Process: 639/2014-T

Date: February 18, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

This case (639/2014-T) concerns a Stamp Tax assessment dispute involving vertical property ownership. The claimant, as head of an inherited estate, challenged the Tax Authority's application of Item 28.1 of the General Stamp Tax Table to an urban property comprising 8 independent residential units in full ownership. The central legal issue is whether the Tax Authority can aggregate the individual Taxable Patrimonial Values (VPT) of separate units within a vertical property to reach the €1,000,000 threshold that triggers the 1% stamp tax rate. The Tax Authority summed the VPTs totaling €1,085,150, resulting in €10,851.50 tax, despite no individual unit exceeding €1,000,000. The claimant argued this constitutes legal error, as each unit's VPT should be assessed separately per the Municipal Property Tax Code, and that aggregating values for vertical properties while treating horizontal property units individually violates constitutional equality principles under Articles 13 and 104 of the Portuguese Constitution. The Tax Authority defended its position, arguing that vertical property with independent divisions remains legally distinct from horizontal property regime where each autonomous unit constitutes a separate property. The case highlights the technical distinction between full ownership with independent units versus horizontal property, with significant tax implications. The claimant sought annulment of the assessment and compensation for bank guarantees provided to suspend seven fiscal execution proceedings. The matter was submitted to the CAAD arbitral tribunal for resolution of both the legality and constitutionality questions.

Full Decision

ARBITRAL DECISION

Proceedings No. 639/2014-T

I. Report

  1. A, holder of NIF ..., resident in ..., in the capacity of HEAD OF THE ESTATE OF B, holder of NIF ..., came, pursuant to the provisions of article 99 of the Code of Procedure and Tax Procedure (CPPT) and of articles 2, no. 1, al. a) and 10, no. 1, al. a), of Decree-Law No. 10/2011, of 20 January (Legal Regime for Tax Arbitration – LRTA), to request the constitution of a Singular Arbitral Tribunal and to submit a request for an arbitral ruling.

  2. The respondent is the Tax and Customs Authority.

  3. The claimant seeks the annulment of the acts of assessment of Stamp Tax (IS), dated 17/03/2014, performed under item 28.1 of the General Table of the Stamp Tax Code, amended by article 4 of Law No. 55-A/2012, of 29/12, relating to the year 2013 and to the divisions susceptible to independent use, with residential allocation, of the urban property registered in full ownership under article ... of the urban property register of the parish of ..., municipality and district of ..., on the grounds of illegality and unconstitutionality.

  4. The claimant further seeks that it be paid compensation for damages resulting from the provision of bank guarantees, pursuant to article 53 of the General Tax Law (LGT).

  5. We are faced with a cumulation of claims admitted by law, since the success of the same depends on the assessment of the same circumstances of fact and the interpretation and application of the same legal principles and rules (art. 3, no. 1, of the LRTA).

  6. It is important to clarify, from the outset, that the assessment of this Tribunal will concern the acts of assessment performed by the respondent described above, with all legal consequences, and not the collection documents relating to each installment (which are not to be confused with acts of assessment), from which it follows, from the outset, that the value of the case is the value corresponding to the assessments and not the value of the collection documents relating to any of the installments.

  7. The claimant argues that the acts of assessment of Stamp Tax now contested are illegal due to "error in the legal assumptions in the application of item 28.1 of the GTST", inasmuch as the respondent considered, for that purpose, the sum of the Taxable Patrimonial Values of the divisions susceptible to independent use when, in the claimant's understanding, it should have considered the Taxable Patrimonial Value (TPV) of each of those divisions, all of which are below €1,000,000.00, in accordance with the provisions of the Municipal Property Tax Code (MPTC).

  8. The claimant also considers that the respondent proceeded with an interpretation and application of law in non-compliance with the Constitution of the Portuguese Republic (CPR), in violation of the principle of equality, enshrined in articles 13 and, in matters of taxation of property, also in article 104, no. 3, both of the CPR.

  9. The claimant, finally, bases the compensation request submitted on the undue provision of bank guarantee for suspension of the fiscal execution proceedings instituted by the respondent.

  10. The claimant chose not to designate an arbitrator.

  11. Pursuant to the provisions of article 6, no. 2, al. a) and article 11, no. 1, al. b) of the LRTA, as amended by article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council designated the arbitrator of the arbitral tribunal, who communicated acceptance of the designation within the applicable period.

  12. The parties were notified of such designation, having shown no intention to refuse the designation of the arbitrator, pursuant to the combined provisions of article 11, no. 1, letters a) and b) of the LRTA and articles 6 and 7 of the Code of Conduct of the CAAD.

  13. Thus, in accordance with the provisions of article 11, no. 1, al. c) of the LRTA, as amended by article 228 of Law No. 66-B/2012, of 31 December, the singular arbitral tribunal was constituted on 30-10-2014.

  14. The Tax and Customs Authority submitted a response, in which it defends the lack of merit of the request for arbitral ruling, having raised no exception.

  15. The Tax and Customs Authority sustains its position by stating, in summary, the following:

"6th.

Now, what is at issue here is an assessment that results from the direct application of the legal rule, which translates into objective elements, without any subjective or discretionary appreciation.

7th.

The concept of property is defined in article 2, no. 1 of the MPTC, with it being established in its no. 4 that under the horizontal property regime, each autonomous unit is considered to constitute a property.

8th.

From the analysis of the normative provision it follows that a "property in full ownership with stories or divisions susceptible to independent use" is, unequivocally, different from an immovable property under the horizontal property regime, constituted by autonomous units, that is, several properties.

9th.

Article 12 of the MPTC establishes the concept of property register, with its no. 3 relating, exclusively, to the manner of registering the registration data.

10th.

As for the assessment of Municipal Property Tax, in the case of a property in full ownership, the PV that serves as the basis for its calculation will be indisputably the PV that the now claimant defines as "global value of the property".

11th.

In compliance with the provisions of article 119, no. 1 of the MPTC, the collection document is sent to the taxpayer with a breakdown of the parts susceptible to independent use, their respective taxable patrimonial value and the tax collection allocated to each municipality of the location of the properties.

12th.

And since the assessment is correct and the tax assessed is owed, no indemnity interest is owed, from the outset because there is no error attributable to the Services, which merely acted, as they should, in strict compliance with the legal rule".

  1. By ruling of 09/12/2014, the Tribunal decided to waive the holding of the meeting provided for in article 18 of the LRTA, as well as to waive the submission of arguments.

  2. The Arbitral Tribunal was regularly constituted.

  3. The parties enjoy legal standing and capacity and are legitimate (arts. 4 and 10, no. 2, of the LRTA and art. 1 of Order No. 112-A/2011, of 22 March).

  4. No nullity is apparent.

II. Statement of Facts

a. Proved Facts

  1. The following facts are considered proved:

20.1. A is head of the undivided estate of B;

20.2. Included in the undivided estate of B is the urban property located at Street ..., nos. 19, 21, 23 and 25, registered under article ... of the urban property register of the parish of ..., municipality and district of ...;

20.3. The property identified above is registered in the urban property record in full ownership, also called vertical ownership, and comprises 8 divisions susceptible to independent use, 7 of which have residential allocation;

20.4. None of the divisions susceptible to independent use has a taxable patrimonial value (TPV) greater than €1,000,000.00;

20.5. For the purposes of Item No. 28 of the General Table of Stamp Tax (GTST) the Tax and Customs Authority considered the sum of the TPV of the various stories or divisions with residential allocation, corresponding to a total value of €1,085,150.00;

20.6. Based on this value, the Tax and Customs Authority proceeded to assess the Stamp Tax of item 28.1 of the GTST, at the rate of 1%, resulting in a total tax amount of €10,851.50;

20.7. Seven fiscal execution proceedings were instituted against the claimant, relating to the first installment of the year 2013, with the following numbers: ..., ..., ..., ..., ..., ... and ...;

20.8. The claimant presented bank guarantee No. 213-02-..., dated 08/08/2014, with a view to suspending the fiscal execution proceedings identified above.

b. Unproved Facts

  1. Of the facts of interest for the decision of the case, those not mentioned in the factuality described above were not proved.

c. Reasoning for the decision on the facts

  1. The facts were given as proved based on documentary evidence.

III. Legal Analysis

  1. Once the relevant facts are established, it is verified that the present proceedings concerns exclusively legal matters.

  2. The question to be decided by the Tribunal is that which concerns whether the taxable patrimonial value (TPV) to be considered for the purpose of applying Item 28 of the GTST, where a property not constituted under the horizontal property regime is at issue, is the TPV attributed to each story or division with independent use and with residential allocation, or whether it is the global TPV, corresponding to the sum of the TPV of each story or division susceptible to independent use and with residential allocation.

  3. Item 28 of the GTST, now under examination, was amended by Law No. 55-A/2012, of 29 October, with the following wording:

"28 – Ownership, usufruct or right of superficies of urban properties whose taxable patrimonial value appearing in the register, pursuant to the Municipal Property Tax Code (MPTC), is equal to or greater than €1,000,000.00 – on the taxable patrimonial value for the purpose of Municipal Property Tax:

28.1 – Per property with residential allocation – 1%

28.2 – Per property, when the taxpayers who are not natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime, appearing in the list approved by administrative order of the Minister of Finance – 7.5%."

  1. The Stamp Tax Code (STC) and its General Table, as amended by articles 3 and 4 of Law No. 55-A/2012, of 29 October, do not clarify the meaning of the expression "property with residential allocation".

  2. Article 67, no. 2 of the STC, amended by Law No. 55-A/2012, of 29 October, provides that "[m]atters not regulated in this Code relating to item no. 28 of the General Table shall be governed, subsidiarily, by the provisions of the MPTC."

  3. The legislator, in no. 1 of article 2 of the MPTC, adopts the following concept of property:

"For the purposes of this Code, property is any fraction of territory, including waters, plantations, buildings and constructions of any nature incorporated or based therein, with the character of permanence, provided that it forms 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 located in a fraction of territory that constitutes an integral part of assets of a different nature or has no patrimonial nature."

  1. As noted by SILVÉRIO MATEUS and CURVELO DE FREITAS, "no. 1 of this article [of article 2] provides for the existence of three requirements necessary for the concept of property to be present, namely, physical structure, patrimonial nature and economic value" (Taxes on Real Property. The Stamp Tax, Lisbon, Engifisco, 2005, p. 101, note no. 1.1).

  2. Thus, excluded from the concept of property, relevant for the purposes of MPTC and of STC, are not stories or divisions of independent use of immovable property registered in the urban property record in full ownership.

  3. No. 4 of article 2 of the MPTC further provides that:

"for the purposes of this tax [Municipal Property Tax], each autonomous unit, under the horizontal property regime, is considered to constitute a property".

  1. Once again, from this provision does not result the exclusion from the concept of property of stories or divisions of independent use of property in full ownership.

  2. In no. 4 of art. 2 of the MPTC the legislator clarifies, unequivocally, that the autonomous units of immovable property registered under horizontal property are considered properties, for the purposes of Municipal Property Tax.

  3. But this does not enable the interpreter to make an interpretation a contrario, in the sense of excluding from the concept of property the units of independent use of immovable property registered in full ownership.

  4. It seems, in fact, that the ratio of no. 2 of art. 4 is precisely to allow an extensive interpretation of the provision of no. 1 of art. 2, so as to include in the concept of property the units (fractions, stories or divisions) of independent use.

  5. This sense seems, moreover, to be confirmed by the provision of no. 3 of article 12 of the MPTC, which is transcribed below:

"Each story or part of property susceptible to independent use is considered separately in the property register entry, which also discriminates the respective taxable patrimonial value."

  1. From which it follows that the units of independent use of immovable property registered in full ownership are subject to assessment based on the criteria provided for in article 38 of the MPTC.

  2. Article 6 of the MPTC, on the other hand, enumerates the types of urban properties, and provides that "[r]esidential, commercial, industrial or service buildings or constructions are those licensed for such purpose or, in the absence of a license, which have as their normal purpose each of these functions".

  3. As stated in the Arbitral Decision rendered in Proceedings No. 50/2013,

"From this we can conclude that, in the legislator's perspective, what matters is not the legal-formal rigor of the concrete situation of the property but rather its normal use, the purpose for which the property is intended. We further conclude that for the legislator the situation of the property in vertical or horizontal ownership was irrelevant, since no reference or distinction is made between them. What is relevant is the material truth underlying its existence as an urban property and its use."

  1. When we consider the literal element of interpretation we find that, in the final part of the provision contained in item 28.1 of the GTST, it is determined that the taxable value corresponds to the "taxable patrimonial value used for the purpose of Municipal Property Tax".

  2. The Tax and Customs Authority considers as the TPV relevant for the purpose of applying item 28.1 of the GTST the global TPV of the property registered in full ownership, in manifest contradiction with the practice of a plurality of assessment acts, relating to the various stories susceptible to independent use.

  3. From the literal element of interpretation, in conjunction with the systematic and teleological elements, it follows that the taxable patrimonial value to be considered for the purposes of applying item 28.1 of the STC is that corresponding to each of the units susceptible to independent use.

  4. And it appears to us that this is also the understanding most consistent with the principle of prevalence of substance over form.

  5. Furthermore, this is the sense most consistent with the Constitution of the Portuguese Republic, in particular the principles of typicity, equality, proportionality, and legal certainty and protection of citizens' confidence, inherent in the principle of the Rule of Law.

  6. The Tax and Customs Authority, by applying item 28.1 of the GTST in a differentiated manner depending on whether the residential unit is inserted in immovable property registered under horizontal property or in full ownership, is allowing a formal differentiation criterion to prevail, to the detriment of the material equality required by the Fundamental Law.

  7. From the perspective of taxable capacity, as an operative criterion of the principle of equality, which postulates material equality, it is irrelevant whether the property is in vertical or horizontal ownership – the taxable capacity evidenced is the same, and the application of item 28.1 of the GTST should be made in the same terms.

  8. Since it is possible to interpret item 28.1 of the GTST in accordance with the Constitution, it is to be excluded a ruling on the unconstitutionality of the norm contained therein.

  9. Thus, with respect to immovable property registered in full ownership, only the story or division susceptible to independent use with residential allocation whose TPV is equal to or greater than €1,000,000.00 is subject to Stamp Tax, by application of item 28.1 of the GTST.

  10. Given that, in the present proceedings, none of the stories in relation to which Stamp Tax was assessed by application of Item 28.1 of the GTST has a TPV equal to or greater than €1,000,000.00, it is concluded that the respective assessment acts are illegal.

  11. It is now important to assess the claimant's claim that it be paid compensation for damages resulting from having provided a bank guarantee for the suspension of fiscal execution proceedings.

  12. Regarding compensation in case of undue provision, article 53 of the LGT provides the following:

"1 - The debtor who, in order to suspend execution, offers a bank guarantee or equivalent shall be compensated in whole or in part for damages resulting from its provision, if it has been maintained for a period of more than three years, in proportion to the determination in administrative appeal, challenge or opposition to execution that have as their subject the debt guaranteed.

2 - The period referred to in the previous number does not apply when it is verified, in administrative complaint or judicial challenge, that there was error attributable to the services in the assessment of the tax.

3 - The compensation referred to in no. 1 has as its maximum limit the amount resulting from the application to the guaranteed value of the rate of indemnity interest provided for in this law and may be requested in the administrative complaint process itself or judicial challenge, or autonomously.

4 - Compensation for undue provision of guarantee shall be paid by reduction of the revenue of the tax of the year in which the payment was made."

  1. From the conjunction of nos. 1 and 2 of article 53 of the LGT results the establishment of the right of the taxpayer to full compensation for damages resulting from the provision of a bank guarantee or equivalent when it is verified, in administrative complaint or in judicial challenge, that there was error attributable to the services in the assessment of the tax.

  2. It is thus considered that "[t]he error attributable to the services that carried out the assessment is demonstrated when they proceed with an administrative complaint or challenge of that same assessment and the error is not attributable to the taxpayer" (DIOGO LEITE DE CAMPOS, BENJAMIM SILVA RODRIGUES, JORGE LOPES DE SOUSA, General Tax Law. Annotated and commented, 4th ed., Lisbon, 2012, p. 342).

  3. Pursuant to no. 1 of article 171 of the Code of Procedure and Tax Procedure "[c]ompensation in case of bank guarantee or equivalent unduly provided shall be requested in the proceedings in which the legality of the debt subject to execution is disputed".

  4. In the present case we are faced with a plurality of Stamp Tax assessments based on error attributable to the services, from which resulted the fiscal execution proceedings instituted by the respondent and which obliged the claimant to provide a bank guarantee to suspend those proceedings.

  5. The right of the claimant is thus recognized to obtain from the respondent compensation in an amount corresponding to the costs of the bank guarantee provided, as well as lost profits and damages that are duly proved, with the maximum limit provided for in no. 3 of article 53 of the LGT.

IV. Decision

Under these circumstances, and with the grounds set out, the Arbitral Tribunal decides:

a) To uphold the claim for annulment, with all legal effects, of the impugned assessment acts;

b) To uphold the claim for judgment condemning the respondent to payment of compensation for damages, which are proved by the claimant, resulting from the provision of undue guarantee, under the terms and with the limit provided for in article 53 of the LGT.

V. Case Value

The case value is set at €10,851.50, as provided for in article 97-A, no. 1, al. a), of the Code of Procedure and Tax Procedure and in article 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings.

VI. Costs

Pursuant to article 22, no. 4, of the LRTA, the amount of costs is set at €918.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the respondent.

Lisbon, 18 February 2015

The Arbitrator,

Paulo Nogueira da Costa

Frequently Asked Questions

Automatically Created

What is Verba 28.1 of the General Stamp Tax Table and how does it apply to properties valued over €1,000,000?
Verba 28.1 of the General Stamp Tax Table, as amended by Law 55-A/2012, imposes an annual 1% stamp tax on urban properties or autonomous fractions with residential use whose Taxable Patrimonial Value (VPT) exceeds €1,000,000. This provision was introduced as part of Portugal's fiscal consolidation measures and applies to high-value residential real estate held on January 1st of each tax year.
How should the Patrimonial Tax Value (VPT) be calculated for vertical property with independent units under Stamp Tax?
The calculation method for vertical property (full ownership with independent units) under Stamp Tax is disputed. The Tax Authority aggregates the VPT of all divisions susceptible to independent use within the single property registration to determine if the €1,000,000 threshold is met. Taxpayers argue each independent unit should be assessed separately based on its individual VPT as defined in the Municipal Property Tax Code, where only the property registration breakdown applies for administrative purposes, not tax base calculation.
Can the tax authority sum the VPT of individual units in a vertical property to meet the €1,000,000 threshold for Stamp Tax?
Yes, according to the Tax Authority's interpretation applied in this case. The Authority considers vertical property (full ownership with multiple independent units) as a single property for Stamp Tax purposes, summing the individual VPT values of all residential units to determine threshold compliance. This contrasts with horizontal property regime where each autonomous fraction is legally treated as a separate property. However, this interpretation is challenged as creating unequal treatment and misapplying the legal concept of 'property' under Item 28.1.
Does taxing vertical property differently from horizontal property violate the constitutional principle of equality under Articles 13 and 104 of the Portuguese Constitution?
The claimant argues yes, this differential treatment violates constitutional equality. Article 13 establishes general equality before the law, while Article 104(3) specifically requires horizontal tax equity for equivalent tax capacity. When identical residential units have similar values and economic substance, taxing them differently based solely on the property regime (vertical versus horizontal ownership) lacks objective justification. Units in vertical property face aggregated taxation while identical units in horizontal property are taxed individually, creating arbitrary discrimination without rational basis related to taxpayer ability to pay.
What is the CAAD arbitral tribunal procedure for challenging Stamp Tax assessments on inherited property in Portugal?
The CAAD (Administrative Arbitration Center) procedure under the Legal Regime for Tax Arbitration (Decree-Law 10/2011) allows taxpayers to challenge tax assessments through arbitral tribunal. The claimant files a request identifying the contested acts, legal grounds, and desired relief. If no arbitrator is designated, the Deontological Council appoints one. The Tax Authority submits a response. The tribunal may waive hearings if appropriate. For inherited property disputes, the estate head has legal standing to represent the undivided estate. Taxpayers can request suspension of tax execution by providing bank guarantees and seek compensation if assessments are annulled.