Process: 743/2015-T

Date: April 8, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitral decision concerns a dispute over Stamp Tax (Imposto do Selo) assessments under Verba 28.1 of the General Stamp Tax Table (TGIS) for the 2014 tax year. The claimant, A... LDA, challenged eighteen liquidation acts totaling €13,651.80 issued by the Portuguese Tax Authority (AT) on March 20, 2015, relating to an urban property located in Lisbon. The property consists of a building in sole ownership containing two commercial spaces and six residential units with a total tax value of €1,722,030.00, of which €1,365,180.00 corresponds to the residential portions. The central legal issue revolves around the interpretation of Verba 28.1 TGIS, which subjects residential properties with a tax value equal to or greater than €1,000,000 to Stamp Tax. The claimant argued that the tax assessment was illegal because the Tax Authority improperly aggregated the tax values of all residential floors and divisions, none of which individually exceeded the €1,000,000 threshold. The claimant contended that the legislation does not define 'residential property' and that in a vertical property ownership structure, each autonomous unit should be considered separately for taxation purposes rather than treating the entire building as a single taxable unit. The arbitration proceedings were initiated at CAAD on December 11, 2015, with a sole arbitrator appointed on February 15, 2016. A preliminary procedural issue arose concerning the timeliness of the challenge, as the contested assessments became due in three installments (April, July, and November 2015), and the 90-day deadline for filing may have expired for the first two installments. The Tax Authority acknowledged that while the challenge to the first and second installments might be late, the substantive issue concerns the tax assessment itself rather than collection acts, meaning a successful challenge to the timely-filed third installment would necessarily affect the entire assessment.

Full Decision

Arbitral Decision

I. Report

A..., LDA., a company with registered office at Rua..., no. ...- ... left side, Lisbon, registered at the Commercial Register Office under registration number and collective person..., with share capital of €5,000.00 (five thousand euros) (hereinafter, the "Claimant"), requested the Administrative Arbitration Center (CAAD), on 11 December 2015, to establish an arbitral tribunal in tax matters, in accordance with the provisions of articles 2nd and 10th of Decree-Law No. 10/2011, of 20 January (Legal Framework for Tax Arbitration, hereinafter referred to as "LFTA"), against the Tax and Customs Authority (AT), for the purpose of declaring illegal and consequent annulment of acts assessing Stamp Tax ("ST") for the year 2014, corresponding to the following documents:

i. 2015..., of 20.03.2015, in the amount of €758.44 (seven hundred and fifty-eight euros and forty-four cents);

ii. 2015..., of 20.03.2015, in the amount of €758.44 (seven hundred and fifty-eight euros and forty-four cents);

iii. 2015..., of 20.03.2015, in the amount of €758.44 (seven hundred and fifty-eight euros and forty-four cents);

iv. 2015..., of 20.03.2015, in the amount of €758.44 (seven hundred and fifty-eight euros and forty-four cents);

v. 2015..., of 20.03.2015, in the amount of €758.44 (seven hundred and fifty-eight euros and forty-four cents);

vi. 2015..., of 20.03.2015, in the amount of €758.44 (seven hundred and fifty-eight euros and forty-four cents);

vii. 2015..., of 20.03.2015, in the amount of €758.43 (seven hundred and fifty-eight euros and forty-three cents);

viii. 2015..., of 20.03.2015, in the amount of €758.43 (seven hundred and fifty-eight euros and forty-three cents);

ix. 2015..., of 20.03.2015, in the amount of €758.43 (seven hundred and fifty-eight euros and forty-three cents);

x. 2015..., of 20.03.2015, in the amount of €758.43 (seven hundred and fifty-eight euros and forty-three cents);

xi. 2015..., of 20.03.2015, in the amount of €758.43 (seven hundred and fifty-eight euros and forty-three cents);

xii. 2015..., of 20.03.2015, in the amount of €758.43 (seven hundred and fifty-eight euros and forty-three cents);

xiii. 2015..., of 20.03.2015, in the amount of €758.43 (seven hundred and fifty-eight euros and forty-three cents);

xiv. 2015..., of 20.03.2015, in the amount of €758.43 (seven hundred and fifty-eight euros and forty-three cents);

xv. 2015..., of 20.03.2015, in the amount of €758.43 (seven hundred and fifty-eight euros and forty-three cents);

xvi. 2015..., of 20.03.2015, in the amount of €758.43 (seven hundred and fifty-eight euros and forty-three cents);

xvii. 2015..., of 20.03.2015, in the amount of €758.43 (seven hundred and fifty-eight euros and forty-three cents); and

xviii. 2015..., of 20.03.2015, in the amount of €758.43 (seven hundred and fifty-eight euros and forty-three cents);

in the total amount of €13,651.80 (thirteen thousand six hundred and fifty-one euros and eighty cents).

The Claimant opted not to appoint an arbitrator.

The request to establish an arbitral tribunal was accepted by the President of CAAD on 14 December 2015 and automatically notified to AT on 22 December 2015.

The Signatory was appointed by the President of the Deontological Council of CAAD as arbitrator of a sole arbitral tribunal, in accordance with the provisions of article 6th of the LFTA, having notified acceptance of the appointment within the legal deadline, in accordance with the provisions of article 4th of the CAAD Code of Ethics.

The Parties were notified of the Signatory's appointment on 15 February 2016, in accordance with article 11th no. 1 subsections a) and b) of the LFTA, and did not object to it.

The sole arbitral tribunal was therefore duly constituted on 1 March 2016, in accordance with the provisions of subsection c) of no. 1 of article 11th of the LFTA.

AT was notified of the arbitral order of 4 March 2016 to present a response within 30 (thirty) days.

AT submitted its response on 9 March 2016.

By arbitral order of 19 March 2016, the Arbitral Tribunal, considering that:

a. The contested assessments became due in April 2015 (1st installment), July 2015 (2nd installment) and November 2015 (3rd installment), and that according to the provisions of article 10th subsection a) of the LFTA, combined with the provisions of nos. 1 and 2 of article 102nd of the Code of Tax Procedure, the deadline for filing a request for arbitral determination is 90 days from the facts indicated in those rules; and

b. According to the case file, the request for arbitral determination was filed with CAAD on 11.12.2015, at 14:56, more than 90 days after the expiration of the payment deadline for the 1st and 2nd installments indicated.

Found that it could raise an exception to be decided, and therefore ordered notification of the Parties to, within 10 days, pronounce themselves on the above, pursuant to the provisions of article 16th subsections a), b) and c) of the LFTA.

Furthermore, it considered itself able to decide, once the above-mentioned deadline had passed, thus dispensing with the hearing provided for in article 18th of the LFTA and setting the date for the decision for 22 April 2016.

The Respondent replied to the above-mentioned arbitral order stating that, without prejudice to the fact that the challenge regarding the first and second installments was made outside the legal deadline, the fact is that the object of the challenge is the tax assessment and not the collection acts to which it gives rise. Therefore, if the examination of the third installment, raised timely, were to succeed, it would necessarily reflect on the total value of the assessment. Therefore, this would render an examination of the timeliness regarding the first and second installments futile.

The Claimant also replied to that order, stating briefly that the contested assessment act is the act performed in March 2015, whose voluntary payment deadline ended on 30 November 2015. For the purpose of determining the timeliness of the request made, it will be necessary to consider as relevant this voluntary payment deadline that ended on 30 November 2015.

The Parties possess legal personality and capacity and are properly constituted (articles 4th and 10th, no. 2 of the LFTA and article 1st of Ordinance No. 112-A/2011, of 22 March).

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

II. Claimant's Relief

The Claimant filed a request for arbitral determination seeking the declaration of illegality and consequent annulment of the acts assessing ST for the year 2014, identified above, the refund of the amounts of tax paid pursuant to such assessment acts, and the payment of indemnatory interest.

It alleges, briefly, that:

i. The acts assessing ST refer to the urban property of which the Claimant is the owner, located at Avenida..., nos. ... to ..., in Lisbon, registered in the property matrix of the parish of ... under article...;

ii. The identified urban property is in sole ownership, being composed of two commercial spaces and six areas of independent use intended for housing;

iii. The tax value of the property is €1,722,030.00;

iv. The tax was assessed taking as reference, for the determination of the tax base, the total tax value of the floors or divisions intended for housing, namely, €1,365,180.00;

v. The collection documents issued by AT were all paid;

vi. The assessed tax is illegal, due to violation of the tax base rule invoked, item 28.1 of the General Stamp Tax Table ("GSTT"), since AT merely added up the tax values of all floors or divisions capable of independent use, and none of them has, on its own, a tax value higher than €1,000,000.00;

vii. According to the wording of the law, there would be taxation regarding residential properties with a tax value equal to or greater than €1,000,000.00; however, the legislator did not establish the concept of residential property;

viii. However, the legislator also determined, in article 67th no. 2 of the Stamp Tax Code ("STC"), that to all matters not regulated in the STC with reference to this item 28.1 would be subsidiarily applicable the provisions of the Municipal Property Tax Code ("MPTC");

ix. Consequently, it is necessary to confer the definition of property contained in article 2nd of the MPTC, which establishes in its no. 4 that "for the purposes of this tax, each individual unit in the horizontal property regime is deemed to constitute a property";

x. By virtue of this provision, we would be led to conclude that, for the purposes of Municipal Property Tax, an individual unit of property in the horizontal property regime assumes the nature of property and a unit capable of independent use does not assume such nature;

xi. However, in a comparative analysis of the Municipal Property Tax regime applicable to each of these individual units and units capable of independent use, it appears that their tax regime is identical;

xii. Materially there is no difference: both are subject to the same rules for registration in the matrix and to the same rules and procedures for valuation;

xiii. The tax assessment must also be carried out individually, considering each economic reality and not each legal reality;

xiv. It is thus concluded that, for the purposes of Municipal Property Tax, the tax treatment conferred on individual units and units capable of independent use is the same;

xv. Additionally, the tax base for Municipal Property Tax is determined in the same way in each case; the assessment is carried out individually and autonomously based on each independent part of the property, whether or not an individual unit;

xvi. In the case of properties in sole ownership, the Municipal Property Tax is assessed based on the individual tax value of each autonomous unit that comprises it, and not based on the total value of the property, in exactly the same manner as those applied to individual units of property in the horizontal property regime;

xvii. In properties composed of independent units with different purposes and uses, the determination of use can only be carried out based on each of these units and not based on the property as a whole;

xviii. In using the expression "residential property" the legislator intended to refer to the property as a reality capable of use classification, and therefore to the independent parts that compose it, whether or not they have the legal nature of individual units;

xix. It is thus concluded that for the purposes of applying item 28.1 of the GSTT, the units capable of independent use that make up a property in the sole ownership regime and individual units are, in substance, identical realities and, as such, are subject to the same tax base regime;

xx. This understanding has already been confirmed by various case law, both from CAAD and from the Supreme Administrative Court;

xxi. Any other interpretation of item 28.1 of the GSTT would also be unconstitutional, due to violation of the principles of equality and contributory capacity, as has also been decided in various cases submitted to CAAD;

xxii. Only by a formal aspect - the non-establishment of horizontal property ownership - AT subjects the Claimant to this tax;

xxiii. Not subjecting to the same a property owner with real estate assets amounting to €5,000,000.00 because the properties he owns are individual units all with a value less than €1,000,000.00;

xxiv. What renders flagrant and evident the violation of the constitutional principles indicated;

xxv. Therefore, the contested assessments are illegal and should be annulled, ordering the refund of the amounts paid;

xxvi. AT should furthermore be condemned to pay indemnatory interest, on the conclusion that there exists error attributable to its services resulting in the payment of excess tax, accrued from the day of payment until the date of full refund of the amount paid.

III. Respondent's Response

In its response, the Respondent alleges briefly that:

i. It was the wealth arising from real property ownership that Law No. 55-A/2012 came to tax, in an innovative manner, subjecting to ST the ownership and other real rights over urban properties whose tax value (TV) proved to be equal to or greater than €1,000,000;

ii. The new structure of item 28 of the GSTT came to provide for the subjection to ST of: "Ownership, usufruct or right of surface of urban properties whose tax value contained in the matrix, according to the Municipal Property Tax Code (MPTC), is equal to or greater than (euro) 1,000,000 - on the tax value used for Municipal Property Tax purposes: (Added by article 3rd of Law No. 55-A/2012 of 29 October)

28.1 For property with residential use or for land for construction whose authorized and planned construction is for housing, in accordance with the provisions of the Municipal Property Tax Code – 1%".(Law 83-C/2013, of 31 December).

iii. The situation configured in the case file is a matter that has had broad discussion and controversy, since the Claimant is the owner of various properties in the sole ownership or vertical regime, wherefore it is necessary to determine whether or not, for the purposes of subjection to or exemption from Stamp Tax, the total TV of the property (the legal unit) should be considered or whether, on the contrary, the TV of each of the parcels should be considered;

iv. AT has consistently held the view that if the building is constituted in sole ownership with parts capable of independent use (so-called sole property), it integrates the legal tax concept of "property", that is, a single unit and the tax value thereof is determined by the sum of the parts with residential use and, if this equals or exceeds €1,000,000.00, there is subjection to Stamp Tax item 28 of the General Table annexed to the STC;

v. A conclusion that has been based on the following premises:

  • In the STC there is no definition regarding the concepts of urban property, therefore the provisions of the MPTC must be applied to determine possible subjection to ST (See article 67th no. 2 of the STC as amended by Law No. 55-A/2012);

  • Article 2nd no. 1 of the MPTC defines the concept of property;

  • Article 2nd no. 4 of the MPTC exempts individual units of properties constituted in the horizontal property regime, which it considers, as an exception, as properties;

  • On the contrary, if a property is constituted in sole ownership with parts or divisions capable of independent use, it is the property in its entirety, and no longer each of those parts, that integrates the concept of "property", for purposes of Municipal Property Tax and ST, by referral of article 1st, no. 6 of the STC;

  • This is not precluded by the fact that each floor/division appears separately in the property registration, and with their respective tax values, since such discrimination is only relevant, for tax purposes, in light of the concept of property matrices contained in article 12th of the MPTC and in the matter regulated in this Code for the organization of the matrices;

  • The imposition to organize the matrices in this manner is due to the need to recognize the autonomy that, within the same property, belongs to each of its parts, which may be functionally and economically independent;

  • This autonomization is only justified because within the same property there may occur use for commerce or housing, with or without lease, which is determinative in the rules of fiscal evaluation within the scope of the MPTC, in light of the different use coefficients provided for in article 41st of that code.

vi. To advocate a contrary understanding is to confuse teleologically distinct realities, sole ownership, on the one hand, and horizontal property, on the other, whose distinction finds its foundation right from the start in civil law.

vii. The horizontal property regime does not apply to a building in its entirety, as occurs in vertical property, but rather to an individual unit, although each owner is a co-owner of common parts (arts. 1414th, 1415th and 1420th of the Civil Code), but this co-ownership is compulsory, cannot exit from joint ownership while the horizontal property regime persists.

viii. These are distinct factual and legal realities, deserving different tax treatment since only such a path is favored by the principle of closed typicality.

ix. It cannot be overlooked that we are dealing with a tax base rule, therefore one cannot, through the interpretive method, lead to a result that is not provided for in law.

x. This is what flows from the principle of legality and from the principles of typicality and determination into which it breaks down, which confirm that tax base rules must be predetermined in their content, with the elements composing them being formulated in a precise and determined manner.

xi. To dispel any doubts, a Binding Ruling was issued on this matter in Process 2013... - BRU No. ... with an agreeing order from the Acting Legal Director of the Director-General of the Tax and Customs Authority of 11.02.2013, the content of which is only partially transcribed: "3. For purposes of taxation under Stamp Tax, by item 28 of the respective general table, the distinction between properties constituted in sole ownership and properties constituted in the horizontal property regime is determinative. In the case of property constituted in horizontal property, as provided for in articles 1417th and following of the Civil Code, each individual unit thus constituted is deemed to constitute a property, as follows from article 2nd no. 4 of the MPTC, applicable by virtue of article 1st no. 1 and no. 6 of the Stamp Tax Code, as amended by Law No. 55-A/2012 of 29 October and Item 28 of the General Stamp Tax Table, in its current wording.

For the proper legal purposes, particularly for purposes of taxation under Stamp Tax, item 28 of the GSTT, properties constituted in sole ownership are considered in their entirety as a single property.(...)

For purposes of Municipal Property Tax and consequently for purposes of subjection to Stamp Tax, item 28 of the General Table, annexed to the STC, by referral of that Code, the property in sole ownership with parts or divisions capable of independent use (so-called sole property) and the property in the horizontal property regime are, with respect to the concept of "fiscal property" distinct, since in the latter case the individual unit, for purposes of Municipal Property Tax, integrates the concept of property. This is an exception to the general rule, given that each individual unit of a building subject to the horizontal property regime belongs to an independent owner, who is the owner of his individual unit and co-owner of the common parts of the property.

As for the first case (sole ownership) although the property has parts or divisions capable of independent use the legal tax concept is that this property constitutes a single unit, since its ownership, without prejudice to co-ownership, belongs only to a single owner".

xii. Thus, the present Claimant, for purposes of Municipal Property Tax and also of ST, by force of the wording of said item, is not the owner of individual units, but rather of a single property, AT considering that this is the understanding that best aligns with the principle of legality inherent in article 8th of the General Tax Law, to which all its activity is devoted.

xiii. Accordingly, no error is recognized in the factual or legal assumptions in which the tax acts assessing the contested tax may have incurred and, consequently, the right of the taxpayer to the payment of the indemnatory interest provided for in article 43rd of the General Tax Law in case of error attributable to its services is not recognized.

xiv. AT is bound by the principle of pursuit of the public interest while respecting the rights and legally protected interests of taxpayers, and should act towards all with the same adequacy and proportionality, especially since in a State governed by the rule of law, the principle of tax equality is a constitutive element of tax law, which translates the idea that all citizens are bound by the duty to pay taxes assessed by the same criterion – contributory capacity, and this is assessed by the legislator by taking into account indicators that ascertain his economic strength, and consequently identify his capacity to pay them.

xv. The tax acts in question, in terms of substance, did not violate any legal provision, and should therefore be upheld.

xvi. Moreover, the very recent Judgment handed down on 11 November 2015 by the Constitutional Court, within the scope of case 542/2014, already referring to the changes introduced by law No. 83-C/20123 of 31 December decided not to judge as unconstitutional the rule of item 28 and 28.1 of the General Stamp Tax table, added by article 4th of Law No. 55-A/20121, of 29 October, insofar as it imposes equal taxation on the ownership of urban residential properties whose tax value equals or exceeds €1,000,000.00.

IV. Issues to be Decided

Considering the facts and legal matters contained in the request for arbitral determination presented by the Claimant and the response of the Respondent, the issues to be decided by the Arbitral Tribunal are:

  1. Whether the value on which item 28.1 of the GSTT applies is (i) the sum of the TV of each floor or division capable of independent use, in the case of properties in the sole ownership or vertical regime (total value), or (ii) the TV of each floor or division capable of independent use;

  2. Whether item 28.1 of the GSTT, when interpreted in the manner stated in subsection (i) above is unconstitutional, due to violation of the principles of equality and contributory capacity.

Regarding the possible untimeliness of the Claimant's request regarding the first and second installments of the tax, the Tribunal considers, in line with what was alleged by the Parties in response to the order, that what is the object of challenge is the tax assessment in its entirety, and not the respective collection acts. Without prejudice to being a controversial matter, this Arbitral Tribunal considers that the deadline for challenging the tax assessment act (assessed pursuant to article 113th of the MPTC, by referral from no. 7 of article 28th of the STC) is counted from the expiration of the voluntary payment deadline, that is, and in the situation at hand, from the last installment, in accordance with the provisions of article 120th no. 1 subsection c) of the MPTC. The Claimant's request is therefore timely.

V. Factual Matters

With relevance to the examination of the Claimant's request, the following facts are deemed proven, based on the documents attached to the case file and not contested by the Respondent:

  1. The Claimant is the owner of the urban property located at Avenida..., nos. ... to ..., in Lisbon, registered in the property matrix of the parish of ... under article...;

  2. The identified urban property is in sole ownership, being composed of two commercial spaces and six areas of independent use intended for housing;

  3. The tax value of the property is €1,722,030.00;

  4. The Claimant was notified of the acts assessing Stamp Tax ("ST") for the year 2014, corresponding to the following documents:

i. 2015..., of 20.03.2015, in the amount of €758.44 (seven hundred and fifty-eight euros and forty-four cents);

ii. 2015..., of 20.03.2015, in the amount of €758.44 (seven hundred and fifty-eight euros and forty-four cents);

iii. 2015..., of 20.03.2015, in the amount of €758.44 (seven hundred and fifty-eight euros and forty-four cents);

iv. 2015..., of 20.03.2015, in the amount of €758.44 (seven hundred and fifty-eight euros and forty-four cents);

v. 2015..., of 20.03.2015, in the amount of €758.44 (seven hundred and fifty-eight euros and forty-four cents);

vi. 2015..., of 20.03.2015, in the amount of €758.44 (seven hundred and fifty-eight euros and forty-four cents);

vii. 2015..., of 20.03.2015, in the amount of €758.43 (seven hundred and fifty-eight euros and forty-three cents);

viii. 2015..., of 20.03.2015, in the amount of €758.43 (seven hundred and fifty-eight euros and forty-three cents);

ix. 2015..., of 20.03.2015, in the amount of €758.43 (seven hundred and fifty-eight euros and forty-three cents);

x. 2015..., of 20.03.2015, in the amount of €758.43 (seven hundred and fifty-eight euros and forty-three cents);

xi. 2015..., of 20.03.2015, in the amount of €758.43 (seven hundred and fifty-eight euros and forty-three cents);

xii. 2015..., of 20.03.2015, in the amount of €758.43 (seven hundred and fifty-eight euros and forty-three cents);

xiii. 2015..., of 20.03.2015, in the amount of €758.43 (seven hundred and fifty-eight euros and forty-three cents);

xiv. 2015..., of 20.03.2015, in the amount of €758.43 (seven hundred and fifty-eight euros and forty-three cents);

xv. 2015..., of 20.03.2015, in the amount of €758.43 (seven hundred and fifty-eight euros and forty-three cents);

xvi. 2015..., of 20.03.2015, in the amount of €758.43 (seven hundred and fifty-eight euros and forty-three cents);

xvii. 2015..., of 20.03.2015, in the amount of €758.43 (seven hundred and fifty-eight euros and forty-three cents); and

xviii. 2015..., of 20.03.2015, in the amount of €758.43 (seven hundred and fifty-eight euros and forty-three cents);

in the total amount of €13,651.80 (thirteen thousand six hundred and fifty-one euros and eighty cents).

  1. The Claimant proceeded to pay the assessed tax.

  2. The tax was assessed taking as reference, for the determination of the tax base, the total tax value of the floors or divisions intended for housing, namely, €1,365,180.00.

The conviction concerning the facts deemed proven was based on the documentary evidence submitted by the Parties, whose authenticity and correspondence to reality were not questioned.

There are, with relevance to the case, no other facts that are not deemed proven.

VI. Legal Matters

As results from the factual matters, what is at issue are assessments of ST for the year 2014, relating to item 28.1 of the GSTT, which was applied on the total tax value of the floors or divisions intended for housing owned by the Claimant.

AT considered, for the purpose of applying item 28.1 of the GSTT, the sum of the TV of each of the respective floors or divisions capable of independent use, a sum which results in a TV greater than €1,000,000.00.

The Claimant considers that AT should not have considered that sum, insofar as the treatment to be given to a property in the sole ownership regime cannot be different from that given to a property in the horizontal property regime – if, in the latter case, the TV to be considered is that of each individual unit, in the case of sole ownership the TV of each floor or division capable of independent use should also be considered. And, in the specific case, each floor or division capable of independent use intended for housing has a TV less than €1,000,000.00.

It is therefore necessary to understand whether AT acted with error in the legal assumptions for applying item 28.1 of the GSTT to the case.

For the examination of the issue at hand, it is first necessary to analyze item 28 and 28.1 of the GSTT:

"28. Ownership, usufruct or right of surface of urban properties whose tax value contained in the matrix, according to the Municipal Property Tax Code (MPTC), is equal to or greater than (euro) 1,000,000 - on the tax value used for Municipal Property Tax purposes:

28.1 For property with residential use or for land for construction whose authorized and planned construction is for housing, according to the provisions of the Municipal Property Tax Code – 1%"

As stated, the Claimant contends that properties in sole ownership considered as a whole, when composed of parts capable of independent use, do not fall within this normative provision.

It is necessary to interpret, for this purpose, the concept of "property" contained in that item 28.1 of the GSTT. To understand its content, the concepts of property contained in the MPTC (articles 2nd to 6th) should be consulted – pursuant to the provisions of article 67th, no. 2 of the STC, according to which, to matters not regulated in the STC concerning item 28 of the GSTT, the provisions of the MPTC apply subsidiarily.

And such interpretation should always be carried out in accordance with the provisions of article 11th of the General Tax Law and article 9th of the Civil Code, to which it refers, which shall be done.

Article 2nd of the MPTC defines the concept of property and establishes, specifically, in its no. 4, that for the purposes of this tax, each individual unit, under the horizontal property regime, is deemed to constitute a property. This article says nothing regarding properties in sole ownership or regarding parts of properties (floors or divisions capable of independent use).

From a literal interpretation of article 2nd of the MPTC, there will be no doubt that parts of properties not in horizontal property ownership do not integrate, for Municipal Property Tax purposes, the concept of property.

As for the determination of the tax value of each property, article 7th of the MPTC applies. According to no. 1 thereof, the tax value of properties is determined in accordance with this Code. Thus, and according to no. 2 subsection b) of that article 7th, the tax value of urban properties with parts classifiable under more than one of the classifications assigned to urban properties according to article 6th no. 1 of the MPTC (namely, residential, commercial, industrial or service-related, construction land and others) is determined as described: "if the different parts are economically independent, each part is valued by application of the corresponding rules, being the value of the property the sum of the values of its parts".

Consequently, also in determining the tax value of properties, there does not seem to exist any reference that specifically determines that economically independent parts are considered as constituting, in themselves, properties. On the contrary, the literal interpretation of the rule allows the conclusion in the opposite sense: the value of the property is the sum of the values of its parts.

It is reiterated then: the MPTC does not equate, for the determination of tax value, parts of properties capable of independent use to properties. On the contrary, it clearly separates the concepts of "property" and "part of property". Now, returning to article 2nd of the MPTC, "parts of property" are not deemed to be properties (precisely the opposite of what is specifically stated regarding individual units, which are indeed deemed to be properties).

In the specific case, the urban property is composed of parts (independent) for residential use and parts (independent) for commercial use. Therefore, the value of the property is, according to the rules indicated, the sum of the values of its parts.

There is not, then, equality of treatment in the MPTC between properties in horizontal property ownership and properties in sole ownership with parts classifiable under more than one of the classifications assigned to urban properties. As to the former, their respective individual units are, unequivocally, properties for Municipal Property Tax purposes; as to the latter, their independent parts do not fall within that concept. The parts compose, in their entirety, the property.

Consequently, if the parts of properties, for Municipal Property Tax purposes, are not properties, then neither will they be for ST purposes. Therefore, the taxable event is the ownership of the property, in its entirety, as follows from the concept contained in article 2nd of the MPTC.

Nor do the arguments of the Claimant around articles 12th no. 3 and 119th of the MPTC, relating respectively to the concept of property matrix and to tax assessment, hold in the understanding of the Arbitral Tribunal.

In fact, it is not merely by the property matrix autonomization determined by article 12th no. 3 that floors or divisions capable of independent use acquire the quality of property that is not conferred upon them by article 2nd of the same MPTC.

Property matrices are registers in which are contained, in particular, the characterization of properties (article 12th no. 1 MPTC). That description includes, as an integral part, in the case of properties in sole ownership, floors or parts of property capable of independent use, which the law determines (no. 3 of the same article) to be separately considered in the same property registration.

As for properties under the horizontal property regime, the law goes further: article 92nd of the MPTC establishes that each building under the horizontal property regime also corresponds to a single registration, but each of the individual units that compose it is described in detail and individualized by the letter assigned to it.

And even if it were considered that, as regards property matrix registration, the treatment between properties in sole ownership regime and properties in horizontal property regime is substantially similar, this would not, it is considered, overcome the fact that parts of properties are not specifically mentioned in article 2nd of the MPTC, unlike what happens with individual units.

Additionally, for each "property" registered in the matrix, a property card is delivered to its respective owner (article 93rd no. 1 of the MPTC). Now, there is not, for each floor or division capable of independent use of property in sole ownership, an autonomous property card, for the clear reason of not coming within the concept of property defined for the purposes of this tax.

As for Municipal Property Tax assessment (article 119th), the collection document must necessarily contain the breakdown of properties and their parts capable of independent use. This is because, pursuant to the provisions of article 7th no. 2 subsection b) of the MPTC, each part capable of independent use has its tax value calculated separately, as was indicated previously.

In light of the above, the Arbitral Tribunal considers – and with all due respect, which is considerable, for the content of the Judgment of the Supreme Administrative Court cited by the Claimant – that the interpretation which considers that floors or parts of properties capable of independent use of properties in sole ownership are, for Municipal Property Tax purposes, equated to individual units, does not have sufficient legal support and is too far removed from the letter of the law.

Consequently, the request for annulment of the contested assessments based on error in legal assumptions, presented by the Claimant, does not hold in this respect.

It remains then to examine the constitutionality of item 28 and 28.1 of the GSTT, when interpreted in the sense that the value that is relevant for the purposes of its application is that corresponding to the sum of the TV of each floor or division capable of independent use intended for housing, in the case of properties under the sole ownership or vertical regime (total value).

The Constitutional Court already examined the issue in the recent Judgment 620/2015, of 20 January 2016. Because this Tribunal agrees with the reasoning contained therein, and for ease of exposition, parts thereof are cited:

"The present appeal is precisely about the principle of tax equality, particularly in its aspect of uniformity, that is, insofar as it requires that the duty to pay taxes (in this case, Stamp Tax) be assessed by the same criterion, translated by the principle of contributory capacity. It is necessary to examine whether, by subjecting to special tax urban residential properties in sole ownership composed of parts capable of independent use and considered separately in property registration, taking for this purpose the sum of the tax values assigned to the various parts of the property, contrary to what occurs with properties constituted in horizontal property ownership, the said rule treated in a differentiated manner situations revealing identical contributory capacity and, if so, whether this inequality of treatment proves to be arbitrary, by introducing discriminations among taxpayers devoid of sufficient rational foundation.

It is therefore necessary, first of all, to compare the two situations under analysis, in particular the situation of urban residential properties in sole ownership composed of parts capable of independent use and considered separately in property registration and the situation of properties under the horizontal property regime, starting, for this purpose, with a brief reference to the institutes of proper ownership sensu and horizontal property ownership.

(...)

Thus, being undeniable that, in the realm of civil law, we are dealing with two legally different situations, it is nevertheless necessary to question whether such differences justify different treatment in the tax realm, that is, whether such legal differences exist and are relevant also in the substantive plane for tax purposes, to the extent that one can affirm that, in economic terms, we are dealing with different manifestations of contributory capacity.

(...)

Now, if in a property constituted in horizontal property ownership, such ownership can only be attributed to each of the individual units, since each of the different units can be the subject of its own real property legal situation, the same does not occur in a property which, although physically divided into units capable of independent use, its ownership necessarily concerns the whole corresponding to the sum of the different units, and cannot the real rights referred to in item 28.1 of the General Stamp Tax Table have as their sole object one of those units.

Thus, for the purposes of the tax here under examination, while the value of an entire property not constituted in horizontal property ownership, although composed of different units capable of having independent use, reveals the contributory capacity of its sole owner, this does not occur with an identical property constituted in horizontal property ownership, since, each of the units being capable of its own real property legal situation, only the value of each one of them is suitable to reveal the contributory capacity of its owner.

The differences arising from the different proprietary regimes constitute sufficient foundation for, with regard to the applicability of Stamp Tax in the case of buildings in horizontal property ownership, the individualized tax value of each of the units be taken into account, which does not occur in the case of urban residential properties in sole ownership composed of parts capable of independent use and considered separately in property registration.

Hence, an interpretation of the tax base rule contained in item 28.1 of the General Stamp Tax Table, in the sense that it includes urban residential properties in sole ownership, composed of parts capable of independent use and considered separately in property registration, by proceeding for this purpose to the sum of the tax value of each of the independent units with residential use, does not prove to violate the principle of tax equality and the principle of contributory capacity, as stated above."

Consequently, the request for annulment of the contested assessments on the grounds of unconstitutionality of item 28.1 of the GSTT, when interpreted in the sense that it includes urban residential properties in sole ownership composed of parts capable of independent use and considered separately in property registration, does not hold. The rule in question is not violative of the principle of tax equality and the principle of contributory capacity and is not, consequently, unconstitutional.

The Claimant's claim being without merit, its request for refund of the tax paid plus indemnatory interest does not therefore hold.

VII. Decision

Therefore, and on the basis of the grounds stated above, the Arbitral Tribunal decides to declare the request for arbitral determination to be without merit, the contested assessments being upheld.

Value of the case: €13,651.80 (thirteen thousand six hundred and fifty-one euros and eighty cents)

Costs: Pursuant to the provisions of article 22nd no. 4 of the LFTA, and in accordance with Table I annexed to the Regulations of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at €918.00 (nine hundred and eighteen euros), to be borne by the Claimant.

Lisbon, 8 April 2016

The Arbitrator

Ana Pedrosa Augusto

Frequently Asked Questions

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What is Verba 28.1 of the Tabela Geral do Imposto do Selo (TGIS) and how does it apply to property taxation in Portugal?
Verba 28.1 of the Tabela Geral do Imposto do Selo (General Stamp Tax Table) is a provision that subjects residential properties (prédios urbanos habitacionais) with a tax value (valor patrimonial tributário) equal to or greater than €1,000,000 to annual Stamp Tax. This tax applies to the ownership of high-value residential real estate in Portugal. The provision was introduced as a wealth tax mechanism targeting luxury residential properties. The key interpretive issue in its application concerns whether, in buildings with multiple residential units under vertical property ownership, the €1,000,000 threshold applies to each autonomous unit individually or to the aggregate value of all residential portions of the building. The Tax Authority's approach has been to aggregate all residential unit values when they are owned by the same entity, while taxpayers argue that each independent fraction should be evaluated separately against the threshold, particularly when no single unit exceeds €1,000,000.
How does Portuguese Stamp Tax (Imposto do Selo) apply to vertical property (propriedade vertical) ownership?
Portuguese Stamp Tax under Verba 28.1 TGIS creates particular challenges for vertical property (propriedade vertical) ownership structures. In vertical property, a building is divided into autonomous fractions or units, each capable of independent use and ownership, typically regulated under the horizontal property regime (propriedade horizontal). When a single owner holds multiple residential units within the same building, the critical question is whether each autonomous unit constitutes a separate 'residential property' for Stamp Tax purposes or whether all units owned by the same entity should be aggregated. The Tax Authority has interpreted the provision to aggregate values when a single taxpayer owns multiple residential fractions in the same building, potentially subjecting the owner to Stamp Tax even when no individual unit reaches the €1,000,000 threshold. This interpretation significantly impacts real estate investment companies and landlords who own entire buildings divided into separate residential units. The legal controversy centers on the absence of a statutory definition of 'prédio urbano habitacional' (residential property) in the Stamp Tax Code and whether this term should be interpreted according to property registry classifications, civil law concepts of autonomous units, or economic substance.
Can property owners challenge Stamp Tax assessments under Verba 28.1 through CAAD tax arbitration proceedings?
Yes, property owners can challenge Stamp Tax assessments under Verba 28.1 through CAAD (Centro de Arbitragem Administrativa) tax arbitration proceedings. The Legal Framework for Tax Arbitration (Decree-Law No. 10/2011) allows taxpayers to request establishment of an arbitral tribunal to contest tax assessments, including Stamp Tax liquidations. The process requires filing a request within 90 days from the relevant triggering event under Article 102 of the Tax Procedure Code, typically calculated from the payment deadline of the contested tax. Taxpayers can opt to appoint an arbitrator or allow CAAD to appoint a sole arbitrator. The arbitration provides an alternative to judicial courts for resolving tax disputes, offering potentially faster resolution. In the case of Stamp Tax assessed in multiple installments (as allowed for Verba 28.1 assessments), timeliness issues may arise if the challenge is filed after 90 days from earlier installment due dates, though arguments can be made that the challenge targets the underlying assessment act rather than individual collection acts. CAAD arbitration has become an increasingly popular forum for contesting complex Stamp Tax interpretations, including disputes over the application of Verba 28.1 to vertical property structures.
What are the grounds for requesting annulment of multiple Stamp Tax liquidation acts issued by the Portuguese Tax Authority (AT)?
The grounds for requesting annulment of multiple Stamp Tax liquidation acts under Verba 28.1 typically include: (1) Incorrect interpretation of the legal concept of 'residential property' when the Tax Authority aggregates values of multiple autonomous units owned by the same taxpayer within a single building, arguing that each independent fraction should be evaluated separately against the €1,000,000 threshold; (2) Violation of the principle of legality (princípio da legalidade tributária) when the tax base determination does not conform to the strict wording of Verba 28.1, which references 'residential properties' (plural) with tax value equal to or greater than €1,000,000, potentially implying individual unit assessment; (3) Incorrect calculation of the tax base by including values that should be excluded or by improperly aggregating values; (4) Procedural defects in the assessment process, including lack of proper notification or justification; (5) Violation of constitutional principles, including potential double taxation or discrimination; and (6) Misclassification of property types or incorrect application of property registry values. In cases involving buildings with mixed use (commercial and residential), additional grounds may include improper allocation of values between taxable residential portions and non-taxable commercial spaces.
How does the CAAD arbitral tribunal process work for disputes involving Imposto do Selo on real estate assets?
The CAAD arbitral tribunal process for Imposto do Selo disputes on real estate follows a structured procedure established by the Legal Framework for Tax Arbitration (RJAT). The taxpayer initiates proceedings by filing a request to establish an arbitral tribunal within 90 days of the relevant deadline (typically the voluntary payment deadline). The request must identify the contested acts, state the legal grounds, and specify the relief sought. Upon acceptance by CAAD's President, the Tax Authority is automatically notified. The taxpayer may appoint an arbitrator or request CAAD to appoint a sole arbitrator from its roster. Once the tribunal is constituted (either as a sole arbitrator or three-member panel), the Tax Authority has 30 days to file a response. The arbitrator may raise preliminary exceptions (such as timeliness, jurisdiction, or standing) and order the parties to respond. The tribunal may hold hearings if necessary for evidence or oral arguments, though many cases are decided on written submissions. The arbitrator must issue a decision within established timeframes (typically extended in complex cases). The arbitral decision has the same force as a judicial court decision and is binding on both parties. If the taxpayer prevails, the Tax Authority must refund illegally collected amounts plus compensatory interest. Arbitration fees are borne by the losing party or apportioned based on the outcome.