Process: 187/2015-T

Date: November 16, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Arbitration Process 187/2015-T addresses a critical Stamp Tax (Imposto do Selo) dispute concerning the application of Item 28 of the General Stamp Tax Table (TGIS) to properties held in vertical ownership (propriedade vertical). The case involves A… - …, S.A., a property company that challenged Stamp Tax assessments totaling €13,314.45 on two urban properties in Lisbon for the 2012 tax year. The central legal question concerns whether the Tax Authority can aggregate the individual taxable heritage values (VPT) of 23 independent units within properties not constituted under horizontal ownership to exceed the €1,000,000 threshold triggering Stamp Tax liability. The Claimant argued that Item 28 TGIS should apply only when an individual unit's VPT reaches €1,000,000, not when the sum of all units within a vertically-owned building exceeds this amount. Since none of the independent divisions had individual VPTs exceeding €1,000,000, the Claimant contended the tax assessments were illegal. The company also invoked constitutional concerns, arguing that the Tax Authority's interpretation violates the principle of equality (princípio da igualdade constitucional) by treating vertical property differently than horizontal ownership condominiums, where each autonomous fraction is taxed separately. The Tax Authority defended its position by asserting that while Municipal Property Tax (IMI) assesses each independent unit separately, Stamp Tax under Item 28 should consider the property in its entirety when not subject to horizontal ownership regime. This interpretation requires necessary adaptations distinguishing between IMI assessment rules and Stamp Tax incidence criteria. The case raises fundamental questions about legislative intent regarding vertical property taxation, the appropriate unit of assessment for Stamp Tax purposes, and whether aggregating VPTs creates discriminatory treatment. The decision has significant implications for property holding companies and real estate investment structures utilizing vertical ownership arrangements rather than horizontal ownership condominiums.

Full Decision

ARBITRATION DECISION

CAAD: Tax Arbitration

Case no. 187/2015-T

Subject: Stamp Duty ("IS")

Claimant: A… - …, S.A.

Respondent: Tax and Customs Authority

The arbitrator Dr. Maria Antónia Torres, appointed by the Deontological Council of the Administrative Arbitration Center ("CAAD") to form the Singular Arbitral Tribunal, constituted on 25 May 2015, decides as follows:

  1. REPORT

1.1. A… - …, S.A., taxpayer no. …, hereinafter referred to as the "Claimant", with headquarters at Avenue …, no. …, …, Lisbon, requested the constitution of an arbitral tribunal, under article 2, no. 1, paragraph a), and article 10, both of Decree-Law no. 10/2011, of 20 January (hereinafter "RJAT"[1]).

1.2. The request for arbitral pronouncement has as its object the declaration of illegality, and consequent annulment, of the tax acts of assessment of IS, in the total amount of €13,314.45 (thirteen thousand three hundred and fourteen euros and forty-five cents), relating to the urban property with the registration number …, of the parish of ..., municipality and district of Lisbon (former registration number … of the parish of ..., municipality and district of Lisbon) and with reference to the urban property with the registration number …, of the parish of ..., municipality and district of Lisbon (former registration number … of the parish of ..., municipality and district of Lisbon), relating to the year 2012, and contained in the collection notices better identified in the initial petition presented by the Claimant, and which are hereby considered articulated and reproduced, for all legal purposes.

The Claimant further requests the condemnation of the Respondent to the restitution of the amounts unduly paid, as evidenced by the payment proofs attached to the initial petition, and that it be recognized the right to compensatory interest on all amounts paid.

1.3. To support its request, the Claimant alleges that the Stamp Duty assessments that are the object of this petition are illegal due to violation of the tax rule provision of item 28 of the TGIS. The Claimant considers that, since both properties are in vertical ownership, as they were at that date, consisting in total of 23 areas of independent use, the Tax Authority cannot, as it did, sum the taxpayer values of the floors and divisions capable of independent use, whereby none of these floors or divisions, by themselves, has a TPV equal to or greater than 1,000,000 euros. The Claimant further alleges that given the nature of its activity, it considers that the norm in question was not intended to apply to it and that the allocation of the aforementioned properties at the time was merely potential. The Claimant further alleges that the tax rule provision, in the interpretation carried out in practice by the Tax Authority, is unconstitutional due to violation of the principle of equality.

1.4. The Tax Authority defends that the request for declaration of illegality, and consequent annulment of the contested assessments, should be judged unfounded, given that it argues that although the assessment of IS, under the conditions provided for in item 28 of the TGIS, proceeds in accordance with the rules of the IMI Code, the truth is that the legislator exempts the aspects that need the necessary adaptations.

The Tax Authority understands that such is the case with properties in vertical ownership, albeit with floors or divisions capable of independent use, since although the IMI is assessed in relation to each part capable of independent use, for the purposes of IS what is relevant is the property in its entirety, thus arguing for the legality of the tax acts because they constitute a correct application of the law to the facts.

1.5. The parties agreed to waive allegations and the meeting of the arbitral tribunal provided for in article 18 of the RJAT.

  1. CASE MANAGEMENT

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

The parties have legal standing and capacity, appear to be legitimate and are regularly represented (cf. articles 4 and 10, no. 2 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March).

No procedural defects were identified in the case.

Having the Respondent requested prior assessment of the timeliness of the request for arbitral pronouncement, the Claimant came before the case to prove having been notified of the decision on the hierarchical appeal it had filed on 9 January 2015, whereby the timeliness of the present request is, in fact, verified.

  1. FACTUAL MATTERS

With relevance for the decision on the merits, the Tribunal considers the following facts to be proven:

  1. The Claimant was, at the time of the assessments in question, the owner of the urban properties that are the object of those same assessments, under a regime of vertical or full ownership (i.e., not subject to the horizontal ownership regime) to which a global TPV greater than €1,000,000.00 was attributed, corresponding to the sum of the partial TPVs of each of the areas with independent use.

  2. In accordance with what was mentioned in the initial petition and in the response given by the Respondent, none of the divisions capable of independent use, to which an autonomous TPV was attributed by the Respondent, and regardless of its purpose - residential or otherwise -, has a TPV that exceeds the amount of €1,000,000.

  3. The Claimant was notified to assess stamp duty on the aforementioned properties, with the Respondent considering the Claimant to be a taxpayer subject to stamp duty under item 28.1 of the TGIS, as owner of properties with taxpayer value greater than €1,000,000.

Unproven Facts

No essential facts, with relevance for the assessment of the merits of the case, were found that were not proven.

Grounds for Factual Matters

The conviction about the facts given as proven was based on the documentary evidence submitted by the Claimant, whose authenticity and correspondence to reality were not contested by the Respondent.

  1. QUESTION TO BE DECIDED

The essential question to be decided in the case is to determine, with reference to two properties not constituted under a horizontal ownership regime, comprised of various floors and divisions with independent use, what is the Taxpayer Value ("TPV") relevant, assessing the correct criterion of incidence of the tax under the law, in order to determine whether this should be assessed by the sum of the taxpayer value attributed to the different parts or floors (global TPV) or, instead, whether it should be assigned to each of the residential parts or floors individually.

Additionally, the Claimant invokes other arguments related to the specificity of its activity, with the properties in question and also the unconstitutionality of the transitional regime approved by article 6, no. 1 of Law 55-A/2012, of 29 October, due to violation of the constitutional principle of equality which it expressly invokes.

The Claimant also petitions for the payment of compensatory interest.

  1. ON THE LAW

As identified above, the question to be decided concerns whether the taxpayer value relevant for the purposes of determining the applicability of Item 28 of the TGIS, when a property not constituted under horizontal ownership is in question, is that of each unit autonomously considered or the sum of the taxpayer value attributed to each of those units.

The question arises by virtue of the taxation of stamp duty on the ownership, usufruct or surface right of urban properties whose taxpayer value contained in the property register is equal to or greater than €1,000,000, the tax being due, at the rate of 1% on the taxpayer value used for the purposes of IMI, per property with residential allocation.

Therefore, it is important to determine, when a property not constituted under horizontal ownership is in question, the concept of "property with residential allocation": whether it should be interpreted as corresponding to each unit autonomously considered and apply to its respective taxpayer value or whether it should correspond to the totality of the autonomous units, and consequently apply to the sum of the taxpayer value attributed to each of those units.

As neither the Stamp Duty Code, nor its respective General Table, nor Law no. 55-A/2012, of 29 October (which approved the TGIS item under consideration) provides a legal definition of "property with residential allocation", it is important to assess the correct interpretation of this expression, presuming that the legislator knew how to express its thought in the most adequate form (cf. article 9, no. 3, final part, of the Civil Code), in its systematic integration with the provisions contained in the IMI Code and, likewise, in the spirit of the law.

Item 28 of the TGIS under consideration was added by Law no. 55-A/2012, of 29 October with the following wording:

"28 - Ownership, usufruct or surface right of urban properties whose taxpayer value contained in the property register, under the terms of the Municipal Property Tax Code (IMI Code), is equal to or greater than €1,000,000 — on the taxpayer value used for the purposes of IMI:

28.1 — Per property with residential allocation — 1%;

28.2 — Per property, when the taxpayers who are not natural persons are residents in a country, territory or region subject to a clearly more favourable tax regime, contained in the list approved by ordinance of the Minister of Finance — 7.5%."

(Italics ours)

Law no. 55-A/2012, of 29 October entered into force on 30 October 2012, in accordance with its article 7, no. 1 which determined its entry into force "on the day following its publication".

The applicable rates are as follows:

i) Properties with residential allocation assessed under the terms of the IMI Code: 0.5%;

ii) Properties with residential allocation not yet assessed under the terms of the IMI Code: 0.8%;

iii) Urban properties when the taxpayers who are not natural persons are residents in a country, territory or region subject to a clearly more favourable tax regime, contained in the list approved by ordinance of the Minister of Finance: 7.5%.

It happens, however, that neither the Stamp Duty Code, nor Law no. 55-A/2012, of 29 October specify the concept of "urban property with residential allocation", whereby in accordance with article 67 of the Stamp Duty Code, the interpretation of this concept should be sought in the IMI Code.

Indeed, it follows from article 67 of the Stamp Duty Code that "Matters not regulated in this Code relating to item no. 28 of the General Table are, subsidiarily, subject to the provisions of the IMI Code" - (Wording given by article 3 of Law no. 55-A/2012 of 29 October.).

In the IMI Code, the concept of property is defined in its article 2, from which it results that "For the purposes of this Code, property is any portion of territory, including water, plantations, buildings and constructions of any nature incorporated therein or established thereon, with a character of permanence, provided that it forms part of the heritage of a natural or legal person and, in normal circumstances, has economic value (…), clarifying in no. 4 of this legal provision that "For the purposes of this tax, each autonomous fraction, under the horizontal ownership regime, is considered as constituting a property".

From the isolated reading of this legal provision we could be led, in a somewhat biased interpretation, to understand that for the purposes of IMI, autonomous fractions under the horizontal ownership regime would have a different treatment from parts of a property capable of independent use.

However, it happens that a more careful analysis of the regime allows us to reach precisely the opposite conclusion.

As was emphasized by the Ombudsman to the State Secretary for Tax Affairs, in a letter dated 2 April 2013, "the registration in the property register of properties in vertical ownership, comprised of parts capable of independent use, obeys the same rules as the registration of properties constituted in horizontal ownership, with the respective IMI, as well as the new Stamp Duty, being assessed individually in relation to each one of the parts".

(Italics ours)

Indeed, article 12, no. 3 of the IMI Code provides in this sense, in determining that "each floor or part of property capable of independent use is considered separately in the property registration which likewise discriminates the respective taxpayer value."

In accordance with article 119 of the IMI Code "The services of the General Directorate of Taxes send to each taxpayer, by the end of the month preceding the month of payment, the corresponding collection document, with discrimination of the properties, their parts capable of independent use, respective taxpayer value and the amount of tax attributed to each municipality of the location of the properties."

In sum, for the purposes of taxation under IMI, each independent unit, even if comprising part of the same property, is considered separately, being assigned its own taxpayer value and being taxed autonomously.

Thus, one cannot fail to follow the understanding ratified in the Arbitral Decision handed down in Case no. 50/2013, according to which "if the legal criterion imposes the issuance of individualized assessments for the autonomous parts of properties in vertical ownership, in the same manner as it establishes for properties in horizontal ownership, it clearly established the criterion, which must be unique and unequivocal, for the definition of the rule of incidence of the new tax. Thus, there would only be cause for the incidence of the new stamp duty if one of the parts, floors or divisions with independent use presented a TPV greater than €1,000,000.00."

(Italics ours)

But, moreover, it is this separate treatment of each unit capable of independent use that allows, in the application of the allocation coefficient (cf. article 41 of the IMI Code), attention to be paid to the different purposes of each unit comprising a single property.

It is relevant for this purpose the effective use of each of the parts capable of independent use, regardless of whether the property is classified for residential purposes, under the terms of article 6 of the IMI Code and, regardless of whether it is an autonomous fraction or merely a unit capable of independent use.

Indeed, in accordance with this logic of the system, an urban property classified as residential can be comprised of several independent units, in which one or more may have a non-residential allocation, in accordance with article 41 of the IMI Code.

This would be verified, for example, if in a property in full ownership with floors or divisions capable of independent use, licensed for residential purposes, one of its independent units is used for commerce or services. In this hypothesis, the units in question would not have residential allocation.

From this analysis it can be concluded that the concept of "property with residential allocation", used in Item 28 of the TGIS, encompasses each of the autonomous units, with independent use, of properties in full ownership, with units capable of independent use, that have this allocation.

In light of the above, one cannot follow the understanding of the Respondent, which would result, moreover, in a violation of the principle of equality, fiscal justice and taxpaying capacity, constitutionally enshrined.

As mentioned in the decision handed down in case 132/2013-T of this CAAD:

(…) in the works related to the discussion of the bill no. 96/XII in the National Assembly (…) such measure was justified, called the "special tax on residential urban properties of higher value", with the need to comply with the principles of social equity and fiscal justice, burdening more significantly the holders of properties with high value intended for residential purposes, and, in that measure, making the new "special tax" fall upon "houses of value equal to or greater than 1 million euros."

(Italics ours)

It is thus presumed an (above-average) taxpaying capacity that justifies a "special" tax effort for those who have a "house" or "property" whose value is at least one million euros. The intention of the legislator appears to indicate that the scope of the tax rule provision is to tax independent, individualized realities and not resulting from an aggregation or sum, albeit legal.

That is, it is not derived from this measure that the legislator intended the taxation of properties whose units capable of independent use did not individually reach that value.

In light of the above, and in virtue of none of the independent units that comprise the Claimant's properties having a taxpayer value greater than €1,000,000, the assessments under consideration suffer from the defect of violation of law, by error in the legal assumptions, which justifies the declaration of their illegality and the corresponding annulment of the tax acts now under consideration.

In light of the declaration of illegality of the assessments that are the object of this case, due to defect of violation of law by error in the legal assumptions, the examination of the other issues invoked on a subsidiary basis is prejudiced.

On the request for compensatory interest

The Claimant petitions the condemnation of the Respondent to the payment of compensatory interest, provided for in articles 43 of the General Tax Law and 61 of the Code of Tax Procedure and Process.

It is clear from the case that the illegality of the tax assessment acts contested is directly attributable to the Respondent, which, on its own initiative, carried them out without legal support, suffering from an incorrect interpretation (and, consequently, application) of the legal norms to the concrete case.

Consequently, the Claimant is entitled to receive compensatory interest on the amounts paid, under the terms of the provisions of articles 43, no. 1, of the LGT and 61 of the CPPT.

  1. DECISION

In light of the above, it is decided:

  1. To judge the request for arbitral pronouncement well-founded, with the consequent annulment, with all legal effects, of the stamp duty assessment acts better identified in the case, in the total amount of €13,314.45 (thirteen thousand three hundred and fourteen euros and forty-five cents);

  2. To judge the request for compensatory interest petitioned by the Claimant well-founded.

The value of the case is fixed at €13,314.45 (thirteen thousand three hundred and fourteen euros and forty-five cents), in accordance with the provisions of articles 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), 97-A, no. 1, paragraph a) of the CPPT and 306 of the CPC.

The amount of costs is fixed at 918 Euros (nine hundred and eighteen euros) under article 22, no. 4 of the RJAT and Table I attached to the RCPAT, borne by the Tax and Customs Authority, in accordance with the provisions of articles 12, no. 2 of the RJAT and 4, no. 4 of the RCPAT.

Notify.

Lisbon, 16 November 2015

The Arbitrator

(Maria Antónia Torres)

Text prepared by computer, in accordance with article 131, no. 5 of the Code of Civil Procedure, applicable by referral from article 29, no. 1, paragraph e) of the RJAT.

The drafting of this arbitral decision is governed by the spelling prior to the 1990 Orthographic Agreement.

[1] Acronym for Legal Regime of Tax Arbitration.

Frequently Asked Questions

Automatically Created

Is Stamp Tax (Imposto do Selo) under Verba 28 TGIS applicable to buildings held in vertical property (propriedade vertical)?
Under CAAD Process 187/2015-T, the applicability of Stamp Tax under Item 28 TGIS to vertical property depends on whether the taxable heritage value (VPT) threshold of €1,000,000 is calculated per individual independent unit or by aggregating all units within the building. The Claimant argued that vertical property with multiple independent units should have Item 28 applied only to individual units exceeding €1,000,000, not to the aggregated total. The Tax Authority maintained that for properties not under horizontal ownership regime, the property should be considered as a whole for Stamp Tax purposes, even though IMI taxation treats each unit separately. This distinction is critical because vertical ownership lacks the formal autonomous fraction structure of horizontal ownership condominiums.
Can the Tax Authority aggregate the taxable heritage values (VPT) of independent units to reach the €1,000,000 threshold under Verba 28 of the General Stamp Tax Table?
The Tax Authority's position in Process 187/2015-T was that it can legally aggregate the VPT values of independent units within a vertically-owned property to reach the €1,000,000 threshold under Item 28 TGIS. The Authority argued that while IMI Code rules assess each independent unit separately, Stamp Tax legislation requires different treatment for properties not constituted under horizontal ownership. According to the Tax Authority, the legislator intended adaptations for vertical property situations, making the entire property—not individual units—the relevant assessment unit. The Claimant contested this interpretation, arguing none of the 23 independent units individually exceeded €1,000,000 VPT, and therefore Item 28 should not apply. This aggregation methodology significantly impacts property companies holding buildings in vertical ownership versus horizontal condominium structures.
How does CAAD arbitration process 187/2015-T address the tax treatment of independent units within a single urban property for Stamp Tax purposes?
CAAD Process 187/2015-T addresses the fundamental question of whether independent units within a single urban property held in vertical ownership should be taxed individually or collectively for Stamp Tax purposes under Item 28 TGIS. The arbitration examines whether 'property with residential allocation' means each independent unit or the building as a whole when not under horizontal ownership. The case establishes that properties in vertical ownership with multiple independent units present unique challenges: each unit has separate VPT for IMI purposes, but the question is whether Stamp Tax requires aggregation of these values. The tribunal must determine if the Tax Authority's summation of 23 independent unit values to exceed €1,000,000 constitutes correct legal application or misinterprets the scope of Item 28. This distinction has practical significance for property companies managing portfolios of buildings with multiple divisions capable of independent use but not formally constituted as horizontal ownership condominiums.
Does applying Verba 28 TGIS to vertical property by summing individual unit values violate the constitutional principle of equality (princípio da igualdade)?
The Claimant in Process 187/2015-T expressly invoked unconstitutionality arguments, alleging that applying Item 28 TGIS to vertical property by summing individual unit values violates the constitutional principle of equality (princípio da igualdade). The constitutional challenge argues that the Tax Authority's interpretation creates discriminatory treatment between vertical property and horizontal ownership structures. In horizontal ownership condominiums, each autonomous fraction is treated as a separate property for Stamp Tax purposes, meaning only fractions individually exceeding €1,000,000 VPT would trigger Item 28 liability. However, by aggregating values in vertical property, buildings with many smaller units collectively exceeding the threshold face taxation that identically-valued horizontal ownership properties would escape. This differential treatment lacks objective justification and may constitute arbitrary discrimination. The Claimant also referenced the transitional regime under Article 6(1) of Law 55-A/2012 as potentially unconstitutional, though the decision text does not elaborate on this specific constitutional challenge.
Are property companies entitled to a refund and indemnity interest (juros indemnizatórios) when Stamp Tax liquidations on vertical property are declared illegal?
Property companies are entitled to restitution of amounts unduly paid when Stamp Tax liquidations are declared illegal, along with compensatory interest (juros indemnizatórios) on all refunded amounts. In Process 187/2015-T, the Claimant specifically requested condemnation of the Tax Authority to return €13,314.45 paid under the contested assessments, plus recognition of the right to compensatory interest. Portuguese tax law provides that when tax assessments are annulled through administrative or judicial proceedings, taxpayers are entitled to full reimbursement plus compensatory interest calculated from the payment date until actual refund. This interest compensates for the State's use of funds to which it was not legally entitled. The compensatory interest rate and calculation method are established by law and constitute an integral part of the taxpayer's right to restitution. For property companies managing multiple assets, successful challenges to vertical property Stamp Tax assessments can result in significant refunds, making the interest component a material financial consideration beyond the principal tax amounts.