Process: 298/2016-T

Date: September 10, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

Process 298/2016-T addressed a critical issue in Portuguese Stamp Tax law concerning the application of Verba 28.1 of the General Table of Stamp Duty Tax (TGIS) to vertical properties not constituted under horizontal property regime. The case involved an urban property in Porto comprising 8 floors and 25 units with mixed residential and commercial use, with a total taxable property value (VPT) of €2,108,920.00. The central legal question was whether the €1,000,000 VPT threshold triggering stamp tax liability should be assessed per individual unit or based on the aggregate value of the entire building.

The Applicant, as head of an undivided estate, argued that Verba 28.1 applies only when individual residential units exceed €1,000,000 in VPT. Since none of the property's residential units individually reached this threshold, the Applicant contended no stamp tax was due. The taxpayer further invoked constitutional principles of equality under Articles 13 and 104(3) of the Portuguese Constitution, arguing that differential treatment compared to horizontally-divided properties violated fundamental rights.

The Tax and Customs Authority (AT) maintained that the relevant VPT for stamp tax purposes is determined at the property level, not per unit. The AT's position rested on the legal interpretation that a single urban property registered as one article in the property registry should be assessed as a unified whole, regardless of internal divisions or independent units. According to this interpretation, the aggregate VPT of €2,108,920.00 exceeded the statutory threshold, triggering stamp tax liability.

This arbitral case highlights the significance of property structure and registration in Portuguese tax law. The distinction between vertical properties and those formally constituted under horizontal property regime (propriedade horizontal) creates interpretative challenges. The case addresses whether independent economic units within a single legal property should receive separate tax treatment or whether the formal legal structure governs taxation, with substantial financial implications for property owners.

Full Decision

ARBITRAL DECISION

I. Report

  1. A…, taxpayer no.…, resident at Rua … no.…, …, …-…, Porto, in the capacity of head of the undivided estate of B…, with tax identification number …, requested the constitution of the arbitral tribunal in tax matters with a view to declaring the illegality of the stamp duty tax assessment acts, in the total amount of € 7,029.73, relating to urban property not constituted under a horizontal property regime, registered in the respective property register of the parish of …, municipality of Porto, under article U-…. The said assessment, effected on the basis of the rule in article 1 of the Stamp Duty Tax Code (CIS), combined with Item no. 28.1 of the respective General Table, refers to the year 2015.

  2. As the basis of its claim, the Applicant alleges, in summary, that the taxation provided for in the cited rules has as its object urban properties with residential use, whose taxable property value used for purposes of IMI is equal to or greater than € 1,000,000.00. In the case of properties not constituted under horizontal property regime but comprised of parts or units susceptible to independent use, the taxable property value used for purposes of IMI, and consequently relevant for purposes of the incidence of stamp duty tax, is, in accordance with the abovementioned rule, the value determined with reference to each of those parts or units.

  3. For its part, the Respondent – Tax and Customs Authority (AT) – responding to the alleged arguments, pronounces in favour of the dismissal of the claim and, consequently, the maintenance of the questioned assessment acts, on the basis that it is a single urban property, and the taxable property value relevant for purposes of the incidence of stamp duty tax is the value resulting from the sum of the taxable property values assigned to the various parts that comprise it.

  4. The request for constitution of the arbitral tribunal, presented on 01-06-2016, was accepted by the President of CAAD and automatically notified to the Respondent on the 6th of the same month.

  5. In accordance with the provisions of paragraph (a) of no. 2 of article 6 and paragraph (b) of no. 1 of article 11 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council appointed the signatory as arbitrator of the sole arbitral tribunal, who communicated acceptance of the appointment within the applicable deadline, and notified the parties of this appointment on 21-07-2016.

  6. Duly notified of this appointment, the parties did not manifest any intention to challenge the appointment of the arbitrator, in accordance with the combined provisions of article 11, no. 1, paragraphs (a) and (b) of the RJAT and articles 6 and 7 of the Code of Ethics.

  7. Thus, in accordance with the provisions of paragraph (c) of no. 1 of article 11 of the RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the sole arbitral tribunal was constituted on 05-08-2016.

  8. Duly constituted, the arbitral tribunal is materially competent in light of the provisions of articles 2, no. 1, paragraph (a), of the RJAT.

  9. The parties have legal personality and capacity and have standing (articles 4 and 10, no. 2, of the RJAT, and article 1 of Ordinance no. 112-A/2011, of 22/03).

  10. Given the knowledge derived from the procedural documents submitted by the parties, which is deemed sufficient for the decision, the Tribunal decided to dispense with the hearing referred to in article 18 of the RJAT.

  11. The case is not affected by any defects and no other issues were raised that prevent the examination of the merits of the case, with the conditions being met for a final decision to be rendered.

II. Facts

  1. With relevance to the examination of the issue raised, the following factual elements are highlighted:

12.1. The Applicant is the head of the undivided estate opened by the death of B…, which occurred on 30-11-2011, who was resident at Rua …, …, …, …, Porto.

12.2. The said estate includes the urban property located at Rua …, no. …/… and Rua … no. …/…, parish of …, municipality of Porto, registered in the respective property register under article U-….

12.3. The property in question, in full ownership with floors or units susceptible to independent use, comprises 8 floors and 25 units, assigned to commercial and residential purposes.

12.4. Each of the independent units was assigned a taxable property value separately determined in accordance with the rule in paragraph (b) of no. 2 of article 7 of the Municipal Property Tax Code (CIMI).

12.5. None of the parts or floors with residential use has a taxable property value exceeding € 1,000,000.00, with the sum thereof resulting in a total taxable property value of € 2,108,920.00.

12.6. For payment in April 2016, collection notices relating to the first instalment of the assessments in question were sent to the Applicant (Docs. 1 to 24).

12.7. Following said notification, the Applicant filed the present request for arbitral decision, seeking the declaration of illegality of the questioned stamp duty tax assessments and their consequent annulment.

III. Law

  1. As already stated above, the Applicant in its request for arbitral decision argues, in essence, that the rule of Item 28.1 of the General Table of Stamp Duty Tax is not applicable to properties in full ownership comprised of parts or units susceptible to independent use, whenever the taxable property value assigned to each of those intended for residential use does not exceed € 1,000,000.00.

  2. Beyond directly questioning the rule of tax incidence, in the interpretation underlying the questioned assessments, the Applicant invokes the violation of the constitutional principle of equality derived from articles 13 and 104, no. 3, of the Constitution of the Portuguese Republic.

  3. In response to the allegations by the Applicant, the AT stated, in summary, that Item 28 of the General Table of Stamp Duty Tax applies to urban properties with residential use and that the taxable property value on which the application of this legal rule depends is, as expressly results from the law, the taxable property value of each property and not of its distinct parts, even if susceptible to independent use. Concluding, thus, that the tax act in question, having not violated any legal rule, should be maintained.

  4. From the positions expressed by the Applicant and the Respondent, summarised above, it follows that the matter in question is one of strictly legal nature, rendering unnecessary the production of evidence beyond the documentary elements attached to the file.

  5. In effect, the issue to be decided centres solely on whether, within the scope of the incidence of stamp duty tax referred to in Item 28 of the General Table of Stamp Duty Tax (TGIS), there are included, or not, residential urban properties which, although not constituted under a horizontal property regime, are comprised of floors or units susceptible to independent use, whenever the taxable property value assigned to each of those distinct parts does not exceed the value of € 1,000,000.

  6. In other words, it is a question of whether the quantitative element relevant under the said rule should be considered on the basis of the taxable property value assigned to each of the parts, as the Applicant contends, or whether this element is the one resulting from the sum of the taxable property values assigned to them, as the Tax Authority argues.

  7. It is thus necessary, firstly, to carry out an analysis, albeit brief, of the requirements for the incidence of stamp duty tax on urban properties with residential use, using the relevant tax rules for the definition of the respective legal concepts.

On Tax Incidence

  1. Through Law no. 55-A/2912, of 29/10, Item 28 was added to the General Table of Stamp Duty Tax, subjecting to this tax urban properties whose taxable property value recorded in the register, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than € 1,000,000.00.

  2. The taxable base is constituted by the taxable property value considered for purposes of IMI, such tax being assessed annually by the AT with respect to each urban property (CIS, article 23, no. 7), at the rate of:

  • 1%, for urban property with residential use;
  • 7.5%, for property, when the taxable persons, not being natural persons, are resident in a country, territory or region subject to a clearly more favourable tax regime, listed in the approval by ordinance of the Minister of Finance.

  1. The taxable persons, and debtors of the tax, are the owners, usufructuaries or superficiary holders of the properties on 31 December of the year to which the tax relates, as results from article 8 of the CIMI, by express reference in articles 3, no. 3, paragraph (u), and 2, no. 4, of the Stamp Duty Tax Code.

  2. With regard to the date of constitution of the tax obligation, tax nexus, determination of the taxable base, assessment and payment of the stamp duty tax in question, the corresponding rules of the CIMI are applicable, by express reference in articles 5, no. 1, paragraph (u), 4, no. 6, 23, no. 7, 44, no. 5, 46, no. 5 and 49, no. 3, of the CIS. In general, by reference to article 67, no. 2, of the same Code, the provisions of the CIMI are applicable as supplementary law to matters not specially regulated.

  3. The nature of the property in question not being disputed, classified as urban and with residential use, in accordance with the criteria established in articles 2, 4 and 6 of the IMI Code, the only question is to determine what is the exact meaning of "taxable property value considered for purposes of IMI" contained in the rule of tax incidence of stamp duty tax.

  4. It is thus necessary to resort to the rules of the IMI Code relating to the treatment that, in the context of this tax, is given to parts of urban properties susceptible to independent use, in particular with respect to the determination of their respective taxable property value and the rules applicable to the assessment and payment of said tax.

  5. In accordance with no. 3 of article 12 of the cited Code, which establishes the concept of property register, "each floor or part of property susceptible to independent use shall be considered separately in the registration entry, which shall specify the respective taxable property value."

  6. The separation in the register of the functionally and economically independent parts of a property in full ownership is based on reasons of a fiscal and extra-fiscal nature. On the fiscal plane, this separation relates to the very determination of taxable property value, which constitutes the taxable base of IMI, given that the formula for determining this value, provided for in article 38 of the same Code, contains indices that vary according to the use assigned to each of these parts. On the extra-fiscal plane, this separation continues to find justification in the relevance attributed to the taxable property value of properties and their autonomous parts in urban rental legislation.[i]

  7. However, in the context of IMI, the separation of parts of urban properties susceptible to independent use is not limited to their separation in the registration entry and specification of their respective taxable property value. This autonomy extends to the actual assessment of the tax.

  8. In effect, article 119, no. 1, of the aforementioned Code provides that the tax collection document shall contain the specification of the properties, their parts susceptible to independent use and the respective taxable property value. In compliance with this provision, the assessment of IMI, in the strict sense of the application of the rate to the taxable base, does not take as reference the sum of the taxable property values assigned to the autonomous parts of the same property, but the value assigned to each of them individually considered.

  9. In the same sense of individualisation, for tax purposes, of the autonomous parts of urban properties, the rule in no. 1 of article 15-O, of Decree-Law no. 287/2003, of 12/11, as added by Law no. 60-A/2011, of 30/11, is also relevant.

  10. In accordance with the provisions of the said rule, the safeguard clause relating to the increase in IMI taxation resulting from the general assessment of urban properties is applicable per property or part of urban property that is the subject of such assessment.

  11. It thus results from the relevant rules of the CIMI, applicable by reference to the stamp duty tax referred to in Item 28 of the respective Table, that the autonomous parts of urban properties have full autonomy, in terms of assessment and description in the property register and assessment of the tax.

  12. In referring to the taxable property value considered for purposes of IMI, the rule of incidence and quantification of the stamp duty tax referred to in Item 28 of the respective Table can only appeal to the reality described above, that is, to the taxable property value considered in the context of IMI with respect to each part of urban property susceptible to independent use.

  13. As is, moreover, reflected in the assessments questioned in the present request for arbitral decision: the Tax Authority, after, without legal support, carrying out the sum of the taxable property values of the various autonomous parts of the property to extract from this the quantitative requirement for the incidence of stamp duty tax, carries out the assessment with reference to each of those parts, although individually, none of them reaches that value.

  14. It is noted that the issue raised in this case is, in all respects, identical to those which were raised and decided in numerous arbitral decisions [ii], and judgments of the Supreme Administrative Court [iii], to whose conclusion, in the sense of the illegality of the decision of the Tax Authority to subject taxation of the residential parts of a property in full ownership to the function of the total TPV of the property and not that which is actually assigned to each of the parts separately, we fully adhere.

Decision

In these terms, and with the grounds set out, the Arbitral Tribunal decides to deem the request for arbitral decision entirely upheld, with the consequent annulment of the questioned assessments.

Value of the case: € 7,029.73.

Costs: In accordance with article 22, no. 4, of the RJAT, and in terms of Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, I fix the amount of costs at € 612.00, to be borne by the Respondent (AT).

Lisbon, 10 September 2016

The Arbitrator,

Álvaro Caneira.

[i] See Silvério Mateus and Leonel Corvelo de Freitas, "Real Estate Tax and Stamp Duty Tax Commented and Annotated", Engifisco, Lisbon 2005, pages 159 and 160.

[ii] Among many others, referring only to the most recent: CAAD, Procs. 544/2015-T, 552/2015-T, 554/2015-T, 560/2015-T, 562/2015-T, 573/2015-T, 576/2015-T, 581/2015-T, 589/2015-T, 597/2015-T, 606/2015-T, 632/2015-T, 643/2015-T, 644/2015-T, 651/2015-T, 659/2015-T, 681/2015-T, 718/2015-T, 755/2015-T, 768/2015-T, 10-2016-T, 20/2016-T.

[iii] See STA, Procs. 047/15, 01352/15, 01354/15, 01504/15, 01534/15, 0166/16, 0498/16.

Frequently Asked Questions

Automatically Created

How is Stamp Tax (Imposto do Selo) applied to vertical properties not constituted under horizontal property regime under Verba 28 of the TGIS?
Stamp Tax under Verba 28 of the TGIS applies to urban properties with residential use when the taxable property value (VPT) equals or exceeds €1,000,000. For vertical properties not constituted under horizontal property regime, the critical issue is the assessment basis. The Tax Authority's position is that such properties should be taxed based on their total VPT as a single registered property article, even when comprised of multiple floors or independent units. This means all component parts are aggregated for threshold determination, regardless of whether individual units could function independently or have separately assessed VPT values for Municipal Property Tax (IMI) purposes under Article 7(2)(b) of CIMI.
Is the €1,000,000 VPT threshold for Verba 28.1 assessed per individual unit or on the aggregate value of a non-horizontal property building?
According to the Tax Authority's interpretation in Process 298/2016-T, the €1,000,000 VPT threshold under Verba 28.1 is assessed on the aggregate value of the entire building when the property is not formally constituted under horizontal property regime. This position holds that the relevant VPT is determined by summing all taxable values assigned to the various parts comprising the property, not by evaluating each unit individually. In this case, although no individual residential unit exceeded €1,000,000, the aggregate VPT of €2,108,920.00 triggered stamp tax liability. This interpretation treats the property as a single taxable object based on its registration as one article in the property registry, regardless of internal divisions.
Can independent parts of a vertical property be individually assessed for Stamp Tax purposes under the Portuguese Tax Code?
The taxpayer argued that independent parts of a vertical property should be individually assessed for Stamp Tax purposes, particularly when each unit has a separately determined VPT under Article 7(2)(b) of the Municipal Property Tax Code (CIMI). The Applicant contended that for properties with floors or units susceptible to independent use, the relevant VPT should be the value assigned to each distinct part, not the aggregate total. However, the Tax Authority rejected this interpretation, maintaining that individual assessment applies only to properties formally constituted under horizontal property regime. For vertical properties registered as a single property article, the AT argued that Portuguese tax law requires aggregate valuation regardless of the economic independence or separate IMI valuations of component units.
What was the CAAD arbitral tribunal's decision in Process 298/2016-T regarding Stamp Tax on urban property in Porto?
The CAAD arbitral tribunal in Process 298/2016-T examined stamp duty tax assessments totaling €7,029.73 for the 2015 tax year on an urban property in Porto comprising 8 floors and 25 units. The tribunal's jurisdiction was established under Article 2(1)(a) of RJAT, and the sole arbitrator was appointed on July 21, 2016, with the tribunal constituted on August 5, 2016. The case centered on whether Verba 28.1 of TGIS applied when individual residential units did not exceed €1,000,000 VPT but the aggregate property value reached €2,108,920.00. The decision required interpreting whether vertical properties not under horizontal property regime should be assessed per unit or as a unified whole for stamp tax threshold purposes. The complete decision is not provided in the excerpt.
What legal arguments does the Tax Authority (AT) use to justify aggregate VPT valuation for Stamp Tax on multi-unit vertical properties?
The Tax Authority's legal arguments for aggregate VPT valuation center on the principle that stamp tax incidence under Verba 28 applies to 'urban properties' as legally registered entities, not to their component parts. The AT maintains that the taxable property value referenced in the TGIS is 'of each property' (de cada imóvel), meaning the property as registered in the property registry under a single article number. The Authority argues that separate VPT assessments for individual units under CIMI Article 7(2)(b) serve Municipal Property Tax purposes but do not alter the fundamental legal nature of the property as a single object for Stamp Tax purposes. Only properties formally constituted under horizontal property regime create separate legal properties subject to individual assessment. Without such formal division, the property remains unified, requiring aggregate valuation.