Process: 195/2014-T

Date: October 28, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitral decision addresses whether Portugal's luxury housing Stamp Tax (Imposto de Selo) under Item 28.1 of the General Stamp Tax Table (TGIS) applies to vertical property ownership based on aggregated or individual unit values. Three co-owners challenged stamp tax assessments on their Lisbon building containing multiple independent residential units. The Portuguese Tax Authority (AT) assessed stamp tax by aggregating the tax patrimonial values (VPT) of all units to reach €1,619,350, exceeding the €1,000,000 threshold. The taxpayers contested this, arguing that Item 28 was designed to tax luxury dwellings, and since no individual unit exceeded €1,000,000 (values ranged from €25,760 to €62,180), no stamp tax should apply. They invoked principles of fiscal equality, arguing vertical property should receive the same treatment as horizontal property (condominiums), where each autonomous fraction is taxed separately. The AT countered that vertical property represents a unitary building under full ownership, distinct from horizontal property's autonomous fractions, and therefore the total property value should determine tax liability. The case highlights critical interpretation issues in Portuguese tax law regarding the distinction between property ownership regimes and their fiscal treatment. The CAAD arbitration process provided an administrative alternative to judicial courts, with the tribunal constituted under RJAT provisions following automatic arbitrator assignment. The decision has significant implications for owners of multi-unit buildings not organized as condominiums, particularly those with numerous lower-value units that collectively exceed the luxury tax threshold, and raises questions about the coherence and equity of Portugal's stamp tax system when applied to different property ownership structures.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Process No. 195/2014 – T

Subject: IS – Item 28 of TGIS – Vertical Ownership Property

I – REPORT

1 – "A", NIF[1] …, resident at Rua …, no. …, …-…, Lisbon, "B", NIF …, resident at … no. … …-…, Funchal and "C" NIF …, resident at Rua …, no. …, …-… – Funchal, submitted on 27/02/2014 a request for constitution of the arbitral tribunal, under the provisions of paragraph a) of no. 1 of article 2, of no. 1 of article 3 and of paragraph a) of no. 1 of article 10, all of the RJAT[2], with the claim directed against the AT[3], with a view to examining the legality of the tax assessment acts relating to IS[4], as per the collection documents better identified in the petition and which are hereby reproduced, relating to a property with flats and divisions with independent use located at Rua … nos. … to … and registered in the urban property registry of the parish of Anjos under number … (current parish of Arroios) and of which they are co-owners in the proportion of 1/3 each.

2 – The request for constitution of the arbitral tribunal was made without exercising the option of designating an arbitrator, and came to be accepted by the Honorable President of CAAD and automatically notified to the AT on 03/03/2014.

3 – In accordance with the provisions of no. 1 of article 6 of the RJAT, by decision of the Honorable President of the Deontological Council, duly communicated to the parties within the legally applicable timeframes, Arlindo José Francisco was designated as arbitrator, who communicated to the Deontological Council and to the Administrative Arbitration Center the acceptance of the appointment within the regularly stipulated timeframe.

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, in the version introduced by article 228 of Law No. 66-B/2012 of 31 December.

5 – By their petition, the applicants seek the declaration of illegality of the tax assessment acts of item 28 of TGIS[5] which affected the patrimonial value of the urban property already identified and of which they are co-owners.

6 – They invoke for that purpose, in summary, the following:

6.1 – The property in question has 2/3 of the units vacant awaiting rehabilitation required by the Lisbon City Council and the rented portion has old rents, which motivated the declaration of rents under article 2 of Ordinance 358-A/2013 of 12 December;

6.2 – The law aimed to tax "luxury dwellings" with patrimonial value higher than € 1,000,000.00, in the specific case neither in IMI[6] was the actual TRV[7] taken into account, but only the value corresponding to the rental income;

6.3 – Considers absurd the interpretation of the AT in taxing in IS the TRV corresponding to the sum of the TRV of each one of the floors independently, which oscillate between € 25,760.00 and € 62,180.00;

6.4 – Adheres to the arbitral jurisprudence on the illegality and unconstitutionality of the assessments in question since none of the parts of properties that the AT intends to tax in IS has TRV equal to or higher than € 1,000,000.00;

6.5 – It follows from the law that both properties in vertical and horizontal ownership should receive the same fiscal treatment in accordance with the principles of justice, fiscal equality and material truth, and that the AT's actions violate the coherence of the fiscal system.

7 – On its part the AT understands, in summary, the following:

7.1 – That the issue to be decided is to determine, in the case of vertical ownership, whether the value relevant for purposes of taxation of IS of item 28.1 of TGIS is the total TRV of the property or rather the value of each one of the floors or parts susceptible to independent use;

7.2 – The AT understands that, for purposes of IS, the relevant TRV is the total TRV of the property, since the property is not in a regime of horizontal ownership;

7.3 – That a property in vertical ownership is unitary and that its distinct parts susceptible to independent use are not legally equivalent to the autonomous fractions of properties in horizontal ownership;

7.4 – Concluding that the tax assessment acts here questioned are legal and should be maintained, and the AT should be absolved of the claim.

II – PROCEDURAL ADJUSTMENT

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

The parties have legal personality and capacity, show themselves to be legitimate and are regularly 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 AT proposed the waiver of the hearing to which article 18 of the RJAT alludes and that the tribunal proceed directly to the decision of the case, provided the applicant had no objection.

Notified the applicant on 09/06/2014 of this request, no objection was raised, whereby the tribunal considered that the conditions were met for the rendering of the final decision.

III – GROUNDS

1 – The issue to be settled with interest for the case is to determine:

Whether a property in full ownership with parts or divisions susceptible to independent use, with residential purpose, should be taxed in IS the TRV corresponding to the sum of each one of the parts or independent divisions with residential purpose when equal to or higher than € 1,000,000.00, or whether only IS should apply to the TRV of each one of the parts or independent divisions when, individually considered, equal to or higher than € 1,000,000.00;

2 – Findings of Fact

The relevant facts and those proven on the basis of the elements attached to the case are as follows:

a) The applicants are co-owners, in the proportion of 1/3 each, of an urban property in full ownership with parts or divisions susceptible to independent use, registered in the urban property registry of the parish of Anjos under article … (current parish of Arroios), municipality of Lisbon;

b) The referred parts or divisions susceptible to independent use have patrimonial values that oscillate between € 25,760.00 and € 62,180.00, therefore none of them has value equal to or higher than € 1,000,000.00;

c) The majority of the fractions are vacant and await rehabilitation and those that are rented have old rents, which motivated the declaration of rents under article 2 of Ordinance No. 358-A/2013 of 12 December;

d) The total TRV of the parts or divisions with residential purpose is € 1,619,350.00;

e) The tax assessed to each one of the applicant co-owners has been paid;

f) The TRV of each one of the parts or divisions susceptible to independent use is individually registered in the property registry;

g) The AT calculated the IS individually for each one of the floors or divisions susceptible to independent use.

3 – On the Law

a) The legal issue to be resolved is whether in accordance with the provisions of item 28.1 of TGIS one should or should not consider the sum of the TRV of each one of the parts or divisions susceptible to independent use, since none of them has value equal to or higher than € 1,000,000.00;

b) Taking into account that the CIS[8] refers to the CIMI[9] the regulation of the concept of property and of the matters not regulated as to item 28 of TGIS (no. 6 of article 1 and no. 2 of article 67, both of the CIS), it is in the CIMI that we must observe the concepts that will allow us to settle the issue;

c) The general concept of property is contained in article 2 of the CIMI. In article 3 of the same statute the legislator, using criteria of purpose and location, established the concept of rural properties, coming then, in a classification by negation, in its article 4, to establish that urban properties will be all those that should not be classified as rural;

d) Article 6 of the cited CIMI divides urban properties into: residential, commercial, industrial or for services, land for construction and others;

e) In the specific case we are faced with an urban property with parts or divisions susceptible to independent use with residential purpose;

f) Each one of the parts or divisions susceptible to independent use that compose the property in question meets the concept of property established in article 2 of the CIMI, insofar as they are physically and economically independent and form part of the patrimony of a natural or legal person, in the specific case a natural person;

g) Under the terms of no. 4 of article 2 of the CIMI each autonomous fraction, in the regime of horizontal ownership, is deemed to constitute a property, but there is nothing in the law that permits making a distinction between properties in horizontal and vertical ownership regarding their identification as urban residential properties;

h) The AT in making the taxation in IS made its calculation on the TRV of each one of the parts or divisions with independent use with residential purpose, but at the end considered the total TRV and verifying it was higher than € 1,000,000.00, summed the values of IS calculated individually;

i) But this procedure has no legal support, since none of the parts or divisions with independent use with residential purpose, each meeting the concept of property enunciated in article 2 of the CIMI, has a TRV equal to or higher than € 1,000,000.00, a requirement necessary for there to be taxation in IS;

j) Nor should it be said that there is a different valuation and taxation of a property in full ownership with parts or divisions susceptible to independent use, compared to a property in horizontal ownership. In fact it does not exist in IMI just as it cannot exist in IS, since the applicable legislation is the same;

k) The criterion of taxation must be uniform, that is, if a residential fraction of a property in horizontal ownership is only taxed in IS if its TRV is equal to or higher than € 1,000,000.00, equally a floor or part of property susceptible to independent use of a property in vertical ownership with residential purpose will only be taxed in IS if its TRV is equal to or higher than € 1,000,000.00;

l) As already stated, the floor or part of property susceptible to independent use of a property in vertical ownership meets the concept of property established in the Code of IMI, just as the autonomous fractions of properties in horizontal ownership do;

m) In this perspective and considering that none of the parts or divisions susceptible to independent use with destination or residential purpose has TRV equal to or higher than € 1,000,000.00, it is necessary to conclude that the acts of assessment of IS are illegal for not having observed the conditions defined in item 28 of TGIS;

n) We follow the conclusion of Professor Miguel Patrício in process 132/2013 in considering the interpretation made by the AT, not in conformity with the Law and the CRP,[10] which we transcribe in that part:

"the interpretation made by the AT is not in conformity with the Law and the Constitution, by violation of the principle of equality (art. 13 of the CRP), as well as what is provided in art. 104, no. 3, of the CRP. There is no doubt that an interpretation more in conformity with the Law and the Constitution, as the one exposed 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 referred item no. 28, even so, would continue to suffer from unconstitutionality by violation of the cited principle of equality.

In fact, how can one justify, even in light of principles of social equity and fiscal justice defended by the legislator – note that, in this respect, the communiqué of the Council of Ministers of 20/9/2012 referred that the measure, among others, was fundamental 'to reinforce the principle of social equity in austerity' –, that this taxation applies only to residential real property and not to non-residential real property? And how to reconcile this discrimination with what is provided in art. 104, no. 3, of the CRP?

Having regard to the above, it is concluded that item no. 28, in opening the possibility to tax in a different manner the ownership of real property of equal value held by different persons by reason of criteria that can contend, without the necessary minimum justification, with, namely, the principle of contributive capacity (such as the case of 'dispersal' or 'concentration' of each person's residential real property), cannot fail to be considered unconstitutional, given the violation of the principle of equality".

IV – OPERATIVE PART

Given the foregoing the tribunal decides the following:

a) To declare the claim for arbitral pronouncement granted with the consequent annulment of the acts of assessment of IS here challenged and the return to the applicants of the amounts unduly paid;

b) Value of the case: € 16,193.40 having in view the provisions contained in article 299 no. 1 of the CPC,[11] 97-A of the CPPT and article 3, no. 2 of the RCPAT;[12]

c) Costs to the charge of the respondent, under the provisions of no. 4 of article 22 of the RJAT, setting its amount at € 1,224.00 in accordance with table I of the RCPAT.

Notify.

Lisbon, 28 October 2014

The sole arbitrator,

Arlindo José Francisco

Text prepared by computer, under the terms of no. 5 of article 131 of the CPC, applicable by reference of paragraph e) of no. 1 of article 29 of Decree-Law No. 10/2011, of 20/01.

The drafting of this decision is governed by the old orthography.

[1] Acronym for Tax Identification Number
[2] Acronym for Legal Framework of Tax Arbitration
[3] Acronym for Tax and Customs Authority
[4] Acronym for Stamp Tax
[5] Acronym for General Table of Stamp Tax
[6] Acronym for Municipal Property Tax
[7] Acronym for Tax Patrimonial Value
[8] Acronym for Stamp Tax Code
[9] Acronym for Municipal Property Tax Code
[10] Acronym for Constitution of the Portuguese Republic
[11] Acronym for Civil Procedure Code
[12] Acronym for Regulation of Costs in Tax Arbitration Proceedings

Frequently Asked Questions

Automatically Created

What is Verba 28 of the General Stamp Tax Table and how does it apply to properties valued over €1,000,000?
Item 28 of the General Stamp Tax Table (Verba 28 da TGIS) imposes an annual Stamp Tax on residential properties with a tax patrimonial value (VPT) equal to or exceeding €1,000,000. Commonly known as the 'luxury housing tax,' this provision was introduced to tax high-value residential properties. The tax rate varies based on the property value, creating progressive taxation on expensive real estate. For properties valued between €1,000,000 and €2,000,000, lower rates apply, while higher values face increased rates. This tax applies regardless of whether the property is owner-occupied or rented, and is assessed annually based on the property's registered tax patrimonial value maintained in the property registry for IMI (Municipal Property Tax) purposes.
Can the Portuguese Tax Authority aggregate the VPT of independent units in a vertical property for Stamp Tax purposes?
The central dispute in this case concerns whether the Tax Authority can aggregate VPT values of independent units within a vertical property. The AT argued that for vertical property (full ownership with independent divisions), the relevant value is the total VPT of the entire building (€1,619,350), triggering Stamp Tax liability under Item 28. The taxpayers contested this interpretation, arguing each independent unit should be evaluated separately, and since none individually exceeded €1,000,000, no tax should apply. The AT's position treats vertical property as a unitary asset for tax purposes, distinguishing it from horizontal property where autonomous fractions are clearly separate legal entities. This aggregation approach has significant implications for owners of multi-unit buildings under full ownership structures, potentially subjecting them to luxury housing tax even when individual units are modest in value.
How does CAAD arbitration process work for challenging Stamp Tax assessments in Portugal?
The CAAD (Centro de Arbitragem Administrativa) arbitration process under RJAT (Legal Regime for Tax Arbitration) provides an alternative dispute resolution mechanism for tax disputes in Portugal. Taxpayers can submit a request for arbitral tribunal constitution without exercising the option to designate an arbitrator, triggering automatic assignment. The CAAD President designates an arbitrator from the approved list, who must accept within prescribed timeframes. The tribunal is formally constituted, typically within two months of the request. Parties submit written arguments—the initial petition (petição inicial) and the Tax Authority's response (resposta). The tribunal may hold hearings under Article 18 of RJAT, though parties can waive this right and proceed directly to decision. Arbitral decisions are binding and have the same effect as judicial court decisions, offering a faster, specialized alternative to traditional tax litigation in administrative courts.
Are luxury housing Stamp Tax rules applicable to buildings with multiple independent units under separate matrix entries?
The applicability of luxury housing Stamp Tax to buildings with multiple independent units under separate matrix entries is precisely the contested issue in this decision. Each independent unit in the property had separate registration in the urban property registry (matriz predial) with individual VPT values ranging from €25,760 to €62,180—none approaching the €1,000,000 threshold individually. The taxpayers argued this separate registration should result in separate tax treatment, with Item 28 applying only to individual units exceeding the threshold. However, the Tax Authority maintained that separate matrix entries for individual units within a vertical property do not create the same legal separation as autonomous fractions in horizontal property. The AT's interpretation suggests that separate registration for administrative or IMI purposes does not automatically fragment the property for Stamp Tax purposes when the building remains under unified vertical ownership rather than being constituted as a condominium.
What is the legal distinction between vertical property and horizontal property for Stamp Tax liability under Portuguese law?
Portuguese law distinguishes between vertical property (propriedade vertical) and horizontal property (propriedade horizontal) with significant tax implications. Vertical property represents full ownership of a building containing parts or divisions capable of independent use, but which are not legally constituted as autonomous fractions. The building remains a unitary property under Civil Code provisions, though individual floors or units may be separately registered for property tax purposes and have independent utility. Horizontal property, regulated by the Regime da Propriedade Horizontal, involves legal constitution of autonomous fractions (frações autónomas) within a building, each representing independent real property with separate ownership. For Stamp Tax purposes, the Tax Authority argues this distinction is determinative: horizontal property fractions are legally independent properties taxed separately under Item 28, while vertical property remains unitary, requiring aggregation of all unit values to determine tax liability. This distinction becomes critical when multiple lower-value units collectively exceed €1,000,000, potentially triggering luxury housing tax in vertical property structures while avoiding it in horizontal property configurations.