Process: 686/2014-T

Date: April 21, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 686/2014-T) addresses a fundamental dispute regarding the application of Stamp Tax under Verba 28.1 of the Portuguese General Table to properties held in vertical ownership. The claimant challenged a Stamp Tax assessment of €8,308.35 for 2013 on an urban property comprising 37 independent residential and commercial units. The central legal question concerns whether the Tax and Customs Authority can aggregate the individual Taxable Property Values (VPT) of all independent units within a single property article to reach the €1,000,000 threshold triggering Verba 28.1 taxation. The claimant argued that each independent unit should be treated separately under CIMI Article 2(4), meaning no single unit exceeded the threshold. The TCA contended that independent use areas within the same property article must be summed for Stamp Tax purposes, making the aggregate value subject to taxation. The claimant raised multiple grounds for annulment: erroneous legal qualification of the taxable event, incorrect quantification of property values, omission of the mandatory prior hearing procedure, and lack of competence of the official who rejected the administrative appeal. The CAAD tribunal confirmed its material competence to review the legality of the tax assessment under RJAT Article 2(1)(a), but declined jurisdiction over the subordinate request for condemnation of the TCA to issue new collection documents, as such relief falls outside the closed list of arbitral competences. The case illustrates critical interpretive issues regarding how Portuguese Stamp Tax applies to multi-unit properties in vertical ownership regimes and highlights the procedural safeguards available to taxpayers challenging high-value property tax assessments.

Full Decision

CAAD – Administrative Arbitration Center

Tax Arbitration

Proc. No. 686/2014 – T

ARBITRAL DECISION

Claimant: A... (hereinafter "Claimant")

Respondent: Tax and Customs Authority (hereinafter "TCA" and "Respondent")

  1. Report

A..., NIF ..., with tax domicile at Av. …, Lisbon, filed a request with the Administrative Arbitration Center (CAAD) for constitution of an arbitral tribunal with a view to annulling the tax act establishing the tax liability for item no. 28.1 of the General Table of Stamp Duty (GTSD) of 2013, in the total amount of € 8,308.35, relating to the urban property registered in the urban property register under article ... of the parish of ....

The Claimant petitions for annulment of the tax act and for the Respondent TCA to refrain from issuing new collection notices, based on the following defects, briefly summarized below:

a) Erroneous qualification of the taxable fact and error regarding the legal prerequisites;

b) Erroneous quantification of income and property values;

c) Omission of prior hearing;

d) Lack of competence of the official who issued the decision rejecting the administrative appeal.

The Tax and Customs Authority, for its part, contended, in summary, that no constitutional principle is violated, contrary to what the Claimant invoked, and that there is no illegality whatsoever since independent use areas relating to the same article do not constitute an urban property within the meaning of no. 4 of article 2 of CIMI, thus necessarily requiring the sum of the TPVs of all such areas or independent use floors, concluding that the Claimant's request for annulment is unfounded.

The sole arbitrator was designated on 07.11.2014.

In accordance with the provisions of article 11, no. 1, letter c) of RJAT, the singular arbitral tribunal was constituted on 24.11.2014.

Both the Claimant and the Respondent waived the holding of the first arbitral meeting, as well as the formulation of pleadings, which was sanctioned accordingly by this singular arbitral tribunal.

  1. Procedural Matters

The arbitral tribunal is materially competent, pursuant to the provisions of articles 2, no. 1, letter a) of the Legal Regime for Arbitration in Tax Matters, at least regarding the claim relating to the declaration of illegality of the tax act.

The parties have legal personality and capacity and have standing pursuant to article 4 and no. 2 of article 10 of the Legal Regime for Arbitration in Tax Matters (RJAT), and article 1 of Ordinance no. 112-A/2011, of March 22.

The request for constitution and pronouncement by an arbitral tribunal is timely and the parties have not raised any exceptions that would prevent the consideration of the merits of the case.

However, it is necessary to determine whether the request for condemnation of the TCA to issue new collection documents relating to the property in question, which were covered by the bank guarantee provided, is within the scope of this tribunal's competence.

This arbitral tribunal understands that such request falls within the logic of a subordinate request, that is, dependent on the outcome of the assessment to be carried out regarding the request for declaration of illegality of the tax act, and that only in the case of a declaration of illegality of that same tax act will the issue of the requested condemnation of the Respondent arise.

However, regardless of the outcome of the request for declaration of illegality and consequent annulment of the Stamp Duty assessment, nothing prevents the analysis of the admissibility of the request in the present proceedings, considering the legal framework within which arbitration operates as an alternative means of judicial resolution of conflicts in tax matters.

No. 1 of article 2 of Decree-Law no. 10/2011, of January 20, pursuant to the legislative authorization granted by article 124 of Law no. 3-B/2010, of April 28 [State Budget for 2010], in the version introduced by articles 228 and 229 of Law no. 66-B/2012, of December 31 [State Budget for 2013]) provides, under the heading Competence of arbitral tribunals and applicable law, as follows:

"1 — The competence of arbitral tribunals comprises the assessment of the following claims:

a) The declaration of illegality of acts of taxation, self-assessment, withholding at source and payment on account;

b) The declaration of illegality of acts of determination of the taxable base when such acts do not give rise to taxation, acts of determination of the taxable matter and acts of determination of property values;"

As is apparent from the content of the cited provision, this arbitral tribunal has competence only to assess and decide claims relating to the declaration of the illegality of acts of taxation, self-assessment, withholding at source, payments on account, as well as regarding acts of determination of taxable bases not giving rise to taxation and acts of determination of taxable matter and acts of determination of property values.

Thus, the scope of competence of tax arbitration comprises only a limited range of claims, when compared with the spectrum of claims susceptible of being assessed by tax courts, by virtue of articles 49 and 49-A of ETAF, article 101 of LGT and article 97 of CPPT.

The range susceptible of being assessed in this arbitral instance, as noted above, comprises only claims aimed at the declaration of illegality and eventual consequent annulment of the tax act subject to arbitral review.

Constituting the list of no. 1 of article 2 of RJAT a list of an exhaustive or closed nature, this singular arbitral tribunal is prevented from ruling on such request for condemnation, since the same manifestly falls outside the scope of competences legally attributed by way of the aforesaid provision, reason for which this arbitral tribunal cannot hear such condemnatory claim.

Notwithstanding the foregoing, there are no exceptions that prevent the assessment of the merits of the principal request formulated, relating to the illegality concretely imputed to the tax act subject to these proceedings, so the conditions are met for the issuance of an arbitral decision in this matter.

  1. Factual Matters

3.1. Proven Facts:

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

  1. The Claimant is a co-owner, in the proportion of one-half, of the urban property article registered in the property register of the Parish of ..., under article ...;

  2. The Claimant was notified to pay the 1st installment relating to the Stamp Duty assessment of 2013, item 28.1 of the GTSD, through collection documents no. 2014 …;

  3. The identified urban property was, at the end of 2013, in a regime of full/vertical ownership, being composed of 37 floors or divisions susceptible to independent use;

  4. Of the 37 floors or divisions susceptible to independent use, 28 have residential use and with the following TPVs:

  • Ground Floor A - € 54,890.00;
  • Ground Floor B - € 64,870.00;
  • Ground Floor C - € 39,920.00;
  • Ground Floor D - € 64,870.00;
  • 1st Floor A - € 64,870.00;
  • 1st Floor B - € 54,890.00;
  • 1st Floor C - € 54,890.00;
  • 1st Floor D - € 64,870.00;
  • 2nd Floor A – € 64,870.00;
  • 2nd Floor B - € 54,890.00;
  • 2nd Floor C - € 54,890.00;
  • 2nd Floor D - € 64,870.00;
  • 3rd Floor A - € 64,870.00;
  • 3rd Floor B - € 54,890.00;
  • 3rd Floor C - € 54,890.00;
  • 3rd Floor D - € 64,870.00;
  • 4th Floor D - € 64,870.00;
  • 4th Floor A - € 64,870.00;
  • 4th Floor B - € 54,890.00;
  • 4th Floor C - € 54,890.00;
  • 5th Floor A – € 54,890.00;
  • 5th Floor B – € 54,890.00;
  • 5th Floor C - € 54,890.00;
  • 5th Floor D - € 64,870.00;
  • 6th Floor A - € 64,870.00;
  • 6th Floor B - € 54,890.00;
  • 6th Floor C - € 54,890.00;
  • 6th Floor D - € 64,870.00;

The taxable property value of the above-identified urban property article only reaches or exceeds the amount of € 1,000,000.00 when the TPVs relating to the floors or divisions susceptible to independent use and with residential use that make up that same property article are summed;

No floor or division susceptible to independent use with residential use of the urban article ... has a taxable property value equal to or exceeding 1,000,000.00 euros;

The Claimant provided a bank guarantee relating to the tax subject to these proceedings;

By official communication dated 30.06.2015, the Claimant was notified of the rejection of the administrative appeal presented;

On 05.09.2014 the request for constitution and pronouncement by an arbitral tribunal was accepted;

The Claimant proceeded on 13.03.2015 to payment of the subsequent court fee;

No other facts relevant to the decision of the case were proven.

3.2. Substantiation of the factual matters deemed proven and not proven:

The conviction of the arbitrator was based on the documentary evidence attached to the record.

  1. Legal Matters:

4.1. Object and scope of the present proceedings

The questions raised before the Tribunal concern only the interpretation and application of legal rules, given that as to the facts, both the Claimant and the Respondent showed no disagreement.

The request for arbitral pronouncement has as its object the declaration of illegality of the act of assessment of Stamp Duty for the year 2013, under the provisions of item 28.1 of the GTSD, expressed in collection documents (1st, 2nd and 3rd installments), in the total amount of € 8,308.35.

The request for arbitral pronouncement has as its object the declaration of illegality of the act of assessment of stamp duty, in the amount of € 8,308.35, with the Claimant pointing to the tax act in question both formal and substantive defects, in the sense that the latter intend to challenge the essence of the foundation underlying the taxation carried out by the tax act sub judice, in this case, the applicability or not of the legal rule already referred to in light of the existing factual reality and, if affirmative, the conformity or not of that same provision with the Constitution of the Portuguese Republic and finally, defects of a formal procedural nature such as the omission of notification for prior hearing, lack of competence of the official who issued the decision rejecting the administrative appeal.

Given the provisions of article 124 of CPPT, applicable by virtue of letter a) of no. 1 of DL 10/2011, of January 20 (RJAT), it is established that the defects above referred to as "substantive" are those which, in case of success, determine a more stable and effective protection of the injured interests, so the assessment of the defect pointed out by the Claimant relating to the erroneous qualification of the taxable fact and error regarding the legal prerequisites cannot fail to be initiated.

4.2. On the alleged illegality of the Stamp Duty assessment, item 28.1 of the GTSD

In summary, the question at issue is to determine whether the interpretation made 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 GTSD, the sum of the TPVs of all floors or divisions of independent use with residential use relating to the same property article is or is not in accordance with the applicable legal framework.

In this regard, it is important to note that the tax act in question occurred during the validity of the wording given by Law no. 55-A/2012, of October 29, so that the current wording given to it by article 194 of Law no. 83-C/2013, of December 31 (State Budget for 2014) is not applicable here, as it only came into force on January 1, 2014.

And it is without losing sight of the legislative context of this innovation in the field of Stamp Duty taxation that the question relating to the assessment of the scope of the incidence rule contained in article 28.1 of the GTSD should also be appreciated.

Let us thus examine, first of all, the legal framework of the Stamp Duty assessment in question:

Law no. 55-A/2012, of October 29, added item 28.1 to the General Table of Stamp Duty (GTSD), with the following wording:

"28 – Ownership, usufruct or surface right of urban properties whose taxable property value as registered in the register, pursuant to the Municipal Property Tax Code (CIMI), is equal to or greater than € 1,000,000 – on the taxable property value used for purposes of IMI:

28.1 – For property with residential use – 1% (…);"

For its part, article 67, no. 2 of the Stamp Duty Code, added by the aforesaid Law, provides that "to matters not regulated in the present code relating to item 28 of the General Table, the CIMI shall apply subsidiarily."

The incidence provision refers to urban properties, the base concept of property deriving from the provisions of article 2 of CIMI, with the determination of TPV being in accordance with the provisions of article 38 and following of the same code.

Being that, pursuant to that aforesaid legal provision:

"1 - For purposes of this Code, property is any portion of territory, encompassing water, plantations, buildings and constructions of any nature incorporated in or situated on it, of a permanent character, provided that it forms part of the patrimony of a natural or legal person and, in normal circumstances, has economic value, as well as water, plantations, buildings or constructions, in the circumstances above, endowed with economic autonomy in relation to the land where they are situated, although located in a portion of territory that constitutes an integral part of a different patrimony or does not have a patrimonial nature." (emphasis ours)

Being that article 6 of CIMI clarifies that:

"1 - Urban properties are divided into:

a) Residential;

2 - Residential, commercial, industrial or for services 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 ours)

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

That is, we are faced with a concept of material or substantive character and not a concept of juridical-formalistic demarcation, as the Respondent TCA appears to intend.

Now, in the case at hand, the Respondent TCA does not even question whether the floors or divisions with independent use and with residential use relating to the property articles do not have these same characteristics (functional autonomy and economic value) highlighted by the legislator, nor could it do so since it is the TCA itself that deemed such information to be correct and caused it to be registered in the respective property registers of the property articles to which the floors or divisions susceptible to independent use belong.

Moreover, precisely because such floors or divisions have such characteristics of autonomy, both in functional terms and in terms of economic value, it is understandable that the legislator provided for the attribution of taxable property values for each of those floors, areas or divisions susceptible to independent use.

What contradicts the TCA's thesis according to which, since such floors or divisions are not expressly mentioned in no. 4 of article 2 of CIMI, the legislator intended to exclude such figure from the concept of property.

Therefore, given that the residential use and likewise the functional autonomy and economic value are indisputable, which is moreover reflected in tax terms in the TPV of those same independent areas, characteristics that are transposed to the respective property registers of the property article under the designation of floors or divisions susceptible to independent use, we cannot fail to conclude that in material and substantive terms those same floors or divisions are covered by the notion of property contained in no. 1 article 2 of CIMI and of urban property contained in letter a) of no. 1 and no. 2 of article 6, both of CIMI.

The introduction into the tax legal order of the present Item 28.1 of the GTSD had as its relevant and determining factor the incidence on urban properties with residential use, of high value, also commonly referred to as luxury housing, more rigorously, of value equal to or greater than €1,000,000.00, which would be subject to Stamp Duty.

The legislator thus intended to introduce a principle of taxation on wealth evidenced in the ownership, usufruct or surface right over any and all urban property with residential use, with the legislator's criterion applying such stamp duty to urban properties with residential use, whose TPV is equal to or greater than €1,000,000.00.

Such conclusion can be drawn from the analysis of the discussion of bill no. 96/XII in the Parliament, available for consultation in the Parliamentary Gazette, I series, no. 9/XII/2, of October 11, 2012.

The justification for the measure designated as "special tax on urban residential properties of the highest value" is based on the invocation of the principles of social equity and fiscal justice, calling upon holders of property of high value intended for housing to contribute in a more intensive manner, applying the new special tax to "houses of value equal to or greater than 1 million euros."

In this way, it seems clear that the legislator understood that houses with certain characteristics measured quantitatively through TPV should determine a special contribution to ensure fair distribution of the tax burden.

But equally evident, it reflects a line of legislative choice that intended specifically to burden urban properties with residential use in the upper segment, or otherwise commonly referred to as luxury housing.

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

Which is to say that regardless of the ideological considerations that may be made on such political choice, the legislator had a concrete and defined objective: to subject to Stamp Duty taxation urban properties with residential use of the highest value, which in practice translated into the fixing of a threshold measurable through TPV: value equal to or greater than € 1,000,000.00.

Moreover, the legislator ensured through various coefficients (reductive and augmentative) the objectivity in the calculation of that same TPV.

Now, none of the floors or divisions susceptible to independent use here in question and on which the assessments subject to this request for arbitral pronouncement fell, individually reach the value of € 1,000,000.00, with each of those floors or independent divisions representing in the tax system a property per se, reason for which the TCA incurred in error regarding the prerequisites by subjecting to item 28.1 of the GTSD by failing to consider that each of those same areas or divisions represents in terms of the IMI Code and consequently in Stamp Duty matters, an urban property, reason for which those areas or divisions relating to the same property article could not be summed for the purpose of calculating the TPV of that property article.

Which is to say that having regard to the legislative intent set out above, the floors or divisions susceptible to independent use do not meet the prerequisite relating to taxation in the field of the incidence rule provided for in item 28.1 of the GTSD, reason for which, also in light of the foregoing, we cannot fail to conclude that the legal conformity of the TCA's interpretation of subjecting to Item 28.1 of the GTSD the floors or divisions susceptible to independent use is lacking, because they do not individually meet the minimum quantitative criterion for such subjection.

4.3. Other defects invoked by the Claimant:

Having this singular arbitral tribunal accepted the understanding that Item 28.1 of the GTSD is not applicable to the case at hand, the assessment of the remaining defects adduced and which may affect the tax act put in issue is rendered procedurally unnecessary.

Thus, the consideration of all other issues raised for the purpose of annulling the tax act subject to arbitral review is rendered unnecessary.

  1. DECISION:

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

  1. To declare itself materially incompetent to rule on the request for condemnation of the Respondent not to issue Stamp Duty collection documents in the future, given that such claim falls outside the scope of competence of this singular arbitral tribunal;

  2. To judge well-founded, as proven, the request for declaration of illegality of the tax act of assessment under Stamp Duty of 2013, relating to the property identified by the urban property article mentioned in 1., for breach of law as to the provision contained in item 28.1 of the GTSD, for error regarding the legal prerequisites and, in consequence, to annul that same tax act;

Value of the case: € 8,308.35 – articles 97-A of CPPT, 12 of RJAT (DL 10/2011), 3-2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

Costs in accordance with Table I of RCPTA, calculated based on the aforementioned value of the claim, charged to the respondent – articles 4-1 of RCPTA and 6-2/a) and 22-4 of RJAT.

Notify the parties of this arbitral decision and, in due course, file the case.

Lisbon, April 21, 2015

The sole arbitrator,

Luís Ricardo Farinha Sequeira

Text prepared by computer, pursuant to article 138, no. 5 of the Code of Civil Procedure (CPC), applicable by reference to article 29, no. 1, letter e) of the Arbitration Regime in Tax Matters, with blank lines and reviewed by me.

Frequently Asked Questions

Automatically Created

What is Verba 28.1 of the Portuguese Stamp Tax General Table and how does it apply to vertical property?
Verba 28.1 of the Portuguese Stamp Tax General Table (Tabela Geral do Imposto de Selo) imposes an annual tax on urban properties with a taxable property value (valor patrimonial tributário - VPT) exceeding €1,000,000. In vertical property ownership regimes, where a building contains multiple independent residential or commercial units registered under a single property article, the critical question is whether each autonomous unit is treated as a separate property for tax purposes or whether all units must be aggregated. The Tax Authority's position is that independent use areas within the same property article do not constitute separate urban properties under Article 2(4) of the Property Tax Code (CIMI), thus requiring the summation of all individual VPTs to determine if the €1,000,000 threshold is met. This interpretation significantly impacts buildings with numerous moderate-value units that collectively exceed the threshold, subjecting property owners to substantial annual Stamp Tax liability even when no individual unit would independently qualify for taxation under Verba 28.1.
Can the tax authority sum the VPT of independent units within the same property article for Stamp Tax purposes?
According to the Tax and Customs Authority's position in this arbitration, yes—the TCA contends that independent use areas or floors relating to the same property article must have their VPTs summed for Stamp Tax purposes under Verba 28.1. The TCA's legal reasoning relies on Article 2(4) of the Property Tax Code (CIMI), arguing that autonomous units within a single registered property article do not constitute separate 'urban properties' for Stamp Tax purposes. This interpretation means that even if each individual residential or commercial unit has a VPT below €1,000,000, the aggregate value of all units determines tax liability. In the case at hand, the property contained 37 independent units, with 28 residential units having individual VPTs ranging from approximately €39,920 to €64,870. While no single unit exceeded the €1,000,000 threshold, the TCA summed all VPTs to establish Stamp Tax liability. This aggregation approach is contested by taxpayers who argue that each autonomous unit with independent use should be treated as a distinct property, particularly in vertical ownership regimes where units can be independently occupied, sold, or mortgaged.
What legal grounds can be used to challenge a Stamp Tax liquidation under Verba 28.1 in Portugal?
Portuguese taxpayers can challenge Stamp Tax liquidations under Verba 28.1 on multiple legal and procedural grounds, as demonstrated in this CAAD case. First, erroneous qualification of the taxable fact and error regarding legal prerequisites—arguing that the TCA misapplied Article 2(4) of CIMI by incorrectly treating independent units as a single property when each should be assessed separately. Second, erroneous quantification of income and property values—challenging the methodology used to calculate VPTs or the aggregation of values. Third, omission of prior hearing (audiência prévia)—a fundamental procedural right under Portuguese administrative law that, if violated, constitutes grounds for annulment regardless of substantive merit. Fourth, lack of competence of the official who issued the decision—challenging whether the authority that decided the administrative appeal had proper legal competence. Additionally, taxpayers may raise constitutional arguments regarding violation of property rights or tax equity principles. Challenges can be pursued through administrative appeal followed by CAAD arbitration under the Legal Regime for Arbitration in Tax Matters (RJAT), which provides competence to review the legality of tax assessments under Article 2(1)(a), or through judicial tax courts under ETAF provisions.
How does CAAD arbitration address disputes over the classification of urban property units under CIMI Article 2(4)?
CAAD arbitration tribunals have material competence under Article 2(1)(a) of the Legal Regime for Arbitration in Tax Matters (RJAT) to assess declarations of illegality of tax assessment acts, including disputes over the classification of urban property units under CIMI Article 2(4). In this case, the sole arbitrator confirmed jurisdiction to review whether the TCA correctly classified independent residential and commercial units within a vertical property regime as constituting a single urban property requiring VPT aggregation. The tribunal's analysis focuses on whether autonomous units with independent use capability should be treated as separate properties or whether all units within the same property article must be considered collectively for Stamp Tax purposes. CAAD's competence is limited to the closed list enumerated in RJAT Article 2(1), encompassing illegality declarations but excluding broader condemnatory relief such as ordering the TCA to issue new collection documents—such requests fall outside arbitral jurisdiction. The arbitration process allows both parties to waive the initial arbitral meeting and oral pleadings, as occurred here. CAAD provides an alternative dispute resolution mechanism that is generally faster than traditional tax court litigation, with specialized arbitrators examining technical property tax classification issues and their intersection with Stamp Tax liability under Verba 28.1.
What procedural requirements, such as prior hearing rights, apply to Stamp Tax assessments on high-value properties in Portugal?
Stamp Tax assessments on high-value properties in Portugal must comply with fundamental procedural requirements, including the right to prior hearing (direito de audiência prévia). This procedural safeguard, grounded in Portuguese administrative law and the Tax Procedure Code (Código de Procedimento e Processo Tributário), requires the tax authority to notify the taxpayer of proposed adverse decisions and provide an opportunity to present arguments and evidence before finalization. Omission of prior hearing constitutes an autonomous ground for challenging tax assessments, as the claimant argued in this case. The violation of this procedural right can result in annulment of the tax act regardless of its substantive correctness, reflecting the principle that procedural guarantees protect taxpayers' defense rights. Additionally, the competence of the official issuing decisions on administrative appeals must be properly established—lack of competence is another procedural defect that can invalidate tax acts. For Verba 28.1 assessments involving complex property valuation and classification issues, prior hearing becomes particularly important as it allows taxpayers to contest the TCA's interpretation of property structures, VPT calculations, and the application of CIMI provisions before collection enforcement begins. Taxpayers can also provide bank guarantees to suspend collection while pursuing administrative or arbitral challenges to the assessment.