Process: 710/2014-T

Date: June 30, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitral decision from the Portuguese Tax Arbitration Centre (CAAD) addresses whether the Tax Authority can aggregate the tax patrimonial values of multiple independent units within a single vertically-owned property to trigger the €1,000,000 threshold for Stamp Tax under Item 28.1 of the General Stamp Tax Table (TGIS). The applicant owned a building in Lisbon consisting of 12 independent residential units across a ground floor and two stories, with a combined tax patrimonial value of €1,018,104.22. While no individual unit exceeded €1,000,000, the Tax Authority assessed the 1% annual Stamp Tax by aggregating all units' values. The taxpayer argued that each economically autonomous unit should be assessed separately, analogizing to the treatment of autonomous fractions in horizontal property ownership (condominium) regimes, where each fraction is treated as independent property for tax purposes. The Tax Authority countered that vertical property ownership (full ownership without the horizontal property regime of Civil Code Article 1414) constitutes a single property for tax purposes, despite containing independently usable units. The AT emphasized that horizontal and vertical property ownership are distinct civil law regimes with different tax treatment, and applying horizontal property rules by analogy to vertical property would violate the principle of tax legality. The Authority maintained that for properties not subject to horizontal ownership, the relevant tax patrimonial value is the total value of the entire property, not the sum of its parts. The taxpayer challenged 27 Stamp Tax assessments for 2012 through CAAD arbitration after exhausting administrative remedies, seeking annulment and compensatory interest.

Full Decision

ARBITRAL DECISION

Process No. 710/2014 – T

A – REPORT

  1. A..., LDA, legal entity No. …, with registered office at Rua …, Porto, requested the establishment of an arbitral tribunal, pursuant to articles 2, no. 1, a) and 10, no. 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 acts, relating to the year 2012 and the recognition of the right to compensatory interest, with the Tax and Customs Authority being requested (hereinafter designated as "AT").

  2. The application for establishment of a single arbitral tribunal having been admitted, and the applicant not having opted 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, in the wording introduced 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 express their will to challenge 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, having, in accordance with the provisions of paragraph c) of no. 1 of article 11 of the RJAT, in the wording introduced by article 228 of Law No. 66-B/2012, of 31 December, the arbitral tribunal been constituted on 08-01-2015.

  1. Notified, the AT submitted a response in which it did not raise any exception.

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

  3. The applicant requests that the illegality and inherent annulment of twenty-seven Stamp Tax assessments relating to the year 2012 and concerning the urban real property register article ... of the parish of …, municipality of Lisbon, be declared, with the consequent restitution of the tax paid, plus compensatory interest, alleging in summary:

a) It is the owner of a real property in full ownership consisting of a ground floor and two stories, located at Rua …, in Lisbon

b) The property consists of 12 independent units, capable of independent use.

c) The AT considered it appropriate to apply item 28.1 of the TGIS, on the understanding that the sum of the 12 independent units should be made, thus reaching a tax patrimonial value exceeding € 1,000,000.00 €, in this specific case, € 1,018,194.22.

d) The applicant made a point of demonstrating its disagreement with such assessments, submitting an administrative complaint, which was rejected by order of 02-07-2014.

e) The applicant was notified of the assessment of stamp tax values, corresponding to the stories and divisions of independent use.

f) As there is no legal definition of urban real property with residential purpose, either in the CIS or in the TGIS, we are obliged to resort to article 67, no. 2 of the CIS and to apply subsidiarily the CIMI.

g) Any independent unit is, for the purposes of IMI, treated as any autonomous fraction, having its own tax patrimonial value, autonomous assessments and autonomous valuations.

h) For the purposes of application of the principles of tax legality, equality, justice and proportionality, the value corresponding to the economic autonomy of each unit should be applied and never the total tax patrimonial value of the property.

  1. In turn, the respondent alleged in response, in summary:

a) It follows from the notion of real property in article 2 of the CIMI that only autonomous fractions of property in the horizontal ownership regime are considered real property.

b) The applicant, for the purposes of IMI and Stamp Tax, is not the owner of 12 autonomous fractions, but rather of a single real property.

c) Horizontal ownership is a specific legal regime of property provided for in article 1414 of the Civil Code, which provides and regulates the manner of constitution as well as the other rules concerning the rights and obligations of co-owners, recognizing it to have a more evolved property regime.

d) To contend that the interpreter and applicator of tax law should apply, by analogy, to the regime of full ownership, the regime of horizontal ownership would be, at minimum, abusive and illegal.

e) As the property is not subject to the horizontal ownership regime, legally the fractions are parts capable of independent use, without there being common areas, tax law attributes relevance to such materiality, evaluating individually, but integrating the same register.

f) The unit of urban real property in vertical ownership composed of various stories or divisions is not, however, affected by the fact that all or part of these stories or divisions are capable of independent economic use.

g) Such property nonetheless remains only one, and thus its distinct parts are not legally equated to autonomous fractions in the horizontal ownership regime.

h) The interpretation of item 28.1 of the TG, in the sense that the tax patrimonial value on which its incidence depends is determined story by story or division by division and not globally, is unconstitutional by violation of the principle of tax legality.

i) The procedural norms of valuation, real property register inscription and assessment of parts capable of independent use do not permit the assertion that there is an equation of the property in the full ownership regime to the vertical ownership regime.

j) These are different legal-civil regimes and thus tax law considers them.

k) The tax patrimonial value relevant for the purposes of item 28.1 is, thus, the total tax patrimonial value of the urban real property and not the tax patrimonial value of each of the parts that compose it, even when capable of independent use.

l) The contested tax acts, in terms of substance, did not violate any legal or constitutional provision, and should be maintained in the legal order.

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

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

The process does not have any nullities.

B. DECISION

  1. FACTS

1.1. PROVEN FACTS

The following facts are considered proven:

a) The applicant is the owner of the urban real property located in Lisbon, at Rua …, registered in the urban register under article ....

b) The property consists of a ground floor and two stories and comprises a total of twelve units with independent use, all intended for residential purposes.

c) The sum of the tax patrimonial values of all the stories and divisions with residential purpose totals 1,018,104.22 €.

d) None of the stories, considered individually, has a tax patrimonial value exceeding 1,000,000.00 €.

e) The AT assessed stamp tax individually on the tax patrimonial values of the stories or parts capable of independent use, at the rate of 1%, by application of item 28.1 of the TGIS, in the wording given by article 4 of Law 55-A/2012, of 29 October, with respect to the year 2012.

f) The applicant submitted an administrative complaint at the finance office on 29-05-2014.

g) The administrative complaint was filed by order of 02-07-2014 of the Head of Finance, in substitution regime, with the order stating that "in the case of the allegations presented in the petition, the form of admissible reaction should be the submission of IMI Form 1 in order to request new valuation of the property in question", which the applicant received on 15-07-2014.

h) The applicant submitted the request for arbitral determination that gave rise to the present proceedings, on 12-10-2014.

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

1.3 UNPROVEN FACTS

There are no facts established as unproven with relevance to the assessment of the request.

1.4 THE LAW

TIMELINESS

The arbitral tribunal must begin by assessing the possible existence of exceptions that prevent knowledge of the request.

No exception was raised by the respondent, which does not invalidate the need to address those that the law requires be known ex officio.

The applicant did not identify discriminately, as it should have, which specific assessments it challenges, having merely referred to the single documents of collection of the tax now challenged, concerning its payment in the context of tax enforcement.

Having the applicant been notified to attach to the proceedings copies of the assessment notifications it seeks to have annulled, it appears that these relate to assessments concerning the year 2012, issued within the legal period and from which it follows that the period for payment thereof, because divided into three installments, ended on 30 November 2013.

If such factuality is compared with the date of presentation of the present request for arbitral determination – 12-10-2014 – it would be immediately concluded that it is out of time.

Indeed, the request for constitution of an arbitral tribunal must be presented within ninety days from the date of the facts provided for in no. 1 and 2 of article 102 of the CPPT [article 10, no. 1 a) of the RJAT].

As relevant to the case, we have that the arbitral request should have been presented within ninety days from the end of the period for voluntary payment of the stamp tax in question, that is, from 30-11-2013 (which also follows from article 120, no. 1, c) of the CIMI, in view of the provisions in the final part of no. 5 of article 44 of the CIS).

However, the applicant alleges that it submitted an administrative complaint regarding the assessments in question, the rejection of which it claims was notified to it on 15-07-2014, which would mean that the present request for arbitral determination was presented within the legal period.

In accordance with the provisions of article 70 of the CPPT, an administrative complaint may be submitted on the same grounds provided for judicial challenge which, in this case, are the same as those admitted in tax arbitration.

It is true that in the aforesaid complaint the applicant does not directly discuss the question of the assessments in question, instead appearing to seek that a new valuation be made of the tax patrimonial value fixed by the AT. However, it submitted such request in the sequence of the notifications of stamp tax assessments which it identified therein.

However, the administrative complaint (which, in this case, was not subscribed by a lawyer) is governed by simplicity of terms and dispensation of essential formalities (article 69 of the CPPT).

Now, the object of judicial challenge (and by extension, also of the request for arbitral determination) is the tax act and its legality. Hence, the appropriate means to challenge the rejection of an administrative complaint that involves the assessment of the legality of an assessment act is judicial challenge, (see, inter alia, Decision of STA of 04/03/2009, in proc. 01034; of 09/10/2008, in proc. 0567/08; of 19/12/2007 in proc. 0617/07) and this is so because the object of the process is still the assessment act whose legality is contested.

Hence, it is understood that the defects invoked in the context of an administrative complaint do not bar or legally prevent that following its rejection a new period is opened to challenge the act, where any other defects not alleged in the administrative complaint context can be invoked.

We therefore consider that the present request for arbitral determination is presented as a reaction to the administrative complaint submitted by the applicant and, thus, as has been set out, it was presented within the legal period.

ON THE MERITS OF THE REQUEST

The fundamental issue to be assessed in this process concerns the interpretation to be given to item 28.1 of the General Table of Stamp Tax, in the wording of Law No. 55-A/2012 of 29 October, in order to determine whether, with respect to real properties not constituted in the horizontal ownership regime which include stories or divisions capable of independent use, the tax patrimonial value relevant for the purposes of application of the tax is that attributed individually to each of them or, conversely, that corresponding to the sum of all of them.

Item 28 of the General Table of Stamp Tax provides:

  • "Ownership, usufruct or surface rights of urban real properties whose tax patrimonial value entered in the register, in accordance with the Municipal Real Property Tax Code, is equal to or exceeding € 1,000,000.00 – on the tax patrimonial value for the purposes of IMI:

28.1 – Per property with residential purpose – 1%

(…)".

Article 6 of the aforementioned Law No. 55-A/2012 provides that the tax patrimonial value to be considered in the assessment of stamp tax corresponds to that which results from the rules of the Municipal Real Property Tax Code (CIMI), with no. 2 of article 67 of the Stamp Tax Code (CIS) adding that "matters not regulated in the present Code concerning item no. 28 of the General Table, the provisions of the CIMI shall apply subsidiarily".

In turn, article 2 of the CIMI gives us the concept of real property, with article 6 of the same code, in its no. 2, establishing that "residential, commercial, industrial or service buildings or constructions are those licensed for such purposes or, in the absence of a license, that have as their normal purpose each of these ends".

It is with recourse to these provisions that the answer to the question at issue must be found.

Being certain that the only comparison that the CIMI makes between properties in the horizontal or full ownership regime can be found in no. 4 of article 2 when it prescribes that "each autonomous fraction, in the horizontal ownership regime, is considered as constituting a real property".

In fulfillment of which, in the definition of the concept of real property registers, no. 3 of article 12 of the CIMI, determines that "each story or part of property capable of independent use is considered separately in the real property register inscription, which also discriminates the respective tax patrimonial value".

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

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

Whereby we consider that the position of the AT cannot be accepted, when it seeks to establish as the reference value for the incidence of stamp tax the global value of the property in question, as the CIMI does not permit this, which is, as has already been stated, the legal referential basis supporting that [tax].

As none of the divisions capable of independent use has a tax patrimonial value exceeding one million euros, there is no application of item 28.1 provided for in the TGIS.

Wherefore it is concluded that the assessment object of the present arbitral request is affected by illegality, whereby its annulment is necessary, and the tax paid must be restituted to the applicant, this not including default interest and costs of tax enforcement, as the applicant sought.

  1. DECISION

In view of the foregoing, it is decided:

a) to judge as well-founded, on grounds of violation of law, the request for annulment of the tax act object of the arbitral request corresponding to the Stamp Tax assessment relating to the year 2012 concerning article ... of the parish of … in Lisbon, as well as the request for payment of compensatory interest;

b) to condemn the Tax and Customs Administration to reimburse the applicant the amount of tax paid, plus the respective compensatory interest;

c) to condemn the respondent to pay the costs of the process.

VALUE OF THE PROCESS: 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 Process and article 3, no. 2 of the Regulations on Costs in Tax Arbitration Processes, the process is assigned the value of 10,203.92 € (ten thousand two hundred and three euros and ninety-two cents).

COSTS: In accordance with the provisions of article 22, no. 4, of the Regulations on Costs in Tax Arbitration Processes, the amount of costs is fixed at 918.00 € (nine hundred and eighteen euros), in accordance with Table I annexed to the Regulations on Costs in Tax Arbitration Processes.

Notify.

Lisbon, 30-06-2015

The Arbitrator

António Alberto Franco

[1] Among others, those delivered in Proc. 50/2013-T, 131/2013-T, 181/2013-T, 185-2013-T, 177/2014, 206/2014-T

Frequently Asked Questions

Automatically Created

What is Verba 28 of the Portuguese Stamp Tax (Imposto do Selo) and how does it apply to properties valued over €1,000,000?
Verba 28 (Item 28) of the Portuguese Stamp Tax General Table (TGIS) imposes an annual 1% Stamp Tax on urban real property intended for residential purposes when the tax patrimonial value (valor patrimonial tributário) exceeds €1,000,000. This provision, introduced by Law 55-A/2012 of October 29, applies to properties assessed above this threshold and is calculated annually based on the property's registered tax value. The tax is assessed on the property owner and represents a wealth tax on high-value residential real estate in Portugal.
Can the Portuguese Tax Authority aggregate the values of independent units in a vertical property to meet the €1M stamp tax threshold?
According to the Tax Authority's position in this case, YES, for properties in vertical ownership (full ownership regime without horizontal property division), the values of all independent units must be aggregated to determine if the €1,000,000 threshold is met. The AT argues that unlike horizontal property ownership (condominium regime governed by Civil Code Article 1414), where each autonomous fraction is treated as separate property for tax purposes, a vertically-owned property with multiple independently usable units remains a single property unit for Stamp Tax purposes. Therefore, even if individual units are capable of independent economic use and have separate tax patrimonial values for assessment purposes, they must be summed together when applying Item 28.1 of the TGIS.
How does the CAAD distinguish between horizontal and vertical property ownership for Stamp Tax purposes?
The CAAD distinguishes between these regimes based on the civil law property structure established in the Portuguese Civil Code. Horizontal property ownership (propriedade horizontal) is a specific legal regime under Article 1414 of the Civil Code that creates autonomous fractions, each with its own independent legal existence, separate registration, and individual tax patrimonial value. For Stamp Tax purposes, each autonomous fraction in horizontal ownership is treated as an independent property. In contrast, vertical property ownership (full ownership without horizontal property division) is treated as a single property unit, even when it contains multiple stories or divisions capable of independent economic use. The Tax Authority's position is that these are fundamentally different civil law regimes, and tax law respects this distinction, meaning that procedural norms for valuation and registration of independently usable parts do not equate vertical property to horizontal ownership for tax purposes.
What is the procedure for challenging Stamp Tax assessments through CAAD tax arbitration in Portugal?
The procedure for challenging Stamp Tax assessments through CAAD involves several steps: (1) First, taxpayers must exhaust administrative remedies by filing an administrative complaint (reclamação graciosa) with the local Finance Office within the legal deadline; (2) If the complaint is rejected, the taxpayer can request arbitration by submitting a formal application to CAAD under the Legal Framework for Tax Arbitration (RJAT - Decree-Law 10/2011); (3) The request must specify the contested acts, legal grounds, and relief sought (such as annulment of assessments and compensatory interest); (4) Upon admission, if the taxpayer does not appoint an arbitrator, the CAAD Deontological Council appoints a single arbitrator; (5) The Tax Authority submits a written response; (6) The parties may waive the hearing under Article 18 of RJAT; (7) The arbitrator issues a binding decision on the legality of the tax assessments. The entire process typically takes several months from filing to decision.
Are property owners entitled to compensatory interest (juros indemnizatórios) when Stamp Tax assessments are annulled?
Yes, property owners are entitled to compensatory interest (juros indemnizatórios) when Stamp Tax assessments are annulled, provided the tax was actually paid. Under Portuguese tax law, when a tax assessment is declared illegal and annulled through administrative or judicial proceedings, and the taxpayer had already paid the tax, the State must refund the improperly collected amount plus compensatory interest. This interest compensates the taxpayer for the financial loss suffered due to the improper deprivation of funds. The interest is calculated from the date of payment until the date of reimbursement, at the legal rate established in the Portuguese Tax Code. In this case, the applicant specifically requested both the restitution of the improperly paid Stamp Tax and compensatory interest as part of the relief sought in the arbitration proceeding.