Process: 204/2014-T

Date: September 26, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitration case (Process 204/2014-T) addresses the controversial application of Stamp Tax under Verba 28.1 of the General Table (TGIS) to properties held in vertical ownership. Six taxpayers challenged Stamp Tax assessments totaling €8,054.48 on a Porto building with five floors and six independent units valued at €1,251,453.28. The core dispute centers on whether properties in vertical ownership should be taxed as a single unit or whether each independent floor should be treated separately for Stamp Tax purposes. The claimants argued the Tax Authority committed legal error by treating the entire building as one taxable property, violating Constitutional equality principles by discriminating between vertical ownership and condominium ownership regimes. They contended the Tax Authority incorrectly calculated the taxable patrimonial value at €1,115,229.52 by aggregating individual unit values while selectively excluding non-residential portions. Additionally, claimants asserted factual errors since certain floors function as offices rather than residences, and formal defects in assessment notices lacking proper substantiation. The Tax Authority defended its position, arguing that vertical ownership constitutes a single legal-tax reality distinct from condominium ownership, justifying different tax treatment. The Respondent maintained that legislative intent under Verba 28.1 was to tax properties as unified entities regardless of internal divisions. This case raised fundamental questions about property tax classification, the threshold for Stamp Tax liability on high-value properties, and whether vertical ownership's legal characterization should mirror condominium treatment for tax purposes. The arbitration was filed through CAAD following proper notification procedures, with taxpayers exercising their right to challenge assessments through administrative arbitration rather than traditional court litigation.

Full Decision

ARBITRAL DECISION[1]

  1. REPORT

A – General

1.1. A, holder of tax identification number …, with tax residence at … Street Tábua; B, holder of tax identification number …, with tax residence at … Street Tábua; C, holder of tax identification number …, with tax residence at … Street Porto; D, holder of tax identification number …, with tax residence at … Street Porto; E, holder of tax identification number …, with tax residence at … Avenue Tábua; and F – HEAD OF HOUSEHOLD OF THE ESTATE OF, holder of tax identification number …, represented by G, holder of tax identification number …, with residence at … Street Santo Tirso (hereinafter designated "Claimants"), filed on 28.02.2014 an application for the constitution of a single arbitral tribunal in tax matters, which was accepted, seeking a declaration of illegality of the tax acts assessing Stamp Tax for the year 2012 with date of 22.03.2013, relating to item 28.1 of the General Table of Stamp Tax (hereinafter "GTST"), relating to real property of which they are owners, as shall be better seen below.

1.2. Pursuant to the provisions of subparagraph a) of paragraph 2 of Article 6 and subparagraph b) of paragraph 1 of Article 11 of Decree-Law No. 10/2011, of 20 January, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council of the Administrative Arbitration Center designated Nuno Pombo as arbitrator, and the parties, having been duly notified, did not object to this designation.

1.3. By order of 10.03.2014, the Tax and Customs Authority (hereinafter designated "Respondent") proceeded to designate Dr. G and Dr. I to intervene in the present arbitral proceedings, in the name and representation of the Respondent.

1.4. In accordance with the provisions of subparagraph c) of paragraph 1 of Article 11 of Decree-Law No. 10/2011, of 20 January, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the arbitral tribunal was constituted on 07.05.2014.

1.5. On 13.05.2014 the head of the Respondent's service was notified to present, if desired, within 30 days, a reply and request the production of additional evidence.

1.6. On 11.06.2014 the Respondent presented its reply.

B – Position of the Claimants

1.7. The Claimants are the legitimate owners of real property in full or vertical ownership, located in Porto, at … Street numbers …, … and …, with registered property number …, of the Parish Union of …, with 5 (five) storeys and 6 (six) units with independent use, with a total patrimonial value of € 1,251,453.28 (one million two hundred fifty-one thousand four hundred fifty-three euros and twenty-eight cents), to which corresponds the property card that the Claimants annex to their application as document no. 2, the contents of which are deemed reproduced (the Property).

1.8. In March 2013, the Claimants were notified of the assessments of Stamp Tax (hereinafter designated "ST") which are listed in the table of Article 7 of the petition for arbitral judgment (attached under the joint designation of document no. 1 of said petition, the contents of which are deemed reproduced), which were based on Article 1 of the Stamp Tax Code (hereinafter "STC"), on item 28.1 of the GTST, as amended by Article 4 of Law No. 55-A/2012, of 29 October, and on sub-item i) of subparagraph f) of paragraph 1 of Article 6 of the same Law, the payment deadline for which is the end of April 2013.

1.9. Subsequently, the Claimants were also notified of the documents for payment of ST which are listed in the table of Article 8 of the petition for arbitral judgment (attached under the joint designation of document no. 1 of said petition, the contents of which are deemed reproduced), with payment deadline reported to the end of November 2013.

1.10. The Claimants, although disagreeing with the assessments in question, proceeded with the payment of the tax required of them, in the total amount of € 8,054.48 (eight thousand fifty-four euros and forty-eight cents), as evidenced by the document attached to the petition for arbitral judgment with no. 3, the contents of which are deemed reproduced.

1.11. The Claimants base their application on "defect of error regarding legal assumptions, error regarding factual assumptions and defect of violation of law."

1.12. The defect of error regarding legal assumptions, the Claimants maintain, is based on the circumstance that it does not result from the law that the correspondence of the taxable patrimonial value (hereinafter designated "TPV") of a property composed of various independent units to the sum of the TPV of the storeys or units susceptible of independent use, particularly since, pursuant to paragraph 3 of Article 12 of the Property Tax Code (CIMI), "each storey or part of a property susceptible of independent use is considered separately in the property register, which also discriminates its respective taxable patrimonial value," being consequently subject to separate Property Tax assessment (IMI).

1.13. The Respondent, however, for purposes of assessing ST, did not limit itself to performing the arithmetic sum of the TPV of each of the parts susceptible of independent use of the Property. For this calculation, it excluded from the supposedly unitary composition of the Property the parts which, according to the respective property card, were assigned to non-residential purposes, thereby imputing to the Property a "taxable patrimonial value of the property – total subject to tax," a concept "which finds no support whatsoever in the letter or spirit of the Law," of € 1,115,229.52 (one million one hundred fifteen thousand two hundred twenty-nine euros and fifty-two cents).

1.14. The Claimants also argue that we are faced with the defect of violation of law, since "the rule underlying the Stamp Tax assessments is unconstitutional, by violating the principle, constitutionally protected, of equality," when interpreted with the meaning and scope intended by the Respondent, which distinguishes arbitrarily between properties that have been constituted in condominium ownership and properties in full ownership with storeys or parts susceptible of independent use.

1.15. The Claimants further understand that the assessments in question suffer from the defect of error regarding the factual assumptions, since the first, second and fourth storeys of the Property are not functionally assigned to residential use, but to services, being, in fact, offices (the Claimants refer to a document not contained in the record).

1.16. Finally, the Claimants understand that the assessment acts sub judice are defective in form for lacking the legally required substantiation, since "they were notified of various documents for payment identified with different numbers," which do not contain "the number of the assessment that underlies them."

C – Position of the Respondent

1.17. The Respondent, in its reply, expresses the understanding that a property in full ownership regime is, for all purposes, a single property, and cannot be considered that each one of its parts or units susceptible of independent use constitutes a "property" for these purposes, it being clear that the legislator, by item 28.1 intended to tax "properties as a single legal-tax reality."

1.18. The Respondent further maintains that there is no arbitrary discrimination when the legislator chooses to grant different tax treatment to two also diverse realities, full or vertical ownership, on the one hand, and condominium ownership, on the other, since they are "distinct realities, valued by the legislator in different ways."

D – Conclusion of the Report

1.19. Having the Respondent proposed that the meeting provided for in Article 18 of the Legal Framework for Arbitration in Tax Matters (LFATM) be dispensed with, and in the absence of opposition by the Claimants, the arbitral tribunal, by order of 28.07.2014, understood that there was no procedural utility in holding said meeting, since the parties had already brought into the proceedings the factual elements necessary and sufficient for the rendering of the decision, which was predicted to occur by 30.09.2014.

1.20. The arbitral tribunal is materially competent, pursuant to the provisions of Article 2, paragraph 1, subparagraph a) of the LFATM.

1.21. The parties have standing and legal capacity and have legitimacy pursuant to Article 4 and paragraph 2 of Article 10 of the LFATM, and Article 1 of Ordinance No. 112-A/2011, of 22 March.

1.22. The cumulation of claims made in the present petition for arbitral judgment, in keeping with the principle of procedural economy, is justified since the assessment acts contested are based on the same factual basis and appeal to the application of the same rules of law.

1.23. The proceedings do not suffer from any nullity nor were any exceptions raised by the parties that prevent the consideration of the merits of the case, so the conditions are met for the rendering of the arbitral decision.

  1. MATTERS OF FACT

2.1. Proven Facts

2.1.1. The Claimants are legitimate owners, though not the only ones, of the Property referred to in paragraph 1.7 above (doc. no. 2, attached with the petition for arbitral judgment).

2.1.2. The Property is constituted in full or vertical ownership, with storeys or units susceptible of independent use (doc. no. 2, attached with the petition for arbitral judgment).

2.1.3. The Property has storeys or units not assigned to residential use (doc. no. 2, attached with the petition for arbitral judgment), there being three storeys that are offices (art. 65 of the petition for arbitral judgment, not contested by the Respondent).

2.1.4. The Respondent, for purposes of applying item 28.1 of the GTST, proceeded with the arithmetic sum of the patrimonial values of each one of the storeys or units with independent use shown in the respective property card as being assigned to residential use (docs. nos. 1 and 2, attached with the petition for arbitral judgment).

2.1.5. Thus, the Respondent assigned to the Property, for purposes of applying item 28.1 of the GTST, the "taxable patrimonial value of the property – total subject to tax" of € 1,115,229.52 (one million one hundred fifteen thousand two hundred twenty-nine euros and fifty-two cents) – (doc. no. 1, attached with the petition for arbitral judgment).

2.1.6. The Claimants were notified of the ST assessments referred to in the table contained in Article 1 of the petition for arbitral judgment (doc. no. 1, attached with the petition for arbitral judgment).

2.1.7. The Claimants proceeded with payment of the tax required of them, in the amount of € 8,054.48 (eight thousand fifty-four euros and forty-eight cents) (doc. no. 3, attached with the petition for arbitral judgment).

2.2. Unproven Facts

There are no facts relevant to the consideration of the merits of the case that should be considered unproven.

  1. MATTERS OF LAW

3.1. Question to be Decided

It results from what has been stated above that the question to be considered is, in essence, whether a property constituted in full or vertical ownership, but with storeys or units with independent uses, is a "property with residential assignment" for purposes of applying Article 1 of the STC and item 28.1 of the GTST, as amended by Article 4 of Law No. 55-A/2012, of 29 October.

3.2. Item 28.1 of the GTST

Law No. 55-A/2012, of 29 October, among several amendments it made to the STC, added, by its Article 4, item 28 to the GTST, which has the following wording:

"28 – Ownership, usufruct or right of superficies of urban properties whose taxable patrimonial value appearing in the register, pursuant to the Property Tax Code (CIMI), is equal to or greater than € 1,000,000 – on the patrimonial value used for purposes of Property Tax:

28.1 – For property with residential assignment – 1%;

28.2 – For property, when the taxable persons that are not natural persons are residents in a country, territory or region subject to a clearly more favourable tax regime, included in the list approved by ordinance of the Minister of Finance – 7.5%."

With the heading "transitional provisions," Article 6 of Law No. 55-A/2012, of 29 October, and with relevance to what must be decided, established the following:

1 – In 2012, the following rules shall be observed by reference to the assessment of stamp tax provided for in item no. 28 of the respective General Table:

a) The taxable event occurs on 31 October 2012;

b) The taxpayer of the tax is the one mentioned in paragraph 4 of Article 2 of the Stamp Tax Code on the date referred to in the preceding subparagraph;

c) The taxable patrimonial value to be used in the assessment of the tax corresponds to what results from the rules provided for in the Property Tax Code by reference to the year 2011;

d) The assessment of the tax by the Tax and Customs Authority must be made by the end of November 2012;

e) The tax must be paid, in a single instalment, by the taxpayers by 20 December 2012;

f) The applicable rates are as follows:

i) Properties with residential assignment evaluated pursuant to the Property Tax Code: 0.5%;

ii) Properties with residential assignment not yet evaluated pursuant to the Property Tax Code: 0.8%;

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

As can be seen, item 28.1 refers to "properties with residential assignment." Now, not only is this concept not defined in any provision of the STC, but it is also not used in the CIMI, the statute to which Article 67, paragraph 2 of the STC expressly refers when matters not regulated in the STC relating to item 28 are at issue.

3.3. "Vertical ownership" and the Application of Item 28.1 of the GTST

Without prejudice to the interest, not merely doctrinal, of establishing the meaning and scope of the concept of "property with residential assignment," it is necessary, first and foremost, to answer the question of whether, for purposes of applying item 28.1 of the GTST, the TPV of each one of the storeys or units with independent use of a particular building can be summed, as the Respondent did with respect to the Property.

a) The property register of immovable property in full or vertical ownership and the assessment of Property Tax

It is important to clarify from the outset that "each storey or part of a property susceptible of independent use is considered separately in the property register, which also discriminates its respective taxable patrimonial value," as can be read in paragraph 2 of Article 12 of the CIMI. Also, Property Tax, in properties subject to the full ownership regime, gives typical importance to each storey or part of a property susceptible of independent use (Article 119, paragraph 1 of the CIMI).

That is to say, it is clear that the legislator, in the CIMI, did not intend to adhere to the strictness of the legal form of real estate rights affecting the properties, but rather to the use given to them, particularly in cases where a property, legally speaking, is composed of different storeys or parts susceptible of independent use.

It could be said, not without reason, that the legislator, for purposes of taxation in Property Tax, opted to confer autonomy, independence, to each one of the parts or each one of the storeys of a single property, provided that one and the other show themselves to be of independent use, to the point of foreseeing the individual registration in the register of each one of these independent parts and of imposing on taxation in Property Tax an also autonomous assessment. Despite the legal existence of a single property, it is the legislator itself that not only recommends but imposes the autonomous consideration of each one of the independent parts, for purposes of taxation of assets.

b) The Application of Item 28.1 of the GTST to Each of the Independent Parts

If this is the case for Property Tax, as has been attempted to be demonstrated, it cannot but be so also for Stamp Tax, particularly for purposes of applying item 28.1 of the GTST.

Indeed, this problem, if the tax, Property Tax or Stamp Tax, were purely proportional, would not exist or would be harmless, since the sum of the parts would necessarily correspond to the whole. That is not, however, the case before us.

As has been seen, the Stamp Tax to which item 28.1 of the GTST appeals is only due with respect to properties with residential assignment and, in these, only those that present a TPV equal to or greater than € 1,000,000.00 (one million euros).

The Respondent, in an exercise that is understandable, perceived the absurdity that would result from the application of the tax rate to the TPV of a property, if this were calculated on the basis of the sum of all the independent parts that comprise it. It therefore excluded, in the case under analysis, the parts that were registered as being assigned to non-residential purposes, thereby managing to reach, for purposes of item 28.1 a TPV different from that which results from the application of the criteria for determining the taxable base for purposes of taxation in Property Tax.

To say that the exercise carried out by the Respondent is understood does not, however, lead to the conclusion that it is correct, since it appears improper to disregard the autonomy of each one of the parts of the Property susceptible of independent use, imposing, for purposes of applying item 28.1 of the GTST, a unity that, although indisputable in terms of real estate rights, is not in terms of taxation of immovable assets.

Attentive to the letter and spirit of the law, it is not perceived that it is the legislator's intention to apply item 28.1 of the GTST to each one of the parts of a property when only from the sum of all of them results a TPV equal to or greater than the legal threshold.

c) The Ratio Legis of Item 28.1 of the GTST

What has been stated above does not ignore the admitted purpose of the proponent of the legislative amendment already referred to. The interpretation that is adopted here is in accordance with what appears to have been the unequivocal intention of the Government, author of the proposal that resulted in this legislative intervention.

When presenting and discussing in Parliament the bill no. 96/XII (2nd), the Secretary of State for Tax Affairs expressly stated[2]:

"The Government proposes the creation of a special tax on high-value residential urban properties. It is the first time that in Portugal a special taxation on high-value properties intended for housing has been created. This rate will be 0.5% to 0.8% in 2012 and 1% in 2013, and will apply to houses valued at equal to or greater than 1 million euros."

Now, the Secretary of State for Tax Affairs presents this bill referring, without equivocation, to the expression "houses." "Houses valued at equal to or greater than 1 million euros," note well.

Thus, despite the infelicity of the legislative technique adopted, it results with meridian clarity that item 28.1 of the GTST cannot be interpreted in the sense that it encompasses each one of the storeys, units or parts susceptible of independent use of a property, when only from their respective sum results a TPV equal to or greater than what the same item provides. In truth, none of the "houses" of the Property to which we have been referring present, of themselves, "a value equal to or greater than 1 million euros."

d) Conclusion

Based on the foregoing, it is the understanding of the arbitral tribunal that the assessment of Stamp Tax based on item 28.1 of the GTST is marred by illegality with respect to each one of the storeys or parts susceptible of independent use of the Property, since item 28.1 cannot be interpreted in the sense that it may be applied to storeys or parts susceptible of independent use of a property in full or vertical ownership, when only from the sum of each one of those storeys or parts can a TPV equal to or greater than € 1,000,000.00 (one million euros) be obtained, with the TPV of each one of said storeys or parts not exceeding this legal threshold.

3.4. Prejudiced Questions

The Claimants raised the question of the unconstitutionality of the provisions of sub-item i) of subparagraph f) of paragraph 1 of Article 6 of Law No. 55-A/2012, of 29 October, and of item 28.1 of the GTST, with the wording given to it by the same statute, should they be interpreted in the sense that the Stamp Tax provided therein could be levied on each one of the independent storeys or parts of the Property.

Since the arbitral tribunal did not accept the understanding of the applicability of item 28.1 of the GTST to the case at hand, the consideration of this question becomes prejudiced and procedurally useless, as well as that of the other defects alleged by the Claimants.

  1. DECISION

Pursuant to and on the basis of the grounds set forth above, the arbitral tribunal decides to uphold the petition for arbitral judgment with the consequent annulment of the contested assessments, with all legal consequences.

  1. VALUE OF THE PROCEEDINGS

In accordance with the provisions of paragraph 2 of Article 315 of the Code of Civil Procedure, subparagraph a) of paragraph 1 of Article 97-A of the Code of Tax Procedure and also paragraph 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at € 8,054.48 (eight thousand fifty-four euros and forty-eight cents).

  1. COSTS

For the purposes of the provisions of paragraph 2 of Article 12 and paragraph 4 of Article 22 of the LFATM and paragraph 4 of Article 4 of the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at € 918.00 (nine hundred eighteen euros), pursuant to Table I attached to said Regulation, to be borne entirely by the Respondent.

Lisbon, 26 September 2014

The Arbitrator

(Nuno Pombo)

[1] The wording of this arbitral decision follows the spelling conventions prior to the 1990 Orthographic Agreement.

[2] See DAR I Series no. 9/XII -2, of 11 October, p. 32.

Frequently Asked Questions

Automatically Created

Does Verba 28.1 of the Stamp Tax General Table apply to properties held in vertical ownership (propriedade vertical)?
Yes, Verba 28.1 of the Stamp Tax General Table applies to properties held in vertical ownership (propriedade vertical). The Tax Authority's position, as articulated in this arbitration case, treats properties in vertical or full ownership as a single taxable unit for Stamp Tax purposes, regardless of whether the building contains multiple independent units. However, this interpretation was challenged by taxpayers who argued that each independent unit should be treated separately, similar to condominium ownership where each unit is taxed individually. The case highlights the ongoing controversy over whether vertical ownership should be taxed as a unified property or whether internal divisions into independent units should affect Stamp Tax liability under Verba 28.1.
How is the taxable value determined for Stamp Tax purposes when a building has multiple independent units under a single property registration?
For Stamp Tax purposes under Verba 28.1, the Tax Authority determines taxable value by aggregating the taxable patrimonial values (VPT) of all independent units within a vertically owned building, but excludes units designated for non-residential purposes. In this case, the building's total patrimonial value was €1,251,453.28, but the Tax Authority calculated the taxable amount as €1,115,229.52 by excluding commercial/office spaces on certain floors. Claimants contested this methodology, arguing that Property Tax Code Article 12(3) requires each independent unit to be registered and assessed separately for IMI purposes, and the same logic should apply to Stamp Tax. The dispute centers on whether the sum of individual unit values equals the building's taxable value or whether a different calculation method should apply to vertically owned properties.
Can property owners challenge Stamp Tax assessments on high-value properties through CAAD tax arbitration?
Yes, property owners can challenge Stamp Tax assessments on high-value properties through CAAD (Centro de Arbitragem Administrativa) tax arbitration. This case demonstrates the proper procedure: taxpayers must pay the assessed tax first, then file an arbitration petition with CAAD requesting a declaration of illegality of the tax assessment acts. The arbitration process includes: (1) filing a petition specifying grounds for challenge (legal error, factual error, constitutional violations, formal defects); (2) designation of an arbitrator by CAAD's Deontological Council; (3) notification to the Tax Authority to present a reply within 30 days; and (4) constitution of the arbitral tribunal. CAAD arbitration offers an alternative to traditional judicial appeals, providing faster resolution of tax disputes with specialized arbitrators handling complex property tax issues under Verba 28.1.
What is the threshold patrimonial value for Stamp Tax liability under Verba 28.1 TGIS and how does it apply to vertically owned buildings?
Under Verba 28.1 of the General Table of Stamp Tax (TGIS), properties with taxable patrimonial value exceeding €1,000,000 are subject to annual Stamp Tax. The tax applies to the portion of value above this threshold. For vertically owned buildings with multiple independent units, the Tax Authority's interpretation aggregates all residential unit values to determine if the threshold is exceeded. In this case, the building's total value of €1,251,453.28 exceeded the threshold, but the Tax Authority calculated taxable value at €1,115,229.52 by excluding non-residential portions. The controversy involves whether the threshold should be applied to the building as a whole or to each independent unit separately, as taxpayers argued that treating vertical ownership differently from condominium ownership creates arbitrary discrimination since condominium units are assessed individually.
What procedural steps are required to file a tax arbitration claim against Stamp Tax assessments at CAAD?
To file a tax arbitration claim against Stamp Tax assessments at CAAD, taxpayers must follow these procedural steps: (1) Pay the assessed Stamp Tax amount (in this case €8,054.48) to maintain standing; (2) Prepare and file a petition for constitution of an arbitral tribunal specifying the challenged tax acts, identification of parties, legal grounds (error regarding legal/factual assumptions, violation of law, constitutional issues, formal defects), and supporting documentation; (3) Attach evidence including tax assessment notices, payment receipts, property registration cards, and property tax cards; (4) Submit the petition within the statutory deadline; (5) Upon acceptance, CAAD's Deontological Council designates an arbitrator; (6) Parties are notified and may object to arbitrator designation; (7) The Tax Authority designates representatives and files a reply within 30 days; (8) The arbitral tribunal is constituted and proceedings commence. This process provides expedited resolution compared to traditional judicial appeals.