of the provisions of item 28.1 of the TGIS by violation of articles 13 and 104 of the Constitution of the Portuguese Republic.

Finally, requesting reimbursement of the Tax paid relating to the assessments/collection notices that are the subject of these proceedings, plus interest and indemnification payments.

The Tax and Customs Authority, for its part, contended that no illegality exists whatsoever, inasmuch as the independent use areas relating to the same property article do not constitute an urban property in the meaning of no. 4 of article 2 of the CIMI, and therefore the VPT's of all such independent use areas or floors cannot but be summed, concluding for dismissal of the annulment request formulated by the Claimant.

The sole arbitrator was appointed and designated on 13.11.2015.

In accordance with the provisions of article 11, no. 1, paragraph c) of the RJAT, the singular arbitral tribunal was constituted on 01.12.2015.

This arbitral tribunal, given the position of the Claimant and the Respondent, dispensed with both the holding of the first arbitral meeting and likewise the formulation of statements of case.

2. Preliminary Examination

The accumulation of claims submitted in this request for arbitral pronouncement, in which there are assessments of a single tax (Stamp Tax), based on the same factual basis and applying the same rules of law, is fully justified in light of the principle of procedural economy enshrined in article 3 of the RJAT.

The singular arbitral tribunal is materially competent under the terms of the provisions of articles 2, no. 1, subparagraph a) of the Legal Regime of Arbitration in Tax Matters.

The parties have judicial personality and capacity and have standing under the terms of art. 4 and no. 2 of art. 10 of the Legal Regime of Arbitration in Tax Matters (RJAT), and art. 1 of Order no. 112-A/2011, of 22 March.

The proceedings do not suffer from any nullity nor have the parties raised any exceptions that prevent examination of the merits of the case, therefore the conditions for the pronouncement of the arbitral decision are met.

3. Factual Matter

3.1. Established Facts:

Having analyzed the documentary evidence produced and the position of the parties, the following facts are considered established and of interest for the decision of the case:

  1. The Claimant is the owner of the urban property registered in the urban property matrix of the Finance Service of Lisbon-… (…), Parish of…, under article….

  2. The Claimant was notified of the Stamp Tax collection notices, Item 28.1 of the TGIS, 2014, 1st installment, with nos. 2015…, 2015…, 2015…, 2015…, 2015-…, 2015…, 2015…, 2015…, 2015… and 2015….

  3. The collection notices referred to in the previous number were paid by the Claimant, as evidenced by the documents attached to the proceedings.

  4. The identified urban property is held under full ownership, being composed of 11 floors or independent use divisions.

  5. Of the 11 floors or independent use divisions, 10 have residential designation with the following VPT's:

  • Ground Floor D - € 107,630.00;
  • Ground Floor E - € 107,630.00;
  • 1st Floor D - € 114,690.00;
  • 1st Floor E - € 114,690.00;
  • 2nd Floor D - € 115,960.00;
  • 2nd Floor E – € 115,960.00;
  • 3rd Floor A - € 171,690.00;
  • 3rd Floor B - € 91,370.00;
  • 3rd Floor C - € 91,370.00;
  • 3rd Floor D - € 171,720.00;

  1. No floor or independent use division with residential designation of the urban property article… has a tax patrimonial value equal to or greater than €1,000,000.00.

  2. On 18.12.2015, the Claimant submitted, via electronic platform, the request for constitution of an arbitral tribunal.

  3. The Claimant proceeded with the payment of the subsequent court fee.

No other facts with relevance to the decision of the case were proven.

3.2. Grounds of the Established Factual Matter:

With regard to the established facts, the arbitrator's conviction was based on the documentary evidence attached to the proceedings, as well as on the position of the parties regarding the factual matter brought before these proceedings.

4. Legal Matter:

4.1. Object and Scope of the Present Proceedings

The request for arbitral pronouncement has as its object the declaration of illegality of the tax acts establishing the assessment of Stamp Tax for 2014, in the total amount of € 12,297.71 (1st, 2nd and 3rd installments), as well as the examination of the alleged violation of the principle of equality contained in articles 13 and 104, no. 3 of the Constitution of the Portuguese Republic.

Additionally, the Claimant requests reimbursement of the Tax paid as allegedly unduly paid and the payment of indemnification interest.

4.2. On the Alleged Illegality of the Stamp Tax Assessments, Item 28.1 of the TGIS

In summary, the issue at hand is to examine whether the interpretation carried out by the Tax and Customs Authority in the sense of using, as a legal criterion for the purposes of subjection to Item 28.1 of the TGIS, the sum of the VPT's of all floors or independent use divisions with residential designation relating to a single property article is or is not in accordance with the applicable legal framework.

In this regard, it is important to take into account the legislative succession pertaining to Item 28.1 of the TGIS.

Item 28.1 of the TGIS was added to the General Stamp Tax Table through Law no. 55-A/2012, of 29 October.

Subsequently, the legislator altered the original normative wording given by the aforementioned law, via article 194 of Law no. 83-C/2013, of 31 December (State Budget for 2014), which is applicable here to the tax acts, since it entered into force on 1 January 2014, the year to which the taxes now subjected to arbitral review correspond.

Let us therefore examine, first and foremost, the legal framework of the Stamp Tax assessments in question:

Item 28.1 of the TGIS provides in the wording given by the last legislative act mentioned as follows:

"28 – Ownership, usufruct or surface right of urban properties whose tax patrimonial value registered in the matrix, under the terms of the Municipal Property Tax Code (CIMI), is equal to or greater than € 1,000,000 – on the tax patrimonial value used for purposes of Municipal Property Tax:

28.1 – Per residential property or land for construction whose building, authorized or planned, is for residential use, under the terms of the Municipal Property Tax Code – 1%"

For its part, article 67, no. 2 of the Stamp Tax Code, added by Law no. 55-A/2012, of 29 October, provides that "to matters not regulated in this code relating to item 28 of the General Table, the CIMI applies subsidiarily."

The provision on incidence refers to urban properties, whose base concept of property derives from the provisions of article 2 of the CIMI, with the determination of the VPT following the terms of articles 38 and following of the same code.

Being that, under the terms of that legal provision:

"1 - For the purposes of this Code, property is any portion of territory, including waters, plantations, buildings and constructions of any nature incorporated therein or based thereon, with a character of permanence, provided that it is part of the assets 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 in relation to the land where they are located, although situated in a portion of territory that constitutes an integral part of a different asset or does not have a patrimonial nature." (emphasis original)

Clarifying, for its part, article 6 of the CIMI, that:

"1 - Urban properties are divided into:

a) Residential;

2 - Residential, commercial, industrial or service properties are buildings or constructions licensed for such purpose or, in the absence of a license, which have as their normal destination each of these purposes." (emphasis original)

The legislator's concept with regard to properties and the subsequent division into urban ones is, for tax purposes, undoubtedly a criterion based on economic value and functional autonomy in relation to purpose.

That is, one is faced with a concept of material or substantive nature and not a concept of legal-formalistic delineation, as the Respondent Tax Authority seems to intend.

Now, in the case at hand, the Respondent Tax Authority does not even question whether the floors or independent use divisions with residential designation relating to the property article do not have these same characteristics (functional autonomy and economic value) highlighted by the legislator, nor could it do so inasmuch as it is the Tax Authority itself that deemed this information correct and had it recorded in the respective property certificate of the property article to which the independent use divisions relate.

Adding to this, precisely because such floors or divisions have such characteristics of autonomy, both in functional and economic value terms, it is understandable that the legislator provided for the assignment of tax patrimonial values to each of these floors, areas or independent use divisions.

Which contradicts the thesis of the Tax Authority according to which, as independent use floors or divisions are not expressly set forth in no. 4 of article 2 of the CIMI, the legislator had intended to exclude such figure from the concept of property.

Thus, the Respondent not even questioning that one is faced with residential property and likewise not questioning the functional autonomy and economic value of these same independent areas, whose characteristics are moreover reflected fiscally in their respective VPT's and whose characteristics are transposed to the respective property certificates of the property article under the designation of independent use floors or divisions, we cannot but conclude that on the material and substantive plane these same floors or divisions are encompassed by the notion of property contained in no. 1 of article 2 of the CIMI and of urban property contained in a) of no. 1 and no. 2 of article 6, both of the CIMI.

The introduction into the tax legal order of Item 28.1 of the TGIS was based on a relevant and determining factor of incidence on high-value residential urban properties, also commonly referred to as luxury housing, more precisely, of value equal to or greater than €1,000,000.00, on which Stamp Tax began to be levied.

The legislator thus intended to introduce a principle of taxation on wealth manifested in the ownership, usufruct or surface right over any and all residential urban property, with the legislative criterion applying such stamp tax to urban properties with residential designation, whose VPT is equal to or greater than €1,000,000.00.

This conclusion can be drawn from the analysis of the discussion of bill no. 96/XII in the National Assembly, available for consultation in the Journal of the National Assembly, Series I, no. 9/XII/2, of 11 October 2012.

The justification for the measure designated "special tax on the highest-value residential urban properties" is based on the invocation of the principles of social equity and fiscal justice, calling upon the holders of high-value properties intended for residential use to contribute in a more intense manner, with the new special tax being levied on "properties of value equal to or greater than 1 million euros."

In this manner, it appears clear that the legislator understood that properties having certain characteristics assessed quantitatively through the VPT should determine a special contribution to ensure the fair distribution of the fiscal burden.

But no less evident, it expresses a line of legislative choice that intended to specifically burden high-value urban residential properties, premium properties or also commonly referred to as luxury housing.

Note that, regardless of more or less subjective conceptions about the concept of luxury housing, high-value segment or expressions of equivalent meaning, it is certain that the tax patrimonial value has been, since the 2003 property taxation reform, measured on the basis of objective elements, such as area, location, comfort level, among others.

Which means to say that and regardless of the ideological considerations that can be made about such policy choice, the legislator had a concrete and defined objective: to subject to Stamp Tax taxation high-value residential urban properties, which in practice resulted in the fixing of a measurable threshold through the VPT: value equal to or greater than € 1,000,000.00.

Adding to this that the legislator assured through various coefficients (mitigating and aggravating) objectivity in the assessment of that same VPT.

Now, none of the floors or independent use divisions in question here and on which the assessments that are the subject of this request for arbitral pronouncement were imposed, individually reach the value of € 1,000,000.00, being that each of these independent floors or divisions represents in the tax system a property per se, for which reason the Tax Authority erred on the legal assumptions by subjecting item 28.1 of the TGIS by disregarding that each of these same areas or divisions represents, under the terms of the Municipal Property Tax Code and consequently in Stamp Tax matters, an urban property.

Reason for which these areas or divisions relating to a single property article could not be subject to summation for calculation of the VPT of that property article.

Which means to say that taking into account the ratio legis that was just stated, the floors or independent use divisions do not meet the premise relating to taxation in the sphere of the rule of incidence provided for in item 28.1 of the TGIS, for which reason, also in light of the foregoing, one cannot but conclude the legal non-conformity of the interpretation of the Tax Authority in subjecting Item 28.1 of the TGIS to the floors or independent use divisions, inasmuch as the same do not individually attain the minimum quantitative criterion for such subjection.

4.3. Moot Questions: Unconstitutionality by Violation of the Principle of Equality – Articles 13 and 104, No. 3 of the Constitution of the Portuguese Republic

As the singular arbitral tribunal accepted the understanding of the inapplicability of item 28.1 of the TGIS to the case at hand, the examination of the remaining defects adduced and which may affect the contested assessments becomes moot as procedurally unnecessary.

The examination of the question of the unconstitutionality of the rule introduced in the TGIS (item 28/28.1) by Law no. 55-A/2012, of 28 October, by violation of the principle of equality enshrined in article 13 of the Constitution, becomes moot.

4.4. On the Reimbursement to the Claimant of the Stamp Tax Paid, Plus Indemnification Interest:

In light of all that was expended and concluded in point 4.2, with the judgment of illegality that fell upon the tax acts of assessment which are the subject of this arbitral pronouncement – assessments of Stamp Tax for 2014 - it is important to note the request also made by the Claimant for the payment of indemnification interest.

Under the terms of no. 1 of art. 43 of the General Tax Law, "Indemnification interest is due when it is determined, in gracious objection or judicial impugnation, that there was an error attributable to the services resulting in the payment of the tax debt in an amount greater than legally due."

Article 2 of that article of the General Tax Law further provides that "There is also deemed to be an error attributable to the services in cases in which, although the assessment is made on the basis of the taxpayer's declaration, the latter has followed, in its completion, the generic guidance of the tax administration, duly published."

Now, in the present case, the legitimacy of the aforementioned request for payment of indemnification interest in favor of the Claimant is unequivocally established, since the assessments in question show themselves to be affected by illegality, being, therefore, indemnification interest is due from the day following the payment of the undue amount until the date of issuance of the respective credit note, in accordance with the provisions of art. 43 of the General Tax Law and art. 61 of the Code of Tax Procedure and Process.

It is, therefore, the Claimant creditor of the Tax Authority for the amount corresponding to the amounts of Stamp Tax for 2014, Item 28.1 of the TGIS relating to the property in question, unduly paid, to which is added the respective indemnification interest accrued and to accrue, to be calculated from the date of payment until the issuance of the respective credit note.

5. DECISION:

In these terms and with the grounds set out above, this arbitral tribunal decides:

  1. To uphold the claim for declaration of illegality of the tax acts of assessment in Stamp Tax for 2014 and relating to the urban property article… of the parish of…, on the ground of violation of law concerning the rule contained in item 28.1 of the TGIS, due to error regarding the legal assumptions, annulling the tax acts in question.

  2. To uphold the claim for payment of indemnification interest by the Respondent to the Claimant from the date of undue payment until the date of issuance of the credit note, in accordance with the provisions of article 43 of the General Tax Law and article 61 of the Code of Tax Procedure and Process, and likewise condemn the Respondent to refund to the Claimant the amounts paid as Stamp Tax for 2014, Item 28.1 of the TGIS.

Value of the case: € 12,297.71 – arts. 97-A of the Code of Tax Procedure and Process, 12 of the Legal Regime of Arbitration in Tax Matters (DL 10/2011), 3-2 of the Regulations on Court Fees in Tax Arbitration Proceedings.

Court fees in accordance with Table I of the Regulations on Court Fees in Tax Proceedings, calculated as a function of the above-mentioned value of the claim, to be borne by the Respondent - arts. 4-1 of the Regulations on Court Fees in Tax Proceedings and 6-2/a) and 22-4 of the Legal Regime of Arbitration in Tax Matters.

Let this arbitral decision be served on the parties and, in due course, the proceedings shall be filed.

Lisbon, 21 April 2016.

The Sole Arbitrator

(Luís Ricardo Farinha Sequeira)

Frequently Asked Questions

Automatically Created

How is the taxable value (VPT) calculated under Verba 28.1 of the Stamp Tax General Table for urban properties held in total ownership?
Under Verba 28.1 of the General Stamp Tax Table (TGIS), introduced by Law 55-A/2012 and amended by Law 83-C/2013, the calculation of taxable value (VPT) for urban properties held in total ownership with multiple independent units is subject to interpretation. The Tax Authority's position is that for a single urban property matrix article containing multiple floors or independent residential units, the VPT is calculated by summing the tax patrimonial values of all independent use areas within that article. This aggregate approach means that even if individual units have VPTs below the €1,000,000 threshold, if their combined total equals or exceeds €1,000,000, the entire property article becomes subject to the 1% annual Stamp Tax. Article 67(2) of the Stamp Tax Code stipulates that the Municipal Property Tax Code (CIMI) applies subsidiarily to matters not regulated regarding Verba 28.1. The determination of what constitutes an 'urban property' (prédio urbano) for Stamp Tax purposes thus depends on the definition in Article 2 of CIMI, which distinguishes between property articles and individual autonomous units. The controversy centers on whether 'residential property' in Verba 28.1 refers to each independent unit capable of autonomous use or to the entire property article as registered in the tax matrix, regardless of internal divisions.
Can the Portuguese Tax Authority sum the VPT of all independent units within the same property article for Stamp Tax purposes?
The Portuguese Tax Authority's ability to sum the VPT of all independent units within the same property article for Stamp Tax purposes under Verba 28.1 TGIS is the subject of significant legal dispute. The Tax Authority contends that independent use areas (frações autónomas) or floors relating to the same property matrix article do not constitute separate 'urban properties' within the meaning of Article 2(4) of the Municipal Property Tax Code (CIMI). According to this interpretation, since the property is registered as a single article in the urban property matrix and held in total ownership (propriedade total) rather than horizontal property (propriedade horizontal), the VPTs of all independent residential units must be aggregated to determine whether the €1,000,000 threshold is met. This aggregation approach was applied in Process 606/2015-T, where 10 residential units with individual VPTs ranging from €91,370 to €171,720 were summed, triggering Stamp Tax liability despite no single unit exceeding €1,000,000. Taxpayers challenge this methodology, arguing that each independent unit with autonomous use capability should be evaluated separately, as the legislative intent of Verba 28.1 was to tax high-value luxury residential properties, not middle-value units that collectively exceed the threshold. The resolution depends on whether the 'property' referenced in Verba 28.1 means the legal-fiscal unit (matrix article) or the economic-physical unit (individual dwelling).
Is the Stamp Tax under Verba 28.1 TGIS assessed per individual unit or per the entire urban property matrix article?
Stamp Tax under Verba 28.1 of the General Stamp Tax Table (TGIS) assessment methodology—whether per individual unit or per entire urban property matrix article—represents a fundamental interpretative question with significant fiscal consequences. The legislative text of Verba 28.1, as amended by Article 194 of Law 83-C/2013, refers to 'ownership, usufruct or surface right of urban properties whose tax patrimonial value registered in the matrix, under the terms of the Municipal Property Tax Code (CIMI), is equal to or greater than €1,000,000.' The phrase 'residential property' (prédio para habitação) is singular, but its scope is ambiguous when a single matrix article contains multiple independent residential units. Two interpretative approaches emerge: (1) the Tax Authority's position that assessment occurs at the property article level, requiring aggregation of all independent unit VPTs within that article, making the entire article the taxable unit; or (2) the taxpayer's position that each independent unit with autonomous residential use constitutes a separate 'residential property,' with assessment occurring per unit based on individual VPT. The practical impact is substantial: under the aggregation method, properties with multiple moderate-value units face taxation, while under the per-unit method, only genuinely high-value individual residences exceeding €1,000,000 are taxed. Article 67(2) of the Stamp Tax Code directs subsidiary application of CIMI, but CIMI's definition of 'property' in Article 2 must be reconciled with the specific context and purpose of Verba 28.1, which targets high-value residential real estate ownership.
Does taxing aggregated VPT of independent units under Verba 28.1 TGIS violate Articles 13 and 104 of the Portuguese Constitution?
The constitutional challenge to aggregated VPT taxation under Verba 28.1 TGIS invokes Articles 13 and 104 of the Portuguese Constitution (CRP). Article 13 enshrines the principle of equality, prohibiting discrimination and requiring equal treatment of essentially similar situations. Article 104(3) mandates that taxation respect equality and proportionality, avoiding excessive fiscal burdens. Taxpayers argue that summing VPTs of independent units within a property article to determine Stamp Tax liability creates unconstitutional inequality by treating differently: (a) owners of multiple moderate-value units within a single matrix article (taxed when aggregate exceeds €1,000,000) versus (b) owners of the same units registered as separate property articles (not taxed if individual VPTs remain below threshold). This differential treatment allegedly lacks rational justification, as the economic substance—ownership of multiple moderate-value residences—remains identical, but tax consequences differ based solely on matrix registration formalities. Furthermore, if Verba 28.1's purpose was targeting luxury property ownership, taxing aggregated moderate-value units contradicts this legislative intent, creating disproportionate taxation violating Article 104(3). The Tax Authority counters that the law explicitly references 'tax patrimonial value registered in the matrix,' making the matrix article the legally relevant unit, and that any inequality stems from legitimate legislative choices regarding property registration systems. The constitutional analysis requires examining whether the aggregation interpretation produces arbitrary discrimination or whether it reflects a coherent legislative policy of taxing substantial real estate holdings regardless of internal configuration.
What is the CAAD arbitral procedure for challenging Stamp Tax (Imposto do Selo) assessments on high-value urban properties in Portugal?
The CAAD (Centro de Arbitragem Administrativa - Administrative Arbitration Center) arbitral procedure for challenging Stamp Tax assessments on high-value urban properties under Verba 28.1 TGIS follows the Legal Regime of Arbitration in Tax Matters (RJAT - Regime Jurídico da Arbitragem em Matéria Tributária). Process 606/2015-T illustrates the typical procedural framework: (1) The taxpayer submits an arbitration request via CAAD's electronic platform, identifying the contested tax acts (collection notices), the legal grounds for illegality, and requested relief (annulment, reimbursement, interest). In this case, the request was filed on December 18, 2015, challenging €12,297.71 in Stamp Tax for 2014 across three installments. (2) Payment of the initial court fee (taxa de arbitragem) is required. (3) The arbitrator is appointed and designated—here on November 13, 2015. (4) The arbitral tribunal is formally constituted—December 1, 2015 in this case, creating a singular (single-arbitrator) tribunal under Article 11(1)(c) RJAT. (5) The Tax Authority (AT) submits its response/defense (contestação), arguing for dismissal. (6) Under Article 18 RJAT, the tribunal may dispense with the first arbitral hearing and written pleadings if deemed unnecessary, as occurred here. (7) The tribunal examines preliminary issues (competence, standing, procedural regularity), establishes facts through documentary evidence and party positions, and applies legal analysis to the merits. (8) Multiple related claims involving the same tax, factual basis, and legal rules may be accumulated under procedural economy principles (Article 3 RJAT). (9) The tribunal issues a final arbitral decision with binding effect, addressing both legality of assessments and ancillary claims (reimbursement, compensatory interest under Article 43 LGT).