Process: 740/2014-T

Date: March 30, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitral decision addresses whether Stamp Tax under Item 28.1 of the General Stamp Tax Table (TGIS) applies to properties in total vertical ownership when individual independent parts are each valued below €1,000,000 but aggregate above this threshold. The claimant owned an urban property with a total patrimonial tax value of €1,551,840 comprising eight independent residential units, each valued separately for Municipal Property Tax (IMI) purposes. The Tax Authority assessed Stamp Tax totaling €15,518.40 based on the aggregate property value. The claimant argued that each independent part should be treated separately for Stamp Tax purposes, similar to horizontal property fractions under the Municipal Property Tax Code (CIMI), and that aggregation violates constitutional principles of tax equality and proportionality under Articles 103 and 104(3) of the Portuguese Constitution. The Tax Authority contended that total ownership constitutes a single property distinct from horizontal property regimes, that Item 28.1 TGIS applies to the total patrimonial tax value registered for the entire property, and that no legal gap exists requiring analogical interpretation. The central legal issue involves reconciling the CIMI's treatment of autonomous parts for IMI purposes with the interpretation of 'urban property' under Item 28.1 TGIS, and determining whether aggregating patrimonial values of independently-valued parts to trigger the €1,000,000 threshold complies with constitutional tax principles when the property structure differs from horizontal property ownership regimes.

Full Decision

Case No. 740/2014-T

Arbitral Decision

Claimants: A... – ..., S.A.

Respondent: AT - Tax and Customs Authority

I – REPORT

  1. CLAIM

A... – ..., S.A., taxpayer no. ..., with headquarters in Lisbon, at Rua …, filed, on 27-10-2014, pursuant to the provisions of Article 10 of the Regulatory Framework for Tax Arbitration (RJAT), a request for an arbitral award, in which the Respondent is the AT - Tax and Customs Authority, seeking to:

  • Annulment of the assessment of Stamp Tax (IS), relating to the year 2013, effected on the basis of Item 28.1 of the General Schedule of Stamp Tax (TGIS), on the urban property described in the Land Registry Office of ... with number ... and registered in the urban property register under article ... of the Parish of ..., ...;

  • Recognition of the Claimant's right to reimbursement of the amount paid in respect of the assessments challenged, together with default interest.

The Claimant alleges, in essence, the following:

  • The Municipal Property Tax Code (CIMI) on Real Estate enshrines the principle of the autonomy of independent parts of an urban property, such that each autonomous part has its own tax property value (VPT), which is taken into account for purposes of Municipal Property Tax (IMI);

  • In addition to its own VPT, each part susceptible to independent use is valued separately and is subject to IMI through an autonomous assessment;

  • For purposes of IMI, therefore, parts of urban property susceptible to independent use are treated as separate units in horizontal property ownership;

  • Consequently, for purposes of Stamp Tax as well, parts of urban property susceptible to independent use should be treated as separate units, which would mean that, if the value of the part of the property, considered separately, does not reach the value of 1,000,000 euros provided for in Item 28.1 of the TGIS, no Stamp Tax can be levied thereon;

  • By proceeding otherwise, the Tax Authority assessed Stamp Tax on the various parts susceptible to independent use but using, to determine the application of the tax, the total value of the property, thereby violating the principles of justice, proportionality and tax equality enshrined in Articles 103 and 104, paragraph 3 of the Portuguese Constitution;

  • The assessments in question, by taking as their basis the value resulting from the sum of the tax property values of the parts susceptible to independent use, are vitiated by the defect of violation of law due to error in legal grounds, and should be annulled;

  • Since the assessments are illegal, and the Claimant has paid the assessed tax, the latter should be reimbursed of the amounts wrongly paid, together with default interest.

  1. RESPONSE

In its response to the request for an award filed by the Claimants, the Respondent AT - Tax and Customs Authority argues for the dismissal of the claim, alleging, in summary, the following:

  • The situation of the Claimant's property falls literally within the provision of Item 28.1 of the TGIS;

  • From the definition of property in Article 2, paragraph 4 of the CIMI it follows that only units in horizontal property ownership are considered properties;

  • The Claimant is not, for purposes of IMI and IS, the owner of 12 separate units, but of a single property;

  • The registration in the property register of each part susceptible to independent use is not autonomous, per register, but appears as a description in the register of the property as a whole;

  • Horizontal property ownership is a specific legal regime of ownership provided for in Article 1414 of the Civil Code, different from full vertical ownership;

  • It is not permissible for the interpreter of law to equate these regimes, in accordance with the rule that legal concepts have in tax law the meaning they have in the branches of law from which they originate (in accordance with Article 11, paragraph 2 of the General Tax Law);

  • Article 10 of the Civil Code, concerning the application of analogy, provides that analogy shall only be applicable in case of gaps in the law. In the present case, tax law contains no such gap.

  • The taxable event provided for in Item 28.1 of the TGIS consists of ownership of urban property whose tax property value registered in the property register, in accordance with the CIMI, is equal to or greater than 1,000,000 euros, the tax property value relevant for purposes of application of the tax is the total tax property value of the urban property, and not the tax property value of each of the parts composing it, even when susceptible to independent use;

  • The tax acts challenged did not violate any legal or constitutional provision, and should be upheld in the legal system.

II – PRELIMINARY ISSUES

This Single Arbitral Tribunal was constituted on 05.01.2015, the Arbitrator having been designated by the Ethics Council of CAAD, with compliance with the respective legal and regulatory formalities (Articles 11, paragraph 1, subsections a) and b) of RJAT and 6 and 7 of the CAAD Code of Ethics), and is competent ratione materiae, in accordance with Article 2 of RJAT.

The parties have legal personality and capacity, are legitimate parties with standing, and are regularly represented.

The hearing provided for in Article 18 of RJAT was dispensed with, with the consent of the parties, as it was considered unnecessary.

The parties waived the submission of written pleadings.

There are no exceptions or preliminary issues requiring determination, and accordingly nothing prevents consideration of the merits of the case.

III – ISSUES TO BE DECIDED

The following are the issues to be decided by the Tribunal:

  • The applicability of Item 28.1 of the TGIS to urban properties in full vertical ownership formed by parts susceptible to independent use considered as a whole, with the consequence that the tax property value to be taken into account for purposes of application of the tax shall be, in the event of an affirmative answer, the tax property value of the property;

  • The constitutionality of the rule of application contained in Item 28.1 of the TGIS, if interpreted to embrace urban properties in full ownership composed of parts susceptible to independent use and valued separately, in light of the constitutional principle of equality;

IV – REASONING

A - FACTS CONSIDERED PROVED AND RELEVANT

On the basis of the documents submitted by the Claimant which form part of the administrative file, the following facts are considered proved as being relevant to the decision:

  • At the date of the taxable event, the Claimant was the owner of an urban property registered in the property register of the parish of ..., municipality of ..., under article no. ... and described therein as property in full vertical ownership (total), composed of units susceptible to independent use;

  • Eight divisions susceptible to independent use are described as intended for residential purposes;

  • The property has a tax property value of 1,551,840.00 euros;

  • The Claimant received billing notices for Stamp Tax under Item 28.1 of the General Schedule of this tax, relating to the eight parts susceptible to independent use, for the year 2013;

  • The billing notices are identified by the following numbers:

  • 2014 ..., relating to the unit identified as 1st Right;

  • 2014 ..., relating to the unit identified as 1st Left;

  • 2014 ..., relating to the unit identified as 2nd Right;

  • 2014 ..., relating to the unit identified as 2nd Left;

  • 2014 ..., relating to the unit identified as 3rd Right;

  • 2014 ..., relating to the unit identified as 3rd Left;

  • 2014 ..., relating to the unit identified as Ground Floor Right;

  • 2014 ..., relating to the unit identified as Ground Floor Left.

  • The sum total of the amounts shown in the said billing notices is 15,518.40 euros, with the payment due date being "July 2014";

  • The Claimant paid the full amount of assessed tax;

The facts proved were established on the basis of documents contained in the file.

There are no facts considered not proved as being relevant to the decision.

B - LEGAL REASONING

  1. The issue of the applicability of Item 28.1 of the TGIS to urban properties in full ownership, considered as a whole, when composed of parts considered separately in the property register

The following is the wording of Item 28 of the General Schedule of Stamp Tax:

  1. "Ownership, usufruct or surface right of urban properties whose tax property value registered in the property register, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than (euro) 1,000,000 - on the tax property value used for purposes of IMI:

28.1 For property with residential use – 1%"

The Claimant bases part of its argument on the thesis that, for purposes of IMI, parts of urban property susceptible to independent use are treated as separate units in horizontal property ownership and that, consequently, for purposes of Stamp Tax as well, parts of urban property susceptible to independent use should be treated as separate units;

We believe, with due respect, that the Claimant's thesis cannot be accepted, and it is not correct to assert that, for purposes of IMI, parts of urban property susceptible to independent use are treated as separate units in horizontal property ownership;

Indeed, Article 2, paragraph 4 of the CIMI expressly provides that, "for purposes of this tax, each separate unit, under the horizontal property ownership regime, is deemed to constitute a property". Accordingly, there is no doubt that, for purposes of CIMI and, consequently, for purposes of IS, units of properties constituted in horizontal property ownership are treated as properties.

This qualification means not only that separate units of properties in horizontal property ownership are valued separately, but also that the tax is applied separately to each unit, with that assessment being based solely on the value of the separate unit.

By contrast, with respect to parts susceptible to independent use forming part of properties under full ownership, there is no provision in the CIMI corresponding to that in Article 2, paragraph 4.

It is true that the IMI Code provides (Article 12, paragraph 3) that parts of property susceptible to permanent independent use shall be considered separately in the property register, each having its own tax property value.

But on the other hand, Article 7, paragraph 2, subsection b) of the same Code provides that, in the case of property composed of economically independent parts, each part is valued by application of the corresponding rules, and the value of the property is the sum of the values of its parts.

Accordingly, while separate units of properties in horizontal property ownership are treated as properties for purposes of IMI, this is not the case with the parts composing properties in full ownership.

And there can be no doubt that, since parts susceptible to independent use are not treated as properties, and IMI is applied to the tax property value of properties (Article 1 of the CIMI), IMI does not apply to the parts susceptible to independent use of properties in full ownership, but rather to the property in which those parts are integrated.

It is true that the tax administration issues a billing document for IMI for each part composing the property in full ownership, thereby creating the appearance that IMI applies to the parts susceptible to independent use. It should be noted that this procedure has no direct basis in law. It is a practice of the administration, reminiscent of Property Contribution, in which it was the income generated by each independent part that determined the tax value thereof.[1] But there is no doubt that, in the case of full vertical ownership, there exists a single property and, consequently, this should correspond to a single IMI assessment act;

Now, in the scope of Stamp Tax, the concept of property is that defined in the IMI Code (by virtue of Article 1, paragraph 6 of the IS Code), such that the considerations set out above regarding the tax treatment of separate units of properties in horizontal property ownership and of parts of properties in full ownership are fully valid for purposes of Stamp Tax. In this tax as well, urban property composed of parts considered separately in the property register and susceptible to independent use must be considered one property, whereas the parts composing it cannot receive such qualification;

Now, since the application of the tax under Item 28.1 is based on properties, and not on parts of properties, it follows that it cannot apply to the parts considered separately in the property register and susceptible to independent use.

And being so, it is the tax property value of the property, and not of the parts, that is the determining value for assessing the application of the tax;

In the present case, the tax administration considered that there was, likewise, a single property, and took as the base value for the assessment the tax property value of the property. It then issued separate billing documents for the various parts with residential use.

It must therefore be concluded that the situation of ownership of a property under the regime of full ownership composed of parts susceptible to independent use falls literally within the provision of Item 28.1 of the TGIS.

Accordingly, the claim for annulment of the assessments in question is unfounded, based on error in legal grounds, manifested in the non-applicability of Item 28.1 of the TGIS to properties in full ownership with parts considered separately in the property register.

  1. The issue of the constitutionality of the rule of application contained in Item 28.1 of the TGIS, when interpreted to embrace urban properties in full ownership considered as a whole, when composed of parts considered separately in the property register, in light of the constitutional principle of tax equality

The Claimant raises the issue of the violation of the constitutional principles of justice, proportionality and equality by Item 28.1 of the TGIS, when interpreted to embrace urban properties in full ownership composed of parts considered separately in the property register.

Moreover, the unconstitutionality of the provisions applicable to the present case is a matter of ex officio review, such that for that reason as well the Arbitral Tribunal should always pronounce itself thereon.

The issue of the constitutionality of the rule of application contained in Item 28.1 of the TGIS was the subject of a pronouncement in the arbitral decision rendered in Case No. 14/2014, in which we were the Arbitrator and which, as we see no reason to depart now from the position then adopted, we proceed to reproduce.

"The principle of equality, enshrined in Article 13 of the Portuguese Constitution, postulates that equal treatment be given to what is essentially equal and that different treatment be given to what is essentially different (Court of Accounts Decision No. 437/2006).

However, in order to ascertain equality or difference between two different realities, from the tax point of view, a parameter is necessary – "the criterion that is to serve as the basis for the comparison" – which is provided by contributive capacity (Court of Accounts Decision No. 197/2013).

Contributive capacity thus constitutes – alongside other aspects or functions of the principle (see Court of Accounts Decision No. 197/2013) – the criterion through which different taxpayers must be compared, in order to determine whether they should receive identical or different tax treatment.

In this way, the principle of contributive capacity (in one of its aspects) gives concrete expression to the principle of tax equality (Court of Accounts Decision No. 84/2003), presupposing equal tax treatment in relation to persons with the same contributive capacity and unequal tax treatment in relation to persons with different contributive capacity.

As a consequence of the principle of contributive capacity, taxpayers with the same spending capacity should pay the same taxes and taxpayers with different spending capacity should pay different taxes (Court of Accounts Decision No. 197/2013).

It is this dimension of the principle of contributive capacity, as prohibiting unequal tax treatment of persons with the same contributive capacity and equal tax treatment of persons with different contributive capacity, that is particularly relevant to the present case.

The issue at hand is, more specifically, the difference in treatment accorded, by the IS Code in Item 28.1 of the TGIS, to properties in horizontal ownership and properties in full ownership, composed of parts considered separately in the property register.

We noted previously that separate units of properties in horizontal property ownership are considered properties for purposes of IMI (Article 2, paragraph 4 of the CIMI), and are so also [for purposes of Stamp Tax], by virtue of Article 1, paragraph 6 of the IS Code.

Being so, the IS under Item 28.1, in the case of properties in horizontal property ownership, can only apply if the tax property value of the separate unit is equal to or greater than 1,000,000 euros. On the other hand, the value resulting from the sum of the tax property values of the various residential units cannot be taken into account for purposes of applying the tax.

Even if a single person is the owner of all the units of a property in horizontal property ownership, and if the sum of the tax property values of the residential units of the property is equal to or greater than 1,000,000 euros, such owner will not be subject to IS on that property.

Now, between the two situations described – residential property in horizontal ownership and residential property in full ownership composed of parts susceptible to independent use and considered separately in the property register – there exists no substantial difference, the difference being merely formal. A formal difference that does not affect, in any way, the contributive capacity of the respective owners.

Indeed, ownership of a residential property in full ownership, composed of parts susceptible to independent use and considered separately in the property register, with a tax property value equal to or greater than 1,000,000 euros, reveals no special contributive capacity that ownership of several separate residential units, the sum of whose tax property values is equal to or greater than 1,000,000 euros, does not likewise reveal.

(…)

Any other understanding, which seeks to disregard the substantial economic identity between the situations of properties in horizontal ownership and properties in full ownership composed of parts susceptible to independent use and considered separately in the property register, and to regard only the formal difference between the two situations, would result in a violation of the principle of substance over form, which would have as a consequence a violation of the constitutional principle of contributive capacity".

Just as in the decision quoted above, in the present case as well it must be concluded, in light of the foregoing, that the claim for annulment of the assessment challenged is well-founded on the ground of violation of the constitutional principle of tax equality by the rule of application contained in Item 28.1 of the General Schedule of Stamp Tax, when interpreted to include residential urban properties in full ownership composed of parts susceptible to independent use and considered separately in the property register.

V. THE RIGHT TO DEFAULT INTEREST

Given that the assessment act challenged has been found to be unlawful, for the reasons set out above, and the Claimant has fully paid the assessed tax, the Claimant is entitled, in accordance with Articles 24, paragraph 1, subsection b) of RJAT and 100 of the General Tax Law, to reimbursement of the tax wrongly paid, in the amount of 15,518.40 euros.

As regards default interest, Article 43 of the General Tax Law provides that "default interest is due when it is determined, in an administrative review or judicial challenge, that there was an error attributable to the administration resulting in payment of the tax debt in an amount greater than that legally due".

As regards the existence, in the present case, of an error attributable to the administration, this error is considered to exist, in accordance with consistent case law of the Administrative Court of Audit (see in this regard the Administrative Court of Audit Decisions of 22-05-2002, Case No. 457/02; of 31.10.2001, Case No. 26167; of 2.12.2009, Case No. 0892/09) whenever there is an administrative review or challenge of the assessment (in the same sense, the decision in arbitral case 218/2013-T).

Accordingly, the Claimant is entitled to be indemnified through the receipt of default interest, computed in accordance with Article 43, paragraph 1 of the General Tax Law and Article 61, paragraphs 2, 3 and 5, on the amounts paid relating to the annulled assessment.

VI. DECISION

For the reasons set out above, this Tribunal decides:

  • To annul the assessment act for Stamp Tax relating to the urban property registered in the property register under article ... of the Parish of ..., ..., for the year 2013, which gave rise to the issuance of the billing documents numbered 2014 ..., 2014 ..., 2014 ..., 2014 ..., 2014 ..., 2014 ..., 2014 ... and 2014 ...;

  • To order the Tax and Customs Authority, pursuant to subsection b) of paragraph 1 of Article 24 of RJAT, to restore the situation that would have existed if the annulled assessment acts had not been performed, adopting the acts and operations necessary for that purpose, through the reimbursement of the amounts of tax wrongly paid and the payment of the corresponding default interest.

Case value: The case value is fixed at 15,518.40 euros.

Costs: Pursuant to Article 22, paragraph 4 of RJAT, the costs are fixed in the amount of 1,836.00 euros, in accordance with Table I appended to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Respondent.

Let this arbitral decision be registered and notice thereof given to the parties.

Lisbon, Administrative Arbitration Centre, 30 March 2015.

The Sole Arbitrator

(Nina Aguiar)

[1] Articles 113 and 123 of the Property Contribution Code and Tax on Agricultural Industry (approved by Decree-Law 45104 of 1 July).

Frequently Asked Questions

Automatically Created

Is Stamp Tax under Verba 28.1 TGIS applicable when individual parts of a building in total ownership are each valued below €1,000,000?
Stamp Tax under Verba 28.1 TGIS is applicable when the total patrimonial tax value of a property in total ownership reaches or exceeds €1,000,000, regardless of whether individual independent parts are each valued below this threshold. The Tax Authority's position is that the relevant value for triggering the tax is the aggregate patrimonial tax value registered for the entire property as a single taxable unit. However, taxpayers argue that when independent parts are valued separately for IMI purposes under CIMI, the same disaggregated treatment should apply for Stamp Tax, meaning only parts individually exceeding €1,000,000 should be taxed. This interpretation dispute centers on whether total ownership properties should follow horizontal property principles.
How are independent parts of a property in total ownership treated for Stamp Tax purposes compared to horizontal property fractions?
Independent parts of a property in total ownership are treated differently than horizontal property fractions for Stamp Tax purposes. Under Article 2(4) of CIMI, only horizontal property units constitute separate 'properties' for tax purposes. Properties in full vertical ownership, even when composed of parts susceptible to independent use, remain a single property unit. While each autonomous part may have its own patrimonial tax value for IMI assessment purposes, for Stamp Tax under Verba 28.1 TGIS the Tax Authority considers the property as a whole. This contrasts with horizontal property regimes where each fraction is legally and fiscally autonomous. The key distinction lies in the legal nature of ownership: horizontal property involves independent ownership of fractions, while total ownership remains unified despite functional subdivision.
Can the Tax Authority aggregate the patrimonial tax values of independent parts to exceed the €1,000,000 threshold under Verba 28.1 TGIS?
The Tax Authority aggregates the patrimonial tax values of all independent parts within a total ownership property to determine whether the €1,000,000 threshold under Verba 28.1 TGIS is exceeded. This aggregation approach treats the property as a single taxable unit for Stamp Tax purposes, summing the individual valuations of all parts susceptible to independent use. In the case analyzed, eight residential units with a combined value of €1,551,840 triggered Stamp Tax liability despite no individual unit reaching €1,000,000. The Tax Authority justifies this by arguing that total ownership creates a single property for tax purposes, distinct from horizontal property where each fraction is independently assessed. Taxpayers challenge this aggregation as violating constitutional equality principles when parts are valued separately for other tax purposes.
What constitutional principles of tax equality and proportionality apply to Stamp Tax on high-value properties in total ownership?
Constitutional principles of tax equality (Article 104(3)) and proportionality (Article 103) apply to Stamp Tax assessments under Verba 28.1 TGIS on high-value properties. Taxpayers argue that aggregating values of independently-valued parts in total ownership properties violates tax equality by treating economically similar situations (separate independent units) differently based solely on legal ownership structure (total ownership versus horizontal property). The proportionality principle requires that tax burdens be commensurate with taxpayers' ability to pay and that similar economic capacities receive similar treatment. When the CIMI recognizes autonomous parts with separate valuations for IMI purposes, imposing Stamp Tax based on aggregate values may disproportionately burden total ownership structures compared to horizontal property regimes where only fractions individually exceeding €1,000,000 are taxed. Courts must balance literal statutory interpretation against constitutional fairness principles.
What is the CAAD arbitral procedure for challenging Stamp Tax assessments under Verba 28.1 of the General Stamp Tax Table?
The CAAD arbitral procedure for challenging Stamp Tax assessments under Verba 28.1 TGIS involves filing a request for arbitral award pursuant to Article 10 of the Legal Framework for Tax Arbitration (RJAT). Taxpayers must submit their request within the statutory deadline, identifying the contested tax assessments and legal grounds for annulment. The procedure includes: constitution of the arbitral tribunal (single arbitrator or panel), submission of the Tax Authority's response, exchange of documentary evidence from the administrative file, optional hearing (which may be waived by mutual consent), and issuance of the arbitral decision. Taxpayers can seek annulment of illegal assessments and reimbursement of amounts paid with default interest. The CAAD provides a faster alternative to judicial courts for resolving tax disputes, with decisions having binding effect equivalent to court judgments, subject to limited appeal rights on procedural or legal grounds.