Process: 282/2015-T

Date: January 8, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

In CAAD Process 282/2015-T, a taxpayer challenged ten Stamp Tax assessments issued under verba 28 of the General Table (TGIS) for an urban property in Lisbon not subject to horizontal property regime. The Tax Authority (AT) aggregated the tax patrimonial values (VPT) of multiple floors totaling over €1,000,000, even though each individual floor had a VPT below the €1,000,000 threshold required by verba 28 TGIS. The claimant argued that Article 67(2) of the Stamp Tax Code mandates subsidiary application of the Municipal Property Tax Code (CIMI), which under Article 12(3) treats each floor or part capable of independent use separately with its own VPT. The taxpayer contended this aggregation violated the equality principle, as identical properties would be taxed differently based solely on whether horizontal property status was formally constituted. The AT defended that under full ownership (propriedade total), the property remains legally singular despite physical division into floors, and that horizontal property is a distinct legal regime under Civil Code Articles 1414 and following that cannot be applied by analogy. The AT argued Article 2 CIMI only recognizes autonomous units as separate properties when horizontal property is formally constituted. This case represents a fundamental conflict over whether tax law should follow legal form (property ownership structure) or economic substance (physical division and independent use capability) when applying the €1,000,000 threshold for luxury property taxation under Stamp Tax rules.

Full Decision

ARBITRAL DECISION

I – Report

  1. On May 4, 2014, A..., with the NIF..., resident at ..., nº..., Lisbon, came pursuant to paragraph a) of article 2 of Decree-Law nº 10/2011, of January 20, and Ordinance nº 112-A/2011, of March 22, to request the constitution of an arbitral tribunal for assessment of the legality and annulment of the acts of assessment of Stamp Tax (IS) relating to the year 2013 (assessment notes nºs..., ..., ..., ..., ..., ..., ..., ..., ... and ..., documents nºs 1 to 10, attached with the Petition).

  2. In the Petition for arbitral decision, the Claimant opted not to appoint an arbitrator, and, in accordance with article 6, paragraph 1 of the RJAT, by decision of the President of the Ethics Council, the undersigned was appointed as sole arbitrator, who accepted the position within the legally prescribed time limit.

  3. The arbitral tribunal was constituted on July 20, 2015.

  4. On September 29, 2014, the Tax and Customs Authority (AT or Respondent) submitted its Response, requesting waiver of production of testimonial evidence, holding of the meeting provided for in article 18 of the RJAT as well as submission of written arguments.

  5. Having met with no opposition from the Claimant, the tribunal decided to waive the meeting of article 18 of the RJAT as well as submission of written arguments, setting January 10, 2015 as the deadline for rendering the decision.

6. The Petition for Decision

The Claimant argues, in summary:

  • She is the owner of an urban property located at ..., nº ... to..., in Lisbon, registered in the urban property registry under article ... of the ..., and which is not subject to horizontal property status.

  • The AT issued, with reference to 2013, 10 Stamp Tax assessments relating to the various floors or units of the said property, it being verified that none of these "floors" or "units" has a tax patrimonial value (VPT) equal to or greater than €1,000,000.00 although the sum of the floors or units reaches a value exceeding €1,000,000.00.

  • The assessments were made pursuant to item 28 and 28.1 of the General Table of Stamp Tax which provides for taxation on the "Ownership, usufruct or right of superficies of urban properties whose tax patrimonial value shown in the registry, in accordance with the Code of Municipal Property Tax (CIMI), is equal to or greater than (euros) 1,000,000 - on the tax patrimonial value for purposes of IMI".

  • It is verified that the rate provided in item 28 of the TGIS is applied to a VPT lower than €1,000,000.00, because none of the units has a patrimonial value equal to or greater than that amount, there being illegality due to the absence of one of the legal prerequisites.

  • In the course of a gracious complaint submitted by the claimant, the AT takes the view that in the situations of the property in question, not subject to horizontal property status, the patrimonial values of the various floors would need to be summed and if that sum – as is the case – exceeds €1,000,000.00 there is application of item 28 of the TGIS.

  • Article 67, paragraph 2 of the CIS states that "to matters not regulated in this Code relating to item n.º 28 of the General Table the provisions of the CIMI shall apply, subsidiarily" and article 12, paragraph 3 of the CIMI establishes that "Each floor or part of a property capable of independent use is considered separately in the registration entry, which also discriminates the respective tax patrimonial value", that is, according to this Code each floor or part of a property capable of independent use is an autonomous property for tax purposes, it being immaterial whether the property is or is not subject to horizontal property status.

  • Therefore, AT performs in these cases an assessment of each part or floor assigning a VPT to each and assessing as many IMI(s) as there are units or floors, with each IMI inciding on the respective VPT of the unit or floor.

  • There being no specific or particular rule in the Stamp Tax Code concerning units or floors of a property not subject to horizontal property status, one must resort, in accordance with article 67, paragraph 2, to the rules of the CIMI taxing floor by floor or unit by unit, which is moreover what the AT does when applying article 28 of the Table, since the assessment incides on each one of the units or floors and on the respective VPT, when none of them exceeds €1,000,000.00.

  • It violates the principle of equality that two rigorously identical properties be taxed differently only because in one of them there was constitution of horizontal property status and in another not, as is recognized by various tax arbitral jurisprudence.

  • The assessments in question which should be declared illegal relate to the year 2013, payable in three installments, reaching the total amount of €10,072.38.

7. The Response

The Respondent replied, in summary:

a) According to the notion of property contained in article 2 of the CIMI only autonomous units of property under horizontal property status are regarded as properties (paragraph 4 of article 2), so finding the property under a regime of full ownership there are no autonomous units to which tax law can attribute the qualification of property;

b) For purposes of IMI and stamp tax, by virtue of the wording of the said item, the Claimant is not owner of 10 autonomous units but of a single property;

c) Horizontal property is a specific legal regime of ownership provided for in articles 1414 and following of the Civil Code which regulate the constitution and rules on rights and charges of co-owners, establishing a more evolved regime of ownership, so for purposes of stamp tax assessment the interpreter and applicator of tax law cannot apply, by analogy, the same regime of horizontal property to full ownership;

d) Nor does any gap exist to be filled by analogy, it being necessary to apply articles 11 of the LGT and 10 of the Civil Code;

e) The CIMI, to which item 28 of the TGIS refers, provides that in the regime of horizontal property the units constitute properties; the property not being subject to the regime of horizontal property the units are, legally, parts capable of independent use without there being common parts;

f) The property being subject to the regime of full ownership, but being physically composed of parts capable of independent use, tax law attributed relevance to this materiality by assessing these parts individually, in accordance with article 12, paragraph 3 of the C.I.M.I., so each floor or part of a property capable of independent use is considered separately in the registration entry, but in the same registry, with IMI assessment taking into account the tax patrimonial value of each part;

g) The floors or independent divisions, assessed in accordance with article 12, paragraph 3, of the CIMI, are considered separately in the registration entry, containing the respective tax patrimonial value on which IMI is assessed, just as happened in the body of article 232, rule 1, of the Code of Urban Property Tax and Agricultural Industry Tax (C.C.P.I.I.A.), which provided that each dwelling or part of a property was automatically taken for purposes of determining the taxable income on which the assessment should incide, but, according to the same Code, the taxable income necessarily had to correspond to the sum of the rent or rental value of each one of the components of the property with economic autonomy;

h) The registration entry must make reference to each one of the parts and also to the patrimonial value corresponding to each one of them, determined separately in accordance with articles 37 and following of the CIMI, without the unity of the urban property in vertical ownership composed of various floors or divisions being affected by the fact that all or some of these floors or divisions being capable of independent economic use;

i) The property does not cease to be only one, its parts not being legally equatable to autonomous units under horizontal property status and, without prejudice to the regime of co-ownership when applicable, its ownership cannot be attributed to more than one owner;

j) The fact that IMI is calculated in function of the tax patrimonial value of each part of property with independent economic use does not affect the application of item 28, paragraph 1, of the TGIS because the determinant fact of the application of that item is the total patrimonial value of the property and not that of each one of its parcels separately;

k) Horizontal property and vertical property are differentiated legal institutes and, although the constitution of horizontal property implies merely a legal alteration of the property without new assessment, the legislator can subject to a distinct legal tax framework, thus discriminatory, properties in regimes of horizontal and vertical ownership, benefiting the legally more evolved institute of horizontal property, without such discrimination necessarily being considered arbitrary, and it can even be imposed by the need to impose coherence on the tax system;

l) The registration entry of each part capable of independent use is not autonomous by registry but consists of a description in the registry of the property as a whole;

m) According to item 28.1 of the TGIS the patrimonial value relevant for purposes of the incidence of the tax shall necessarily be the total patrimonial value of the urban property and not the patrimonial value of each one of the parts which comprise it, even when capable of independent use;

n) Any other interpretation would violate the letter and spirit of item 28.1 of the General Table and the principle of legality of the essential elements of taxation, provided for in article 103, paragraph 2, of the Constitution of the Portuguese Republic (CRP);

o) It is unconstitutional, as offensive of the principle of tax legality, the interpretation of item 28.1 of the General Table, to the effect that the patrimonial value on which its incidence depends is determined floor by floor or division by division, and not globally;

p) In conclusion, the tax acts impugned, in terms of substance, did not violate any legal or constitutional provision and should be maintained in the legal order.

8. The Issue to be Decided

The fundamental legal issue to be decided consists in knowing whether the scope of incidence of the Stamp Tax provided for in Item 28 of the TGIS includes urban properties not subject to horizontal property status but comprising floors or divisions capable of independent use with residential use, when the tax patrimonial value attributed to each one of these distinct parts is lower than the value of €1,000,000.00, although the aggregate of the independent units with residential use reaches a total of VPT equal to or greater than that amount.

9. Disposition

The arbitral tribunal is materially competent, in accordance with the provisions of articles 2, paragraph 1, lit. a), of the Legal Regime of Arbitration in Tax Matters.

The parties enjoy legal personality and capacity and have standing in accordance with articles 4 and 10, paragraph 2, of the Legal Regime of Arbitration in Tax Matters (RJAT) and article 1 of Ordinance nº 112-A/2011, of March 22.

The proceedings do not suffer from any nullity nor have the parties raised any exceptions preventing appreciation of the merits of the case, so the conditions are met for rendering the arbitral decision.

II Grounds

10. Proven Facts

It is considered proven that:

10.1. The Claimant, A..., is the owner of the urban property located at ..., nºs ... to..., ...-..., in Lisbon, registered in the urban property registry under article ... of the ..., (article 10 of the Petition for decision, article 1 of the Response and information from the AT, dated January 5, 2014, in the gracious complaint procedure (document 11 attached with the Petition, the content of which is given as reproduced).

10.2. The property subject of these proceedings comprises fifteen (15) divisions or parts capable of independent use, of which ten (10) are intended for residential use (article 2 of the Response and Doc. nº 11 attached with the Petition).

10.3. The sum of the tax patrimonial values of the fifteen divisions referred to in the previous number is €1,253,020.00 and the ten floors or divisions classified as intended for residential use, in the number of ten, total a patrimonial value of €1,007,200.00 (articles 3 and 4 of the Response and information provided in the gracious complaint, p. 4).

10.4. The tax patrimonial values of each one of the divisions with independent use and intended for residential use, determined according to the CIMI, in the year 2013, are: €97,370.00 (U-...-1D); €105,830.00 (U-...-1E); €97,370.00 (U-...-2D); €105,830.00 (U-...-2E); €97,370.00 (U-...-3D); €105,830.00 (U-...-3E) and €97,370.00 (U-...-4D); €105,830.00 (U-...-4E); €105,830.00 (U-...-5D) and €88,570.00 (U-...-5E) (Documents 1 to 10 attached with the Petition).

10.5. The Claimant was notified of assessments, dated March 17, 2014, of Stamp Tax provided for in item 28.1 of the TGIS, relating to the year 2013, relating to the divisions intended for residential use, payable in three installments, according to article 120 of the CIMI (Collection documents attached with the Petition and Information from the AT, in the gracious complaint procedure, doc. 11 attached with the Petition).

10.6. The notices of the assessments referred to in the previous number identify the amounts corresponding to the 1st installment of the tax assessed, payable in April 2014, in the amounts, respectively, of €324.58, €352.78, €324.58, €352.78, €324.58, €352.78, €324.58, €352.78, €352.78 and €292.24 (documents with the numbers 2014...; 2014...; 2014...; 2014...; 2014...; 2014...; 2014...; 2014...; 2014...; 2014...) (Collection documents attached to the record with the Petition).

10.7. The collection documents indicate as the patrimonial value of the property subject to tax €1,007,200.00 corresponding to the total value of the ten divisions intended for residential use and that the assessment of the Stamp Tax, carried out on March 17, 2014, was based on item 28.1 of the General Table of Stamp Tax, applying the rate of 1% to the value of the VPT of each one of the divisions, which leads to collection amounts of €973.70 (1D); €1,058.30 (1E), €973.70 (2D); €1,058.30 (2E), €973.70 (3D); €1,058.30 (3E), €973.70 (4D); €1,058.30 (4E), €1,058.30 (5D), €885.70 (5E) (Collection documents attached with the Petition).

10.8. Against the assessments referred to in the previous numbers, the Claimant filed a gracious complaint, which gave rise to case number ... 2014..., and which was dismissed by an order of January 28, 2015, issued based on information from the Administrative Justice Division, of the Finance Office of Lisbon, and notified to the Claimant on February 2, 2015 (Document nº 11 attached with the Petition).

10.9. The petition for arbitral decision was submitted to the CAAD on May 4, 2014.

11. Unproven Facts

There are no facts unproven relevant to the decision of the case before us.

12. Grounds for Evidence

The evidence established was based on the documents attached by the Claimant – the Petition for arbitral decision and the eleven documents attached with the petition – and the Response of the Respondent, which did not attach the administrative file limiting itself to referring to the final order dismissing the gracious complaint.

13. Legal Assessment

13.1. Item 28 of the General Table of Stamp Tax (TGIS)

13.1.1. Regime Approved by Law nº 55-A/2012, of October 29

The fundamental legal issue, disputed in the present proceedings, consists in knowing whether in the case of properties in full ownership, with floors or divisions of independent use but not constituted under horizontal property status, the VPT to be considered for purposes of incidence of Stamp Tax provided for in item 28.1 of the TGIS should correspond to the VPT of each floor or division with residential use and independent use or to the sum of the VPT corresponding to the floors or divisions of independent use with residential use.

That is to say, it is necessary to decide whether the VPT relevant as a criterion of incidence of the tax is that corresponding to the sum of the patrimonial values attributed to the different parts or floors (global VPT) or, rather, the VPT attributed to each one of the residential parts or floors.

This issue has already been assessed in many proceedings within the scope of Tax Arbitration[1], with no arguments being identified so far that would allow breaking the unanimity that has been achieved regarding the conclusion of the decisions rendered[2].

Item 28 of the General Table of Stamp Tax, attached to the Stamp Tax Code (CIS), was added by article 4 of Law nº 55-A/2012, of October 29, with the following content:

"28 – Ownership, usufruct or right of superficies of urban properties whose tax patrimonial value shown in the registry, in accordance with the Code of Municipal Property Tax (CIMI), is equal to or greater than €1,000,000 – on the tax patrimonial value for purposes of IMI:

28-1 – For property with residential use – 1%;

28.2 – For property, when the taxable persons not being individuals are resident 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%."

As results from the amendments to the Stamp Tax Code introduced by article 3 of Law nº 55-A/2012, of 29/10, the Stamp Tax provided for in item 28 of the TGIS incides on a legal situation (paragraph 1 of article 1 and paragraph 4 of article 2 of the CIS), in which the respective taxable persons are those referred to in article 8 of the CIMI (paragraph 4 of article 2 of the CIS), on whom the burden of the tax falls (lit. u) of paragraph 3 of article 3 of the CIS).

The CIS, in the wording given by Law nº 55-A/2012, both in article 4, paragraph 6 ("In the situations provided for in item 28 of the General Table, the tax is due whenever the properties are located in Portuguese territory"), and in article 23, paragraph 7 ("Where the tax is due for the situations provided for in item n.º 28 of the General Table, the tax is assessed annually, in relation to each urban property, by the central services of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in the CIMI"), in conjunction with article 1 of the CIMI, considers the property itself as the tax fact (the situation that triggers taxation) provided that it reaches the value provided for in item 28 of the General Table of Stamp Tax, regardless of the number of taxable persons, possessors (as owners, usufructuaries or superficiaries) of the property in question.

The provisions of Law nº 55-A/2012, of October 29, regarding the new item 28 of the General Table of Stamp Tax, entered into force on the day following publication of the law, that is, October 30, 2012[3].

13.1.2. The Concept of Property Used in Item 28 of the TGIS

The concept of "properties with residential use" used in item 28.1 is not expressly defined in any provision of the CIS nor in the CIMI, statute to which paragraph 2 of article 67 of the CIS refers.

In the case before us, the property in full ownership (building with numbers 119 to 133 of a street) comprises fifteen (15) divisions or parts capable of independent use, of which ten (10) are intended for residential use. The tax patrimonial values of these ten divisions intended for residential use range between €88,570.00 and €105,830.00, totaling the amount of €1,007,200.00.

At issue is the exact meaning of the phrase "patrimonial value considered for purposes of IMI", contained in the norm of incidence of stamp tax in the body of item 28 of the TGIS: in the case of properties in full ownership but with floors or divisions capable of independent use, with residential use, the relevant VPT corresponds to the sum of the VPT of the various divisions/floors with residential use, considered a single property, as the AT contends, or what must be taken into account is the VPT of each one of the respective autonomous floors or divisions with the said residential use, as the Claimant contends?

Now the said phrase (patrimonial value considered for purposes of IMI) is integrated in a text that defines as the object of incidence of stamp tax the "Ownership, usufruct or right of superficies of urban properties whose tax patrimonial value shown in the registry, in accordance with the Code of Municipal Property Tax (CIMI), is equal to or greater than €1,000,000 - (...)" (emphasis ours).

As has been repeatedly invoked and admitted, the Code of IMI establishes, both as to the registration entry and discrimination of the respective tax patrimonial value and as to the assessment of the tax, the autonomization of the parts of urban property capable of independent use and the segregation/individualization of the VPT relating to each floor or part of property capable of independent use[4].

Thus, each property corresponds to a single article in the registry (paragraph 2 of article 82 of the CIMI) but, according to paragraph 3 of article 12 of the same Code, relating to the concept of property registry (registration of the property, its characterization, location, VPT and ownership), "each floor or part of a property capable of independent use is considered separately in the registration entry, which discriminates the respective tax patrimonial value", not taking as reference the sum of the patrimonial values attributed to the autonomous parts of the same property but the value attributed to each one of them individually considered.

As to the assessment of IMI - application of the rate to the taxable base - article 119, paragraph 1, of the CIMT provides that "the competent collection document" contains the "discrimination of the properties, their parts capable of independent use, respective tax patrimonial value and of the collection (...)" [sic].

That is to say, the rule is autonomization, the characterization as "property" of each part of a building, provided that it is functionally and economically independent, capable of independent use[5], in accordance with the concept of property defined right in paragraph 1 of article 2 of the CIMI: property is any portion (of land, including waters, plantations, buildings and constructions of any nature incorporated in or resting on it, 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, as well as waters, plantations, buildings or constructions, in the circumstances above, endowed with economic autonomy (presentation and underlining ours).[6]

Thus, when paragraph 4 of article 2 provides that "For purposes of this tax, each autonomous unit, in the regime of horizontal property, is regarded as constituting a property", it does not properly establish an exceptional or special regime for properties in horizontal property status.

After all, each building in horizontal property (article 92) has only a single registration entry (paragraph 1), generically describing the building and mentioning the fact that it is in a regime of horizontal property (paragraph 2) and the registry autonomy is realized in the attribution to each one of the autonomous units, described in detail and individualized, of a capital letter, according to alphabetical order (paragraph 3). This appears to be the specificity of buildings in horizontal property status.

But in other cases, of properties in vertical or full ownership, the divisions or floors with independent use autonomy but without the status of horizontal property, the registry also establishes the autonomy of taxation revealing the different units with indication of the type of floor/level.

Thus, the assertion of the Respondent that the claimants are, for purposes of IMI and Stamp Tax, by virtue of the wording of item 28.1, owners not of 15 autonomous units but of a single property (article 18 of the Response) is not sufficient to render irrelevant the economic and tax autonomy which we verified above is established in the CIMI in the case of divisions or floors capable of independent use, without horizontal property status, integrated in buildings in full ownership.

Nor is the argument that has been presented by the AT based on the civil law establishment of horizontal property, discerning in the taxation provided for in item 28 of the TGIS a legislative intent toward the development of the figure, even as an instrument of tax coherence (articles 43 to 46 of the Response) acceptable.

Indeed, there exist neither in the normative text nor in the legislative process that led to the approval of Law nº 55-A/2012, of October 29, elements that would allow identifying and legitimizing a purpose (extra-fiscal or fiscal) in the sense defended by the Respondent. Rather it appears that such unexpected discrimination would risk violating the principle of legal certainty...

Also the argument of the Respondent when it invokes the regime established in the CCPIIA, in which the "taxable income necessarily had to correspond to the sum of the rent or rental value of each one of the components of the property with economic autonomy" (article 30 of the Response) does not hold.

That is because the Urban Property Tax, whose legal regime was approved by Decree-Law nº 45106, of July 1, 1963, was a tax on income[7], it incided on the income from properties (article 1 of the CCPIIA)[8], whereas in the Tax Reform of 1988/89, property income began to be taxed within the scope of taxes on the income of natural and legal persons (Codes of IRS and IRC), introducing the distinction between the taxation of property income and the taxation of patrimonial values, the latter carried out within the scope of the Municipal Contribution[9].

All said, no reason is found to, in the matter of incidence of Stamp Tax provided for in item 28.1 of the TGIS, give to the units of properties in "vertical ownership", endowed with autonomy, treatment different from that granted to properties in horizontal property status, when in any of these situations the IMI is applied to the tax patrimonial value evidenced in the registry for each one of the autonomous units.

13.2. The Ratio Legis of Items 28 and 28.1 of the TGIS

The interpretation above sustained, resulting from the analysis of the letter of the law and its insertion in the set of other applicable tax norms, is the most consonant with the spirit of the legislative amendments introduced by Law nº 55-A/2012, of October 29.

As has already been evidenced in other arbitral decisions, "the legislator in introducing this legislative innovation considered as the determinant element of contributory capacity urban properties, with residential use, of high value (luxury), more rigorously, of value equal to or greater than €1,000,000.00 on which a special rate of stamp tax began to incide, intending to introduce a principle of taxation on wealth evidenced in ownership, usufruct or right of superficies of urban properties of luxury with residential use. For this reason, the criterion was application of the new rate to urban properties with residential use, whose VPT is equal to or greater than €1,000,000.00" (...). "The grounds for the measure designated as 'special rate on urban residential properties of highest value' rest on the invocation of the principles of social equity and tax justice, calling to contribute in a more intensive manner the holders of properties of high value intended for residential use, causing the new special rate to incide on the 'houses of value equal to or greater than 1 million euros. Clearly the legislator understood that this value, when imputed to a residence (house, autonomous unit or floor with independent use) reflects a contributory capacity above the average and, as such, likely to determine a special contribution to ensure the fair distribution of the tax burden." [10]

Attending to the legislative purpose, it is further concluded that the holding of units in full or vertical ownership does not reveal greater contributory capacity than if they were constituted under the form of horizontal property.

On the contrary, in the majority of cases, as evidenced by Arbitral Decision nº 50/2013, "many of the properties existing in vertical ownership are old, with undeniable social utility, because in many cases they house residents with modest rents and more accessible, factors that necessarily must be taken into account."

Also the analysis from this perspective confirms the correctness of the interpretation that item 28 of the TGIS does not encompass each one of the floors, divisions or parts capable of independent use when only from the sum thereof results a VPT greater than that provided for in the same item.

Just as decided in other arbitral proceedings, this tribunal understands that regarding the date of constitution of the tax obligation, tax connection, determination of the taxable base, assessment and payment of the stamp tax in question, the corresponding rules of the CIMI are applicable, by express reference of articles 5, paragraph 1, lit. u), 4, paragraph 6, 23, paragraph 7, 44, paragraph 5, 46, paragraph 5 and 49, paragraph 3, of the CIS.

To subject to the new stamp tax autonomous parts without the legal status of horizontal property and not subject any of the residential units if the property were in a regime of horizontal property would constitute violation of the constitutional principle of equality, treating equal situations differently.

Just as one cannot ignore the incoherence, in terms of taxation of patrimony, of the different treatment given to holders of units concentrated in the same property or dispersed through different properties, taxed in the first case and not taxed in the second, even though in any of these situations the total amount of the respective VPT reached the value of 1 million euros.

Thus, this arbitral tribunal concludes that the assessments of Stamp Tax, carried out on the basis of items 28/28.1 of the TGIS, relating to each one of the floors or parts capable of independent use, property of the Claimant, subject of these proceedings, are tainted with illegality, because the said legal provisions cannot be interpreted in the sense of their application to floors or parts capable of independent use of a property in vertical ownership, when only from the sum of each one of these floors or parts is it possible to obtain a VPT equal to or greater than €1,000,000.00 (one million Euros) not reaching the VPT of each one of the said floors or parts that amount.

As results from the factuality established, none of the floors intended for residential use, of the property in vertical ownership subject of this proceeding, has patrimonial value equal to or greater than €1,000,000.00, the legal prerequisite of incidence of IS provided for in Item 28 of the TGIS not being therefore verified, with consequent illegality of the tax acts under assessment.

14. Decision

With the grounds above expressed, the arbitral tribunal decides:

a) To hold the petition for arbitral decision well-founded and, in consequence, to declare illegal the tax acts of assessment of Stamp Tax (items 28 and 28.1 of the General Table of Stamp Tax) inciding on the properties identified in these proceedings, and relating to 2013, as expressed in the collection documents identified with the numbers assessment notes nºs 2014..., 2014..., 2014..., 2014..., 2014..., 2014..., 2014..., 2014..., 2014... and 2014..., ordering the annulment of the Stamp Tax assessed relating to the year in question, in the total amount of €10,072.38 (ten thousand seventy-two euros and thirty-eight cents), as per the Petition.

b) To condemn the Respondent to costs.

15. Value of the Case

In accordance with the provisions of paragraph 2 of article 315 of the CPC, lit. a) of paragraph 1 of article 97-A of the CPPT and also of paragraph 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings the value of €10,072.38 (ten thousand seventy-two euros and thirty-eight cents) is set for the case.

16. Costs

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

Notify.

Lisbon, January 8, 2016.

The Arbitrator

(Maria Manuela Roseiro)

[1] On the application of item 28 of the TGIS in the case of properties in full/vertical ownership, a very high number (nearly two hundred) of decisions are already published on the CAAD tax jurisprudence website.

[2] The text of the decision rendered within the scope of the CAAD, in case nº 194/2014-T judged by a panel with participation of the undersigned is largely reproduced.

[3] Article 6 of Law nº 55-A/2012 provides transitional provisions by virtue of which, in that first year of effectiveness, that is, 2012, but, given that the case before us concerns the year 2013, these provisions do not apply.

[4] "Another aspect that must be evidenced in the registry concerns the need to reveal the autonomy that, within the same property, can be attributed to each one of its parts, functionally and economically independent. In these cases, the registration entry not only must make reference to each one of the parts as must make express reference to the patrimonial value corresponding to each one of them" (Silvério Mateus and Freitas Corvelo, "Real Estate Property Taxes and Stamp Tax, Commented and Annotated", Engifisco, Lisbon 2005, pages 159 and 160). And the same authors further stated (ibidem, p.160): "This autonomization of the autonomous parts of a property, applicable above all to urban properties, was justified within the scope of the old Urban Property Tax in which the taxable income corresponded to the rent or rental value of each one of these components, continued to be justified in the case of the Municipal Contribution in which the patrimonial value had underlying the effective or potential rent and continues to be pertinent in the realm of IMI, given that the valuation factors provided for in articles 38 and following may not be the same for all these components (...) the fact that a property is or is not rented continues to have relevance for purposes of determining the tax patrimonial value both for purposes of IMI and for IMT (see article 17 of DL 287/2003)" (referred to the original wording "transitional regime for rented urban properties", norm to be revised, according to its paragraph 5, when a revision of the urban lease law was carried out, which occurred with Law nº 6/2006, of 27/02).

[5] On this aspect, and in line with the commentary cited in the previous note, see the grounds contained in the decision of case nº248/2013-T: "The autonomization in the registry of the functionally and economically independent parts of a property in full ownership relates to reasons of a fiscal and extra-fiscal nature. On the fiscal plane, this autonomization has to do with the very determination of the tax patrimonial value, which constitutes the taxable base of IMI, given that the formula for determining that value, provided for in article 38 of the same Code, contains indices that vary depending on the use assigned to each one of these parts. On the extra-fiscal plane, this autonomization continues to find justification in the relevance attributed to the tax patrimonial value of properties and their autonomous parts in the legislation of urban leases." There is also mentioned paragraph 1 of article 15-O, of Decree-Law n.º 287/2003, of 12/11, added by Law n.º 60-A/2011, of 30/11 (providing that the safeguard clause relating to the increase of taxation in IMI resulting from the general assessment of urban properties, is applicable per property or part of urban property that is subject to the said assessment) as confirming the individualization, for tax purposes, of the autonomous parts of urban properties.

[6] As observed in the decision of the arbitral proceeding nº132/2013-T: "The norms (...) listed establish the principle of autonomization of the independent parts of an urban property, even when not subject to horizontal property status. That is, each part capable of independent use must be, for purposes of IMI, valued in light of its specificities and use, resulting in an autonomous VPT, individualizable and corresponding to each part capable of independent use."

[7] By all, Carlos Pamplona Corte-Real, Course of Tax Law, in CTF nº 268/270, April-June, 1981, p. 205.

[8] It incided on the value of the rents of rented properties (article 113) and regarding those not rented on the estimated value, rental value (article 125). The income from properties was also subject to the additional tax section A and section B, personal tax, which fell on the global income of natural and legal persons (articles 3 and 84 of the Code of Additional Tax approved by DL nº 45399, of November 30).

[9] See paragraph 1 of the preamble of the Code of Municipal Contribution, approved by Decree-Law nº 442-C/88, of November 30. The M.C. tax incides on the taxable value of properties (article 1 of the M.C.) which is their patrimonial value (article 7 of the M.C.). With the Reform of Taxation of Patrimony, approved by DL 287/2003, of 12/11, the Code of Municipal Property Tax, IMI incides on "the tax patrimonial value of properties" (article 1) determined by assessment (article 14).

[10] Excerpts from the Decision in case nº 50/2014-T, also referring to the Arbitral Decision in case nº 48/2013-T, regarding the analysis of the discussion of the legislative proposal in the Assembly of the Republic.

Frequently Asked Questions

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Is Stamp Tax (Imposto do Selo) under verba 28 TGIS applicable when individual property units each have a VPT below €1,000,000?
No. Stamp Tax under verba 28 TGIS applies only when the tax patrimonial value (VPT) of the taxable property unit equals or exceeds €1,000,000. According to the subsidiary application of CIMI Article 12(3) mandated by Article 67(2) of the Stamp Tax Code, each floor or part of a property capable of independent use is considered separately with its own VPT. If individual property units each have a VPT below €1,000,000, the threshold requirement is not met for those units, even if their aggregate value exceeds the threshold. The equality principle supports this interpretation, as properties should not be taxed differently based solely on whether horizontal property status was formally constituted.
Can the Tax Authority aggregate the VPT of separate floors or fractions in a non-horizontal property to exceed the €1,000,000 threshold?
This is the central dispute in Process 282/2015-T. The claimant argues aggregation is illegal because Article 67(2) of the Stamp Tax Code requires subsidiary application of CIMI rules, which under Article 12(3) treat each floor capable of independent use separately for tax purposes. The AT contends that under full ownership (propriedade total), the property remains legally singular, and only autonomous units under formal horizontal property regime qualify as separate properties under Article 2(4) CIMI. Taxpayer-favorable jurisprudence typically finds that aggregation violates the equality principle and that the €1,000,000 threshold must be evaluated per unit, not by summing VPTs of non-autonomous floors in properties lacking horizontal property status.
What are the legal requirements for applying verba 28 of the Tabela Geral do Imposto do Selo to urban properties?
Verba 28 of the TGIS requires three cumulative legal elements: (1) the property must be an urban property (prédio urbano); (2) the taxpayer must hold ownership (propriedade), usufruct, or superficies rights; and (3) the tax patrimonial value (VPT) shown in the property registry according to CIMI must equal or exceed €1,000,000. The tax rate applies to the VPT for IMI purposes. Article 67(2) of the Stamp Tax Code establishes that matters not regulated in the Code relating to verba 28 are governed subsidiarily by CIMI provisions. Critically, the €1,000,000 threshold must be met at the level of the taxable property unit. Disputes arise regarding whether this threshold applies per autonomous unit or to aggregated values in properties not subject to horizontal property regime.
How does CAAD arbitration address disputes over Stamp Tax liquidation on undivided urban buildings?
CAAD arbitration addresses these disputes by analyzing whether the Tax Authority correctly applied the €1,000,000 threshold under verba 28 TGIS to undivided buildings. The central legal question is whether floors or fractions in non-horizontal property must be evaluated individually or aggregated. Arbitrators examine the subsidiary application of CIMI rules mandated by Article 67(2) of the Stamp Tax Code, particularly Article 12(3) CIMI which requires separate consideration of each floor capable of independent use. Tribunals assess whether aggregation violates the constitutional equality principle by creating disparate tax treatment for economically identical situations based solely on formal legal structure. CAAD decisions typically emphasize economic substance over legal form, finding that taxpayers should not face higher taxation simply because horizontal property was not formally constituted when the property is physically divided into independently usable units.
What is the distinction between total ownership and horizontal property regime for Stamp Tax purposes under Portuguese law?
Under Portuguese law, propriedade total (total or full ownership) means a single owner holds the entire property without formal division into autonomous units, even if physically composed of separate floors or divisions. Horizontal property (propriedade horizontal) is a specific legal regime under Civil Code Articles 1414+ where the property is formally divided into autonomous fractions, each constituting a separate property under Article 2(4) CIMI with independent registry, ownership, and tax treatment. For Stamp Tax purposes under verba 28 TGIS, this distinction creates controversy: the AT argues only formal horizontal property creates separate taxable units, so full ownership properties have their floor VPTs aggregated; taxpayers argue Article 12(3) CIMI requires separate evaluation regardless of ownership regime, making the €1,000,000 threshold apply per floor. The equality principle supports uniform treatment based on economic reality rather than formal legal structure.