Process: 638/2014-T

Date: April 15, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Process 638/2014-T addressed whether the Portuguese Tax Authority could aggregate the taxable patrimonial values (TPV) of independent residential units within a single building to impose the 1% annual Stamp Tax under item 28.1 of the General Stamp Tax Table (TGIS). The applicant company owned a building with 21 independent divisions, including 20 residential apartments, each valued between €126,510 and €163,210, totaling €2,858,950. The Tax Authority assessed Stamp Tax by aggregating all residential units, arguing the €1 million threshold applied to the property as a whole. The taxpayer contended that each independent division should be taxed separately under CIMI article 12.3, which requires separate registration for floors or divisions with independent use. Since no individual unit exceeded €1 million, the taxpayer argued no Stamp Tax was due. The tribunal had previously ruled in the taxpayer's favor in case 291/2013 involving the same property for tax year 2012. The respondent Tax Authority argued that properties in full ownership with independent divisions differ from condominium units, and the legislature intended to tax the property as a whole. The arbitral tribunal applied CIMI rules governing tax base determination, holding that item 28.1 TGIS lacks specific aggregation provisions and must follow the separate registration regime for independent divisions. The decision annulled the assessment and recognized the right to compensatory interest, establishing that Stamp Tax thresholds apply per independent unit, not aggregated property values.

Full Decision

Case No. 638/2014 – T

ARBITRAL DECISION

A – REPORT

  1. The company …, Ltd., taxpayer …, with headquarters at Av. …, Lisbon, came to request the constitution of an arbitral tribunal, pursuant to the provisions of art. 2, no. 1, a) and 10, nos. 1 and 2 of the Legal Framework for Tax Arbitration, provided for in Decree-Law 10/2011, of 20 January, hereinafter designated "RJAT" and articles 1 and 2 of Order No. 112-A/2011, of 22 March, with a view to the declaration of illegality of the Stamp Tax assessment act, relating to the year 2013, and the recognition of the right to compensatory interest, with the Tax and Customs Authority being requested (hereinafter designated as "AT").

  2. Upon admission of the request for the constitution of a single arbitral tribunal, and as the applicant did not opt for the appointment of an arbitrator, in accordance with the provisions of paragraph a) of no. 2 of article 6 and paragraph b) of no. 1 of article 11 of the RJAT, as amended by article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council appointed the undersigned as arbitrator.

The parties were notified of this appointment and did not manifest any intention to refuse the appointment of the arbitrator, in accordance with the combined provisions of article 11, no. 1, paragraphs a) and b) of the RJAT and articles 6 and 7 of the Deontological Code, and in accordance with the provisions of paragraph c) of no. 1 of article 11 of the RJAT, as amended by article 228 of Law No. 66-B/2012, of 31 December, the arbitral tribunal was constituted on 30-10-2014.

  1. Notified thereof, the AT presented a response in which it raised no exception.

  2. The meeting provided for in article 18 of the RJAT was dispensed with, as well as the presentation of submissions, with the consent of the parties.

  3. The applicant requests that the illegality be declared and the consequent annulment of the Stamp Tax assessment act relating to the year 2013, with the consequent restitution of the tax paid, increased by compensatory interest, alleging in summary:

a) It is a civil company in the form of a limited liability company whose corporate purpose consists of "purchasing and owning urban real properties to, in principle, satisfy the needs of the partners".

b) The AT issued assessments individually on the taxable patrimonial values (TPV) of the floors or divisions with independent use of the real property located on Avenue …, municipality of Lisbon, registered in the urban real estate register under article …, of which it is the owner.

c) The real property in question comprises a total of twenty-one floors or divisions with independent use, whose TPV, determined under the Municipal Property Tax Code (CIMI), varies between €126,510 and €163,210 and totals €2,958,550.

d) Of these twenty-one floors and divisions with independent use, twenty are allocated to housing, whose total TPV amounts to €2,858,950.

e) The property consists of ten floors each with two apartments with completely independent and autonomous use, totaling twenty.

f) On the TPV of each apartment, the tax administration assessed the stamp tax provided for in item no. 28.1 of the General Stamp Tax Table (TGIS) attached to the Stamp Tax Code (CIS), as amended by article 4 of Law No. 55-A/2012, of 29 October, at the rate of 1%.

g) The tax administration assessed the tax contested here because twenty of the twenty-one apartments, or more precisely floors and divisions with independent use, have housing allocation and their respective twenty TPV total €2,858,950.

h) The tax administration had, moreover, already in 2013, assessed other stamp tax assessments, also in the total amount of €28,589.50, on the same grounds, although relating to the year 2012, which were annulled by an arbitral award of 14 July 2014, delivered in case no. 291/2013 which was heard at this administrative arbitration center.

i) The subjection to stamp tax of item 28.1 of the TGIS is determined by the combination of two facts, namely: (i) housing allocation and (ii) the TPV entered in the register equal to or exceeding €1,000,000.

j) In the case of a property such as the one in this case, which comprises floors or divisions with independent use, the subjection to stamp tax is determined, not by the TPV of the property, but by the TPV of those floors or divisions.

k) Indeed, according to the terms of the CIMI, each floor or division of a property capable of independent use is considered separately in the real estate register entry, as was the case in the present case (article 12, no. 3 of the CIMI).

l) The regime contained in item 28.1 of the TGIS is silent as to specific rules for the definition and determination of its tax base, so that Law No. 55-A/2012 even contains a clause that establishes the discipline of IMI as a normative body integrating all its lacunary aspects relating to item no. 28 of the TGIS, and unfolds in legal referrals to the CIMI.

m) The stamp tax of item 28.1 of the TGIS therefore has the nature of an ancillary tax to the IMI, which here takes the place of the principal tax, with the stamp tax of no. 28.1 of the TGIS following the addition modality.

n) The TPV entered in the register that determines the subjection to stamp tax of item 28.1 of the TGIS of each floor or part of property capable of independent use is, therefore, the TPV of that floor or part, and not the sum of that TPV and the TPV of the other floors and parts existing in the same property.

o) Since the TPV of all twenty apartments entered in the register of the property to which this case refers, in accordance with the CIMI, is less than €1,000,000, stamp tax of item no. 28.1 of the TGIS does not apply to them.

p) In determining subjection to stamp tax, item no. 28 of the TGIS explicitly disregards the plurality of properties or their fractions or divisions held by the same taxpayer, but only knows of each one individually.

q) Since the concentration or dispersal of real estate is not a criterion of tax capacity or any other legitimate criterion for taxation, it must be concluded that the provision governing item no. 28 of the TGIS attached to the CIS is unconstitutional, by violation of the principle of equality enshrined in article 13 of the Constitution of the Portuguese Republic.

  1. For its part, the respondent invokes the lack of merit of the claim, for which it alleges, in summary:

a) The concept of property is defined in article 2, no. 1 of the CIMI, and it is established in its no. 4 that in the condominium ownership regime, each autonomous unit is considered as constituting one.

b) It follows from the analysis of the normative provision that a "property in full ownership with floors or divisions capable of independent use" is unequivocally different from a real property in the condominium ownership regime, constituted by autonomous units, that is, various properties.

c) Article 12 of the CIMI establishes the concept of real estate register, and its no. 3 concerns exclusively the manner of recording the cadastral data.

d) However, the thesis defended by the Applicant lacks legal support, since although the assessment of Stamp Tax in the situations provided for in item no. 28.1 of the TGIS is carried out in accordance with the rules of the CIMI, the fact is that the legislator reserves the aspects that require the necessary adaptations, namely those in which, as is the case with properties in full ownership, even though with floors or divisions capable of independent use (although the IMI is assessed in relation to each part capable of independent use) for the purposes of Stamp Tax the property as a whole is relevant because the divisions capable of independent use are not considered as property, but only the autonomous units in the condominium ownership regime, as per no. 4 of article 2 of the CIMI.

e) What expressly results from the letter of the law is that the legislator intended to tax with item 28.1 in question the properties as a single legal-tax reality.

f) Since it appears from the land registry that the property is in the full ownership regime, composed of various parts capable of independent use, in accordance with article 23, no. 7 of the CIS, the stamp tax assessments relating to the year 2013 were made by the Tax Administration taking into account the nature of the urban property on the date of the tax event, applying, with the necessary adaptations, the rules contained in the CIMI.

g) Since the property is in the full ownership regime, not possessing autonomous units, to which tax law attributes the qualification of property, because from the notion of property of article 2 of the CIMI, only the autonomous units of property in the condominium ownership regime are considered as properties – no. 4 of the aforementioned article 2 of the CIMI.

h) It is not clear how the taxation in question could have violated the principle of equality.

i) It is offensive to the principle of tax legality the interpretation of item 28.1 of the General Stamp Tax Table, in the sense that the patrimonial value on which its incidence depends is ascertained globally and not floor by floor or division by division.

j) It is not clear how the taxation in question could have violated the principle of tax equality, insofar as the provision of item 28.1 of the TGIS does not result in any discrimination in the taxation of properties constituted in condominium ownership and properties in full ownership with floors or divisions capable of independent use, or among properties with housing allocation and properties with other allocations.

k) Condominium ownership and vertical ownership are differentiated legal institutions.

l) The registration of each part capable of independent use is not autonomous per register, but consists of a notation in the register of the property as a whole – see the land registry document of this property which represents the owner's document containing the cadastral elements of the property.

m) The taxation for the purposes of Stamp Tax follows the criterion of adequacy, to the extent that it aims at the taxation of wealth embodied in the ownership of real properties of high value, arising in a context of economic crisis that cannot be ignored.

n) The tax acts in question, in terms of substance or form, did not violate any legal or constitutional provision, and should therefore be maintained.

    • The Arbitral Tribunal was regularly constituted and is materially competent.

  • The parties possess legal personality and capacity and are legitimate (articles 4 and 10, no. 2, of the same instrument and article 1 of Order No. 112-A/2011, of 22 March).

  • The proceedings do not suffer from any nullities.

B. DECISION

  1. FACTUAL MATTERS

1.1. ESTABLISHED FACTS

The following facts are considered established:

a) The applicant is a civil company in the form of a limited liability company whose corporate purpose consists of "purchasing and owning urban real properties to, in principle, satisfy the needs of the partners".

b) And it is registered as owner of the property located at Avenue …, municipality of Lisbon, registered in the urban real estate register under article ….

c) The property comprises a total of twenty-one floors or divisions with independent use.

d) The sum of the total TPV of the floors allocated to housing amounts to €2,858,950.00 (two million eight hundred and fifty-eight thousand nine hundred and fifty euros).

e) All TPV of the floors allocated to housing are less than €1,000,000.00, being situated between €126,510.00 and €163,210.00.

f) The AT assessed stamp tax individually on the taxable patrimonial values of the floors or parts capable of independent use allocated to housing, by application of the provisions of item 28.1 of the TGIS, as amended by article 4 of Law 55-A/2012, of 29 October.

g) By arbitral award delivered in case no. 291/2103-T of the CAAD, the Stamp Tax assessments relating to 2012 were annulled, having as their object the same property and factual situation.

h) The deadline for voluntary payment of the assessed stamp tax expired on 30-04-2014.

i) The applicant filed the request for arbitral pronouncement that gave rise to the present case on 29-08-2014.

1.2 The facts were established on the basis of the documents attached to the case.

1.3 UNESTABLISHED FACTS

There are no unestablished facts with relevance to the appraisal of the claim.

1.4 THE LAW

The substantive issue to be examined in the present request for arbitral pronouncement lies in the interpretation to be given to item 28.1 of the General Stamp Tax Table, as amended by Law No. 55-A/2012 of 29 October, in order to determine whether, with respect to properties not constituted in the condominium ownership regime that comprise floors or divisions capable of independent use, the taxable patrimonial value relevant for the purposes of applying the tax is that attributed individually to each one or, on the contrary, is that corresponding to the sum of all of them.

Item 28 of the General Stamp Tax Table provides:

  • "Ownership, usufruct or surface right of urban properties whose taxable patrimonial value entered in the register, according to the Municipal Property Tax Code, is equal to or exceeding €1,000,000.00 – on the taxable patrimonial value for the purposes of IMI:

28.1 – For property with housing allocation – 1%

(…)".

Article 6 of the aforementioned Law No. 55-A/2012 provides that the taxable patrimonial value to be considered in the assessment of stamp tax corresponds to what results from the rules of the Municipal Property Tax Code (CIMI), with no. 2 of article 67 of the Stamp Tax Code (CIS) adding that "for matters not regulated in the present 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, establishing that "residential, commercial, industrial or service-related buildings or constructions licensed for such purpose or, in the absence of a license, that have as their normal destination each of these purposes".

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 in condominium ownership or full ownership is found in no. 4 of article 2 when it prescribes that "each autonomous unit, in the condominium ownership regime, is considered as constituting a property".

In compliance with which, in the definition of the concept of real estate registers, no. 3 of article 12 of the CIMI determines that "each floor or part of property capable of independent use is considered separately in the cadastral registration, which also discriminates its respective taxable patrimonial value".

No relevance is therefore given by the tax legislator to the fact that a property is constituted in the condominium or vertical ownership regime, being relevant only the material truth underlying its existence as an urban property and its use.

That is, there is nothing in the law that allows the conclusion that the taxable patrimonial value of a property in the full ownership regime is to be obtained by the sum of those assigned individually to the parts that constitute it, in accordance with the understanding that has been accepted by various arbitral decisions[1] to which we fully adhere and, therefore, which we subscribe to.

Therefore, we consider that the AT's position cannot merit acceptance, in seeking to establish as the reference value for the incidence of stamp tax the global value of the property in question, as this is not admitted by the CIMI which is, as already mentioned, the legal basis of referral supporting that.

Since none of the floors capable of independent use, allocated to housing, has a taxable patrimonial value exceeding one million euros, item 28.1 provided for in the TGIS is not applicable.

From which it is concluded that the assessment which is the subject of the present arbitral request is unlawful, and therefore its annulment is necessary.

Thus, the examination of the other question raised by the applicants is prejudiced.

It should be added, in any case, that having already been delivered an arbitral award that has become final which decided that for the same concrete factual situation there is no place for taxation by stamp tax under item 28.1 of the TGIS, such decision will necessarily have an impact on any subsequent assessments with the same subject matter.

COMPENSATORY INTEREST

The applicant formulates its claim in the sense that the annulment of the twenty stamp tax assessments be declared and that the AT be condemned to the restitution of the tax paid increased by compensatory interest.

Such right is provided for in article 43 of the LGT which has as its prerequisite that it be established, in a gracious objection or judicial challenge, that there was an error attributable to the services from which resulted the payment of the debt in an amount greater than legally due.

That is, the recognition of the right to compensatory interest presupposes that the tax has been paid.

In the present request for arbitral pronouncement, despite the applicant having petitioned for the restitution of the tax paid, increased by compensatory interest, the fact is that it made no proof nor even alleged or made any reference, in the entire initial claim, that it had proceeded with such payment.

The recognition of the right to compensatory interest will not therefore be examined, due to a complete absence of elements.

  1. DECISION

In view of the foregoing, it is decided:

a) To uphold, on the grounds of violation of law, the request for annulment of the tax act which is the subject of the arbitral request corresponding to the Stamp Tax assessments relating to the year 2013, relating to the urban article …, of the parish of Alvalade, Lisbon;

b) To condemn the respondent to payment of the costs of the proceedings.

PROCESS VALUE: In accordance with the provisions of article 306, no. 2 of the Code of Civil Procedure, article 97-A, no. 1, a) of the Code of Tax Procedure and article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the process value is fixed at €28,589.50 (twenty-eight thousand five hundred and eighty-nine euros and fifty cents).

COSTS: In accordance with the provisions of article 22, no. 4, of the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at €1,530.00 (one thousand five hundred and thirty euros), in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings.

Notification to be made.

Lisbon, 15-04-2015

The Arbitrator

António Alberto Franco

[1] Among others, those delivered in Cases 50/2013-T, 131/2013-T, 181/2013-T, 185-2013-T, 177/2014, 206/2014-T and, in particular, as it refers to the property in question, in Case 291/2103-T.

Frequently Asked Questions

Automatically Created

What is the Imposto do Selo (Stamp Tax) under verba 28 of the TGIS and when does it apply to residential properties?
The Imposto do Selo (Stamp Tax) under verba 28.1 of the TGIS is a 1% annual tax on residential properties with a taxable patrimonial value (VPT) equal to or exceeding €1,000,000, introduced by Law 55-A/2012. It applies to properties registered with housing allocation, and the tax base follows the Municipal Property Tax (IMI) valuation rules established in the CIMI (Código do IMI). The tax is assessed annually based on the VPT registered for the property, functioning as an ancillary tax to IMI with its own specific threshold and rate structure.
Can the Portuguese tax authority aggregate the taxable value of individual units in a building to meet the €1 million IS threshold?
No, the Portuguese Tax Authority cannot lawfully aggregate the taxable values of individual independent units within a building to meet the €1 million Stamp Tax threshold. CAAD arbitral jurisprudence, including Process 638/2014-T and its precedent case 291/2013, established that each floor or division with independent use must be assessed separately according to CIMI article 12.3, which requires separate registration entries for each independent unit. Since item 28.1 TGIS does not contain specific aggregation rules and refers to CIMI for tax base determination, the €1 million threshold applies to each individual unit's VPT, not the sum of all units in the property.
How did CAAD Process 638/2014-T rule on the separate taxation of independent units within a single property?
CAAD Process 638/2014-T ruled that independent units (divisões com utilização independente) within a single property must be taxed separately for Stamp Tax purposes, not aggregated. Following precedent case 291/2013 involving the same property, the tribunal held that item 28.1 TGIS must follow CIMI rules, which require separate registration and valuation of each floor or division capable of independent use under article 12.3. Since none of the 20 residential apartments in the building had an individual VPT exceeding €1 million (ranging from €126,510 to €163,210), the tribunal annulled the Tax Authority's assessment that had aggregated their total value of €2,858,950.
Are property owners entitled to compensatory interest (juros indemnizatórios) when an unlawful Stamp Tax assessment is annulled?
Yes, property owners are entitled to compensatory interest (juros indemnizatórios) when an unlawful Stamp Tax assessment is annulled by an arbitral tribunal. In Process 638/2014-T, the applicant specifically requested recognition of the right to compensatory interest in addition to the annulment of the illegal assessment and restitution of the tax paid. This follows the general principle of Portuguese tax law that when the State unlawfully collects taxes, it must return the principal amount plus interest to compensate the taxpayer for the financial loss suffered due to the improper deprivation of those funds during the period they were wrongfully held by the tax administration.
What is the legal distinction between a prédio and its divisões com utilização independente for Stamp Tax purposes?
A 'prédio' (property) is the entire building or real estate unit in full ownership, while 'divisões com utilização independente' (divisions with independent use) are floors or sections within that property capable of autonomous use with separate entrances and functionality. For Stamp Tax item 28.1 TGIS purposes, the critical legal distinction established in Process 638/2014-T is that each independent division is registered separately under CIMI article 12.3 with its own taxable patrimonial value (VPT) and should be treated as a separate taxable unit. This differs from autonomous units in the condominium regime under CIMI article 2.4, which are considered distinct properties from inception. The tribunal ruled that independent divisions within a prédio cannot have their values aggregated for the €1 million Stamp Tax threshold.