Process: 203/2016-T

Date: October 3, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Arbitration Process 203/2016-T addresses a critical dispute regarding Stamp Tax (Imposto de Selo) assessment under Article 28.1 of the General Stamp Tax Table (TGIS) for properties held in vertical ownership. The case involves a building in Lisbon comprising 8 floors divided into 17 independent units (15 residential), owned entirely by A..., S.A. under full ownership rather than horizontal condominium regime. The Tax Authority assessed €13,931.80 in Stamp Tax for 2014 by aggregating the Taxable Patrimony Values (VPT) of all units, which collectively exceeded €1,000,000, triggering the 1% tax rate applicable to residential properties. The taxpayer challenged this assessment, arguing that Article 28.1 should apply only when individual units reach the €1,000,000 threshold, not when their aggregate value does. The claimant further contended that the Tax Authority's interpretation violates constitutional equality principles by treating vertical ownership differently from horizontal condominium structures, where each unit would be assessed separately. The Tax Authority defended its position by arguing that for Stamp Tax purposes, properties in full ownership must be considered as a whole, despite having floors or units susceptible to independent use, distinguishing this treatment from Municipal Property Tax (IMI) rules. The central legal question concerns whether 'property with residential use' under Article 28.1 refers to each autonomous unit individually or the building collectively. This arbitration highlights fundamental interpretive issues regarding the intersection of property ownership structures, tax assessment methodologies, and constitutional principles in Portuguese tax law, with significant implications for property owners holding multi-unit buildings outside the horizontal condominium regime.

Full Decision

ARBITRAL DECISION

The arbitrator Dr. Maria Antónia Torres, appointed by the Ethics Council of the Administrative Arbitration Centre ("CAAD") to form the Singular Arbitral Tribunal, constituted on 13 June 2016, decides as follows:

  1. REPORT

1.1 A…, S.A., taxpayer no. …, hereinafter referred to as the "Claimant", with registered office at …, no. …, … floor, …, 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 decision has as its purpose the declaration of illegality, and consequent annulment, of the tax acts relating to Stamp Tax (IS) assessments, in the total amount of € 13,931.80 (thirteen thousand nine hundred and thirty-one euros and eighty cents), relating to the year 2014, better identified in the initial petition submitted by the Claimant, and which are hereby stated and reproduced, for all legal purposes, which relate to the urban property owned by the Claimant, situated at …, no. … and …, composed of 8 floors, constituted by 17 units with independent use, of which only 15 are intended for residential purposes, registered in the urban land registry under article no. …, of the Parish of …, Municipality of Lisbon, as per documents attached to the initial petition.

The Claimant further requests the conviction of the Respondent to refund the amounts unduly paid and that the Claimant be recognized the right to compensatory interest on all amounts paid.

1.3. To support its claim, the Claimant alleges that the Stamp Tax assessments subject to this petition are illegal due to violation of the scope of rule 28.1 of the TGIS. The Claimant considers that, given the property is in full ownership, as it is at that date, composed of 8 floors divided into 17 units with independent use, of which only 15 intended for residential purposes, the AT [Tax Authority] cannot, as it did, sum up the property values of the floors and units susceptible to independent use, given that none of these floors or units, by itself, has a VPT [Taxable Patrimony Value] equal to or greater than 1,000,000 euros. And that the scope of rule, in the interpretation put into practice by the AT, is unconstitutional due to violation of the principle of equality.

1.4. The AT defends that the request for declaration of illegality, and consequent annulment of the disputed assessments, should be judged unfounded, given that it maintains that although the Stamp Tax assessment, under the conditions provided in rule 28.1 of the TGIS, is processed in accordance with the rules of CIMI, the truth is that the legislator reserves the aspects that require proper adaptation.

The AT understands that this is the case for properties in full ownership, even though with floors or units susceptible to independent use, because although the IMI is assessed in relation to each part susceptible to independent use, for purposes of Stamp Tax the property as a whole is relevant, thus maintaining the legality of the tax acts because they constitute a correct application of the law to the facts.

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

  1. SANATION

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, are 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.

  1. FACTUAL MATTERS

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

  1. The Claimant was, at the date of the assessments sub judice, owner of the urban property subject to those same assessments, under the regime of "full ownership" (i.e., not subject to the regime of horizontal condominium) to which a total VPT [Taxable Patrimony Value] greater than 1,000,000.00€ was assigned, corresponding to the sum of the partial VPT of each of the floors 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 units susceptible to independent use, to which an autonomous VPT was assigned by the Respondent, and regardless of its destination - residential or otherwise - has a VPT that exceeds the value of €1,000,000.

  3. The Claimant was notified to pay stamp tax on the said property, with the Respondent considering the Claimant to be the liable party for stamp tax under rule 28.1 of the TGIS, by being the owner of a property with taxable patrimony value greater than €1,000,000.

  4. The Claimant filed a request for administrative review no. …2015…, against these assessments, having been notified by Official Letter no. …, of 4 January 2016, of the decision to dismiss the same.

Unproven Facts

No essential facts, with relevance to the assessment of the merits of the case, which have not been proven, were found.

Justification of Factual Matters

The conviction about the facts found to be proven was based on the documentary evidence provided 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 this case is to determine, with reference to a property not constituted under the regime of horizontal condominium, comprised of various floors and units with independent use, some of which with residential use, what the Taxable Patrimony Value (VPT) is, assessing the correct scope of incidence of the tax in light of the law, in order to determine whether it should be assessed by the sum of the taxable patrimony value attributed to the different parts or floors (total VPT) or, rather, whether it should be attributed to each of the residential parts or floors.

The Claimant also petitions for the payment of compensatory interest.

  1. ON THE LAW

As identified above, the question to be decided is whether the taxable patrimony value relevant for the purpose of ascertaining the applicability of Rule 28.1 of the TGIS, when a property not constituted under the horizontal condominium regime is at issue, is that of each unit autonomously considered or the sum of the taxable patrimony value attributed to each of those units.

The question arises due to the taxation under stamp tax of the ownership, usufruct or surface right of urban properties whose taxable patrimony value recorded in the land registry is equal to or greater than € 1,000,000, with the tax being due, at the rate of 1% on the taxable patrimony value used for purposes of IMI, per property with residential use.

Therefore, it is important to determine, when a property not constituted under the horizontal condominium regime is at issue, the concept of "property with residential use": whether it should be interpreted as corresponding to each unit autonomously considered and apply to its respective taxable patrimony value or whether it should correspond to the totality of the autonomous units, and consequently apply to the sum of the taxable patrimony value attributed to each of those units.

Neither the Stamp Tax Code, nor the respective General Table, nor Law no. 55-A/2012, of 29 October (which approved the TGIS rule under consideration) provides a legal definition of "property with residential use", so it is important to ascertain the correct interpretation of this expression, presuming that the legislator knew how to express its intention in the most appropriate manner (cf. article 9, no. 3, final part, of the Civil Code), in its systematic integration with the rules contained in the IMI Code and, equally, in the spirit of the law.

Rule 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 taxable patrimony value recorded in the land registry, under the terms of the Municipal Property Tax Code (CIMI), is equal to or greater than € 1,000,000 — on the taxable patrimony value used for purposes of IMI:

28.1 — Per property with residential use — 1%;

28.2 — Per property, when the liable parties that are not natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime, listed in the list approved by ordinance of the Minister of Finance — 7.5%."

(Italics in original)

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 the following:

i) Properties with residential use assessed under the IMI Code: 0.5%;

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

iii) Urban properties when the liable parties that are not natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime, listed in the list approved by ordinance of the Minister of Finance: 7.5%.

However, neither the Stamp Tax Code, nor Law no. 55-A/2012, of 29 October specifies the concept of "urban property with residential use", so in accordance with article 67 of the Stamp Tax Code, the interpretation of this concept should be sought in the IMI Code.

Indeed, article 67 of the Stamp Tax Code provides that "To matters not regulated in this Code relating to rule no. 28 of the General Table applies, subsidiarily, the provisions of the CIMI" - (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 appears that "For purposes of this Code, property is any plot of land, comprising waters, plantations, buildings and constructions of any nature incorporated therein or erected thereon, with a character of permanence, provided that it forms part of the patrimony of a natural or legal person and, in normal circumstances, has economic value (…), clarified in no. 4 of this legal provision that "For purposes of this tax, each autonomous unit, under the horizontal condominium 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 under IMI, autonomous units, under the horizontal condominium regime, would have a different treatment from parts of a property susceptible to independent use.

However, a more careful analysis of the regime allows us to conclude precisely the contrary.

As was highlighted by the Ombudsman to the Secretary of State for Tax Affairs, in an official letter dated 2 April 2013, "the registration in the property registry of properties in vertical ownership, constituted by parts susceptible to independent use, follows the same rules as the registration of properties constituted in horizontal condominium, with the respective IMI, as well as the new Stamp Tax, being assessed individually in relation to each of the parts".
(Italics in original)

Indeed, article 12, no. 3 of the IMI Code so provides, by determining that "each floor or part of a property susceptible to independent use is considered separately in the property registry registration which also distinguishes its respective taxable patrimony value."

According to article 119 of the IMI Code "The services of the Directorate-General of Taxes send to each liable party, by the end of the month prior to payment, the competent tax billing document, with a breakdown of the properties, their parts susceptible to independent use, respective taxable patrimony value and the tax amount charged to each municipality of the location of the properties."

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

Thus, we cannot but follow the understanding set out in the Arbitral Decision handed down in Case no. 50/2013, according to which "if the legal criterion requires the issue of individualized assessments for the autonomous parts of properties in vertical ownership, in the same manner as it establishes for properties in horizontal condominium, 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 grounds for the incidence of the new stamp tax if any of the parts, floors or units with independent use presented a VPT exceeding € 1,000,000.00."
(Italics 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 IMI Code), to take into account the different uses of each unit that comprise a single property.

For this purpose, what is relevant is the actual use of each of the parts susceptible to 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 a horizontal condominium unit or merely a unit susceptible to independent use.

Indeed, 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 use, in accordance with article 41 of the IMI Code.

This will be verified, for example, if in a property in full ownership with floors or units susceptible to independent use, licensed for residential purposes, one of its independent units is used for commerce or services or another purpose, which even occurs in the property in question in this case. In this instance, the units in question will not have residential use.

From this analysis it can be concluded that the concept of "property with residential use", used in Rule 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 use.

In view of the foregoing, we cannot follow the understanding of the Respondent, which would result, in addition to other matters, in a violation of the principle of equality, fiscal justice and taxpaying capacity, constitutionally enshrined.

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

(…) in the work relating to the discussion of bill no. 96/XII in the Parliament (…) this measure, called the "special tax on high-value residential urban properties", was justified with the need to comply with the principles of social equity and fiscal justice, placing a greater burden on holders of properties with high value intended for residential purposes, and, to that extent, applying the new "special tax" to "houses with a value equal to or greater than 1 million euros."
(Italics in original)

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

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

In view of the foregoing, and given that none of the independent units that comprise the Claimant's property have a taxable patrimony value greater than € 1,000,000, the assessments under consideration are tainted by a violation of law, due to error in the legal premises, which justifies the declaration of their illegality and the corresponding annulment of the tax acts now under consideration.

In view of the declaration of illegality of the assessments that are the subject of this case, due to a violation of law taint stemming from error in the legal premises, the examination of the other issues raised on a subsidiary basis is rendered moot.

On the Request for Compensatory Interest

The Claimant petitions for the conviction of the Respondent to pay compensatory interest, provided for in articles 43 of the General Tax Law and 61 of the Tax Procedure and Proceedings Code.

It is clear from the case that the illegality of the acts of assessment of tax disputed is directly attributable to the Respondent, which, on its own initiative, carried them out without legal basis, suffering from an incorrect 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 provided in articles 43, no. 1, of the LGT and 61 of the CPPT.

  1. DECISION

In view of the foregoing, it is decided:

  1. To uphold the request for arbitral decision, with the consequent annulment, with all legal effects, of the acts of assessment of stamp tax, relating to 2014, better identified in the case file, in the total amount of Euros 13,931.80 (thirteen thousand nine hundred and thirty-one euros and eighty cents);

  2. To uphold the request for compensatory interest petitioned by the Claimant.

The value of the case is fixed at Euros 13,931.80 (thirteen thousand nine hundred and thirty-one euros and eighty cents), in accordance with the provisions of articles 3, no. 2 of the Tax Arbitration Costs Regulation (RCPAT), 97-A, no. 1, paragraph a) of the CPPT and 306 of the CPC.

The amount of costs is fixed at Euros 918 (nine hundred and eighteen euros) under article 22, no. 4 of the RJAT and Table I attached to the RCPAT, to be 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.

Let it be notified.

Lisbon, 3 October 2016

The Arbitrator

(Maria Antónia Torres)

Text prepared by computer, under the terms of article 131, no. 5 of the Code of Civil Procedure, applicable by referral of article 29, no. 1, paragraph 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

What is the Stamp Tax (Imposto de Selo) liability under Clause 28.1 of the TGIS for properties in vertical ownership?
Under Article 28.1 of the TGIS, Stamp Tax liability for properties in vertical ownership depends on whether the property's Taxable Patrimony Value (VPT) equals or exceeds €1,000,000. The critical dispute in Process 203/2016-T centers on whether this threshold applies to individual units or the aggregate building value. For vertical ownership properties (full ownership without horizontal condominium), the Tax Authority aggregates VPT values of all independent units to determine if the €1,000,000 threshold is met, triggering a 1% annual tax rate. This interpretation treats the entire building as a single 'property with residential use' despite containing multiple autonomous units. The taxpayer challenges this approach, arguing that each independent unit should be assessed separately, similar to horizontal condominium treatment where individual fractions are taxed independently.
Can the Tax Authority aggregate the taxable heritage values (VPT) of independent units in a single building to exceed the €1,000,000 threshold?
Yes, according to the Tax Authority's interpretation in this case, the VPT of independent units in a single building held under vertical ownership can be aggregated to exceed the €1,000,000 threshold. The AT argues that although Municipal Property Tax (IMI) assesses each independent unit separately, Stamp Tax under Article 28.1 requires different treatment. For properties in full ownership with multiple floors or units capable of independent use, the Tax Authority maintains that 'the property as a whole is relevant' for Stamp Tax purposes. This aggregation methodology means that even when no individual unit reaches €1,000,000, the building owner faces Stamp Tax liability if the combined VPT exceeds this amount. The claimant contests this interpretation, arguing it creates unequal treatment compared to horizontal condominium structures and lacks clear legal basis in the TGIS, which does not explicitly define how to calculate VPT for multi-unit properties in vertical ownership.
How does CAAD arbitration process work for challenging Stamp Tax assessments in Portugal?
The CAAD (Centro de Arbitragem Administrativa) arbitration process for challenging Stamp Tax assessments follows the legal framework established in Decree-Law 10/2011 (RJAT). Taxpayers can request arbitration under Article 2(1)(a) and Article 10 to contest tax assessments. In Process 203/2016-T, the procedure involved: (1) Prior administrative review request (which was denied on January 4, 2016); (2) Formal arbitration request filed with CAAD; (3) Constitution of a singular arbitral tribunal with one arbitrator appointed by CAAD's Ethics Council; (4) Submission of initial petition by the claimant detailing the contested assessments (€13,931.80 in Stamp Tax for 2014); (5) Response by the Tax Authority defending the assessments; (6) Waiver of oral hearings by mutual agreement; (7) Factual determination based on documentary evidence; and (8) Legal analysis and decision. The process provides an alternative to judicial courts, offering faster resolution of tax disputes with binding decisions on matters within CAAD's material competence.
Does the principle of equality under the Portuguese Constitution limit Stamp Tax on residential properties held in total ownership?
The claimant in Process 203/2016-T argues that the Tax Authority's interpretation of Article 28.1 violates the constitutional principle of equality by creating discriminatory treatment between property ownership structures. The constitutional challenge centers on differential treatment: properties in horizontal condominium have each unit assessed independently for Stamp Tax purposes (based on individual VPT), while vertical ownership properties have all units aggregated. This creates disparate tax consequences for economically similar situations—a building divided into independent residential units faces different tax treatment depending solely on its legal ownership structure. The claimant contends this distinction lacks objective justification, as the underlying asset (residential units) and their individual values remain identical regardless of condominium regime. The equality principle requires that substantially similar situations receive similar tax treatment unless material differences justify distinction. However, the Tax Authority maintains its interpretation reflects legitimate legislative adaptation for full ownership properties, arguing that legal distinctions between ownership regimes justify different tax assessment methodologies under Article 28.1 of the TGIS.
What are the legal consequences when individual units in a vertical property each have a VPT below €1,000,000?
When individual units in a vertical property each have VPT below €1,000,000, the legal consequences depend on resolving the central interpretive dispute in this case. Under the taxpayer's interpretation, no Stamp Tax liability would arise under Article 28.1 since no individual unit meets the threshold, similar to horizontal condominium treatment where each fraction is assessed independently. This would result in annulment of the contested assessments, refund of €13,931.80 paid, plus compensatory interest. Under the Tax Authority's aggregation methodology, Stamp Tax liability still arises when the combined VPT of all units exceeds €1,000,000, regardless of individual unit values. The practical implications are significant: property owners with multi-unit buildings in vertical ownership face potential tax liability based on aggregate value, creating incentives to restructure properties into horizontal condominium regimes to avoid aggregation. The arbitral decision will establish precedent for calculating VPT thresholds in vertical ownership contexts, affecting property tax planning and potentially requiring legislative clarification of 'property with residential use' definition in the TGIS.