Process: 207/2015-T

Date: November 16, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Arbitration Process 207/2015-T addressed whether Stamp Tax (Imposto de Selo) under Verba 28.1 of the General Stamp Tax Table (TGIS) applies to buildings in vertical property based on total building value or individual unit values. The taxpayer owned a building with 22 independent residential units in vertical co-ownership with a combined patrimonial value of €1,011,830.00, but no individual unit exceeded €1,000,000. The Tax Authority assessed Stamp Tax on the total building value, arguing vertical property constitutes a single legal reality requiring assessment as a whole. The taxpayer contested this, arguing that vertical property with independent units should receive identical treatment to horizontal property (condominium), where each autonomous fraction is assessed separately for both Real Estate Tax (IMI) and Stamp Tax purposes. The taxpayer invoked the constitutional principle of equality, asserting that the legal form of property division (vertical versus horizontal) is merely a formal distinction that cannot justify differential tax treatment, as both involve parts susceptible to independent use. The taxpayer further argued that since none of the individual units met the €1,000,000 threshold in Verba 28.1, no Stamp Tax liability should arise. After tacit rejection of the administrative appeal (reclamação graciosa), the taxpayer sought CAAD arbitration to declare the tax assessments illegal for lacking proper factual and legal grounds. The case raised fundamental questions about fiscal neutrality between property ownership structures and whether contributive capacity should be measured at the building or unit level when independent residential uses exist.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Case No. 207/2015-T

I – REPORT

1 – A…, resident at Rua … No. … – Funchal, as Head of Estate of B… CF …, filed a request for constitution of the arbitral tribunal on 23/03/2015, under the provisions of subparagraph a) of no. 1 of Article 2, of no. 1 of Article 3 and subparagraph a) of no. 1 of Article 10, all of the RJAT, requesting the AT for appraisal of the legality of the tax assessment acts for Property Transfer Tax, relating to the year 2013 levied on a building with floors and divisions with independent use located at Rua … No. …/…, Benfica parish, registered in the respective urban property register under article …, area … of the Lisbon Financial Services Office.

2 – The request for constitution of the arbitral tribunal was made without exercising the option for arbitrator designation, and was accepted by His Excellency the President of the CAAD and automatically notified to the AT on 31/03/2015.

3 – In accordance with the provisions of no. 1 of Article 6 of the RJAT, by decision of His Excellency the President of the Deontological Board, duly communicated to the parties within the legally applicable time limits, Arlindo José Francisco was designated as arbitrator, who communicated his acceptance of the assignment to the Deontological Board and the Administrative Arbitration Centre within the regularly established time limit.

4 – The tribunal was constituted on 01/06/2015 in accordance with the provisions contained in subparagraph c) of no. 1 of Article 11 of the RJAT, as amended by Article 228 of Law No. 66-B/2012 of 31 December.

5 – With its request, the claimant seeks the declaration of illegality of the tax assessment acts for item 28 of the Property Transfer Tax Rates that were levied on the patrimonial value of the parts or independent units of the aforementioned building with residential use, all as more fully set forth in pages 1 and 2 of the request.

6 – For this purpose, it invokes the following:

6.1 – Errors in the factual and legal premises and lack of legal grounds for the tax assessment acts impugned here and against which it had already filed an administrative appeal on 25 August 2014 which received no response from the AT, presupposing its tacit rejection on 25/12/2014.

6.2 – That none of the floors or independent divisions allocated for residential use has a patrimonial value equal to or exceeding €1,000,000.00, and therefore the legal requirement for incidence provided in item 28.1 of the Property Transfer Tax Rates is not met.

6.3 – For purposes of the Real Estate Tax, properties in vertical co-ownership with parts susceptible to independent use are subject to the same rules as properties in horizontal co-ownership, in both cases the Real Estate Tax being calculated individually for each independent part or fraction.

6.4 – The contested Property Transfer Tax was calculated on the patrimonial value of each of the floors or independent divisions with residential use, individually, as if they were true autonomous fractions of horizontal co-ownership, the legislator of item 28 of the Property Transfer Tax Rates having made no distinction between the floors or independent divisions of vertical co-ownership and the autonomous fractions of horizontal co-ownership.

6.5 – The constitution of horizontal co-ownership is a mere formal legal alteration which does not even require a new valuation and to effect a differentiated taxation, as the AT intends, would violate the principle of equality.

6.6 – A property in vertical or horizontal co-ownership cannot, by itself, be an indicator of contributive capacity, and the law provides for equal fiscal treatment, and thus if a property in horizontal co-ownership would only pay the Property Transfer Tax for fractions which had patrimonial value equal to or exceeding €1,000,000.00, the same should apply to properties in vertical co-ownership with floors or divisions with independent use.

6.7 – It also cites some decisions of formed arbitral tribunals which go in this sense, to conclude that there is evident violation of subparagraph c) of no. 1 of Article 24 of the RJAT, by the AT when carrying out the assessments here in question.

7 – For its part, the AT understands:

7.1 – That the claimant has no case, since what is relevant for the incidence of the Property Transfer Tax is the total patrimonial value of the urban property and not the patrimonial value of each part that comprises it, even though susceptible to independent use.

7.2 – The AT further states that a property in full ownership and a property in horizontal co-ownership have different valuation and taxation from which different legal effects follow; whereas in horizontal co-ownership there is a division of full ownership and autonomy of each fraction, in a property in full ownership there is a single legal reality.

7.3 – Each part susceptible to independent use is not autonomous, by register, possessing a record of the property in its entirety.

7.4 – It concludes that item 28.1 of the Property Transfer Tax Rates applies to urban properties with residential use, that the property in question has a value exceeding €1,000,000.00, and therefore the assessments here in question do not suffer from any illegality and should be maintained.

II – PROCEDURAL MATTERS

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.

On 24/06/2015 the claimant requested an extension of the claim concerning the Property Transfer Tax assessments on the same property for the year 2014, with the grounds already set forth, correcting the case value to €20,236.60.

On 11/07/2015 the tribunal granted the extension request and ordered notification of the AT to, if it wished, pronounce itself within 30 days and that the claimant proceed to payment of the remaining initial justice fee.

In its response, the AT considered that there were no exceptions to be heard and with the position of the parties defined, the holding of the meeting of Article 18 of the RJAT would be futile, as would the submission of the administrative file, to which the claimant did not object and the tribunal decided to dispense with it as well as the submission of further pleadings.

With the initial justice fee paid and the respondent having said nothing about the extension despite being notified, the tribunal understood that the conditions were met for the issuance of the decision, setting 16 November 2015 for this purpose.

III – LEGAL GROUNDS

1 – Question to be resolved in these proceedings

Whether item 28.1 of the Property Transfer Tax Rates applies to the sum of the patrimonial values of the parts or divisions susceptible to independent use, allocated for residential purposes when such sum is equal to or exceeding €1,000,000.00, or whether it applies only to the individual patrimonial value of each of them when the same is equal to or exceeding €1,000,000.00, as is the case with properties in horizontal co-ownership.

2 – Facts

The material facts relevant and proven based on the evidence attached to the proceedings are the following:

a) The estate claimant is owner of an urban property in full co-ownership with parts or divisions susceptible to independent use allocated for residential purposes, registered in the urban property register of Benfica parish under article … of the area of the Lisbon Financial Services Office …

b) The property consists, according to the register, of 22 floors or divisions susceptible to independent use with residential allocation whose total patrimonial value is €1,011,830.00.

c) None of the floors or divisions susceptible to independent use has a patrimonial value equal to or exceeding €1,000,000.00 and which is found individually calculated in the respective register.

d) In March 2014 the claimant was notified for payment of Property Transfer Tax in the amount of €10,118.30, relating to the aforementioned property and year 2013, calculated individually for each floor or division susceptible to independent use.

e) In March 2015 it was notified for payment of Property Transfer Tax for the year 2014 levied on the same property and of equal amount, which led the claimant to request the extension of the claim, without opposition from the respondent.

f) The AT, in both years, calculated the Property Transfer Tax individually for each of the floors or divisions susceptible to independent use, making their sum at the end, calculating the Property Transfer Tax to be paid.

3 – Law

a) The question to be resolved is whether in accordance with the provisions of item 28.1 of the Property Transfer Tax Rates one should or should not consider the sum of the patrimonial value of each of the parts or divisions susceptible to independent use, since none of them has a value equal to or exceeding €1,000,000.00, or whether we should consider their individual patrimonial value.

b) Having in mind that the Property Transfer Tax Code refers to the Real Estate Tax Code for the regulation of the concept of property and matters not regulated regarding item 28 of the Property Transfer Tax Rates (no. 6 of Article 1 and no. 2 of Article 67, both of the Property Transfer Tax Code), it is in the Real Estate Tax Code that we must observe the concepts that will allow us to resolve the question.

c) The generalist concept of property is contained in Article 2 of the Real Estate Tax Code. In Article 3 of the same statute the legislator, using criteria of use and location, established the concept of rural properties, coming thereafter, in a classification by negation, in its Article 4, to establish that urban properties shall be all those that should not be classified as rural.

d) Article 6 of the cited Real Estate Tax Code divides urban properties into residential, commercial, industrial or for services, land for construction and others.

e) In the present case we are dealing with an urban property with parts or divisions susceptible to independent use with residential allocation.

f) Each of the parts or divisions susceptible to independent use that make up the property in question meets the concept of property established in Article 2 of the Real Estate Tax Code, in that they are physically and economically independent and form part of the assets of a natural or legal person, in the present case of an estate.

g) Under no. 4 of Article 2 of the Real Estate Tax Code each autonomous fraction, under the horizontal co-ownership regime, is deemed to constitute a property, but there is nothing in the law that permits discrimination between properties in horizontal and vertical co-ownership regarding their identification as urban residential properties.

h) The AT in making the Property Transfer Tax assessment calculated it on the patrimonial value of each of the parts or divisions with independent use with residential allocation, but at the end considered the global patrimonial value and finding it to be superior to €1,000,000.00, summed the values of Property Transfer Tax calculated individually.

i) But this procedure has no legal support, since none of the parts or divisions with independent use with residential allocation, each meeting the concept of property stated in Article 2 of the Real Estate Tax Code, has a patrimonial value equal to or exceeding €1,000,000.00, the requirement necessary for there to be taxation under the Property Transfer Tax.

j) Nor can it be said that there is different valuation and taxation of a property in full co-ownership with parts or divisions susceptible to independent use, in relation to a property in horizontal co-ownership. In truth it does not exist in the Real Estate Tax just as it cannot exist in the Property Transfer Tax, 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 co-ownership is only taxed under the Property Transfer Tax if its patrimonial value is equal to or exceeding €1,000,000.00, equally a floor or part of a property susceptible to independent use of a property in vertical co-ownership with residential allocation shall only be taxed under the Property Transfer Tax if its patrimonial value is equal to or exceeding €1,000,000.00.

l) As already stated, the floor or part of a property susceptible to independent use of a property in vertical co-ownership meets the concept of property established in the Real Estate Tax Code, just as do the autonomous fractions of properties in horizontal co-ownership.

m) In this perspective and considering that none of the parts or divisions susceptible to independent use with residential destination or allocation has a patrimonial value equal to or exceeding €1,000,000.00, it is necessary to conclude that the Property Transfer Tax assessment acts are illegal for failure to observe the conditions defined in item 28 of the Property Transfer Tax Rates.

n) The criterion defended by the AT in considering the sum of the patrimonial values of the parts or divisions susceptible to independent use, arguing that the property is not constituted in horizontal co-ownership, lacks legal support, the opposite resulting from the application of the norms of the Real Estate Tax Code, applicable by reference.

o) The assessments here in question are also illegal for disregard of the provision contained in subparagraph c) of no. 1 of Article 24 of the RJAT, given that there has already been a final decision in Case No. 88/2014.

p) We follow the conclusion of Professor Miguel Patrício in case 132/2013 in considering the interpretation made by the AT, not in conformity with the Law and the Constitution.

V – OPERATIVE PART

Based on the foregoing, the tribunal decides as follows:

a) To declare the request for arbitral determination well-founded with the consequent annulment of the Property Transfer Tax assessment acts here impugned respecting the years 2013 and 2014 in the global amount of €20,236.60.

b) To set the case value at €20,236.60, in accordance with the provisions contained in Articles 299 no. 1 of the Civil Procedure Code, 97-A of the Tax Procedure Code and Article 3 no. 2 of the Administrative Arbitration Procedure Code.

c) Costs to be borne by the respondent, under no. 4 of Article 22 of the RJAT, fixing its amount at €1,224.00 in accordance with Table I of the Administrative Arbitration Procedure Code.

Notify.

Lisbon, 16 November 2015

Text prepared by computer, in accordance with Article 131 no. 5 of the Civil Procedure Code, applicable by reference of Article 29 no. 1, subparagraph e) of the RJAT, with blank lines, and reviewed by me.

The sole arbitrator,

Arlindo José Francisco

Frequently Asked Questions

Automatically Created

Does Stamp Tax (Imposto de Selo) under Verba 28 of the TGIS apply to the total value of a building in vertical property or to each independent unit separately?
The core dispute in Process 207/2015-T was whether Stamp Tax under Verba 28 TGIS applies to the aggregate value of all independent units in a vertical property building or to each unit separately. The taxpayer argued that vertical property with independent residential units should be treated identically to horizontal property (condominiums), where each autonomous fraction is assessed individually. Since no individual unit exceeded €1,000,000, the taxpayer contended no Stamp Tax liability existed. The Tax Authority maintained that vertical property represents a single legal and registration reality, requiring assessment based on the total building value of €1,011,830.00, which exceeded the threshold.
What is the €1,000,000 threshold requirement for Stamp Tax liability under Verba 28.1 of the Tabela Geral do Imposto de Selo?
Verba 28.1 of the Tabela Geral do Imposto de Selo establishes that urban properties with residential use having a patrimonial value equal to or exceeding €1,000,000.00 are subject to Stamp Tax. The threshold requirement is €1,000,000.00 in patrimonial value. The central legal question in this case was whether this threshold applies to: (a) the total patrimonial value of a building in vertical property as a whole, or (b) the individual patrimonial value of each independent unit or division. The taxpayer's position was that each independent residential unit should be assessed against the threshold separately, consistent with horizontal property treatment.
Are buildings in vertical property (propriedade vertical) treated the same as horizontal property (propriedade horizontal) for purposes of IMI and Stamp Tax assessment?
The taxpayer argued that buildings in vertical property (propriedade vertical) with parts susceptible to independent use must receive identical treatment to horizontal property (propriedade horizontal/condominium) for IMI and Stamp Tax purposes. The argument relied on the principle that IMI already treats vertical co-ownership properties with independent units under the same rules as horizontal co-ownership, calculating tax individually for each part or fraction. The taxpayer contended that the constitution of horizontal co-ownership is merely a formal legal alteration requiring no new valuation, and differential taxation would violate constitutional equality principles. The Tax Authority countered that horizontal co-ownership involves divided ownership with autonomous registered fractions, while vertical property remains a single legal and registration reality.
Can a taxpayer challenge Stamp Tax assessments through CAAD tax arbitration after tacit rejection of a gracious complaint (reclamação graciosa)?
Yes, taxpayers can challenge Stamp Tax assessments through CAAD (Centro de Arbitragem Administrativa) tax arbitration after tacit rejection of a gracious complaint (reclamação graciosa). In this case, the taxpayer filed an administrative appeal on August 25, 2014, which received no response from the Tax Authority. Under Portuguese administrative law, the absence of response within the statutory period results in tacit rejection, which occurred on December 25, 2014 (four months later). Following this tacit rejection, the taxpayer filed the arbitration request with CAAD on March 23, 2015, which was accepted and the arbitral tribunal was constituted on June 1, 2015, demonstrating that tacit rejection provides standing for arbitration.
What was the outcome of CAAD Process 207/2015-T regarding Stamp Tax on residential units with individual patrimonial values below €1,000,000?
While the decision section of Process 207/2015-T is not fully provided in the excerpt, the case involved a building with 22 independent residential units where none individually had patrimonial value exceeding €1,000,000.00, though the total building value was €1,011,830.00. The taxpayer sought declaration of illegality of the Stamp Tax assessments, arguing that Verba 28.1 should apply only when individual units exceed the threshold, consistent with horizontal property treatment and constitutional equality principles. The tribunal would need to determine whether the €1,000,000 threshold applies to the aggregate building value or to each independent unit separately, with significant implications for fiscal neutrality between property ownership structures.