Process: 778/2015-T

Date: October 31, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitration decision addresses a critical Stamp Tax issue concerning urban properties held in total ownership with multiple independent residential divisions. The taxpayer challenged tax assessments under heading 28.1 of the General Table of Stamp Tax (TGIS), which the Tax Authority applied by aggregating the patrimonial values of five residential divisions to exceed the €1,000,000 threshold, despite no individual division reaching this amount. The claimant argued that for properties in total ownership with independent divisions, each division should be valued separately for Stamp Tax purposes, consistent with IMI valuation principles. The Tax Authority contended that a property in total ownership constitutes a single legal-tax reality, unlike horizontal property where units are legally independent, justifying aggregation of values. The arbitral tribunal relied on established Supreme Administrative Court jurisprudence, particularly decision 47/15 from September 2015, which definitively held that Stamp Tax under heading 28.1 applies to each independent residential division separately, not to the aggregated global value of the property. This interpretation aligns with the legislator's intent to tax high-value residential properties and prevents discriminatory treatment based on formal property regime differences within the taxpayer's control. The tribunal found the Tax Authority committed an error regarding legal prerequisites by aggregating values, declaring the assessments illegal and ordering restitution of the €10,154.76 paid plus compensatory interest. This decision reinforces the principle that for Stamp Tax purposes on properties in total ownership, each division with independent use and residential allocation must be evaluated individually against the €1,000,000 threshold, regardless of the total property value.

Full Decision

ARBITRAL DECISION

I – REPORT

Request

A… LDA., taxpayer no…, with registered address at …, no…, …, …-… Lisbon, filed, on 23-12-2015, under the provisions of paragraph a) of article 1 of article 2º and article 10º of Decree-Law no. 10/2011, of 20 January, which approves the Legal Regime of Arbitration in Tax Matters (RJAT), a request for arbitral pronouncement, whereby AT - TAX AND CUSTOMS AUTHORITY is the Respondent, with a view to:

  • The declaration of illegality and annulment of the acts of assessment of Stamp Tax, carried out under heading 28.1 of the General Table of Stamp Tax (TGIS), concerning divisions with independent use and residential allocation of the urban property located at …, nos… to … and … Street nos… to …, in Lisbon, registered in the urban tax real estate register with article …, of the … parish – Lisbon;

  • The restitution of the amounts unduly collected by such assessments plus the corresponding indemnity interest.

The Claimant alleges, in essence and with relevance to the decision of the case, the following:

  • The urban property located at …, nos… to … and … Street nos… to …, in Lisbon, registered in the urban tax real estate register with article …, of the … parish – Lisbon, and described in the real estate registration office with no…, … parish, Lisbon, is described as property in full ownership with apartments or divisions susceptible to independent use, not being, therefore, constituted in condominium ownership;

  • Although none of the apartments susceptible to independent use has a value equal to or exceeding 1,000,000.00 euros, the Respondent assessed stamp tax under heading 28.1 of the General Table of Stamp Tax, on five divisions with residential allocation, considering the sum of the patrimonial value of these five divisions;

  • In assessing stamp tax on these five divisions with residential allocation, the Respondent made an error regarding the legal prerequisites;

Indeed:

  • The final part of heading 28 of the TGIS provides that the value relevant for delimiting the objective scope of the tax is the patrimonial value used for purposes of IMI;

  • For purposes of IMI, the value that is taken into account, in the case of urban properties with parts susceptible to independent use, is the patrimonial value of each part, therefore, that will also be the value to be taken into account for purposes of determining the scope of stamp tax;

  • This is also the only normative sense compatible with the legislator's intention, which was to subject to taxation properties of high value destined for residential use;

  • Furthermore, a difference in property regime that is only formal and that is within the control of the taxpayer to modify should not constitute a decisive factor for subjection or non-subjection to taxation;

Response of the Respondent

In its Response, the Respondent alleges, summarily, the following:

  • Heading 28 of the TGIS does not constitute any violation of the principle of equality contained in article 13º of the Constitution of the Portuguese Republic;

  • The different valuation and taxation of a property in full ownership compared to a property constituted in condominium ownership stems from the different legal effects inherent to these two figures;

  • The constitution in condominium ownership determines the division of full ownership and the independence or autonomy of each of the units that constitute it, for all legal purposes, in accordance with article 4º, no. 2 of the CIMI and articles 1414º et seq. of the CC, whilst a property in full ownership constitutes, for all purposes, a single legal-tax reality;

  • In this way, one cannot conclude that there is alleged discrimination in violation of the principle of equality when, in fact, we are dealing with distinct realities, valued differently by the legislator;

  • It follows from the set of rules applicable to the situation in question that the taxable event of stamp tax of heading 28.1 consists in the ownership, usufruct or right of surface of urban properties whose patrimonial tax value recorded in the register, in accordance with the CIMI, is equal to or exceeding € 1,000,000.00;

  • A property composed of parts susceptible to independent use does not cease to be a single property;

  • As such, the value determining the objective scope of ST is the global value of the property.

Subsequent Procedure

By order of 11 June 2016, after obtaining the consent of the Parties, the Tribunal determined that the meeting provided for in article 18º of the RJAT was not necessary, and granted a time limit for written arguments.

In the written arguments, the Parties added nothing substantial to the arguments set out in the initial petition and the response.

II – PRELIMINARY EXAMINATION

The sole arbitrator tribunal was duly constituted on 02-03-2016, with the arbitrator designated by the CAAD Ethics Committee, with all respective legal and regulatory formalities fulfilled (articles 11º, no. 1, paragraphs a) and b) of the RJAT and 6º and 7º of the CAAD Code of Ethics).

The Parties have legal personality and capacity, are legitimate and are duly represented, in accordance with articles 4.º and 10.º of the RJAT and article 1.º of Order no. 112-A/2011, of 22 March.

No procedural defects were identified.

III – ISSUES TO BE DECIDED

The only substantive issue raised is that of the scope of the tax of heading 28.1 of the General Table of Stamp Tax on divisions of urban property in full ownership, with residential allocation and susceptible to independent use and as such considered in the tax real estate register.

IV – PROVEN FACTS

The following are the proven facts considered relevant to the decision:

  • The Claimant appears in the tax real estate register as owner of the urban property located at …, nos… to … and … street nos… to …, in Lisbon, registered in the urban tax real estate register with article …, of the …- Lisbon parish;

  • The property is described in the tax real estate register as property in full ownership and composed of parts susceptible to independent use, of which five have residential allocation;

  • No part with independent use has a patrimonial value equal to or exceeding 1,000,000.00 euros;

  • The AT - Tax and Customs Authority assessed stamp tax on the patrimonial tax values of the apartments or parts susceptible to independent use with residential use, at the rate of 1%, under heading 28.1 of the General Table of Stamp Tax (TGIS) for the year 2014;

  • The sum total of the assessed tax is 10,154.76 euros;

  • The Claimant proceeded to pay this amount;

  • On 29-04-2015, the Claimant filed a gracious complaint against the assessment acts, which received a dismissal decision notified on 30-10-2015.

V – GROUNDS

The substantive issue that must be examined and decided is whether the tax of heading 28.1 of the General Table of Stamp Tax applies to divisions of urban property in full ownership, with residential allocation susceptible to independent use and as such considered in the tax real estate register.

On this same issue the Supreme Administrative Court has already ruled on several occasions, with established doctrine that, in the case of a property constituted in full ownership, the scope of ST should be determined, not by the patrimonial tax value resulting from the sum of the patrimonial tax value of all divisions or apartments susceptible to independent use (individualized in the tax article), but by the patrimonial tax value attributed to each of those apartments or divisions destined for residential use.

The foundation of this doctrine can be found in one of the first judgments that the Supreme Court delivered on this matter, on 09-09-2015, in case no. 47/15. In this judgment, which we take as the basis of our decision in the present case, the STA states:

"The concept of 'property (urban) with residential allocation' was not defined by the legislator. Neither in Law no. 55-A/2012, which introduced it, nor in the IMI Code, to which article 67º, no. 2 of the Stamp Tax Code (also introduced by that Law) refers on a subsidiary basis. And it is a concept which, probably due to its imprecision – a fact all the more serious given that it is in terms of it that the objective scope of the new taxation is defined – had a short life, as it was abandoned when the State Budget Law for 2014 came into force (Law no. 83-C/2013, of 31 December), which gave new wording to that heading no. 28 of the General Table, and which now defines its objective scope through the use of concepts that are legally defined in article 6º of the IMI Code.

From the letter of the law nothing unequivocal follows, moreover, as it itself, by using a concept that it did not define and which was also not defined in the regulation to which it referred on a subsidiary basis, lent itself, unnecessarily, to ambiguities, in a matter – of tax scope – in which certainty and legal security should also be paramount concerns of the legislator."

And the Court continues:

"(...) This matter is, from the outset by virtue of article 67º, no. 2 of the ST Code, subject to the rules of the IMI Code, - 'to matters not regulated in this code concerning heading 28 of the General Table, the CIMI applies on a subsidiary basis'.

As such, and as has been mentioned so many times, in the understanding of this court, the mechanism for determining the VPT relevant for purposes of the aforementioned heading is that which is established in the IMI Code.

Now, article 12º, no. 3 of the IMI Code provides that 'each apartment or part of property susceptible to independent use is considered separately in the tax registration, which also discriminates the respective patrimonial tax value'.

The legislator thus disregarding, in the terms previously mentioned, any prior constitution of condominium or vertical ownership.

Indeed, for the legislator, what matters is the material truth underlying its existence as an urban property and its use.

It should be noted that the AT itself seems to agree with the criterion set out, which is why the assessments that it itself issues are very clear in their essential elements, from which it follows that the value of scope is that corresponding to the VPT of each of the apartments and the assessments individualized.

Therefore, if the legal criterion requires the issuance of individualized assessments for the autonomous parts of properties in vertical ownership, in the same manner as it establishes for properties in condominium ownership, it clearly established the criterion, which must be unique and unequivocal, for the definition of the rule of scope of the new tax.

Thus, there would only be scope for ST (within the scope of Heading no. 28 of the TGIS) if one of the parts, apartments or divisions with independent use presented a VPT exceeding € 1,000,000.00.

The AT cannot consider as the reference value for the scope of the new tax the total value of the property, when the legislator itself established a different rule in the area of IMI (and, as previously mentioned, this is the code applicable to matters not regulated as regards Heading no. 28 of the TGIS).

In conclusion, the current legal regime does not impose the obligation to constitute condominium ownership, so the AT's action translates into arbitrary and illegal discrimination.

In fact, the AT cannot distinguish where the legislator itself chose not to, at the risk of violating the coherence of the tax system, as well as the principle of tax legality provided for in article 103º of the Constitution of the Portuguese Republic, and also the principles of tax justice, equality and proportionality.

In the case in question, the property [properties] in question were, on the date relevant to the facts, constituted in full ownership and had [...] parts with independent use, as is apparent from the documents [...].

Given that none of these parts has a patrimonial value equal to or exceeding € 1,000,000.00, as is apparent from the documents appended to the case, it is concluded that the legal prerequisite for scope is not met."

We consider that the jurisprudence of the Supreme Administrative Court is based on correct grounds, so we understand that we should apply it to the case sub judice, without any modification.

Within the scope of the Municipal Property Tax (IMI), the legislator clearly established, in article 12º, no. 2 of the CIMI, that parts of property with independent use are evaluated separately, this value being taken as the basis for tax assessment.

Within the scope of Stamp Tax, article 13º, no. 1 of its respective code provides that "the value of properties is the patrimonial tax value recorded in the register in accordance with the CIMI".

Therefore, it seems clear that the legislator intended that the patrimonial tax value of parts with independent use be considered.

The AT - Tax and Customs Authority appears to conform its action to this understanding, by issuing Stamp Tax assessment acts individualized in relation to each part.

Moreover, in accordance with article 9º, no. 1 of the Civil Code, interpretation should not be limited to the letter of the law, but should reconstruct from the texts the legislative thought, taking especially into account the unity of the legal system, the circumstances in which the law was drafted and the specific conditions of the time in which it is applied. Now, the subjective element of interpretation, to be drawn from the historical elements that are well known in this matter, and which are partially reproduced in the STA judgment cited, clearly indicates the legislator's intention to subject to taxation residential homes of high value.

In accordance with all the interpretative elements mentioned, it must be considered that, where there is a property in full ownership formed by parts susceptible to independent use, there is only scope for ST (within the scope of Heading no. 28 of the TGIS) if one of the parts, apartments or divisions with independent use presents a patrimonial tax value equal to or exceeding 1,000,000.00 euros.

For all the foregoing, it must be concluded that the stamp tax assessments challenged are illegal, for violation of tax law, by applying to independent parts of properties in full ownership but taking as a basis the patrimonial tax value of the sum of the same parts and when none of these parts has a patrimonial tax value equal to or exceeding 1,000,000 euros.

V – DECISION

Declare the illegality and annul the assessments of Stamp Tax on the divisions with residential allocation of the urban property located at …, nos… to … and … Street nos… to …, in Lisbon, registered in the urban tax real estate register with article …, of the …- Lisbon parish;

Condemn the Respondent AT – Tax and Customs Authority to refund the tax unduly paid in accordance with the same assessments, plus the respective indemnity interest, in accordance with article 43º of the LGT.

Economic value of the case: The economic value of the case is fixed at 10,154.76 euros.

Costs: In accordance with article 22º, no. 4, of the RJAT, the amount of costs is fixed at 918.00 euros, in accordance with Table I attached to the Rules on Costs in Tax Arbitration Proceedings, to be borne by the Respondent.

This arbitral decision is to be registered and notified to the parties.

Lisbon, Administrative Arbitration Centre, 31 October 2016

The Arbitrator

(Nina Aguiar)

Frequently Asked Questions

Automatically Created

Is Stamp Tax under Verba 28.1 TGIS applicable to individual divisions of a building held in total ownership?
No. According to established Supreme Administrative Court jurisprudence confirmed in this arbitration decision, Stamp Tax under heading 28.1 TGIS is not applicable when individual divisions of a building held in total ownership each have patrimonial values below €1,000,000, even if their aggregate value exceeds this threshold. The tax applies only to individual divisions with residential allocation whose individual patrimonial value equals or exceeds €1,000,000. The Tax Authority cannot aggregate the values of separate divisions to artificially create taxable events.
How is the taxable value determined for urban properties with independent divisions not constituted in horizontal property?
For urban properties with independent divisions not constituted in horizontal property (i.e., held in total ownership), the taxable value for Stamp Tax under heading 28.1 TGIS is determined by the individual patrimonial value of each division susceptible to independent use with residential allocation, as recorded in the tax real estate register for IMI purposes. The Supreme Administrative Court has established that each division must be evaluated separately, not by aggregating all division values into a global property value, ensuring consistency with IMI valuation principles.
Can the tax authority aggregate the patrimonial values of separate housing divisions to exceed the €1,000,000 threshold for Stamp Tax?
No. The tax authority cannot legally aggregate the patrimonial values of separate housing divisions to exceed the €1,000,000 threshold for Stamp Tax purposes. This practice constitutes an error regarding legal prerequisites. The arbitral tribunal, following Supreme Administrative Court doctrine, determined that each residential division in total ownership must independently meet the €1,000,000 threshold. Aggregation would create discriminatory treatment compared to horizontal property regimes and contradict the legislator's intent to tax individual high-value residential properties.
What is the difference between total ownership and horizontal property for Stamp Tax incidence under Verba 28.1?
The key difference for Stamp Tax incidence is that horizontal property creates legally independent autonomous units for all purposes, while total ownership represents a single property with divisions susceptible to independent use. However, for Stamp Tax under heading 28.1, this distinction does not justify different valuation methods. Both regimes assess tax based on individual residential unit values against the €1,000,000 threshold. Formal property regime differences within the taxpayer's control should not determine tax liability, preventing taxpayers from avoiding tax simply by choosing or maintaining total ownership instead of converting to horizontal property.
What legal remedies are available to challenge Stamp Tax assessments on urban property divisions before CAAD?
Taxpayers can challenge Stamp Tax assessments on urban property divisions before CAAD (Administrative Arbitration Center) by filing an arbitration request under the Legal Regime of Arbitration in Tax Matters (RJAT). The request should seek declaration of illegality and annulment of assessment acts, plus restitution of amounts unduly collected with compensatory interest. Taxpayers should first exhaust administrative remedies by filing a gracious complaint (reclamação graciosa) with the Tax Authority. If dismissed, they can pursue arbitration within the legal deadline, presenting arguments on legal interpretation, established case law, and constitutional principles like equality and legality of taxation.