Process: 201/2014-T

Date: August 28, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration decision (Process 201/2014-T) addresses the controversial application of Stamp Duty under item 28.1 of the General Stamp Duty Table (Verba 28.1 TGIS) to properties held in vertical ownership (propriedade vertical). The taxpayers owned a building in Lisbon registered as full ownership with 10 independent divisions (9 residential, 1 commercial) across 5 floors. Each unit's tax patrimonial value was separately determined under CIMI Article 7(2)(b), with the residential units totaling €1,098,400.00. Critically, no individual unit had a patrimonial value exceeding €1,000,000.00. The Tax Authority assessed Stamp Duty of €10,984.00 for 2012, calculating the tax on the aggregate sum of all residential unit values. The taxpayers challenged this through CAAD arbitration, arguing that item 28.1 applies only when individual units exceed the €1,000,000 threshold. The case highlights the fundamental distinction between vertical ownership (propriedade vertical) and horizontal ownership (propriedade horizontal) for Stamp Tax purposes. In vertical ownership, the property remains a single registered unit with separate valuation of independent divisions, whereas horizontal ownership involves autonomous fractions with individual registrations. The arbitration tribunal considered whether aggregating separately-valued units for Stamp Duty purposes was legally correct. The case followed standard CAAD procedures: arbitration request filed under RJAT Articles 2(1)(a) and 10(1)(a), single arbitrator appointed by the Ethics Council, Tax Authority response filed, and parties waived the hearing. The tribunal consolidated challenges to all three 2013 installments (April, July, November) into a single proceeding, demonstrating that multiple related assessments can be jointly arbitrated. The decision references consistent arbitral jurisprudence on this recurring issue, suggesting an established precedent favorable to taxpayers in vertical ownership scenarios.

Full Decision

ARBITRATION DECISION

I – REPORT

A and wife, B, taxpayers, respectively, no. … and …, residents at Street … Lisbon and C, taxpayer no. …, resident at Street … Viseu (hereinafter "Requesters"), filed a request for the constitution of an arbitral tribunal in tax matters and a request for arbitral decision, under the terms set out in articles 2º no. 1 a) and 10º no. 1 a), both of Decree-Law no. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, abbreviated as RJAT), requesting the declaration of illegality of the following assessments of Stamp Duty:

no. 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; and 2013… (all relating to the 1st installment of Stamp Duty, with payment deadline in April 2013);

no. 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; and 2013… (all relating to the 2nd installment of Stamp Duty, with payment deadline in July 2013); and

no. 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; 2013…; and 2013… (all relating to the 3rd installment of Stamp Duty, with payment deadline in November 2013).

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 03-03-2014.

Under the terms set out in paragraph a) of no. 2 of article 6º and paragraph b) of no. 1 of article 11º of RJAT, in the wording introduced by article 228º of Law no. 66-B/2012, of 31 December, the Ethics Council designated as arbitrator of the single arbitral tribunal the undersigned, who communicated acceptance of the assignment within the applicable deadline.

On 15-04-2014 the parties were duly notified of this designation, and did not express any intention to refuse the appointment of the arbitrator, in accordance with the combined terms of article 11º no. 1 paragraphs a) and b) of RJAT and articles 6º and 7º of the Code of Ethics.

Thus, in conformity with what is laid down in paragraph c) of no. 1 of article 11º of RJAT, in the wording introduced by article 228º of Law no. 66-B/2012, of 31 December, the single arbitral tribunal was constituted on 05-05-2014.

The Tax and Customs Authority answered, arguing that the request should be judged as unfounded.

Given that, in this case, none of the purposes legally assigned to it were present, the parties dispensed with the holding of the meeting provided for in article 18º of RJAT and the submission of arguments, which were thus waived.

The arbitral tribunal was regularly constituted and is materially competent, in view of what is laid down in articles 2º, no. 1, paragraph a), and 30º, no. 1, of Decree-Law no. 10/2011, of 20 January.

The parties have legal personality and capacity, are legitimate and are duly represented (arts. 4º and 10º, no. 2, of the same decree-law and article 1º of Order no. 112-A/2011, of 22 March).

The proceedings do not suffer from nullities and no exceptions have been raised.

Thus, there is no obstacle to the examination of the merits of the case.

Everything having been considered, it is necessary to deliver judgment.

II. DECISION

A. FINDINGS OF FACT

A.1. Facts Found to be Proven

1- The requesters are owners of the urban property registered in the property register of the parish of …, municipality of Lisbon, under article … (article … of the extinct parish of …), property held in the regime of full ownership, also designated as vertical ownership.

2- In the respective property record, the real property is described as held in full ownership, with floors or divisions capable of independent use.

3- It is composed, namely, of "basement no. … with 5 divisions, shop no. … with 2 divisions, porter's dwelling with 4 divisions, Ground floor right with 11 divisions, Ground floor left with 9 divisions, 1st floor right with 11 divisions, 1st floor left with 11 divisions, 2nd floor right with 11 divisions, 2nd floor left with 11 divisions, 3rd floor right with 11 divisions and 3rd floor left with 11 divisions", on a total of 5 floors and 10 divisions capable of independent use.

4- The sum of the tax patrimonial values assigned to the various divisions capable of independent use amounts to a total of €1,141,550.00.

5- Of the 10 divisions capable of independent use, 9 are destined for housing and 1 is assigned to commerce.

6- The tax patrimonial value of each part capable of independent use was determined separately, in accordance with article 7º, no. 2, paragraph b), of the Municipal Property Tax Code (CIMI).

7- The Tax Authority, for the year 2012, by means of the assessments that are the subject of the present proceedings, assessed Stamp Duty, by reference to item 28.1 of the table annexed to the Stamp Duty Code (CIS), on the sum of the patrimonial value of the floors/parts with housing use (€1,098,400.00), in a total of €10,984.00 (ten thousand nine hundred and eighty-four euros).

8- None of the floors/parts with housing use, individually considered, had fixed, for the year 2012, a tax patrimonial value equal to or greater than €1,000,000.00 (one million euros).

9- The Requesters did not accept the stamp duty assessments now in question and filed a Gracious Objection on 22 August 2013 with the Tax Office of Lisbon – 2, relating to the first and second installments.

10- In October 2013 the Requesters were notified to pay the 3rd installment of Stamp Duty and did not file a Gracious Objection to the same, with the deadline for voluntary payment ending in November 2013.

11- The Requesters were notified of the decision refusing the Gracious Objection on 20 December 2013.

12- The Requesters proceeded to pay the assessments that are the subject of the present proceedings, within the legal deadline applicable.

A.2. Facts Found to be Not Proven

With regard to the decision, there are no facts that should be considered as not proven.

A.3. Reasoning of Proven and Not Proven Facts

With regard to the findings of fact, the Tribunal does not have to rule on everything that was alleged by the parties; rather, it is its duty to select the facts that matter for the decision and to distinguish the proven facts from the not proven ones (cf. art. 123º, no. 2, of the Tax Procedure Code and article 607º, no. 3 of the Code of Civil Procedure, applicable by virtue of article 29º, no. 1, paragraphs a) and e), of RJAT).

In this way, the facts relevant for the judgment of the case are chosen and determined according to their legal relevance, which is established with regard to the various plausible solutions of the legal question(s) (cf. former article 511º, no. 1, of the Code of Civil Procedure, corresponding to the current article 596º, applicable by virtue of article 29º, no. 1, paragraph e), of RJAT).

Thus, taking into account the positions assumed by the parties, the documentary evidence and the administrative proceedings attached to the case file, the following facts are considered proven, with relevance for the decision, and were moreover consensually recognized and accepted by the parties.

B. ON THE LAW

At issue in this case is, in the first place, the question of whether the owner(s) of a property in full ownership (or vertical), composed of divisions capable of independent use, whose tax patrimonial value was determined separately, in accordance with article 7º, no. 2, paragraph b), of the Municipal Property Tax Code (CIMI), is/are subject to the incidence of Stamp Duty, by virtue of the provision of item 28.1 of the table annexed to the Stamp Duty Code (CIS), on the sum of the tax patrimonial values of those divisions, when none of the said divisions has a tax patrimonial value exceeding €1,000,000.00, but the sum of their respective tax patrimonial values exceeds this amount.

This question has already been subject to recurring examination in arbitral proceedings, and the jurisprudence is consistent in the sense of a negative answer to the question posed, as can be seen, by way of example, in the decisions delivered in cases no. 48/2013-T, 49/2013-T, 50/2013-T, 53/2013-T, 132/2013-T, 248/2013-T and 280/2013-T.

For convenience, and with due deference, the reasoning of the latter decision is transcribed here, for being particularly concise and precise.

"The legal question to be resolved in the first place is whether, in accordance with item 28.1 of the General Stamp Duty Table, the sum of the tax patrimonial value of each one of the parts or divisions capable of independent use should be considered, since none of them has a value equal to or greater than €1,000,000.00;

Having in mind that the Stamp Duty Code defers to the Municipal Property Tax Code the regulation of the concept of property and of matters not regulated regarding item 28 of the General Stamp Duty Table (no. 6 of article 1º and no. 2 of article 67º, 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 settle the question;

The generalist concept of property appears in article 2º of the Municipal Property Tax Code. In article 3º of the same decree-law, the legislator, using criteria of use and location, established the concept of rural properties, and then, in a classification by negation, in its article 4º, established that urban properties will be all those that should not be classified as rural;

In no. 2 of article 5º of the same Code, the legislator establishes the concept of mixed properties, which will be those in which there exist distinct economic rural and urban realities and there is no subordination of one to the other;

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

In the specific case we are faced with an urban property with parts or divisions capable of independent use with residential use and others with commercial use, it is a property with parts that can be classified in the residential division of paragraph a) of no. 1 of article 6º and with parts that can be classified in paragraph b) of the same no. and article, but it will in no way be a mixed property in the concept established in the aforementioned article 5º of the Municipal Property Tax Code;

Each one of the parts or divisions capable of independent use that compose the property in question fulfils the concept of property established in article 2º of the Municipal Property Tax Code, they are physically and economically independent and form part of the assets of a legal entity;

Moreover, the Tax Authority in excluding the tax patrimonial value of the parts or divisions with use other than residential, for purposes of taxation in Stamp Duty, did nothing more than use the criterion defined in no. 4 of article 2º of the Municipal Property Tax Code for properties under the horizontal ownership regime;

In other words, the Tax Authority, in order to make that exclusion, considered that the parts or divisions capable of independent use were true autonomous parts of a property in vertical ownership fulfilling the concept of property;

And it did nothing more than observe what is provided in no. 3 of article 12º of the Municipal Property Tax Code: 'each floor or part of a property capable of independent use is considered separately in the registration, which also specifies the respective patrimonial value';

Equally, the Tax Authority in making the taxation in Municipal Property Tax (IMI) did so by taxing separately the tax patrimonial value of each one of the parts or divisions capable of independent use;

The Tax Authority used the same criterion in the taxation in Stamp Duty, in calculating it on the tax patrimonial value of each one of the parts or divisions with independent use with residential use, only that at the end it considered the global tax patrimonial value, verifying it to be greater than €1,000,000.00 and added up the Stamp Duty values calculated individually;

But this procedure has no legal support, since none of the parts or divisions with independent use with residential use, each one of them fulfilling the concept of property enunciated in article 2º of the Municipal Property Tax Code, has a tax patrimonial value equal to or greater than €1,000,000.00, a requirement necessary for there to be taxation in Stamp Duty;

To make the taxation in Stamp Duty considering the global tax patrimonial value of the property, even purged of the tax patrimonial value of the parts or divisions not assigned to housing, as the respondent intends, finds no support in the Municipal Property Tax Code, as per the referral in no. 2 of article 67º of the Stamp Duty Code;

Nor should it be said that there is a different assessment and taxation of a property in full ownership with parts or divisions capable of independent use, compared to a property in horizontal ownership. In truth it does not exist in Municipal Property Tax (IMI) just as it cannot exist in Stamp Duty, since, as has been said, the applicable legislation is the same;

In this perspective and considering that none of the parts or divisions capable of independent use with destination or residential use has a tax patrimonial value equal to or greater than €1,000,000.00, it is necessary to conclude that the acts of assessment of Stamp Duty are illegal for not having complied with the conditions defined in item 28 of the General Stamp Duty Table."

To all that has been said, only this will be added: even if, hypothetically, it were conceded that in cases of properties in full ownership (or vertical), composed of divisions capable of independent use, one could require stamp duty taxation for the entirety of the property, if the value fixed in item 28.1 of the table annexed to the Stamp Duty Code were reached, such value would always have to be fixed autonomously, through its own assessment, and not through the sum of the values in which each one of the parts capable of independent use was, autonomously assessed. Indeed, and as is clear to see, the "market value" of the whole will not necessarily – and will not, as a rule – equal the sum of the parts, it being well known (which will even constitute part of the economic foundation of the horizontal ownership institute) that the sale "of the parts" is easier than the sale of the whole, not least due to the broadening of the market, which the substantially lower price of the parts brings.

Moreover, and indeed, it is this increase in economic value resulting from the division, which justifies an independent assessment of each autonomous part of the property in full ownership, so as to ensure that the Tax Authority does not have less income, in Municipal Property Tax (IMI), due to the fact that the division of the property has no legal correspondence in the form of horizontal ownership.

In other words, the partition of the property always entails an increase in the value of the whole, since the "market value" of the whole will be (at least) as a rule, lower than the "market value" of the parts, separately.

Therefore, and at the limit, if the Tax Authority intended, legitimately, to apply item 28.1 of the table annexed to the Stamp Duty Code, to a property in full ownership (or vertical), composed of divisions capable of independent use, it would always be obliged to an assessment of the same as a whole (that was a credible approximation to its "market value" in the "wholesale" sense) and not as sum of the parts (at "retail"), not least because these are not capable of being, validly, placed on the "market" separately.

With regard to the specific case, two additional factors must also be taken into account, namely:

  • The property in question, in its entirety, is not destined for housing, being rather a mixed property, destined for housing and commerce, therefore, considering it, duly, as a unit, it will not fall under item 28.1 of the table annexed to the Stamp Duty Code, which applies, solely, to properties assigned to housing;

  • The property in question is co-ownership of the requesters, therefore, if it were admissible to sum the value of the divisions capable of independent use, the total thus obtained should always, unless we are mistaken, be divided by the number of co-owners.

Thus, and given that the Tax Authority has not presented, and it is not apparent on its own motion, any reason to depart from the arbitral jurisprudence cited, with the additions formulated above, we adhere to it without further consideration, judging the arbitral request made in the present proceedings as well-founded.

The Requester cumulates with the request for annulment of the tax act that is the subject of these proceedings, the request for the Tax Authority to be condemned to pay compensatory interest.

In the case at hand, it is clear that the illegality of the assessment acts, the amount of which the Requesters paid, is attributable to the Tax Administration, which, on its own initiative, practiced them without legal support.

Consequently, the Requesters are entitled to compensatory interest, in accordance with article 43º, no. 1, of the General Tax Law and 61º of the Tax Procedure Code.

Compensatory interest is due from the date of the payments made, and calculated on the basis of the respective amount, until its full repayment to the Requesters, at the legal rate, in accordance with articles 43º, nos. 1 and 4, and 35º, no. 10, of the General Tax Law, 61º of the Tax Procedure Code and 559º of the Civil Code and Order no. 291/2003, of 8 April (without prejudice to any subsequent alterations of the legal rate).

C. DECISION

In these terms, this Arbitral Tribunal decides:

a) Judge the arbitral request presented as well-founded and, consequently, annul the tax acts that are the subject of these proceedings and condemn the Tax Authority to repay the Requesters the tax paid, increased by compensatory interest;

b) Condemn the Tax Authority in the costs of the proceedings, in the amount of €918.00, taking into account what has already been paid.

D. Value of the Case

The value of the case is fixed at €10,984.00, in accordance with article 97º-A, no. 1, a), of the Tax Procedure Code, applicable by virtue of paragraphs a) and b) of no. 1 of article 29º of RJAT and of no. 2 of article 3º of the Rules of Costs in Tax Arbitration Proceedings.

E. Costs

The arbitration fee is fixed at €918.00, in accordance with Table I of the Rules of Costs in Tax Arbitration Proceedings, to be paid by the Respondent, since the request was entirely well-founded, in accordance with articles 12º, no. 2, and 22º, no. 4, both of RJAT, and article 4º, no. 4, of the cited Rules.

Notify.

Lisbon

28 August 2014

The Arbitrator

(José Pedro Carvalho)

Frequently Asked Questions

Automatically Created

How does Verba 28.1 of the Tabela Geral do Imposto do Selo apply to properties held in vertical ownership (propriedade vertical)?
Verba 28.1 of the Tabela Geral do Imposto do Selo applies to properties with tax patrimonial values equal to or exceeding €1,000,000.00. For properties held in vertical ownership (propriedade vertical), where the building is registered as a single unit with independent divisions whose values are separately determined under CIMI Article 7(2)(b), the consistent arbitral jurisprudence holds that the €1,000,000 threshold applies to each independent division individually, not to the aggregate sum of all divisions. Therefore, if no individual unit exceeds €1,000,000, Stamp Duty under item 28.1 should not be levied, even if the total combined value exceeds this threshold. This interpretation respects the separate valuation methodology prescribed by law.
Can the tax authority levy Stamp Tax (Imposto do Selo) on individual units of a building registered under vertical ownership rather than horizontal ownership?
The Tax Authority cannot lawfully levy Stamp Tax under item 28.1 TGIS on individual units of a building registered under vertical ownership (propriedade vertical) by aggregating their separately-determined patrimonial values when none of the individual units exceeds the €1,000,000 threshold. In vertical ownership, although the property remains a single registered unit, each independent division has its tax patrimonial value determined separately pursuant to CIMI Article 7(2)(b). The Stamp Tax threshold applies to each autonomous division individually. This contrasts with the Tax Authority's position that sought to sum all unit values to trigger the tax. CAAD arbitration decisions consistently reject this aggregation approach, protecting taxpayers from improper assessment of Stamp Duty on properties structured as vertical ownership.
What is the difference between vertical ownership and horizontal ownership for Stamp Tax purposes under Portuguese law?
Under Portuguese tax law, vertical ownership (propriedade vertical or propriedade plena) refers to a building registered as a single property unit with floors or divisions capable of independent use, where each division's tax patrimonial value is determined separately under CIMI Article 7(2)(b). Horizontal ownership (propriedade horizontal) involves legally autonomous fractions, each with individual property registration and separate legal identity. For Stamp Tax purposes under item 28.1 TGIS, this distinction is critical: in horizontal ownership, each autonomous fraction is treated as a separate property for the €1,000,000 threshold; in vertical ownership, despite separate valuation of divisions, the question arises whether to aggregate values or apply the threshold individually. Arbitral jurisprudence consistently holds that the threshold applies to each independently-valued division, not to aggregated totals, protecting vertical ownership from discriminatory treatment.
What procedural steps are required to challenge Stamp Tax assessments through CAAD tax arbitration in Portugal?
To challenge Stamp Tax assessments through CAAD tax arbitration in Portugal, taxpayers must follow these procedural steps: (1) File a request for constitution of arbitral tribunal under RJAT Articles 2(1)(a) and 10(1)(a) of Decree-Law 10/2011; (2) The CAAD President accepts the request and notifies the Tax and Customs Authority; (3) The Ethics Council designates an arbitrator (single or panel depending on case value); (4) Parties are notified and may refuse the appointment within the legal deadline; (5) The tribunal is formally constituted after acceptance; (6) The Tax Authority files its response; (7) Parties may request or waive hearings under Article 18 RJAT; (8) The tribunal issues its decision. In Process 201/2014-T, the tribunal was constituted on May 5, 2014, and the parties waived hearings, proceeding directly to decision. Prior administrative challenges (gracious objections) may be filed but are not mandatory before seeking arbitration.
Are multiple Stamp Tax assessments on separate installments of the same property eligible for joint arbitration proceedings at CAAD?
Yes, multiple Stamp Tax assessments on separate installments relating to the same property and tax year are eligible for joint arbitration proceedings at CAAD. In Process 201/2014-T, the taxpayers successfully consolidated challenges to 51 separate assessment notices covering all three 2013 installments (first installment due April 2013, second installment due July 2013, and third installment due November 2013) into a single arbitration proceeding. This procedural efficiency is permitted under RJAT as all assessments involved the same legal issue (application of item 28.1 TGIS to vertical ownership), same parties, same property, and same tax year. The tribunal accepted jurisdiction over all assessments without requiring separate arbitration requests. This approach reduces costs, avoids contradictory decisions, and ensures consistent treatment of related tax disputes, demonstrating CAAD's flexible and taxpayer-friendly procedural framework.