Process: 294/2014-T

Date: December 1, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Process 294/2014-T addresses a critical Stamp Tax (IS) dispute concerning Item 28.1 TGIS, introduced by Law 55-A/2012, which imposes annual tax on residential properties with taxable property value (VPT) equal to or exceeding €1,000,000. The claimant owned a building comprising 5 commercial shops and 21 residential units (26 independent parts), each with individual VPT below the €1,000,000 threshold. The Portuguese Tax Authority (AT) aggregated all VPT values and assessed €27,601.50 in Stamp Tax for 2012, arguing the property existed in full ownership (propriedade plena) rather than horizontal ownership (propriedade horizontal), thus constituting a single legal-tax entity with aggregate VPT exceeding €1,000,000. The claimant challenged this aggregation methodology on three grounds: (1) Item 28.1 TGIS applies only where the taxable patrimonial reality has VPT equal to or greater than €1,000,000, which no individual unit satisfied; (2) no legal provision authorizes summing VPT values of independent floors or divisions for taxation purposes; and (3) such aggregation violates constitutional equality principles under Articles 13 and 104(2) CRP. The Tax Authority countered that full ownership properties differ fundamentally from horizontal ownership condominiums, and that Article 12(3) CIMI addresses only matricial recording procedures, not substantive tax treatment. The core legal question involves interpreting whether Item 28.1's €1,000,000 threshold applies to each independent unit's VPT separately or to the aggregate global property value. This arbitration case highlights the tension between formal property ownership structures and the practical independence of constituent units for Stamp Tax purposes under Portugal's additional taxation measures for high-value residential real estate.

Full Decision

CAAD: Tax Arbitration

Process No. 294/2014 – T

Subject Matter: Item 28.1 GTSC

ARBITRAL DECISION

I. REPORT

A…, Lda, with registered office at …, hereinafter simply designated the Claimant, submitted a request for the establishment of an arbitral tribunal in tax matters and a request for arbitral pronouncement, pursuant to the provisions of articles 2º No. 1 a) and 10º No. 1 a), both of Decree-Law No. 10/2011, of 20 January (Legal Framework for Tax Arbitration, abbreviated as LFTA), petitioning the annulment of twenty-two (22) tax acts assessing Stamp Tax (ST) relating to the year 2012, in the total amount of € 27,601.50, as well as reimbursement of the same amount, relating to the tax paid, further petitioning payment of the corresponding compensatory interest.

To support its request, it alleges, in summary:

  1. That the challenged assessments were made in violation of law, embodied in non-compliance with the rule of applicability contained in Item 28.1 of the GTSC, insofar as the patrimonial realities and with tax relevance on which they impacted do not present a taxable property value (TPV) equal to or greater than € 1,000,000.00;

  2. The procedure of adding the taxable property values relating to floors or divisions susceptible to independent use, for the purposes of determining a global TPV and consequent taxation, under ST, appears to be devoid of legal support;

  3. Any understanding different from that referred to in the previous point would suffer from unconstitutionality, by violation of the principle of equality, enshrined in article 13º and in No. 2 of article 104º, both of the CRP.

The Claimant attached twenty-four (24) documents and did not list any witnesses.

In the request for arbitral pronouncement, the Claimant chose not to designate an arbitrator, wherefore, in accordance with the provisions of article 6º No. 2 a) of the LFTA, the signatory was designated by the Deontological Council of the Administrative Arbitration Center, the appointment having been accepted as legally provided.

The arbitral tribunal was constituted on 20 June 2014.

Notified in accordance with the terms and for the purposes of the provisions of article 17º of the LFTA, the Respondent presented a response, alleging, in summary, the following:

a) At the date in question, the Claimant held ownership of the urban property under analysis, evaluated in accordance with the MPTIC, described as "property in full ownership with floors or divisions susceptible to independent use", five shops and another 21 floors or divisions susceptible to independent use and allocated to residential purposes, with a TPV exceeding € 1,000,000.00;

b) With reference to the year 2012, in compliance with and pursuant to the provisions of article 6º, No. 2, of Law No. 55-A/2012, of 29 October, which added Item No. 28 to the GTSC and whose respective rule of applicability refers to urban properties, evaluated in accordance with the MPTIC, with TPV equal to or greater than € 1,000,000.00 and with residential allocation (point 1 of that Item), the TA proceeded with the assessment that is the subject matter of this request for arbitral pronouncement;

c) The assessment in question results from the direct application of the legal norm, which translates into objective elements, without any subjective or discretionary appraisal;

d) A property in full ownership with floors or divisions susceptible to independent use is, unequivocally, different from an immovable property in horizontal ownership regime, constituted by autonomous units, that is, several properties;

e) No. 3 of article 12º of the MPTIC pertains exclusively to the manner of recording matricial data;

f) Being a property in full ownership, the TPV that serves as the basis for the calculation of tax will, indisputably, be that which the Claimant defines as "global value of the property", and not the TPV of each of the parts that compose it;

g) Horizontal ownership and vertical ownership are differentiated legal institutions, and tax law respects such difference;

h) The constitution in horizontal ownership determines the division of full ownership and the independence or autonomy of each of the units that constitute it, for all legal purposes, in accordance with No. 2 of article 4º of the MPTIC and articles 1414º and following of the CC, whereas a property in full ownership constitutes, for all purposes, a single legal-tax reality.

The Respondent attached a copy of the administrative file and did not list any witness.

In view of the position taken by the parties and there being no need for additional production of evidence, it was determined that the meeting referred to in article 18º of the LFTA would not be held, as well as the waiver of submission of pleadings, similarly dispensing with the questioning of the witnesses listed by the Claimant.

II. QUESTIONS TO BE DECIDED

In view of the positions taken by the Parties, reflected in the arguments put forward, it is necessary to:

· Determine, with reference to properties not constituted in horizontal ownership regime, comprised of various floors and divisions with independent use, some of which with residential allocation, what is the relevant TPV; whether it corresponds to the arithmetic sum of the TPV attributed to the different parts or floors or, inversely, the various taxable property values of these, considered individually.

III. FINDINGS OF FACT

a. Proven Facts

With relevance to the decision to be rendered in these proceedings, the following facts were established as proven:

  1. The Claimant is the owner of the urban property registered under article 29 in the urban property matrix of the parish of …, municipality of …;

  2. In the year 2012, the property in question was constituted, in full ownership, by five (5) shops and twenty-one (21) residential units, including the building manager's floor;

  3. To those five shops and twenty-one residential units there corresponded a floor or division with independent use;

  4. To each of those twenty-six independent parts [five shops and twenty-one residential units] a TPV was attributed for purposes of MPT;

  5. The taxable property values referred to in the previous point, considered individually, are less than € 1,000,000.00;

  6. With reference to the year 2012, the Respondent, in 2013, assessed to the Claimant Stamp Tax corresponding to Item 28.1 of the GTSC;

  7. The assessments, attached to the Request for Arbitral Pronouncement, had as their payment deadline 31 December 2013;

  8. The Claimant paid the tax assessed.

b. Unproven Facts

With interest for the proceedings, no other fact was proven.

c. Reasoning of the Findings of Fact

The conviction regarding the facts established as proven was formed on the basis of the documentary evidence submitted by the Claimant, indicated with respect to each of the points, and whose correspondence to reality was not questioned.

IV. CUMULATION OF CLAIMS

There is identity of the nature of the tax facts, of the factual and legal grounds invoked and of the tribunal competent to decide, nothing preventing that, in accordance with article 3º of the LFTA and article 104º of the Code of Tax Procedure and Process, cumulation of claims be effected.

V. CLEANSING OF PROCEDURE

The Arbitral Tribunal is properly constituted and is materially competent.

The parties have legal personality and capacity, are legitimate and are properly represented.

The process is not affected by defects that affect its validity, there being no exceptions or preliminary questions that prevent the examination of the merits and of which it is necessary to take official cognizance.

VI. LAW

Once the findings of fact are established, it is now necessary, by reference to those, to determine the applicable law. Thus, and having analyzed the arguments put forward by the Parties, it is readily apparent that the core issue lies in the interpretation of the norm contained in Item 28 of the GTSC (in particular that set forth in point 1), added by article 4º of Law No. 55-A/2012, of 29 October, which, at the date relevant to these proceedings, established the following:

"28 – Ownership, usufruct or right of superficies of urban properties whose taxable property value contained in the matrix, in accordance with the Municipal Property Tax Code (MPTIC), is equal to or greater than € 1,000,000.00 – on the taxable property value used for purposes of MPT:

28.1 – Per property with residential allocation – 1%

28.2 – Per property, when the taxpayers who are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by ordinance of the Minister of Finance – 7.5%".

It should be added, furthermore, that similar questions to the one that it is now necessary to resolve have given rise to extensive arbitral case law which, by identity of reasons, will be appropriately brought here.

On the other hand, and equally relevant with regard to the matter that now occupies us, No. 2 of article 67º of the Stamp Tax Code – also amended by Law No. 55-A/2012 – determines the subsidiary application of the MPTIC to matters concerning Item 28 of the GTSC that do not find regulation in the STC. Thus, and by virtue of that express referral, it is clear that the path that must be taken to resolve doubts as to the meaning and scope of Item 28 of the GTSC must pass through the MPTIC.

Let us see: point 1 of Item 28 of the GTSC refers to property with residential allocation; now, given that the STC is silent with respect to the densification of those concepts, and as prescribed by No. 2 of article 67º of that statute, the possibility of recourse to the MPTIC is open. Having arrived here, a simple enunciative interpretation will allow the recategorization of the category of property with residential allocation to the concept of urban property, in the species residential, as results from articles 2º and 4º of the MPTIC and, in particular, from subsection a) of No. 1 of article 6º of the same statute.

In this manner, and making use of the provisions of No. 2 of that article 6º [of the MPTIC] it can be concluded that the buildings or constructions that have been licensed for such purposes or, in the absence of a license, that have as their normal destination those purposes, will be residential [or, for example, commercial].

However – and here lies a substantial part of the Tax Administration's argumentative development – No. 2 of article 4º of the MPTIC determines that "for purposes of this tax, each autonomous unit, in the horizontal ownership regime, is deemed to constitute a property"; the Respondent inferring from that norm that "a property in full ownership with floors or divisions susceptible to independent use is, unequivocally, different from an immovable property in horizontal ownership regime, constituted by autonomous units, that is, several properties". It is asserted, however, that such reasoning should not prevail, as it seeks to attribute to the norm a meaning that it does not contemplate.

It should be recalled that, in accordance with the provisions of No. 1 of article 11º of the General Tax Law, tax norms are interpreted in accordance with the principles of legal hermeneutics commonly accepted, especially those fixed, among us, in article 9º of the Civil Code.

Literal interpretation presents itself as the first stage of interpretative activity. As FERRARA states, "the text of the law forms the substrate from which the interpreter must depart and on which must rest"([1]). Now, since the law is expressed in words, the verbal significance they contain must be extracted from them, according to their natural connection and the rules of grammar. However, when the words employed by the Legislator are equivocal or indeterminate, it will be necessary to resort to logical interpretation, which attends to the spirit of the disposition being interpreted.

Logical interpretation, as it has been peacefully understood by doctrine([2]), is based on the rational element, the systematic element and the historical element; weighing them and deducing from them the value of the legal norm in question.

By rational element is to be understood the raison d'être of the legal norm, i.e., the purpose for which the legislator instituted it. The discovery of the ratio legis presents itself, thus, as a factor of undoubted importance for the determination of the meaning of the norm.

It happens, however, that a given norm does not exist in isolation, but rather coexists with other norms and legal principles in a systematic and complex manner. Thus, it naturally becomes clear that the meaning of a specific norm results from the comparison of this with the others. As BAPTISTA MACHADO states, "this element comprises the consideration of other provisions that form the complex of norms of the institute into which the norm being interpreted is integrated, that is, that regulate the same matter (context of the law), as well as the consideration of legal provisions that regulate parallel normative problems or related institutes (parallel places). It also comprises the systematic place that belongs to the norm being interpreted in the global legal system, as well as its consistency with the spirit or intrinsic unity of the entire legal order."([3]).

As for the historical element, in turn, it must refer to and include materials connected with the history of the norm, such as "the evolutionary history of the institute, the figure or the legal regime in question (…); the so-called sources of law, that is, the legal or doctrinal texts that inspired the legislator in the drafting of the law (…); the preparatory works."

Let us apply what has been said to the case at hand, i.e., to the interpretation of No. 4 of article 2º of the MPTIC, also invoking the provisions of article 1414º of the Civil Code; which determines that "the units of which a building is composed, in conditions of constituting independent units, may belong to different owners in horizontal ownership regime".

Now, knowing that, as a rule, on each building incorporated into the soil falls, in principle, a single right of ownership, belonging to one or more holders, it is readily apparent that that norm [article 1414º of the CC] encloses an important derogation to such principle. In fact, and as PIRES DE LIMA and ANTUNES VARELA teach([4]), what characterizes this institute [horizontal ownership] "is the fact that the units of the same building that constitute independent units belong to different owners".

But then, what is to be said about No. 4 of article 2º of the MPTIC? It should be said that it seeks, congruently, to adapt the tax reality to the materiality permitted by article 1414º of the CC, i.e., it seeks to allow taxation of different owners in the measure of their properties; but also seeks to allow obviating possible difficulties arising from the impossibility of assimilating each autonomous unit, in the horizontal ownership regime, to the concept of property as defined in No. 1 of article 2º of the MPTIC. And nothing more. The Legislator said exactly what it intended to say.

In this manner, it will not be possible to withdraw from No. 4 of article 2º of the MPTIC the conclusion that the floors or divisions susceptible to independent use, in a property in full ownership, must invariably be regarded as a single reality for purposes of taxation under ST.

In fact, as is stated in the arbitral decision rendered in the context of process No. 132/2013-T, "there is nothing in the law that points to discrimination between properties in horizontal and vertical ownership with respect to their identification as urban residential properties. From this it is concluded that autonomous parts of properties in vertical ownership with residential allocation should be considered as urban residential properties". It makes no sense, therefore, to distinguish something that the law itself does not distinguish.

Moreover, as is added in that judgment, "to distinguish, in this context, between properties constituted in horizontal and full ownership would be an innovation without associated legal support, especially since, as has been stated here, nothing indicates, neither in item No. 28, nor in the provisions of the MPTIC, a justification for that particular differentiation. Note, by way of example, what article 12º, No. 3, of the MPTIC says: each floor or part of property susceptible to independent use is considered separately in the matricial registration, which also discriminates the respective taxable property value."

It can be concluded, then, that Item 28 of the GTSC would only be applicable if, in the case at hand, one or more of the parts, floors or divisions with independent use, and residential allocation, possessed a TPV equal to or greater than € 1,000,000.00. This is not the case, as was seen, reason for which the assessment acts challenged by the Claimant suffer from illegality.

In fact, the Respondent acted wrongly in considering as the relevant TPV, for purposes of the applicability of Item 28 of the GTSC, the global value [resulting from the sum of the various taxable property values] of the property.

In effect, as is stated in the arbitral decision rendered in the context of Process No. 50/2013-T, "the criterion sought by the TA, of considering the value of the sum of the TPVs attributed to the parts, floors or divisions with independent use, with the argument that the property is not constituted in horizontal ownership regime, finds no legal support and is contrary to the criterion that is applicable under the MPTIC and, by referral, under ST."

This being so, it is now time to address the issue related to the compensatory interest requested by the Claimant.

As results from No. 1 of article 35º of the GTL, "compensatory interest shall be due when, due to a fact attributable to the taxpayer, the assessment of part or all of the tax due is delayed or the delivery of tax to be paid in advance, or withheld or to be withheld in the context of tax substitution, is delayed". In the same vein, No. 2 of that article 35º provides that "compensatory interest is also due when the taxpayer, due to a fact attributable to him, has received a reimbursement in excess of that due."

From what is set forth it is clear the purpose of compensatory interest: to repair the damages suffered by the State resulting from the delay in tax assessment.

As emphasize LEITE DE CAMPOS, SILVA RODRIGUES and LOPES DE SOUSA, "compensatory interest presupposes taxpayer culpability, in the form of intent or negligence. If there is creditor culpability, no compensatory interest shall be due."

It is clear, then, that compensatory interest, by its nature, is not susceptible to being requested by taxpayers.

A different question is, however, that related to the reimbursement of the amount paid and indemnificatory interest.

Let us see: in accordance with the provisions of subsection b) of No. 1 of article 24º of the LFTA, an arbitral decision on the merits of the claim of which there is no recourse or challenge binds the tax administration from the expiration of the period provided for recourse or challenge, said administration being required to restore the situation that would exist if the tax act that is the subject matter of the arbitral decision had not been effected, adopting the acts and operations necessary for the purpose.

As stated in the arbitral decision rendered in the context of Process No. 27/2013-T, "these are legal commands that are in full harmony with the provisions of article 100º of the GTL, applicable to the case by virtue of the provisions of subsection a) of No. 1 of article 29º of the LFTA".

Now, the case that now occupies us invokes the application of the cited norms, necessitating, therefore, that there be reimbursement of the amounts paid, as a way of achieving the reconstitution of the situation that would exist if the illegality had not been committed.

As to indemnificatory interest, in light of the provisions of article 61º of the CTPP, and with the requirements on which they depend met, that is, verified the existence of error attributable to the services resulting in payment of the tax debt in an amount in excess of that legally due – as results from No. 1 of article 43º of the GTL – the Claimant has a right to indemnificatory interest at the legal rate.

From all that has been set forth it is clear the absence of legal foundation for the ST assessment acts, reason for which it proves unnecessary to ascertain the merits of other defects of the challenged assessments.

VII. OPERATIVE PART

In view of the foregoing, it is decided:

a. To rule favorably, as proven, the request for annulment of the ST assessment acts referred to in the request of the Claimant;

b. To annul the ST assessment acts referred to above;

c. To rule favorably on the request for restitution of the amount of € 27,601.50, paid by the Claimant, plus indemnificatory interest at the legal rate, counted from the undue payments, until full payment to the Claimant of the assessed amounts.

The value of the case is fixed at € 27,601.50, in accordance with subsection a) of No. 1 of article 97º-A of the Code of Tax Procedure and Process, applicable by virtue of subsections a) and b) of No. 1 of article 29º of the LFTA and No. 2 of article 3º of the Regulations of Costs in Tax Arbitration Proceedings.

The value of the arbitration fee is fixed at € 1,530.00, in accordance with Table I of the Regulations of Costs of Tax Arbitration Proceedings, in accordance with No. 2 of article 12º and No. 4 of article 22º, both of the LFTA, and No. 4 of article 4º, of the cited Regulation, to be paid by the Respondent as the unsuccessful party.

Record and notify.

Lisbon, 1 December 2014.

The Arbitrator,

Alberto Amorim Pereira

Text prepared by computer, in accordance with No. 5 of article 131º of the CPC, applicable by referral of subsection e) of No. 1 of article 29º of Decree-Law No. 10/2011, of 20/01, and its drafting is governed by the old orthography.

([1]) FERRARA, FRANCESCO, Interpretation and Application of Laws, 1921, Rome; Translation by MANUEL DE ANDRADE, Arménio Amado, Editor, Successor – Coimbra, 2nd Edition, 1963, p. 138 et seq.

([2]) See, for all, BAPTISTA MACHADO, JOÃO, op. cit., p. 181.

([3]) BAPTISTA MACHADO, JOÃO, op. cit., p. 183.

([4]) PIRES DE LIMA and ANTUNES VARELA, Annotated Civil Code – Volume III (articles 1251º to 1575º), 2nd Revised and Updated Edition (Reprint), Coimbra Editora, Limited, 1987, p. 391.

Frequently Asked Questions

Automatically Created

Is Stamp Tax (Imposto do Selo) due under Verba 28.1 TGIS when individual units in a building each have a VPT below €1,000,000 but the total exceeds that threshold?
Under CAAD Process 294/2014-T, the central dispute concerns whether Stamp Tax under Verba 28.1 TGIS applies when a single property in full ownership contains multiple independent units, each valued below €1,000,000, but with aggregate VPT exceeding that threshold. The Tax Authority assessed IS by aggregating all unit values, arguing that properties in full ownership (not horizontal ownership) constitute a single legal-tax entity. The claimant contested this, asserting that each independent residential unit with VPT below €1,000,000 should not trigger taxation. The case turns on interpreting whether Item 28.1's threshold applies per independent unit or to the total property value, representing a fundamental question about the unit of assessment for this wealth tax on residential real estate.
Can the Portuguese tax authority aggregate the patrimonial tax values (VPT) of independent floors or divisions of a single property for Stamp Tax purposes?
The Portuguese Tax Authority aggregated VPT values of 26 independent units (5 shops and 21 residential floors) within a single building held in full ownership, assessing Stamp Tax because the total exceeded €1,000,000. The AT justified this approach by distinguishing between full ownership (propriedade plena) and horizontal ownership (propriedade horizontal/condominium). According to the Tax Authority, properties in full ownership represent a single legal-tax reality under CIMI Article 12(3) and Civil Code provisions, making the global property value relevant for Item 28.1 TGIS purposes. The claimant challenged this aggregation as lacking legal basis, arguing that independent floors or divisions with separate VPT assessments should be evaluated individually. This methodological dispute is critical because aggregation can trigger substantial tax liability even when no single unit exceeds the €1,000,000 threshold.
Does summing VPT values of independent units for Stamp Tax liability under Verba 28.1 violate the constitutional principle of equality (Article 13 and Article 104(2) CRP)?
The claimant argued that aggregating VPT values violates constitutional equality principles under Article 13 and Article 104(2) CRP. The constitutional challenge suggests that treating properties in full ownership differently from horizontal ownership creates arbitrary distinctions: an owner of multiple autonomous units in horizontal ownership (each taxed separately) would face different treatment than an owner of the same units in full ownership (taxed on aggregate value). This potentially discriminates against certain ownership structures without objective justification. However, the Tax Authority countered that horizontal and vertical ownership are distinct legal institutions with different legal consequences, and respecting these differences does not constitute unconstitutional discrimination. The arbitral tribunal must weigh whether the differential treatment serves legitimate tax policy objectives or creates unjustified inequality in the application of Item 28.1 TGIS.
How does CAAD arbitration process work for challenging Stamp Tax (IS) assessments on high-value residential properties under Lei 55-A/2012?
CAAD (Centro de Arbitragem Administrativa) provides an alternative dispute resolution mechanism for tax matters under Decree-Law 10/2011 (RJAT). In Process 294/2014-T, the procedure involved: (1) claimant submitting an arbitration request to annul 22 Stamp Tax assessments totaling €27,601.50 relating to 2012; (2) arbitral tribunal constitution on June 20, 2014, with arbitrator appointed by CAAD's Deontological Council when the claimant chose not to designate one; (3) Tax Authority submitting a response with the administrative file; (4) tribunal determining no hearing (Article 18 RJAT) or additional evidence was necessary given the parties' positions; and (5) proceeding to written decision. The claimant petitioned for annulment of the assessments, reimbursement of taxes paid, and compensatory interest. This process demonstrates CAAD's efficiency in resolving technical tax disputes, particularly concerning new legislation like Law 55-A/2012 introducing Item 28 TGIS for high-value residential properties.
What is the correct unit of assessment for the €1,000,000 VPT threshold under Verba 28.1 TGIS — the entire building or each independent unit separately?
The correct unit of assessment for the €1,000,000 VPT threshold under Verba 28.1 TGIS is the central legal question in Process 294/2014-T. The claimant argues each independent floor or division should be assessed separately, meaning only units individually valued at €1,000,000 or more trigger Stamp Tax liability. The Tax Authority contends that for properties in full ownership (not horizontal ownership condominiums), the entire building constitutes the relevant assessment unit, making the aggregate global VPT determinative. This distinction has profound implications: under the claimant's interpretation, owners could structure properties to avoid taxation by keeping individual unit values below the threshold; under the Tax Authority's view, the legal ownership structure (full vs. horizontal) determines assessment methodology. The tribunal must interpret Item 28.1's reference to 'urban properties' (prédios urbanos) evaluated under CIMI with residential allocation and whether independent use of constituent parts creates separate taxable entities or remains unified for properties in full ownership.