Process: 797/2014-T

Date: July 10, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Process 797/2014-T addressed whether Stamp Duty under item 28.1 of the General Stamp Duty Table (TGIS) applies to vertical property (propriedade vertical) when individual units have tax assessment values below €1 million but the aggregate value exceeds this threshold. The case involved a building in Lisbon with a total VPT of €1,051,023.97, comprising four independent units, each valued below €1 million. The taxpayer argued that item 28.1, introduced in 2012 for residential properties valued at €1 million or more, should apply only to individual units exceeding this threshold. Since each independent unit had a VPT below €1 million, the taxpayer contended the tax was illegally assessed, violating principles of material truth, equality, and legality. The Tax Authority defended its position that vertical property should be assessed on aggregate VPT of all residential parts capable of independent use, not individual units. The Authority also raised procedural objections regarding timeliness and tribunal competence, arguing the challenge concerned payment of an instalment rather than the underlying assessment. This case highlights critical interpretative questions about luxury property taxation under item 28.1 TGIS, particularly how the €1 million threshold applies to properties in vertical ownership where independent units exist but horizontal property regime has not been formally established. The decision has significant implications for determining tax incidence on high-value residential properties structured as vertical ownership.

Full Decision

ARBITRAL DECISION

1. REPORT

A…, S.A., legal person no. …, with headquarters at … Street, no. …, …th floor, …, Lisbon, filed a request for the constitution of an Arbitral Tribunal in accordance with the corresponding Legal Framework for Tax Arbitration, for review of the legality of Stamp Duty assessments (item 28.1) relating to 2013 (third instalments).

The Respondent is the Tax and Customs Authority.

The request for constitution of the arbitral tribunal was filed on 01-12-2014, being accepted by the President of the CAAD on the following day and was notified to the Tax and Customs Authority on that same day.

Pursuant to the provisions of paragraph a) of article 6, number 2, and paragraph b) of article 11, number 1, of the RJAT, the Ethics Council designated the undersigned as sole arbitrator, who communicated acceptance of the appointment within the applicable period.

In accordance with the provisions of paragraph c) of article 11, number 1, of the RJAT, the sole arbitral tribunal was constituted on 13-02-2015.

The Tax and Customs Authority submitted its reply.

The meeting provided for in article 18 of the RJAT took place on 25-05-2015, with oral arguments by the parties being dispensed with.

The arbitral tribunal was regularly constituted and is competent.

The parties have legal personality and capacity, are legitimate and are properly represented. (Articles 4 and 10, number 2, of the same statute and article 1 of Decree no. 112-A/2011, of 22 March).

The proceedings are not affected by nullities.

2. SUBJECT MATTER OF THE DISPUTE

The issue in the proceedings concerns the application of the new Stamp Duty taxation affecting urban properties with residential use and tax assessment value (VPT) equal to or exceeding one million euros, introduced in 2012 to strengthen budget control measures on the revenue side, in a context of financial emergency.

As is well known, this taxation has raised serious doubts and considerable objections. This concerns not only specific cases of its application (e.g., vertical ownership, land for construction or its application to the year 2012), but also in general terms, regarding its possible unconstitutionality (see Luís Menezes Leitão, On Stamp Duty Taxation of Luxury Real Estate (item 28.1 TGIS), in Tax Arbitration no. 1, pp. 44 et seq).

The Applicant comes, precisely, to contest the application of said taxation resulting from the application of the new item 28.1 of the TGIS to urban properties in vertical ownership.

The Applicant contests the tax assessment in question, arguing that the units, parts or floors, having residential use and forming part of the urban property in vertical ownership in question, are nevertheless capable of independent use and have a tax assessment value of less than one million euros. The Applicant therefore disagrees with the position of the Tax Authority which, in very summary terms, leads to the effect that for a property in vertical ownership (with parts capable of independent use, but not established under horizontal property regime, therefore) the criterion for determining the incidence of Stamp Duty corresponds to the aggregate VPT of floors and units designated for habitation, even if capable of independent use and not to the individual VPT of each of those units, parts or floors capable of independent use.

For the Applicant, said item 28.1 cannot therefore have the interpretation that the Tax Authority gives it, which would be unlawful, violating the principles of material truth, equality and legality, emphasizing in support of its thesis the reference made by the legislator to the rules of the IMI. The Applicant also cites the CAAD decision in proceeding 50/2013 – T, which it attaches.

The Applicant therefore requests the declaration of the illegality of the assessment acts (four) with the total amount corresponding to the third instalments (of November), the condemnation of the Tax Authority to the obligation to indemnify the Applicant for the undue payment and also its condemnation to costs.

The Tax and Customs Authority (Tax Authority) replied in a timely manner.

To this effect and, in summary, it raises several objections.

First, what it designates as double lack of timeliness:

a) On the one hand, the tax assessment, according to the date appearing in all 4 collection notices attached to the proceedings by the Applicant, is from 17.03.2014, and the first voluntary payment deadline occurred in April 2014, in accordance with article 120 of the CIMI, applicable by virtue of article 3 of Law no. 55/2012, of 29 October;

b) On the other hand, pursuant to article 120, number 4, of the CIMI, failure to pay an instalment of tax within the established deadline implies the immediate maturity of the remaining instalments.

The Respondent also adds, as an objection, the fact that the act subject to the request for an arbitral decision exceeds the competence of the Arbitral Tribunal, which would thus be incompetent. This is because the request does not correspond to the challenge of a tax assessment, but rather to the contestation of the payment of an instalment (the third) of a prior tax assessment that subsequently gives rise to a collection notice (this one being challenged with the initial petition). Thus, for the Respondent, the subject matter of the proceedings does not correspond to a request for annulment of a tax assessment, but rather of a collection notice, specifically for the payment of the third instalment of a tax (Stamp Duty, item 28.1).

As a precaution, the Respondent also contests the request, upholding the legality and constitutionality (particularly by respecting the principles of legality, tax equality and taxpaying capacity) of the interpretation given to the scope of item 28.1 in the tax assessment in question, specifically as regards the parts (residential and corresponding to floors or units capable of independent use) forming part of properties designated for habitation established in vertical ownership and with a VPT below one million euros, provided that the property in which they are integrated meets the requirements provided in that item (particularly regarding the minimum VPT).

3. FACTS

3.1. Established Facts

a) In 2013 the Applicant was the owner of the urban property with the registration number no. … of the parish of …, in Lisbon;

b) The total VPT of that property was 1,051,023.97 euros;

c) That property corresponds to an urban property established in vertical ownership, by virtue of including parts capable of independent use, totalling at least four, which correspond to the registration numbers (… – ST, … - R/C, … and …);

d) The VPT of any of those independent parts forming the said property was less than one million euros;

e) The registration numbers of those four independent parts of the referred urban property gave rise to the assessments of item 28.1 referred to in the present proceedings, all dated 17-03-2014;

f) Each of those assessments corresponded to a third instalment, with payment deadline in November 2013;

g) The amounts of those third instalments are, in euros: 1,061.23 (registration number …); 831.66 (…); 803.38 (… – R/C); 807.12 (… – ST);

h) The payment deadline for such instalments was November 2014 and they were paid on time;

i) The present request was filed on 1 – 12 – 2014.

3.2. Unestablished Facts

It was not proven that the Applicant did not proceed punctually to the payment of the first and second instalments relating to the assessment here in question.

3.3. Basis for the Determination of the Facts

The established facts are based on the allegations of the parties and on the documents provided, the correspondence of which with reality is not disputed. The unestablished fact stems from the absence of evidence of the same in the record.

4. LEGAL ISSUES

The issue in the present action is to determine which VPT is relevant for assessing the subjection to the new Stamp Duty item of independent parts of residential properties in vertical ownership.

However, the Respondent raises objections that must be analyzed beforehand, as they may prejudice the analysis of the merits of that underlying legal issue, which underlies the present dispute.

It is therefore important to determine whether the request is untimely, due to:

a) The assessment having occurred on 17.03.2014 and the first voluntary payment deadline being in April 2014; or

b) The early maturity of the third instalment having already occurred due to the failure to pay one or more of the previous instalments.

And, in any event, also as an objection, whether the request falls within the scope of competence of the arbitral tribunals operating in the CAAD. That is, whether it is arbitrable when the illegality petitioned is not that of the assessment, but of the collection of the third instalment of that assessment.

It should be noted preliminarily that the tribunal is not bound by the order in which the potential defects are invoked by the parties.

On the other hand, the Respondent cannot impute to the Applicant the burden of proof of timely payment of the previous instalments, because it would benefit itself (the Respondent) from the effect it seeks to prevail (early maturity), which is why it would be the Respondent (Tax Authority) on whom the burden of proving the underlying factual matter (failure to pay on time) would fall.

As is known, item 28.1 of the Stamp Duty, like the IMI, gives rise to an annual assessment, which is subsequently collected in successive instalments throughout the year.

However, it is important not to confuse the collection of such instalments with any tax assessment act. The assessment is the initial one and, in this case, it occurred in March. And, by the rules of normalcy, it must have been notified promptly and in good time to the Applicant for the purpose of payment of the first instalment. Moreover, the Applicant does not invoke, nor consequently prove, that this did not occur. And, by the rules of burden of proof distribution referred to above, it would be incumbent on it to bear that burden.

Now, the Respondent comes to react against a partial collection notice, which does not have the effect of contesting the underlying tax assessment. Moreover, this contestation occurs when the tax assessment apparently remains consolidated, since nothing has been brought to the record regarding the fate of the first and second tax instalments.

The issue is therefore not even whether the request is or is not untimely, but whether it is admissible. There is no doubt that the Applicant intends to contest only the third payment. This clearly emerges from the introduction of the petition ("… for review of the legality of the Stamp Duty assessments (IS) relating to the year 2013 (3rd instalment), with payment deadline of 30 November 2014 …") and also from the final formulation of the request and the value associated with it ("… the illegality of the stamp duty assessment acts relating to 2013 in the total amount of 3,503.99 euros …"), as well as from the documents provided (docs 1 to 4 of the Initial Petition).

As the Respondent rightly emphasizes, the CAAD has already pronounced on a similar matter in Proceeding no. 726/2014, having concluded that "The instalments for payment of an IMI assessment or, in the situation under analysis, of a Stamp Duty assessment, pursuant to item 28 of the TGIS, are not autonomously reviewable, as they originate from a single annual obligation. Since each of the instalments of the Stamp Duty assessments identified in the record is not autonomously challengeable, … there would be a case of incompetence of the arbitral tribunal for the review and declaration of its illegality and consequent annulment. The conclusion that the Stamp Duty assessment, item 28 of the TGIS, is indivisible, with each of its instalments not being autonomously challengeable, determines the incompetence of the arbitral tribunal and prevents the continuation of the proceedings, as well as the review of the merits of the case. For which reasons it is decided to absolve the Tax and Customs Authority of the instance."

Now, the arguments referred to and which are subscribed to are equally applicable in the present request, so the Tax Authority should likewise be absolved of the instance, due to the incompetence of the Arbitral Tribunal to review the legality of the third instalments of Stamp Duty payment relating to 2013.

It is therefore recognized that the invoked objection of incompetence of the arbitral tribunal is upheld, which prevents the continuation of the proceedings, due to the non-arbitrability of the request, which corresponds to the (autonomous) review of the legality (only) of a partial collection of a prior tax assessment that gives rise to that partial tax collection.

5. DECISION

In these terms, the invoked objection of non-arbitrability of the collection act is upheld, with consequent incompetence of the arbitral tribunal and, consequently, the Tax and Customs Authority is absolved of the instance.

7. VALUE OF THE CASE

In accordance with the provisions of article 306, number 2, of the CPC and 97-A, number 1, paragraph a), of the CPPT and 3, number 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is set at € 3,503.99.

8. COSTS

Pursuant to article 22, number 4, of the RJAT, the amount of costs is set at € 612.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Applicant.

Lisbon, 10 July 2015

Document prepared by computer, in accordance with the Code of Civil Procedure (CPC), applicable by reference to article 29, number 1, paragraph e) of the RJAT,

The Arbitrator
(Jaime Carvalho Esteves)

Frequently Asked Questions

Automatically Created

Does Stamp Tax under Verba 28.1 of TGIS apply to buildings held in vertical property (propriedade vertical)?
Yes, Stamp Tax under Verba 28.1 of TGIS can apply to buildings held in vertical property (propriedade vertical), but the method of calculation is disputed. The Tax Authority's position is that for vertical property containing multiple independent residential units, the tax applies when the aggregate tax assessment value (VPT) of all residential parts reaches or exceeds €1 million, even if individual units are independently usable and each has a VPT below €1 million. Taxpayers have challenged this interpretation, arguing that independent units should be assessed separately.
How is the €1 million property tax value threshold calculated for vertical property units with independent use?
The €1 million threshold calculation for vertical property units is the central dispute in Process 797/2014-T. The Tax Authority calculates the threshold using the aggregate VPT of all residential floors and units designated for habitation within the vertical property, even when these parts are capable of independent use. The taxpayer's position is that each independent unit should be assessed separately, meaning only units individually valued at €1 million or more should be subject to item 28.1 taxation. The controversy arises because vertical property includes parts capable of independent use but has not been formally established under horizontal property regime.
Can individual floors or units in a vertical property building be assessed separately for Imposto do Selo purposes?
According to the taxpayer's interpretation, individual floors or units in vertical property buildings should be assessed separately for Imposto do Selo purposes under Verba 28.1 when they are capable of independent use and have individual tax assessment values. However, the Tax Authority's position is that separate assessment is not applicable for vertical property. Instead, the aggregate VPT of all residential parts within the vertical property building determines whether item 28.1 applies. This differs from horizontal property regime where condominiums are typically assessed as separate autonomous fractions. The reference to IMI rules in item 28.1 legislation creates interpretative questions about the proper assessment methodology.
What is the CAAD arbitration procedure for challenging Stamp Tax assessments on high-value residential properties?
The CAAD arbitration procedure for challenging Stamp Tax assessments on high-value residential properties under item 28.1 follows the Legal Framework for Tax Arbitration (RJAT). Taxpayers file a request for constitution of an Arbitral Tribunal, which must be accepted by the CAAD President. The Tax Authority is notified and submits a reply. A sole arbitrator or panel is designated by the Ethics Council. After constitution of the tribunal, parties may present arguments at a hearing under article 18 RJAT, though oral arguments may be dispensed with. The procedure allows challenges to assessment acts on grounds of illegality, unconstitutionality, or violation of tax principles. Procedural requirements include timeliness rules and proper identification of the challenged act.
What was the outcome of CAAD Process 797/2014-T regarding Stamp Tax on vertical property with independent units?
The complete outcome of CAAD Process 797/2014-T is not fully provided in the available excerpt, as the decision text ends before the final ruling. However, the case involved four Stamp Duty assessments dated March 17, 2014, for third instalments (November 2013) totaling €3,503.39 across four independent units within a vertical property building valued at €1,051,023.97. The Tax Authority raised preliminary objections regarding timeliness and tribunal competence, arguing the challenge improperly targeted collection notices rather than the underlying assessment. The substantive issue concerned whether the €1 million threshold applies to aggregate or individual VPT for vertical property units. The tribunal found itself regularly constituted and competent to decide the matter.