Process: 651/2015-T

Date: May 18, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 651/2015-T) addresses a fundamental question in Portuguese Stamp Tax law: whether item 28.1 of the General Stamp Tax Table (TGIS) applies to individual units within a vertical property building or to the aggregate value of all residential units. The claimant, A... S.A., challenged Stamp Tax assessments totaling €12,174.04 for 2013, arguing the Tax Authority illegally applied the 1% rate to the combined tax assessed value (TAV) of nine residential units (€1,217,402.53) within a 25-unit building. The company contended that Stamp Tax should only apply when an individual unit's TAV equals or exceeds €1,000,000, not when the sum of multiple units crosses this threshold. The claimant argued that IMT (Property Transfer Tax) rules should govern, where each unit capable of independent use is assessed separately, and invoked constitutional equality violations, claiming discriminatory treatment between condominium ownership (where units are separately assessed) and vertical property ownership. The Tax Authority countered that properties in full or vertical ownership differ fundamentally from condominium properties under Article 2(4) of the IMLT, which only deems autonomous units in condominiums as separate properties. The Authority maintained that for vertical property, the property as a whole determines Stamp Tax liability under item 28.1, even when individual units exist. This case highlights critical distinctions in Portuguese property law between condominium and vertical ownership structures and their tax implications. The outcome determines whether luxury property tax applies based on individual unit values or aggregated residential values, significantly impacting tax planning for multi-unit property owners. The claimant also sought refund of paid amounts plus compensatory interest under Article 43 of the General Tax Law.

Full Decision

ARBITRAL DECISION

The Arbitrator Raquel Franco, appointed by the Ethics Council of the Administrative Arbitration Centre (CAAD) to form the single arbitral tribunal constituted on 8 January 2016, decides as follows:

I. REPORT

  1. On 26 October 2015, the company "A…, S.A.", Tax Identification Number…, filed a request for constitution of a single arbitral tribunal, under the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as LFTAM), in which the Tax and Customs Authority (TA) is the Respondent.

  2. The request for constitution of the Arbitral Tribunal was accepted by the Honourable President of the CAAD and was automatically notified to the TA on 6 November 2015.

  3. Under the provisions of paragraph (a) of section 2 of Article 6 and paragraph (b) of section 1 of Article 11 of Decree-Law No. 10/2011, of 20 January, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the Ethics Council appointed the undersigned as arbitrator of the single arbitral tribunal, who communicated acceptance of the appointment within the applicable deadline.

  4. On 22 December 2015 the parties were duly notified of such appointment, and did not express any wish to refuse the appointment of the arbitrator under the combined provisions of Article 11, section 1, paragraphs (a) and (b) of the LFTAM and Articles 6 and 7 of the Code of Ethics.

  5. Thus, under the provisions of paragraph (c) of section 1 of Article 11 of Decree-Law No. 10/2011, of 20 January, as amended by Law No. 66-B/2012, of 31 December, the arbitral tribunal was constituted on 8 January 2016.

  6. In this proceeding, the Claimant seeks that the Arbitral Tribunal declare the illegality and unconstitutionality of the following stamp tax assessment acts carried out under item 28.1 of the General Stamp Tax Table (GSTT), relating to the year 2013: 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014… in the total amount of €12,174.04. In addition to the annulment of these acts, the Claimant also seeks that the Tribunal proceed with the annulment of the dispatch of the Head of Administrative Justice Division of the Tax Administration Directorate of Lisbon (substitute), of 31 July 2015, under which the administrative appeal presented in relation to the assessment acts mentioned above was rejected. Finally, since the Claimant proceeded to pay the assessed amounts, it also requests the corresponding refund plus the payment of compensatory interest.

  7. The grounds presented by the Claimant are as follows:

  • The contested assessments relate to units capable of independent use corresponding to the 1st E, 2nd D, 3rd D, 3rd E, 4th D, 4th E, 5th D, 5th E, 3rd E of the urban property registered in the property matrix of the parish of … with article … and described in the Property Registry Office of Lisbon under number….

  • The property in question is composed of 9 floors and 25 units capable of independent use.

  • The sum of the tax assessed values (TAVs) of the said units capable of independent use amounts to €4,119,196.69.

  • Of the said 25 units capable of independent use, only the 9 identified above are for residential use.

  • The sum of the TAVs of the units for residential use amounts to €1,217,402.53, and none of them has a TAV equal to or greater than €1,000,000.00.

  • It was on the total tax assessed value of the units for residential use that the TA assessed the stamp tax provided for in item 28.1 of the General Stamp Tax Table (GSTT), at the rate of 1%.

  • The Claimant submits that the TA's criterion of considering that it is the total TAV of the units for residential use that determines the subjection to stamp tax is illegal, since there should only be stamp tax under item 28.1 of the GSTT if any of the parts, floors or units capable of independent use had a TAV equal to or greater than €1,000,000.00.

  • And this because the TA cannot establish as the reference value for the stamp tax the total value of the property when the legislator established a different rule under the IMLT, this being the regulation applicable to matters not regulated in the STC as regards the scope of item 28.1 of the GSTT.

  • Now, for the purposes of IMT, each unit capable of independent use has an autonomous and individualizable TAV and the assessment is made on that value; therefore, the same should occur in the application of item 28.1 of the GSTT to the extent that there is no legal provision that makes the tax assessed value of a property composed of several floors or units capable of independent use correspond to the sum of their respective parts.

  • It further adds that the objective underlying the creation of item 28.1 of the GSTT was to tax taxpayers who demonstrated increased contributory capacity through the ownership, usufruct or holding of a right of superficies of luxury homes, and that the use of the word "home" by the Secretary of State for Tax Affairs at the time of presentation of the measure in question refers to the concept of physical space used as a whole for residential purposes by its owner, usufructuary or holder of the right of superficies, which is not the case here.

  • It also invokes the violation of the principle of equality provided for in Article 13 of the Constitution, in the aspect of contributory capacity, to the extent that the interpretation defended by the TA of item 28.1 of the GSTT results in the different treatment of two realities that are only formally distinct – the ownership of a unit in a property constituted in condominium ownership and the ownership of a unit capable of independent use in a property constituted in vertical or full ownership.

  • The Claimant further requests the payment of compensatory interest, by virtue of having paid illegal tax assessments due to error attributable to the Administration, under section 1 of Article 43 of the GTA.

  1. The Respondent replied to the Claimant's claim as follows:

  • The concept of property is defined in Article 2, section 1 of the IMLT, and it is stated in its section 4 that, in the condominium ownership regime, each autonomous unit is deemed to constitute a property.

  • In its understanding, it follows from the analysis of that normative provision that a "property in full or total ownership with floors or units capable of independent use" is, unequivocally, different from a property in condominium ownership regime, constituted by autonomous units, that is, by several properties.

  • As regards IMT assessment, in the case of properties in full or total ownership, the TAV that serves as the basis for its calculation will be the TAV that the Claimant defines as "total value of the property", because although the assessment of stamp tax in the situations provided for in item No. 28.1 of the GSTT is processed according to the rules of the IMLT, the truth is that the legislator reserves aspects that require appropriate adaptations, namely those in which, as is the case of properties in full or total ownership, even though with floors or units capable of independent use (although IMT is assessed in relation to each unit capable of independent use) for stamp tax purposes the property as a whole is relevant, since units capable of independent use are not deemed to be a property, but only autonomous units in the condominium ownership regime, as provided in section 4 of Article 2 of the IMLT.

  • Regarding the violation of the principle of equality, the TA submits that the provision of item 28.1 of the GSTT does not constitute any violation thereof, with no discrimination existing in the taxation of properties constituted in condominium ownership and properties in full or total ownership with floors or units capable of independent use, or between properties with residential use and properties with other uses.

  • The constitution of condominium ownership involves merely a legal alteration of the property, with no new valuation (Office Memorandum No. 40,025, of 11 August 2007, of the Tax Administration), but the legislator may, however, submit properties in the condominium ownership and vertical or full ownership regimes to a different tax legal framework, in particular, benefiting the legally more evolved institution of condominium ownership, without such discrimination necessarily being considered arbitrary.

  • The rules on valuation procedures, the rules on property registration, and also the rules on the assessment of units capable of independent use do not permit asserting that there should be an equivalence between property in full or total ownership regime and the vertical or condominium ownership regime.

  • The constitution in condominium ownership determines the division/split of full or total ownership and the independence or autonomy of each of the units that constitute it, for all legal purposes, under section 2 of Article 4 of the IMLT and Articles 1414 et seq. of the Civil Code, and a property in full or total ownership constitutes, for all purposes, a single legal-tax reality.

  1. The parties also presented oral arguments at the hearing held on 10 May 2016, essentially reiterating the arguments already set forth in the Request for Arbitral Award and the Response.

II. PRELIMINARY MATTERS

  1. The Tribunal is competent and is regularly constituted under Articles 2, section 1, paragraph (a), 5 and 6, all of the LFTAM.

  2. The parties have legal personality and capacity, are legitimate and are legally represented under Articles 4 and 10 of the LFTAM and Article 1 of Administrative Order No. 112-A/2011, of 22 March.

  3. The proceeding does not suffer from defects that would invalidate it.

III. FACTUAL MATTER

Before addressing the legal issues, it is necessary to present the relevant factual matter for its understanding and decision, which, having examined the documentary evidence and the administrative file (PA) attached to the record and having also taken into account the alleged facts, is established as follows:

III.1. Proven Facts

a. The Claimant is the owner of the urban property in full or total ownership registered in the urban property matrix of the parish of..., under article... and described in the Property Registry Office of Lisbon with number...;

b. The property is composed of nine floors and twenty-five units with independent use, being, at the date of the tax facts, constituted in full or total ownership;

c. Nine of the twenty-five units capable of independent use are for residential use;

d. All units capable of independent use have a TAV assigned and separately determined under paragraph (b) of section 2 of Article 7 of the IMLT.

e. None of its parts or floors with residential use has a tax assessed value equal to or greater than €1,000,000.00.

f. The property has a total TAV of €4,119,196.69.

g. The sum of the TAVs of the units capable of independent use with residential use is €1,217,402.53.

h. The TA issued stamp tax assessments Nos. 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014… in the total amount of €12,174.04, regarding the property referred to in the preceding points, with reference to the tax year 2013.

i. The said assessments were paid by the Claimant.

III.2. Unproven Facts

There are no facts relevant to the decision that have been determined to be unproven.

IV. QUESTION(S) FOR DECISION

The essential question at issue in this proceeding is to determine, with reference to an urban property not constituted in condominium ownership regime, comprising various areas with independent use, with residential use, whether the TAV relevant for tax purposes for stamp tax under item 28.1 of the GSTT should be the one corresponding to the sum of the tax assessed value assigned to the different independent parts or floors with residential use, or whether, on the contrary, for purposes of the incidence of stamp tax under item 28.1 of the GSTT, the TAV assigned to each floor or unit with independent use should be taken into account.

V. LEGAL GROUNDS

Item 28 of the GSTT provided, at the date of the tax facts, the following:

  1. "Ownership, usufruct or right of superficies of urban properties whose tax assessed value as shown in the property matrix, under the Code of the Municipal Property Tax (IMLT), is equal to or greater than (euro) 1,000,000 - on the tax assessed value used for IMT purposes:

28.1 Per property with residential use – 1%

28.2 – Per property, when taxpayers that are not natural persons are resident in a country, territory or region subject to a clearly more favourable tax regime, listed in the order approved by the Minister of Finance – 7.5%."

In this proceeding it is necessary to decide whether the TAV relevant as a criterion for the incidence of stamp tax under item 28.1 of the GSTT is the one corresponding to the sum of the tax assessed value assigned to the different parts or floors (total TAV) or, rather, the TAV assigned to each of the parts or residential floors.

This question has already been considered in various tax arbitration proceedings, and there appears to be no reason to adopt a different understanding from that adopted in previously rendered decisions[1]. Therefore:

Under section 2 of Article 67 of the STC, as regards "matters not regulated in this Code relating to item 28 of the General Table, the IMLT applies subsidiarily." Since the rule of incidence of item 28.1 of the GSTT relates to urban properties, it is necessary to seek the concept of property in the IMLT.

The IMLT establishes, in Article 2, section 1, the concept of property. It defines it as "any plot of territory, comprising waters, plantations, buildings and constructions of any kind incorporated or situated thereon, with a 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 situated, even though located on a plot of territory that constitutes an integral part of different assets or does not have a patrimonial nature".

Article 4 of the IMLT establishes that urban properties are "all those that should not be classified as rural, without prejudice to the provisions of the following article".

In turn, Article 6 of the same Code classifies the various types of urban properties, distinguishing them in section 1 into four subcategories: "a) Residential; b) Commercial, industrial or for services; c) Land for construction; d) Other". In turn, section 2 sets out the criterion used for this distinction, defining that "Residential, commercial, industrial or for services are buildings or constructions licensed for such purpose or, in the absence of a license, that have as their normal destination each of these purposes".

With regard to the specific question at issue in this decision, it is important to consider Article 12, section 3, of the IMLT, under which "each floor or part of a property capable of independent use is considered separately in the property registration, which also sets forth its respective tax assessed value."

Finally, under Article 119, section 1 of the IMLT, "The services of the Directorate General of Taxes send to each taxpayer, no later than the end of the month prior to payment, the relevant tax collection document, with a breakdown of the properties, their units capable of independent use, their respective tax assessed value and the tax collected allocated to each municipality of location of the properties."

As recognized in legal doctrine, the tax concept of property differs from the civil law concept of property, contrary to what the Respondent argues, in that "For tax purposes, section 1 of this article [Article 2 of the IMLT] provides for the existence of three necessary requirements in order to qualify as a property, namely, the physical structure, patrimonial nature and economic value."
(See J. Silvério Mateus and L. Corvelo de Freitas, Taxes on Real Estate Property, Stamp Tax, Annotated and Commented, Engifisco, 1st edition, 2005, p. 101).

Thus, "the physical element is defined by the reference to 'any plot of territory', including waters, plantations and constructions of any kind incorporated or situated thereon with a character of permanence. From a legal perspective, patrimonial nature is given relevance. The asset, in the physical sense, must be capable of being integrated into the assets of a natural or legal person. (...) The requirement of economic value is, naturally, associated with the requirement of patrimonial nature, from which derives the capacity to generate income or other types of benefits for its holder." (ibid.).

In the present case, it appears to us that all three requirements mentioned are met, to the extent that the parts or units capable of independent use that are the subject of the assessment acts in question have a physical correspondence with reality, are part of the Claimant's assets and possess an economic value which, at the very least, derives from the TAV that was assigned to them by the valuation carried out by the TA.

Therefore, it appears to us that the parts or units capable of independent use, meeting all requirements to qualify as a "property" in economic, physical and patrimonial terms, should be considered autonomously for purposes of the incidence of item 28.1 of the GSTT.

Moreover, in the rule of incidence contained in item 28.1 of the GSTT, the legislator did not consider it relevant to distinguish between properties in condominium ownership and properties in vertical or full ownership. And this, in our view, because what is relevant, in the final analysis, is the economic use of the property, as follows also from Article 6 of the IMLT, in light of the constitutional principles embodied in Articles 103, section 1 and 104, section 3, of the Constitution. In fact, in terms of economic substance, there is no difference whatsoever between a building in condominium ownership and a building in vertical or full ownership constituted by parts or units capable of independent use, justifying, therefore, in terms of rules of incidence – and in particular the rule contained in item 28.1 of the GSTT – equal treatment of these two situations. Moreover, the tax legislator also determines this equal treatment in Article 119 of the IMLT, when it establishes that the tax should be assessed individually on each part or unit capable of independent use, taking into account the TAV of each part or unit capable of independent use, individually considered.

It follows from the foregoing that the rule contained in item 28.1 of the GSTT should be applied indifferently, both to residential urban properties constituted in condominium ownership and to those in full or vertical ownership, with the tax being assessed on the TAV assigned by the Respondent, through a general valuation, to each of the parts or units capable of independent use (incidentally, the Respondent issued, in the case subject of this proceeding, as many assessment acts as there are parts or units capable of independent use for residential use).

In light of the foregoing, and given the fact that none of the parts or units capable of independent use that are the subject of the contested assessment acts has a tax assessed value equal to or greater than €1,000,000.00, as has been demonstrated in this proceeding, it is concluded that the Claimant's claim is well-founded, and the contested assessment acts are deemed illegal, due to error regarding factual and legal premises and violation of Article 1, section 1 of the Stamp Tax Code and item 28.1 of the GSTT, and such acts should be annulled.

As regards compensatory interest, Article 43 of the GTA provides that "compensatory interest is due when it is determined, in an administrative appeal or judicial challenge, that there was error attributable to the Administration from which results payment of the tax debt in an amount greater than legally due".

As regards the existence, in this case, of error attributable to the Administration, this is deemed verified, according to consistent case law of the Supreme Administrative Court (see, in this sense, the Decisions of the Supreme Administrative Court of 22 May 2002, Case No. 457/02; of 31 October 2001, Case No. 26167 and of 2 December 2009, Case No. 0892/09).

Therefore, there is no doubt that the Claimant is entitled to be compensated through the receipt of compensatory interest, calculated under Article 43, section 1 of the GTA and Article 61, sections 2, 3 and 5, on the amounts paid relating to the annulled assessments.

VI. DECISION

In accordance with what is set forth above, it is decided:

(i) To grant the request for arbitral award and, consequently, to declare the illegality of the contested stamp tax assessments, with the consequent annulment of such assessments;

(ii) To order the Respondent to pay compensatory interest under Article 43 of the GTA.

Value: in accordance with the provisions of section 2 of Article 315 of the Code of Civil Procedure, combined with paragraph (a) of section 1 of Article 97-A of the Code of Tax Procedure and with section 2 of Article 3 of the Fees Regulation for Tax Arbitration Proceedings, the case is given a value of €12,174.04.

Fees: in accordance with the provisions of Article 22, section 4, of the LFTAM and in accordance with Table I attached to the Fees Regulation for Tax Arbitration Proceedings, the amount of fees is fixed at €918.00, to be borne entirely by the Respondent under Articles 12, section 2, and 22, section 4, both of the LFTAM, and Article 4, section 4, of the said Regulation.

Let it be registered and notified.

Lisbon, 18 May 2016

The Arbitrator,

Raquel Franco

[1] See, by way of example only, the decisions rendered in cases 50/2013-T; 132/2013-T; 181/2013-T; 182/2013-T; 183/2013-T; 185/2013-T; 240/2013-T; 248/2013-T; 268/2013-T; 272/2013-T; 280/2013-T; 14/2014-T; 26/2014-T; 30/2014-T; 72/2014-T; 88/2014-T; 100/2014-T; 177/2014-T; 193/2014-T; 194/2014-T; 206/2014-T; 238/2014-T; 290/2014-T; 292/2014-T; 372/2014-T; 428/2014-T; 450/2014-T.

Frequently Asked Questions

Automatically Created

Is Stamp Tax under Verba 28.1 of the TGIS applicable to individual units in a vertical property building?
Under item 28.1 of the TGIS, the applicability of Stamp Tax to vertical property buildings depends on whether the property structure qualifies as full/vertical ownership or condominium ownership. In vertical property arrangements, where the building is not divided into autonomous condominium units, the Tax Authority's position is that the aggregate tax assessed value (TAV) of all residential units determines whether the €1,000,000 threshold is exceeded. However, taxpayers argue this interpretation is illegal, contending that each unit capable of independent use should be assessed individually, similar to IMT rules, and only units with individual TAVs exceeding €1,000,000 should be subject to the 1% Stamp Tax rate.
Can independent units in a vertical property be separately assessed for Imposto do Selo purposes?
The separate assessment of independent units in vertical property for Stamp Tax purposes is the central dispute in this arbitration. Taxpayers argue that units capable of independent use should be assessed individually for item 28.1 TGIS purposes, applying IMT principles where each unit has an autonomous TAV. This interpretation would mean Stamp Tax applies only when a single unit's TAV reaches €1,000,000. Conversely, the Tax Authority maintains that Article 2(4) of the IMLT only recognizes autonomous units as separate properties in condominium regimes. In vertical or full ownership structures, the property as a whole remains the relevant taxable unit, meaning all residential units' TAVs are aggregated to determine Stamp Tax liability under item 28.1.
What are the grounds for challenging Stamp Tax liquidations on vertical property at CAAD arbitration?
The grounds for challenging Stamp Tax liquidations on vertical property at CAAD arbitration include: (1) Illegality - arguing the Tax Authority misapplied item 28.1 by aggregating unit values rather than assessing each independently; (2) violation of IMT principles that should govern Stamp Tax assessment, where each unit capable of independent use has autonomous TAV; (3) unconstitutionality under Article 13 of the Portuguese Constitution for violating the equality principle and contributory capacity principle, as condominium owners and vertical property owners with comparable units are treated differently; (4) misinterpretation of legislative intent, as item 28.1 targets luxury homes used as whole residential spaces by individual owners, not aggregated values of separately occupied units; and (5) error attributable to administration justifying refund with compensatory interest under Article 43 GTA.
How does CAAD arbitration address the legality and constitutionality of Stamp Tax on residential property units?
CAAD arbitration addresses the legality and constitutionality of Stamp Tax on residential property units through comprehensive analysis of the legal framework, including item 28.1 TGIS, Article 2 of the IMLT defining property types, and constitutional equality principles under Article 13. The tribunal examines whether the Tax Authority's interpretation of aggregating TAVs in vertical property complies with statutory construction rules and IMT assessment principles that apply to Stamp Tax matters. Constitutional review focuses on whether differential treatment between condominium ownership (individual unit assessment) and vertical ownership (aggregate assessment) violates equality and contributory capacity principles, particularly when taxpayers in both structures may occupy similarly valued units. The tribunal also evaluates legislative intent behind item 28.1's creation, specifically whether it targets luxury home ownership or can be applied to aggregated values of multiple, separately occupied residential units.
Are taxpayers entitled to refund and compensatory interest after annulment of unlawful Stamp Tax assessments?
Taxpayers are entitled to refund and compensatory interest after annulment of unlawful Stamp Tax assessments under Article 43(1) of the General Tax Law (LGT). When illegal tax assessments result from error attributable to the Tax Administration and taxpayers have already paid the contested amounts, successful annulment triggers automatic refund rights. Compensatory interest compensates taxpayers for being deprived of funds due to administration error during the period between payment and refund. In this case, the claimant paid €12,174.04 in contested Stamp Tax assessments and explicitly requested both principal refund and compensatory interest. If the arbitral tribunal declares the assessments illegal and unconstitutional, the Tax Authority must refund the amounts plus calculate compensatory interest from the payment date until actual reimbursement, providing full restitution for the financial prejudice caused by unlawful taxation.