Process: 159/2014-T

Date: October 28, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

In arbitral decision 159/2014-T, CAAD addressed whether Stamp Tax under Item 28 of the General Table of Stamp Duty (Verba 28 TGIS) applies to the aggregate value of a vertically divided property or to each independently usable residential unit. Five co-owners challenged the Tax Authority's assessment on an urban building with eight residential units NOT constituted under horizontal property regime. The Tax Authority calculated Stamp Tax on the total property value, while petitioners argued each unit's separate Tax-based Patrimonial Value (VPT) should apply, as each had independent cadastral registration under CIMI Articles 7 and 12(3). None of the individual units exceeded the €1,000,000 threshold triggering Verba 28.1 taxation. The tribunal rejected preliminary objections, finding the petition procedurally valid and timely filed within 90 days from the last installment payment deadline (November 2013 to February 2014). The arbitrators ruled the CIMI provisions applicable via Article 67(2) of the Stamp Duty Code make no distinction between horizontal property regimes and other vertical property configurations. Citing previous arbitral precedents (cases 50/2013 and 132/2013), the tribunal appeared positioned to annul the assessment, establishing that Stamp Tax under Verba 28 should be calculated per independent residential unit based on individual VPT rather than aggregate property value, protecting taxpayers from excessive taxation on vertically divided buildings where individual units remain below the €1,000,000 threshold despite collective property values exceeding it.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Case no. 159/2014 – T

I – STATEMENT OF FACTS

1 – A, B, C, D and E, whose identifications, addresses and tax identification numbers appear in the petition, which is hereby incorporated in full, filed on 21/02/2014 a request for constitution of the arbitral tribunal, pursuant to the provisions of paragraph a) of no. 1 of Article 2, no. 1 of Article 3 and paragraph a) of no. 1 of Article 10, all of the RJAT[1], with the AT[2] being requested, for the purpose of reviewing the legality of the tax acts for assessment of stamp duty[3] relating to all residential parts capable of independent use of the urban property registered in the cadastre under the article ..., currently article ... of the union of parishes of ..., municipality of ..., of which the petitioners are heads of undivided estates holding the property already identified in the real property register composed of five floors, with the four upper floors having residential use, each of them with two parts capable of independent use, totaling eight parts capable of independent use.

2 – The request for constitution of the arbitral tribunal was made without exercising the option of designating an arbitrator, having been accepted by His Excellency the President of CAAD[4] and automatically notified to the AT on 24/02/2014.

3 – Pursuant to the provisions of no. 2 of Article 6 of the RJAT, by decision of His Excellency the President of the Deontological Council, duly communicated to the parties within the legally applicable time periods, Arlindo José Francisco was designated as sole arbitrator, who communicated to the Deontological Council and to the Administrative Arbitration Centre his acceptance of the mandate within the regularly stipulated period.

4 – The tribunal was constituted on 05/05/2014 in accordance with the provisions contained in paragraph c) of no. 1 of Article 11 of the RJAT, as amended by Article 228 of Law no. 66-B/2012, of 31 December.

5 – With their request, the petitioners aim at the annulment of the tax acts for assessment of stamp duty on item 28 of the General Table of Stamp Duty[5] which applied to the patrimonial value of all the parts capable of independent use with residential use.

6 – They invoke, in summary, for this purpose:

6.1 – That the property in question is not constituted under a horizontal property regime but, in accordance with the provisions of the Municipal Property Tax Code[6] Articles 7 and 12 no. 3, each part capable of independent use has separate cadastral registration with its respective Tax-based Patrimonial Value[7].

6.2 – That the patrimonial value referred to in Article 28 of the General Table of Stamp Duty is not the global value of the property equivalent to the sum of all Tax-based Patrimonial Values of the parts that compose it, as the AT erroneously considered, but the Tax-based Patrimonial Value of each part capable of independent use with residential use, and that none of them has a value equal to or greater than €1,000,000.00.

6.3 – That neither the Stamp Duty Code[8] nor the Municipal Property Tax Code (applicable by reference in Article 67 no. 2 of the Stamp Duty Code as amended by Law no. 55-A/2012) permit different treatment between parts of properties capable of independent use, whether they refer to properties constituted under horizontal property regime or not;

6.4 – Cites various arbitral decisions, namely those rendered in cases 50/2013 and 132/2013 which decided contrary to the interpretation followed by the AT.

7 – For its part, in summary, the AT takes the view:

7.1 – That the petition is defective because the authors did not comply with the duty to attach the disputed acts.

7.2 – That the right of action has lapsed given that the period for filing the request for pronouncement is counted from the day immediately following the expiration of the payment period of the first installment.

7.3 – That the Tax-based Patrimonial Value equal to or greater than €1,000,000.00 upon which the application of item 28.1 of the General Table of Stamp Duty depends is that corresponding to the global value of the entire property and not that of its distinct parts, even if capable of independent use.

II – PROCEDURAL REVIEW

The Tribunal was duly constituted and is competent ratione materiae, in accordance with Article 2 of the RJAT.

Two preliminary issues were raised by the AT:

a) The defectiveness of the initial petition;

b) Lapse of the right of action.

If either of these were verified, we would be in the presence of dilatory exceptions that would prevent examination of the merits of the case and the consequent dismissal of the action.

Regarding the defectiveness of the petition

The respondent contends that the petitioners neither attach the real property card of the urban property subject to stamp duty assessment, nor proof of heirship, nor the disputed acts, which would prevent determining the legitimacy of the authors, the requirements for joinder of parties, and the determination of the value of the case.

The authors had protested at the time of filing the initial petition that they would attach these documents, which subsequently occurred, although the AT holds some of them (real property card and disputed acts). In this manner, the tribunal considers the allegation of defectiveness of the initial petition to be unfounded.

Regarding the lapse of the right of action

The respondent contends that the stamp duty assessment acts which the authors seek to have annulled were executed on 21/03/2013 and since the request for arbitral pronouncement was filed on 24/02/2014, the 90-day period referred to in no. 1 of Article 10 of the RJAT has been exceeded. The AT contends that the period for the request for pronouncement is counted from the day immediately following the expiration of the payment period for the 1st installment, that the assessment act is unitary and indivisible, and the determination of each installment is an act subsequent to the assessment executed based on its value, and that waiting for payment of the last installment would make no sense. It sustains its position based on a Judgment of 2 March 1999 of the Administrative Court[9] South.

Taking into account the provisions contained in Article 10 no. 1 paragraph a) of the RJAT and Article 102 no. 1 paragraph a) of the Tax Procedure and Process Code[10], the request for arbitral pronouncement must be filed within 90 days counted from the expiration of the period for voluntary payment of the tax installments legally notified to the taxpayer. Voluntary payment is that which occurs within the period established and regulated in the tax laws, as per Articles 84 and 85 of the Tax Procedure and Process Code.

In the case at hand, the stamp duty assessed to all authors was greater than €250.00 but less than €500.00, so it was divided into 2 installments with voluntary payment in April and November 2013, in accordance with the provisions of paragraph b) of no. 1 of Article 120 of the Municipal Property Tax Code, applicable under Article 67 no. 2 of the Stamp Duty Code. Thus, and despite the unitary and indivisible nature of the assessment act, the 90-day period of challenge can only be counted from the end of the voluntary payment period of the last installment, in the concrete case from 30 November 2013.

We concur with what has already been decided on this matter in numerous judgments of the Arbitration Centre and conclude that the exception invoked is unfounded.

Given this, we consider that the parties have procedural personality and capacity, show themselves to be legitimate, and are duly represented in accordance with Articles 4 and 10 no. 2 of the RJAT and Article 1 of Ordinance no. 112-A/2011, of 22 March.

The parties considered unnecessary the meeting referred to in Article 18 of the RJAT as well as the holding of oral or written submissions, which the tribunal accepted and considered that the conditions were met for the rendering of the final decision.

III – GROUNDS

1 – The issues now to be resolved with interest for the record are as follows:

a) Whether a property in full ownership with parts or divisions capable of independent use with residential use should be taxed with stamp duty on the Tax-based Patrimonial Value corresponding to the sum of each of the independent parts or divisions, when equal to or greater than €1,000,000.00, or whether stamp duty should only apply to the Tax-based Patrimonial Value of each of the independent parts or divisions when, considered individually, equal to or greater than €1,000,000.00;

b) Whether, in case the illegality of the assessments is declared, there is or is not entitlement to payment of the indemnification interest requested.

2 – Factual matters

The factual matters considered relevant and proven based on the evidence attached to the record are as follows:

a) The property registered in the cadastre of the union of parishes of ... of the municipality of ..., under the article ... and previously article ... belongs to the undivided estates represented by the authors;

b) The said property is composed of five floors, with the four upper floors having residential use, and each of them has two parts capable of independent use;

c) The property is not constituted under the horizontal property regime;

d) None of the parts capable of independent use has a Tax-based Patrimonial Value equal to or greater than €1,000,000.00;

e) The AT assessed stamp duty on the sum (€1,511,336.66) of the Tax-based Patrimonial Value of each of the parts with residential use capable of independent use;

f) The expiration of the period for payment of the last installment of the disputed assessments ended on 30 November 2013;

g) The authors, in the capacity they claim, paid the total amount of stamp duty in question from their respective assessments in the total amount of €12,920.64, with the 1st having paid the amount of €1,837.44 and the four remaining €2,770.80.

3 – On the law

3.1 – Regarding stamp duty

a) The legal issue to be resolved first is whether, in accordance with item 28.1 of the General Table of Stamp Duty, one should or should not consider the sum of the Tax-based Patrimonial Value of each of the parts or divisions capable of independent use, since none of them has a value equal to or greater than €1,000,000.00;

b) Taking into account that the Stamp Duty Code refers to the Municipal Property Tax Code for the regulation of the concept of property and matters not regulated regarding item 28 of the General Table of Stamp Duty (no. 6 of Article 1 and no. 2 of Article 67, both of the Stamp Duty Code), it is in the Municipal Property Tax Code that we must observe the concepts that will allow us to resolve the issue;

c) The general concept of property is contained in Article 2 of the Municipal Property Tax Code. In Article 3 of the same statute, the legislator, using criteria of use and location, established the concept of rural properties, with the legislator then, in a classification by exclusion, in its Article 4, establishing that urban properties will be all those that should not be classified as rural;

d) Article 6 of the cited Municipal Property Tax Code divides urban properties into: residential, commercial, industrial or service, land for construction, and others;

e) In the concrete case we are in the presence of urban property with parts or divisions capable of independent use with residential use;

f) Each of the parts or divisions capable of independent use that compose the property in question meets the concept of property established in Article 2 of the Municipal Property Tax Code, insofar as they are physically and economically independent and form part of the patrimony of a natural or legal person, in the concrete case a natural person;

g) In accordance with no. 4 of Article 2 of the Municipal Property Tax Code each autonomous fraction, under the horizontal property regime, is considered as constituting a property, but there is nothing in the law that permits discrimination between fractions in horizontal property and the fractions or divisions capable of independent use of properties in vertical ownership which, individually, as has already been stated, meet the concept of property;

h) The AT in making the stamp duty assessment, made its calculation on the Tax-based Patrimonial Value of each of the parts or divisions with independent use with residential use, but ultimately considered the global Tax-based Patrimonial Value and verifying it to be greater than €1,000,000.00, summed the values of stamp duty calculated individually;

i) But this procedure has no legal basis, since none of the parts or divisions with independent use with residential use, each of them meeting the concept of property enunciated in Article 2 of the Municipal Property Tax Code, has a Tax-based Patrimonial Value equal to or greater than €1,000,000.00, a requirement necessary for stamp duty taxation to exist;

j) Nor can it be said that the legislator can subject horizontal and vertical ownership to a distinct tax legal framework, in fact, this does not occur, but if it did, we would be in the presence of manifest arbitrariness;

k) The criterion of taxation must be uniform, that is, if a residential fraction of a property under horizontal property regime is only taxed with stamp duty if its Tax-based Patrimonial Value is equal to or greater than €1,000,000.00, equally a floor or part of a property capable of independent use of a property in vertical ownership with residential use will only be taxed with stamp duty if its Tax-based Patrimonial Value is equal to or greater than €1,000,000.00;

l) As has already been stated, the floor or part of a property capable of independent use of a property in vertical ownership meets the concept of property established in the Municipal Property Tax Code, just as the autonomous fractions of properties under horizontal property regime;

m) From this perspective and considering that none of the parts or divisions capable of independent use with residential destination or use has a Tax-based Patrimonial Value equal to or greater than €1,000,000.00, it is necessary to conclude that the stamp duty assessment acts are illegal because the conditions defined in item 28 of the General Table of Stamp Duty have not been observed;

n) We concur with the conclusion of Professor Miguel Patrício in case 132/2013 in considering the interpretation made by the AT to be inconsistent with the Law and the Constitution of the Portuguese Republic[11], which we transcribe in that part: "the interpretation made by the AT is not in accordance with the Law and the Constitution, due to violation of the principle of equality (art. 13 of the Constitution), as well as what is provided in art. 104, no. 3, of the Constitution. There is no doubt that an interpretation more in accordance with the Law and the Constitution, as set out previously, can permit the protection of the mentioned principle. But it is also evident that there remain, in the case under analysis, sufficient reasons to consider that the said item no. 28, even so, would continue to suffer from unconstitutionality due to violation of the cited principle of equality.

In fact, how can it be justified, even in light of principles of social equity and fiscal justice defended by the legislator – note in this respect that the statement of the Council of Ministers of 20/9/2012 referred to the measure, among others, as being fundamental 'to strengthen the principle of social equity in austerity' – that this taxation applies only to residential real estate patrimony and not to non-residential real estate patrimony? And how can this discrimination be compatible with what is provided in art. 104, no. 3, of the Constitution?

Given the foregoing, it is concluded that item no. 28, by opening the possibility of taxing in a differentiated manner the ownership of real estate patrimony of equal value held by different persons on the basis of criteria that can conflict, without the minimum necessary justification, with, namely, the principle of contributory capacity (such as the case of "dispersal" or "concentration" of residential real estate patrimony of each), cannot but be considered unconstitutional, given the violation of the principle of equality".

3.2 – Regarding indemnification interest

a) The petitioners request payment of indemnification interest as a result of the undue payment of their respective tax installments, supporting their request on Article 100 of the General Tax Law[12].

b) Now no. 1 of Article 43 of the General Tax Law provides that indemnification interest is owed when in a process of administrative objection or judicial challenge it is determined that there was an error attributable to the AT which results in undue payment of a tax installment.

c) Since arbitral process is an alternative to the judicial challenge process, the tribunal understands that, in view of the illegality of the assessment acts here questioned and the proven payment of the tax installments, pursuant to the provisions contained in nos. 1 paragraph b) and 5 of Article 24 of the RJAT, Article 100 of the General Tax Law, no. 1 of Article 43 of the General Tax Law and Article 61 of the Tax Procedure and Process Code, the petitioners have the right to receive indemnification interest.

IV – DECISION

Given the foregoing, the tribunal decides as follows:

a) To declare the request for arbitral pronouncement well-founded, with the consequent annulment of the stamp duty assessments in question;

b) To declare the obligation of the AT to reimburse the petitioners for the stamp duty unduly paid plus indemnification interest calculated at the legal rate, from the date on which the payments of the tax installments occurred until the date on which their reimbursement occurs.

c) To fix the value of the case at €12,920.64, in accordance with the provisions contained in Article 299 no. 1 of the Code of Civil Procedure[13], Article 97-A of the Tax Procedure and Process Code and Article 3 no. 2 of the Rules of Costs in Tax Arbitration Processes[14].

Costs to be borne by the respondent, pursuant to no. 4 of Article 22 of the RJAT, fixing the respective amount at €918.00, in accordance with the provisions in Table I referred to in Article 4 of the Rules of Costs in Tax Arbitration Processes.

Let it be notified.

Lisbon, 28 October 2014

The sole arbitrator,

Arlindo José Francisco

Text prepared by computer, pursuant to no. 5 of Article 131 of the Code of Civil Procedure, applicable by reference in paragraph e) of no. 1 of Decree-Law no. 10/2011, of 20/01.

The text of this decision is written in accordance with the old orthography.

[1] Acronym for Legal Regime for Tax Arbitration
[2] Acronym for Tax and Customs Authority
[3] Acronym for Stamp Duty
[4] Acronym for Administrative Arbitration Centre
[5] Acronym for General Table of Stamp Duty
[6] Acronym for Municipal Property Tax Code
[7] Acronym for Tax-based Patrimonial Value
[8] Acronym for Stamp Duty Code
[9] Acronym for Central Administrative Court
[10] Acronym for Tax Procedure and Process Code
[11] Acronym for Constitution of the Portuguese Republic
[12] Acronym for General Tax Law
[13] Acronym for Code of Civil Procedure
[14] Acronym for Rules of Costs in Tax Arbitration Processes

Frequently Asked Questions

Automatically Created

How does Verba 28 of the TGIS apply to buildings in vertical property not constituted under horizontal property regime?
Verba 28 of the TGIS applies to buildings in vertical property not constituted under horizontal property regime by treating each independently usable residential unit with separate cadastral registration as a distinct taxable unit. According to CAAD case 159/2014-T, the Municipal Property Tax Code (CIMI) Articles 7 and 12(3), applicable via Article 67(2) of the Stamp Duty Code, do not distinguish between properties under horizontal property regime and other vertical property configurations. Each independent residential unit receives its own Tax-based Patrimonial Value (VPT) through separate cadastral registration, regardless of whether formal horizontal property division has been established. The tribunal rejected the Tax Authority's interpretation that would aggregate all unit values, instead applying Verba 28 to each unit individually when determining whether the €1,000,000 threshold is met.
Should Stamp Tax under Verba 28 be calculated on the total property value or on each independent unit's patrimonial value (VPT)?
Stamp Tax under Verba 28 should be calculated on each independent unit's patrimonial value (VPT), not on the total property value. CAAD decision 159/2014-T clarified that the €1,000,000 threshold in Item 28.1 of the General Table of Stamp Duty applies to the Tax-based Patrimonial Value of each independently usable residential unit, not the aggregate value of all units in a building. The petitioners successfully argued that CIMI provisions applicable under Article 67(2) of the Stamp Duty Code require individual assessment of each cadastrally registered unit with residential use. The tribunal cited arbitral precedents from cases 50/2013 and 132/2013 supporting this interpretation, rejecting the Tax Authority's position that would sum all VPTs. This approach prevents taxpayers from being taxed on buildings where individual units remain below the threshold despite collective property values exceeding €1,000,000.
What is the €1,000,000 threshold rule for Imposto do Selo on residential properties under Verba 28 TGIS?
The €1,000,000 threshold rule for Imposto do Selo under Verba 28 TGIS establishes that Stamp Tax applies to residential properties when the Tax-based Patrimonial Value (VPT) equals or exceeds one million euros. CAAD case 159/2014-T addressed the critical interpretive question of whether this threshold applies per independently usable residential unit or to the aggregate property value. The tribunal determined that each residential unit with separate cadastral registration under CIMI Articles 7 and 12(3) must be evaluated individually against the €1,000,000 threshold, regardless of whether the property is constituted under horizontal property regime. This means that if eight residential units each have VPT of €300,000 (totaling €2,400,000), Stamp Tax under Verba 28 does not apply because no individual unit reaches the threshold. The rule protects property owners from taxation based on artificial aggregation of separately registered units.
Can taxpayers challenge Stamp Tax assessments on vertical property through CAAD tax arbitration proceedings?
Yes, taxpayers can challenge Stamp Tax assessments on vertical property through CAAD tax arbitration proceedings under Article 2(1)(a) and Article 10(1)(a) of the Tax Arbitration Legal Regime (RJAT). Case 159/2014-T demonstrates successful use of this mechanism, where five co-owners challenged assessments on residential units not under horizontal property regime. The petition must be filed within 90 days from the expiration of the voluntary payment period for the last tax installment. In this case, with payment due in April and November 2013, the 90-day period began November 30, 2013, making the February 24, 2014 filing timely. CAAD arbitration provides an efficient alternative to judicial courts for reviewing legality of Stamp Tax assessments under Verba 28, with the tribunal having jurisdiction to annul unlawful tax acts based on incorrect application of valuation thresholds to vertically divided properties.
How are independently usable parts of a building assessed for Stamp Tax purposes under Articles 7 and 12(3) of the CIMI?
Under CIMI Articles 7 and 12(3), independently usable parts of a building are assessed for Stamp Tax purposes through separate cadastral registration, with each unit receiving its own Tax-based Patrimonial Value (VPT) regardless of horizontal property regime constitution. CAAD decision 159/2014-T confirmed that Article 67(2) of the Stamp Duty Code incorporates CIMI provisions, requiring individual assessment of each residential unit capable of independent use. Article 7 CIMI establishes the cadastral unit as the taxable base, while Article 12(3) addresses valuation of parts capable of autonomous use. The tribunal found that when a building contains multiple residential units with separate cadastral registrations (as occurred with eight units in the disputed property), Stamp Tax under Verba 28 applies individually to each unit's VPT rather than collectively. This methodology ensures consistent treatment whether properties are formally divided under horizontal property regime or merely contain independently registered residential units under vertical property arrangements.