Process: 19/2015-T

Date: September 18, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

Case 19/2015-T addresses a critical issue in Portuguese Stamp Tax law: whether the €1,000,000 threshold under Item 28.1 of the General Stamp Tax Table (TGIS) applies to individual units or aggregate values in vertical property ownership. The claimant, owner of an urban building in Lisbon comprising 20 independent units (8 residential apartments, plus shops and garages) held under full ownership (not horizontal property regime), challenged Stamp Tax assessments totaling €14,604.37 for 2013. The Tax Authority aggregated the taxable patrimonial values (VPT) of the residential units, exceeding €1,000,000, triggering the 1% annual Stamp Tax. The claimant argued that Item 28.1 should apply only when an individual unit's VPT reaches €1,000,000, not the sum of multiple units, as none of the apartments individually met this threshold. The claimant further alleged unconstitutionality, claiming the Tax Authority's interpretation violated the equality principle by treating vertical property owners more harshly than horizontal property owners, where each autonomous fraction is assessed separately for IMI purposes. The CAAD arbitral tribunal examined whether 'property with residential purpose' means each autonomous unit or the building's totality. The case highlights the tension between IMI assessment rules (which treat independent units separately) and Stamp Tax application to properties not constituted under horizontal property regime. The outcome determines whether vertical property owners face disproportionate tax burdens compared to horizontal property arrangements, with significant implications for compensatory interest rights when assessments are annulled.

Full Decision

Case No. 19/2015-T

Claimant: A…, head of the indivisible estate of B…

Respondent: Tax and Customs Authority

Stamp Duty ("IS")

The arbitrator Dr. Maria Antónia Torres, appointed by the Ethics Council of the Administrative Arbitration Center ("CAAD") to form the Singular Arbitral Tribunal, constituted on 23 March 2015, decides as follows:

  1. STATEMENT OF FACTS

1.1. A…, in his capacity as head of the indivisible estate of B…, hereinafter referred to as the "Claimant", with residence at Street …, …, … – …-… Lisbon, requested the constitution of an arbitral tribunal, under article 2, paragraph 1, subparagraph a), and article 10, both of Decree-Law No. 10/2011, of 20 January (hereinafter "RJAT"[1]).

1.2. The request for arbitral ruling concerns the declaration of illegality and consequent annulment of the tax assessment acts for Stamp Duty ("IS"), in the total amount of €14,604.37 (fourteen thousand six hundred and four euros and thirty-seven cents), relating to the year 2013, and contained in the payment notices for the installments of April, July and November, better identified in the initial petition submitted by the Claimant, and which are hereby articulated and reproduced for all legal purposes, which concern 8 areas of independent use with residential purpose of the urban property owned by the Claimant, situated at street …, …, Council of Lisbon, registered in the urban property register under article no. …, Parish of …, as per documents attached to the initial petition.

The Claimant further requests the condemnation of the Respondent to refund the amounts wrongfully paid, as per proof of payment attached to the initial petition, and that he be recognized the right to compensatory interest on all amounts paid.

1.3. To support his request, the Claimant alleges that the Stamp Duty assessments that are the subject of this petition are illegal by violation of the scope rule of item 28 of the General Table of IS (TGIS). He considers that, with the property in vertical ownership, as it is on that date, divided by 4 floors, constituted by 20 areas of independent use (apartments, shops and garages), of which 8 with residential purpose, the Tax Authority cannot, as it did, sum the taxable patrimonial values of the floors and divisions susceptible to independent use, since none of these floors or divisions, by itself, has a Taxable Patrimonial Value (TPV) equal to or greater than 1,000,000 euros. And that the scope rule, in the interpretation put into practice by the Tax Authority, is unconstitutional by violation of the principle of equality.

1.4. The Tax Authority defends that the request for declaration of illegality and consequent annulment of the disputed assessments should be judged unfounded, given that it argues that although the assessment of IS, under the conditions provided in item 28 of the TGIS, is carried out in accordance with the rules of the Municipal Property Tax Code (CIMI), the truth is that the legislator reserves the aspects that require the necessary adaptations.

The Tax Authority understands that this is the case for properties in full ownership, even though with floors or divisions susceptible to independent use, since although the IMI is assessed in relation to each part susceptible to independent use, for the purposes of IS the property in its entirety is relevant, 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 arguments 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 conformity with article 2 of the RJAT.

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

No procedural defects were identified in the case.

  1. FINDINGS OF FACT

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

  1. The Claimant was, at the date of the assessments sub judice, owner of the urban property that was the subject of those same assessments, under the regime of "full ownership" (i.e., not subject to the horizontal property regime) to which a global TPV was attributed exceeding 1,000,000.00€, corresponding to the sum of the partial TPVs of each of the 8 apartments with independent use.

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

  3. The Claimant was notified to assess stamp duty on the said property, the Respondent having considered the Claimant to be a taxpayer liable for stamp duty under item 28.1 of the TGIS, for being owner of a property with taxable patrimonial value exceeding €1,000,000.

Facts Not Proven

No essential facts with relevance to the appraisal of the merits of the case were found that were not proven.

Basis for the Findings of Fact

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

  1. QUESTION TO BE DECIDED

The essential question to be decided in these proceedings is to determine, with reference to a property not constituted under the horizontal property regime, composed of various floors and divisions with independent use, some of which with residential purpose, which Taxable Patrimonial Value (TPV) is relevant, assessing the correct criterion of tax incidence under law, in order to determine whether this should be assessed by the sum of the taxable patrimonial value attributed to the different parts or floors (global TPV) or, rather, whether it should be attributed to each of the residential parts or floors.

Additionally, the Claimant invokes the unconstitutionality of the transitional regime approved by article 6, paragraph 1 of Law 55-A/2012, of 29 October, by violation of a significant set of constitutional principles that it expressly invokes.

It also petitions the payment of compensatory interest.

  1. LEGAL ANALYSIS

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

The question arises because of the taxation for the purposes of stamp duty on the ownership, usufruct or right of superficies of urban properties whose taxable patrimonial 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 taxable patrimonial value used for the purpose of IMI, per property with residential purpose.

Therefore, it is important to determine, when a property not constituted in horizontal property is at issue, the concept of "property with residential purpose": whether it should be interpreted as corresponding to each unit considered autonomously and applying to its respective taxable patrimonial value or whether it should correspond to the totality of the autonomous units, and consequently applying to the sum of the taxable patrimonial 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 item of TGIS under appraisal) provides a legal definition of "property with residential purpose", it is important to assess the correct interpretation of this expression, presuming that the legislator knew how to express himself in the most appropriate manner (cf. article 9, paragraph 3, final part, of the Civil Code), in its systematic integration with the norms contained in the Municipal Property Tax Code and, as well, in the spirit of the law.

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

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

28.1 — Per property with residential purpose — 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 favorable tax regime, contained in the list approved by ordinance of the Minister of Finance — 7.5%."

(Emphasis in original)

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

The applicable rates are the following:

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

ii) Properties with residential purpose 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 favorable tax regime, contained in the list approved by ordinance of the Minister of Finance: 7.5%.

However, neither the Stamp Duty Code, nor Law No. 55-A/2012, of 29 October provides a definition of the concept of "urban property with residential purpose", so in conformity with article 67 of the Stamp Duty Code, the interpretation of this concept should be sought in the Municipal Property Tax Code.

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

In the Municipal Property Tax Code, the concept of property is defined in its article 2, from which it follows that "For the purposes of this Code, property is any fraction of territory, including waters, plantations, buildings and constructions of any nature incorporated or resting thereon, with a character of permanence, provided that it forms part of the assets of a natural or legal person and, in normal circumstances, has economic value (…), being clarified in paragraph 4 of this legal provision that "For the purposes of this tax, each autonomous fraction, under the horizontal property 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 property regime, would have a different treatment from parts of a property susceptible to independent use.

However, it turns out that a more careful analysis of the regime allows us to conclude precisely the opposite.

As was emphasized by the Ombudsman to the Secretary of State for Tax Matters, in official letter dated 2 April 2013, "the registration in the property register of properties in vertical ownership, composed of parts susceptible to independent use, follows the same rules as the registration of properties constituted in horizontal ownership, and the respective IMI, as well as the new Stamp Duty, are assessed individually in relation to each one of the parts".

(Emphasis in original)

Indeed, article 12, paragraph 3 of the Municipal Property Tax Code so provides, by determining that "each floor or part of property susceptible to independent use is considered separately in the property registration which also discriminates the respective taxable patrimonial value."

According to article 119 of the Municipal Property Tax Code "The services of the Directorate General of Taxes send to each taxpayer, until the end of the month prior to that of payment, the competent payment document, with discrimination of the properties, their parts susceptible to independent use, respective taxable patrimonial value and the amount of tax assigned to each municipality of the location of the properties.".

In sum, for the purposes of taxation for the purposes of IMI, each independent unit, even if forming part of the same property, is considered separately, being attributed its own taxable patrimonial value and being assessed autonomously.

Thus, one cannot fail to follow the understanding endorsed in the Arbitral Decision issued 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 way as it establishes it 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, the new stamp duty would only apply if one of the parts, floors or divisions with independent use presented a TPV exceeding €1,000,000.00.".

(Emphasis in original)

But, moreover, it is this separate treatment of each unit susceptible to independent use that allows, in the application of the allocation coefficient (cf. article 41 of the Municipal Property Tax Code), the different purposes of each unit that comprise a single property to be taken into account.

For this purpose, the actual use of each of the parts susceptible to independent use is relevant, regardless of whether the property is classified for residential purposes, under the terms of article 6 of the Municipal Property Tax Code and, regardless of whether it concerns an autonomous fraction or merely a unit susceptible to independent use.

Furthermore, in accordance with this logic of the system, an urban property classified as residential can be composed of several independent units, in which one or more may have a non-residential purpose, in accordance with article 41 of the Municipal Property Tax Code.

This would be the case, for example, if in a property in full ownership with floors or divisions susceptible to independent use, licensed for residential use, one of its independent units is used for commerce or services, which even occurs in the property at issue in these proceedings. In this hypothesis, the units in question would not have residential purpose.

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

In view of the above, the understanding of the Respondent cannot be accepted, which would result, moreover, in a violation of the principle of equality, tax justice and taxpaying capacity, constitutionally enshrined.

As stated in the decision issued in case 132/2013-T of this CAAD:

(…) in the works relating to the discussion of the proposed law no. 96/XII in the Assembly of the Republic (…) such a measure was justified, called "special rate on urban residential properties of higher value", with the need to comply with the principles of social equity and tax justice, burdening more significantly the holders of properties with high value intended for residential purposes, and, to that extent, making the new "special rate" apply to "houses of value equal to or exceeding 1 million euros."

(Emphasis in original)

Thus, it is 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 legislator's intention thus seems to indicate that the scope of the scope rule is to tax independent, individualized realities and not resulting from an aggregation or sum, even if juridical.

That is, it is not deduced from this measure that the legislator aimed at the taxation of properties whose units susceptible to independent use did not individually reach that value.

In view of the above, and because none of the independent units that make up the Claimant's property have a taxable patrimonial value exceeding €1,000,000, the assessments under appraisal are deficient in the respect of law by error in legal prerequisites, which justifies the declaration of their illegality and the corresponding annulment of the tax acts now under appraisal.

In view of the declaration of illegality of the assessments that are the subject of this proceeding, by deficiency in the respect of law by error in legal prerequisites, the examination of the other matters invoked on a subsidiary basis is prejudiced.

Regarding 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 in these proceedings that the illegality of the tax assessment acts challenged is directly attributable to the Respondent, which, on its own initiative, carried them out without legal support, suffering from an erroneous interpretation (and, therefore, application) of the legal norms to the specific case.

Consequently, the Claimant is entitled to receive compensatory interest on the amounts paid, under the terms of articles 43, paragraph 1, of the GTL and 61 of the CTPP.

  1. DECISION

In view of the above, it is decided:

  1. To judge the request for arbitral ruling as well-founded, with the consequent annulment, with all legal effects, of the stamp duty assessment acts better identified in these proceedings, in the total amount of Euro 14,604.37 (fourteen thousand six hundred and four euros and thirty-seven cents);

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

The value of the case is fixed at Euro 14,604.37 (fourteen thousand six hundred and four euros and thirty-seven cents), in accordance with the provisions of articles 3, paragraph 2 of the Regulations on Costs in Tax Arbitration Proceedings (RCPAT), 97-A, paragraph 1, subparagraph a) of the CTPP and 306 of the CPC.

The amount of costs is fixed at Euro 918 (nine hundred and eighteen euros) under article 22, paragraph 4 of the RJAT and Table I attached to the RCPAT, to be charged to the Tax and Customs Authority, in accordance with the provisions of articles 12, paragraph 2 of the RJAT and 4, paragraph 4 of the RCPAT.

Notice to be given.

Lisbon, 18 September 2015

The Arbitrator

(Maria Antónia Torres)

Text prepared by computer, under the terms of article 131, paragraph 5 of the Code of Civil Procedure, applicable by reference of article 29, paragraph 1, subparagraph e) of the RJAT.

The wording 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 28.1 TGIS applicable to individual units in a vertical property building?
Under Item 28.1 TGIS, Stamp Tax applies to urban properties with residential purpose whose taxable patrimonial value (VPT) equals or exceeds €1,000,000. In vertical property buildings (full ownership not subject to horizontal property regime), the key dispute is whether each independent residential unit is assessed separately or whether the Tax Authority can aggregate multiple units' VPT values. The claimant's position is that each autonomous unit with independent use should be evaluated individually, and only if a single unit's VPT reaches €1,000,000 should Stamp Tax apply. This interpretation aligns with IMI assessment principles, which attribute separate VPT values to each independent unit. The Tax Authority's contrary position—that the entire building's aggregated value is relevant for full ownership properties—creates a fundamental interpretive question about the scope of 'property with residential purpose' in Item 28.1 TGIS.
Can the Tax Authority aggregate the taxable patrimony values (VPT) of independent units in vertical property to meet the €1,000,000 threshold?
The Tax Authority's practice of aggregating taxable patrimonial values (VPT) of independent units in vertical property to meet the €1,000,000 threshold is the central legal issue in Case 19/2015-T. The Tax Authority argues that for properties in full ownership (even with floors or divisions susceptible to independent use), the property in its entirety is relevant for Stamp Tax purposes, despite IMI being assessed separately for each independent unit. This aggregation methodology allowed the Tax Authority to sum the VPT of 8 residential apartments in the claimant's building, exceeding €1,000,000 and triggering Item 28.1 taxation. However, the claimant contests this approach, asserting that since no individual unit's VPT reaches €1,000,000, the tax should not apply. The debate centers on whether the legislator intended different treatment for vertical versus horizontal property ownership, and whether the necessary adaptations referenced in Stamp Tax legislation permit aggregation contrary to IMI assessment principles.
How does the principle of equality apply to Stamp Tax on vertical versus horizontal property ownership?
The equality principle challenge in this case arises from differential treatment between vertical and horizontal property ownership for Stamp Tax purposes. Under horizontal property regime (condomínio), each autonomous fraction has independent legal status and separate VPT assessment for both IMI and potentially Stamp Tax purposes. In contrast, the Tax Authority's interpretation for vertical property (full ownership with independent units) aggregates all residential units' VPT values, potentially subjecting owners to Item 28.1 taxation even when no individual unit exceeds €1,000,000. The claimant argues this creates arbitrary and unjustified discrimination: two identical apartment buildings with identical unit values could face different Stamp Tax treatment solely based on whether the property is legally constituted under horizontal property regime. This alleged constitutional violation of Article 13 of the Portuguese Constitution (equality principle) requires the tribunal to assess whether objective justification exists for treating economically and functionally similar situations differently, particularly when the underlying IMI legislation recognizes the autonomous nature of independent-use units regardless of ownership structure.
What is the CAAD arbitral tribunal procedure for challenging Stamp Tax assessments on residential property?
The CAAD (Centro de Arbitragem Administrativa) arbitral procedure for challenging Stamp Tax assessments on residential property under Item 28.1 TGIS follows the framework established by Decree-Law No. 10/2011 (RJAT). Taxpayers must file a request for arbitral ruling under Article 2(1)(a) and Article 10 RJAT, identifying the specific assessment acts contested (including payment notices and installment details). In Case 19/2015-T, the claimant challenged €14,604.37 in Stamp Tax assessments for 2013 across multiple installments (April, July, November), requesting declaration of illegality, annulment of tax acts, refund of amounts paid, and compensatory interest. The procedure involves appointment of a sole arbitrator by CAAD's Ethics Council, constitution of the tribunal, exchange of written submissions (petition and response), and optional waiver of oral arguments by party agreement. The tribunal must verify its own jurisdiction, party legitimacy, and procedural regularity before examining the merits, including fact-finding based on documentary evidence and legal analysis of statutory interpretation, constitutional issues, and applicable tax law principles.
Are taxpayers entitled to compensatory interest (juros indemnizatórios) when Stamp Tax liquidations on vertical property are annulled?
Taxpayers are entitled to compensatory interest (juros indemnizatórios) when Stamp Tax liquidations on vertical property are annulled, provided the legal requirements under Article 43 of the Tax Benefits Statute (Estatuto dos Benefícios Fiscais) and Portuguese General Tax Law (LGT) are met. Compensatory interest compensates taxpayers for the State's unlawful retention of amounts paid pursuant to illegal tax assessments. In Case 19/2015-T, the claimant explicitly requested recognition of the right to compensatory interest on all amounts wrongfully paid if the tribunal annulled the contested Stamp Tax assessments. The interest accrues from the date of payment until the date of refund, calculated at the legal rate. The entitlement arises automatically upon annulment of the tax assessment, without requiring proof of damages or fault by the Tax Authority. For Stamp Tax disputes involving vertical property and Item 28.1 TGIS, successful challenges based on incorrect aggregation methodology or misapplication of the €1,000,000 threshold trigger both principal refund obligations and compensatory interest, ensuring taxpayers are made whole for the financial impact of unlawful taxation during the period between payment and final resolution.