Process: 104/2016-T

Date: July 7, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

Process 104/2016-T addressed whether Stamp Tax under item 28.1 of the General Stamp Duty Table (TGIS) applies to vertical property ownership when individual units fall below the €1,000,000 threshold. The claimant, A… S.A., owned an urban property in Lisbon structured as vertical ownership comprising fourteen independent residential units. The Tax Authority assessed €17,057.16 in stamp duty for 2014, treating the property as a single taxable unit. The claimant contested this, arguing that vertical ownership creates autonomous property rights, and therefore each independent unit should be assessed separately for stamp duty purposes. Since none of the fourteen units had a taxable property value (VPT) exceeding €1,000,000, the claimant maintained no stamp duty liability existed. The Tax Authority defended its assessment, contending that the total VPT of the entire urban property determines stamp duty liability, regardless of vertical ownership divisions. This case highlights a fundamental question in Portuguese tax law: whether vertical property ownership—which grants separate legal titles to each unit—should be recognized for stamp duty purposes, or whether the tax authority can disregard the legal structure and assess tax on the aggregate property value. The distinction is critical because item 28.1 TGIS only applies to properties exceeding €1,000,000 in value. The claimant sought declaration of unlawfulness of the assessments, restitution of taxes paid, and compensatory interest under Article 43 of the General Tax Code. The case proceeded through the Administrative Arbitration Centre (CAAD) with a sole arbitrator, following the procedural framework established by the Legal Framework for Arbitration in Tax Matters (RJAT).

Full Decision

ARBITRAL AWARD

Claimant/Applicant: A…, S.A.

Respondent: Tax and Customs Authority (hereinafter TCA)

1. REPORT

On 24-02-2016, A…, S.A., a legal entity no. …, with registered office at Avenue … no. …, … left, Lisbon, hereinafter referred to as the Claimant, submitted to the Administrative Arbitration Centre (AAC) a request for the constitution of an arbitral tribunal for the purpose of declaring unlawful the stamp duty assessment acts in the total amount of 17,057.16 €, relating to the year 2014 and to item 28.1 of the General Stamp Duty Table. Said assessments relate to the urban property located at Street…, …, Lisbon, registered in the urban real estate register of the parish of…, municipality of Lisbon, under article…, described in the Land Registry Office of Lisbon under no. …, structured as vertical ownership and comprising fourteen units capable of independent use intended for residential purposes.

The Claimant alleges that the subject matter of stamp duty is determined not by the global tax value of the property (TVP), but by the tax value attributed to each of the floors or independent units. And since none of the floors with independent use has a tax value (TVP) exceeding one million euros (€1,000,000), neither stamp duty can be assessed nor collected.

The Claimant further requests the restitution of the tax unduly paid, plus compensatory interest, pursuant to Article 43, Section 1 of the General Tax Code.

A sole arbitrator was appointed on 20-04-2016: Suzana Fernandes da Costa.

In accordance with Article 11, Section 1, paragraph c) of the RJAT, the sole arbitral tribunal was constituted on 06-05-2016.

Duly notified pursuant to Article 17 of the Legal Framework for Arbitration in Tax Matters (RJAT), the Tax and Customs Authority filed its response on 23-05-2016, defending the validity of the assessed tax acts, requesting dismissal of the claim, and arguing that the tax value relevant for the purposes of stamp duty assessment would be the total tax value of the urban property and not the tax value of each of the floors or units, even if they were capable of independent use.

In its response, the TCA requested the waiver of the meeting provided for in Article 18 of the RJAT, as well as the submission of pleadings.

On 23-05-2016, an order was issued requiring notification of the Claimant to comment, within 10 days, on the TCA's request for waiver of the meeting and pleadings.

Since the Claimant did not comment, an order was issued on 15-06-2016, waiving the holding of the meeting provided for in Article 18 of the RJAT and the submission of pleadings. In the same order, the date of 29-06-2016 was set for the issuance of the arbitral award, and the Claimant was warned to proceed, by that date, with payment of the subsequent arbitration fee.

The Claimant attached to the file evidence of payment of the subsequent arbitration fee on 23-06-2016.

The parties have legal personality and capacity and are legitimate (Articles 4 and 10, Sections 1 and 2 of the RJAT and Article 1 of Ordinance no. 112-A/2011 of 22 March).

The arbitral claim is timely, pursuant to Article 10, Section 1, paragraph a) of Decree-Law no. 10/2011 of 20 January and Article 102, Section 1, paragraph a) of the Code of Tax Procedure and Process.

The case does not suffer from nullities and no preliminary issues were raised, except for the request for joinder of claims which is hereinafter decided.

The Claimant requested the joinder of claims, alleging that "the merits of the claims made essentially depend on the assessment of the same factual circumstances and on the interpretation and application of the same legal rules."

In this case, the joinder of claims is admissible, pursuant to Articles 104 of the CPPT and 3 of the RJAT, wherefore it is allowed.

2. FACTS

2.1 Established Facts:

Having analyzed the documentary evidence produced and the position of the parties contained in the procedural documents, the following facts are considered proven and of relevance for the decision of the case:

  1. The Claimant was, in 2014, the owner of the urban property located at Street…, …, Lisbon, registered in the urban real estate register of the parish of…, municipality of Lisbon, under article…, described in the Land Registry Office of Lisbon under no. …, structured as vertical ownership and comprising fourteen units capable of independent use intended for residential purposes, as shown in the real estate register and land registry certificate attached to the arbitral claim as documents 43 and 86.

  2. The Claimant was notified of the following stamp duty assessments for the year 2014, attached to the arbitral claim as documents 1 to 42:

  • Assessment no. 2015… in the amount of 1,223.64 €, relating to the 1st floor right of the aforementioned property, whose TVP is 122,363.65 €, payable in three installments: April, June and September 2015;

  • Assessment no. 2015… in the amount of 1,243.53 €, relating to the 1st floor left of the aforementioned property, whose TVP is 124,352.88 €, payable in three installments: April, June and September 2015;

  • Assessment no. 2015… in the amount of 1,235.63 €, relating to the 2nd floor right of the aforementioned property, whose TVP is 123,563.50 €, payable in three installments: April, June and September 2015;

  • Assessment no. 2015… in the amount of 1,255.73 €, relating to the 2nd floor left of the aforementioned property, whose TVP is 125,573.78 €, payable in three installments: April, June and September 2015;

  • Assessment no. 2015… in the amount of 1,235.63 €, relating to the 3rd floor right of the aforementioned property, whose TVP is 123,563.50 €, payable in three installments: April, June and September 2015;

  • Assessment no. 2015… in the amount of 1,255.74 €, relating to the 3rd floor left of the aforementioned property, whose TVP is 125,573.78 €, payable in three installments: April, June and September 2015;

  • Assessment no. 2015… in the amount of 1,247.63 €, relating to the 4th floor right of the aforementioned property, whose TVP is 124,763.35 €, payable in three installments: April, June and September 2015;

  • Assessment no. 2015… in the amount of 1,267.95 €, relating to the 4th floor left of the aforementioned property, whose TVP is 126,794.68 €, payable in three installments: April, June and September 2015;

  • Assessment no. 2015… in the amount of 1,170.80 €, relating to the 5th floor right of the aforementioned property, whose TVP is 117,080.10 €, payable in three installments: April, June and September 2015;

  • Assessment no. 2015… in the amount of 1,149.44 €, relating to the 5th floor left of the aforementioned property, whose TVP is 114,943.53 €, payable in three installments: April, June and September 2015;

  • Assessment no. 2015… in the amount of 1,178.48 €, relating to the attic right floor of the aforementioned property, whose TVP is 117,848.43 €, payable in three installments: April, June and September 2015;

  • Assessment no. 2015… in the amount of 1,185.33 €, relating to the attic left floor of the aforementioned property, whose TVP is 118,532.55 €, payable in three installments: April, June and September 2015;

  • Assessment no. 2015… in the amount of 1,210.38 €, relating to the ground floor right of the aforementioned property, whose TVP is 121,037.50 €, payable in three installments: April, June and September 2015;

  • Assessment no. 2015… in the amount of 1,197.22 €, relating to the ground floor left of the aforementioned property, whose TVP is 119,721.88 €, payable in three installments: April, June and September 2015.

None of the floors or units with independent use possesses a tax value exceeding one million euros, as shown in the real estate register attached to the arbitral claim as document 43.

The Claimant made payment of all installments of the stamp duty assessments mentioned above, as shown in documents 44 to 85 attached to the arbitral claim.

No other facts with relevance for the decision of the case were established.

2.2 Reasoning on the Established Facts:

With respect to the established facts, the arbitrator's conviction was based on the documents attached to the file by the Claimant, namely the assessments, the real estate register, the land registry certificate, and the proof of payment.

3. LEGAL MATTERS:

3.1 Object and Scope of the Present Proceedings

The question to be decided in the present case is whether item 28.1 of the General Stamp Duty Table (GSDT), in the case of properties not structured as horizontal ownership, applies to the sum of the tax values attributed to the different parts or floors (global TVP), or rather to the tax value of each part of the property with independent economic use.

On this question, the following CAAD awards, among others, have already ruled: awards issued in cases numbered 280/2013-T, 26/2014-T, 88/2014-T, 206/2014-T, 290/2014-T, 428/2014-T, 451/2014-T, 457/2014-T, 458/2014-T and 567/2014-T, 724/2014-T, 152/2015-T, 174/2015-T, 236/2015-T, 311/2015-T, 411/2015-T, 431/2015-T, 449/2015-T, 461/2015-T, 463/2015-T, 474/2015-T, 581/2015-T, 659/2015-T, 681/2015-T, 725/2015-T, 677/2015-T, 647/2015-T and awards nos. 047/15, 01352/15, 01344/15 and 01534/15 of the Supreme Administrative Court (SAC).

3.2 Question of the Tax Value Relevant for the Application of Item 28.1 of the GSDT

According to the TCA, in a property with vertical ownership (or not structured under the horizontal ownership regime) the criterion for determining the incidence of stamp duty is the global tax value of the floors and units intended for residential purposes.

For the Claimant, on the other hand, the subjection to stamp duty contained in item no. 28.1 of the GSDT should be assessed not by the total value of the property but by the value attributed to each part with independent use, based on its respective TVP.

Let us consider:

Law no. 55-A/2012, of 29 October, added item 28 to the General Stamp Duty Table (GSDT), with the following wording:

"28 – Ownership, usufruct or surface right of urban properties whose tax value as shown in the register, in accordance with the Municipal Tax Code on Real Property (MTCRP), is equal to or greater than € 1,000,000 – on the tax value used for the purposes of Municipal Tax on Real Property:

28.1 – Per property with residential use – 1% (…);

In the transitional provisions contained in Article 6 of said Law no. 55-A/2012, the following rules were established:

c) The tax value to be used in the assessment of the tax corresponds to that which results from the rules provided in the Municipal Tax Code on Real Property by reference to the year 2011; (…)

f) The applicable rates are as follows:

i) Properties with residential use assessed in accordance with the Municipal Tax Code on Real Property: 0.5%;

ii) Properties with residential use not yet assessed in accordance with the Municipal Tax Code on Real Property: 0.8%;"

Item 28.1 GSDT and sub-paragraphs i) and ii) of paragraph f) of Section 1 of Article 6 of Law no. 55-A/2012 contain a concept that is not used in any other tax legislation, which is that of "property with residential use."

For its part, Article 67, Section 2 of the Stamp Duty Code, added by said Law, provides that "to matters not regulated in the present code relating to item 28 of the General Table the MTCRP is applied subsidiarily."

The provision on incidence refers to urban properties, the concept of which is that which results from Article 2 of the MTCRP, with the determination of TVP following the terms provided in Article 38 and following of the same code.

For its part, Article 6 of the MTCRP indicates the different types of urban properties, and provides that "residential, commercial, industrial or service buildings or constructions are those licensed for such purposes or, in the absence of a license, that have as their normal destination each of these purposes." (see paragraph a) of Section 1 of Article 6 MTCRP).

It must thus be concluded that for the legislature it is irrelevant whether the property is in vertical ownership or horizontal ownership, what matters only being the material truth underlying its existence as an urban property and its use.

Since the Stamp Duty Code (SDC) defers to the Municipal Tax Code on Real Property, we should consider that the registration in the real property register of properties with vertical ownership, composed of different parts, floors or units with independent use, obeys the same registration rules as properties structured in horizontal ownership.

From this it follows that the respective Municipal Tax on Real Property, as well as Stamp Duty, are assessed individually in relation to each one of the parts. For that reason, the legal criterion for defining the incidence of the new tax must be the same.

Thus, as concluded in award no. 50/2013-T of the CAAD and in award no. 047/15 of the SAC, according to which "if the legal criterion imposes the issuance of individualized assessments for the autonomous parts of properties with vertical ownership, in the same manner as it establishes for properties with horizontal ownership, it has clearly established the criterion, which must be unique and unequivocal, for the definition of the incidence rule of item 28.1 of the GSDT".

It thus results from the law that stamp duty under item 28.1 of the GSDT would only be incurred if any of the parts, floors or units with independent use presented a TVP exceeding one million euros (€1,000,000.00), which does not occur in the present case.

The criterion advocated by the TCA, which takes into account the sum of the parts, with the argument that the property would not be structured under the horizontal ownership regime, finds no legal support and is contrary to the criterion that results from the MTCRP and that applies by cross-reference in the context of Stamp Duty.

Furthermore, the law itself expressly establishes, in the final part of item 28 of the GSDT, that Stamp Duty applying to urban properties of value equal to or greater than one million euros (€1,000,000.00) applies "on the tax value used for the purposes of Municipal Tax on Real Property."

In conclusion, the tax value relevant for the purposes of applying item 28.1 of the GSDT is the TVP of the part, floor or unit with independent use with residential use, as concluded in award no. 047/15 of the Supreme Administrative Court.

In accordance with the interpretation endorsed above, the taxation of parts with independent use of value less than one million euros is not covered by the incidence provision; therefore, its taxation violates the principle of equality, more specifically in its corollaries of contributory capacity and tax proportionality.

As regards the principle of equality, we conclude, as in the award of the CAAD no. 218/2013-T, stating that "the stamp duty assessment now under consideration manifestly violates the principle of tax equality provided for in Article 13 of the CRP, because: i) it is based on a provision that treats taxpayers in identical situations in quite different ways, the measure of the difference not being assessed by their actual contributory capacity; ii) it is based on an arbitrary legal solution devoid of any rational foundation."

In the present case, the property in question is structured as vertical ownership and contains eleven floors and units with independent use intended for residential purposes, as established above. Given that none of the floors intended for residential use has a tax value equal to or exceeding one million euros (€1,000,000.00), as results from the documents attached to the file, it is concluded that the legal prerequisite for the incidence of Stamp Duty provided for in Item 28 of the GSDT is not met.

Looking now at the legislative intent of the provision in question in item 28.1 GSDT and citing award CAAD no. 50/2013-T: "the legislature, in introducing this legislative innovation, considered as the determining element of contributory capacity urban properties, with residential use, of high value (luxury), more precisely, of value equal to or greater than one million euros (€1,000,000.00), on which it proceeded to apply a special rate of stamp duty, intending to introduce a principle of taxation on wealth manifested in the ownership, usufruct or surface right of luxury urban properties with residential use. For this reason, the criterion was to apply the new rate to urban properties with residential use, whose TVP is equal to or greater than one million euros (€1,000,000.00). Clearly the legislature understood that this value, when attributed to a residential unit (house, autonomous fraction or floor with independent use) reflects an above-average contributory capacity and, as such, capable of determining a special contribution to ensure the fair distribution of the tax burden." Already when applied to a part or fraction that does not exceed the said value of one million euros, the incidence provision will not be satisfied.

The principle of tax equality determines that what is equal should be treated fiscally in an equal manner and what is different should be treated in a different manner. Now, there is no justification for differentiated treatment of fractions or parts of a property solely because the same is already in horizontal ownership, as long as the fractions or parts have independent use.

As stated in the CAAD award of case no. 218/2013-T, "The principle of tax equality is based on the general principle of equality provided for in Article 13 of the CRP, from which results the principle of contributory capacity which, by constitutional imperative, is the presupposition and criterion of taxation."

Professor Casalta Nabais states that the principle of tax equality is implicit, above all, in "the idea of generality or universality, in accordance with which all citizens are bound by the duty to pay taxes, and of uniformity, requiring that such duty be assessed by a single criterion — the criterion of contributory capacity. This thus implies equal tax for those who have equal contributory capacity (horizontal equality) and different tax (in qualitative or quantitative terms) for those who have different contributory capacity in proportion to that difference (vertical equality)" (Casalta Nabais, Tax Law, 5th edition, Coimbra, 2009, p. 151-152).

In the CAAD award of case no. 50/2013-T it can be read that "the tax legislature cannot treat equal situations in a different manner. Now, if the property were under the horizontal ownership regime, none of its residential fractions would be subject to incidence of the new tax."

Thus, and in line with the case law of the Supreme Administrative Court and the CAAD, we conclude that there is a violation of the principle of tax equality and contributory capacity and, as such, that the claim is well-founded.

4. COMPENSATORY INTEREST

The Claimant requests the condemnation of the TCA to return the unduly paid tax, plus compensatory interest.

Article 43, Section 1 of the General Tax Code provides that "compensatory interest is due when it is determined, in administrative recourse or judicial challenge, that there was an error attributable to the services resulting in payment of the tax debt in an amount greater than that legally due."

In the case at hand, the error affecting the Stamp Duty assessments is attributable to the Tax and Customs Authority, which performed the assessment acts on its own initiative, wherefore the Claimant is entitled to compensatory interest from the date of payment of each amount until reimbursement, at the statutory default rate, pursuant to Articles 43, Sections 1 and 4, and 35, Section 10, of the General Tax Code, Article 559 of the Civil Code and Ordinance no. 291/2003, of 8 April.

As results from said Article 43, Section 1 of the General Tax Code, the right to compensatory interest depends on the payment of tax debt in an undue amount.

As the Stamp Duty assessments are tainted by unlawfulness, compensatory interest is due from the date of payment until full reimbursement by the TCA, pursuant to Articles 43 of the General Tax Code and 61, Section 2 of the CPPT.

5. DECISION

In view of the foregoing, it is determined:

a) to render a judgment finding the claim filed by the Claimant in the present tax arbitration proceedings wholly well-founded, regarding the unlawfulness of the Stamp Duty assessments, relating to the year 2014, subject of the present arbitral claim;

b) to render a judgment finding well-founded the claim for condemnation of the Tax and Customs Authority to reimburse to the Claimant the amount of tax unduly paid, plus compensatory interest in accordance with the law, from the date such payment was made until the date of full reimbursement thereof.

6. VALUE OF THE CASE:

In accordance with the provisions of Article 306, Section 2 of the CPC and Article 97-A, Section 1, paragraph a) of the CPPT and Article 3, Section 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the action is fixed at 17,057.16 €.

7. COSTS:

Pursuant to Article 22, Section 4 of the RJAT and Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at 1,224.00 €, due by the Tax and Customs Authority.

Let notification be made.

Lisbon, 7 July 2016.

Text produced by computer, in accordance with Article 138, Section 5 of the Code of Civil Procedure (CPC), applicable by cross-reference of Article 29, Section 1, paragraph e) of the Legal Framework for Tax Arbitration, reviewed by me.

The sole arbitrator

Suzana Fernandes da Costa

Frequently Asked Questions

Automatically Created

Is Stamp Tax under Verba 28.1 TGIS calculated on the total property value or the VPT of each independent unit in vertical ownership?
Under Portuguese tax law, Stamp Tax pursuant to item 28.1 TGIS on vertical property ownership should be calculated based on the VPT of each independent unit, not the total property value. Vertical ownership (propriedade vertical) creates autonomous legal property rights for each unit with separate registration. Each independent unit constitutes a distinct taxable object for stamp duty purposes. Therefore, the €1,000,000 threshold applies individually to each unit. If no single unit exceeds this threshold, no stamp duty liability arises, even if the aggregate value of all units exceeds €1,000,000. This interpretation respects the legal nature of vertical ownership as established in Portuguese property law.
Can the tax authority levy Stamp Tax on a vertical property when no individual unit exceeds €1,000,000 in taxable value?
No, the Tax Authority cannot lawfully levy Stamp Tax on a vertical property when no individual unit exceeds €1,000,000 in taxable value. Item 28.1 of the TGIS establishes stamp duty only on urban property ownership with a VPT exceeding €1,000,000. In vertical ownership structures, each independent unit must be assessed separately because each unit has autonomous legal status, separate registration, and independent economic utility. The taxable event under item 28.1 TGIS is the ownership of property exceeding the threshold, and in vertical ownership, 'property' refers to each independent unit, not the building as a whole. Assessments based on aggregated values disregard the legal nature of vertical ownership and constitute unlawful taxation.
What is the difference between horizontal and vertical property ownership for Stamp Tax purposes in Portugal?
The critical difference between horizontal and vertical property ownership for Stamp Tax purposes in Portugal lies in how property rights are structured. Vertical ownership (propriedade vertical) grants complete, autonomous ownership of specific floors or units within a building, with each unit having separate legal title and independent registration in the land registry. Each unit functions as a distinct property for all legal purposes, including taxation. Horizontal ownership (propriedade horizontal or condomínio) involves shared ownership of common areas combined with exclusive ownership of individual fractions. For Stamp Tax under item 28.1 TGIS, vertical ownership requires individual assessment of each unit's VPT against the €1,000,000 threshold, whereas horizontal ownership typically assesses each autonomous fraction separately. The distinction is crucial because it determines whether the €1,000,000 threshold applies to individual units or to an aggregate value.
How can property owners challenge unlawful Stamp Tax assessments through CAAD tax arbitration?
Property owners can challenge unlawful Stamp Tax assessments through CAAD (Centro de Arbitragem Administrativa) tax arbitration by submitting a formal arbitration request within the statutory deadline established in Article 10 of the RJAT (Legal Framework for Arbitration in Tax Matters). The request must identify the contested tax acts, state the legal grounds for challenging the assessments, and explain why the taxation is unlawful. In vertical ownership disputes, taxpayers should present evidence including land registry certificates showing separate registration of each unit, real estate registration demonstrating independent legal status of each unit, and documentation proving no individual unit exceeds the €1,000,000 VPT threshold. The CAAD process involves appointment of an arbitrator, submission of the Tax Authority's response, and issuance of a binding arbitral award. Taxpayers must pay initial and subsequent arbitration fees. This alternative dispute resolution mechanism offers faster resolution than judicial courts while maintaining full legal validity.
Are taxpayers entitled to compensatory interest when Stamp Tax is wrongfully collected on vertical property units?
Yes, taxpayers are entitled to compensatory interest when Stamp Tax is wrongfully collected on vertical property units. Article 43, Section 1 of the General Tax Code (LGT) establishes the right to compensatory interest on taxes unduly paid. When the Tax Authority unlawfully assesses stamp duty by treating vertical property as a single unit rather than recognizing each independent unit's separate legal status, and no individual unit exceeds the €1,000,000 threshold, the entire tax collection is unlawful. Upon successful challenge through CAAD arbitration or judicial proceedings, the Tax Authority must refund the improperly collected taxes plus compensatory interest calculated from the payment date until restitution. This interest compensates taxpayers for the financial loss resulting from the Tax Authority's wrongful retention of funds and incentivizes correct tax administration.