Process: 300/2016-T

Date: October 28, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Process 300/2016-T addressed the controversial application of Stamp Tax (Imposto do Selo) Item 28.1 to vertical property buildings with total patrimonial value exceeding €1,000,000. The case involved a vertical property building valued at €2,108,920 in 2015, where the Tax Authority assessed €7,029.73 in Stamp Tax based on the building's total value. The taxpayer challenged this assessment, arguing that Item 28.1 should apply only to individual floors or independent units exceeding €1,000,000, not to the aggregate building value. The central legal dispute concerned whether vertical property (propriedade vertical) should receive the same tax treatment as horizontal property (propriedade horizontal/condominiums). The taxpayer contended that the legislation targets high-value individual residential dwellings as indicators of taxable capacity, not aggregate building values. Under CIMI Article 4, autonomous fractions in horizontal ownership constitute separate properties, but the Tax Authority argued that vertical property units do not qualify as independent properties under a contrario interpretation. The taxpayer invoked res judicata from CAAD Decision 345/2015-T, which annulled similar assessments for 2014 on the same property. The taxpayer argued that distinguishing between vertical and horizontal ownership lacks legal basis, violates constitutional principles of tax equality and justice, and contradicts the legislative intent behind Item 28.1. The Tax Authority maintained that vertical ownership creates a single property for tax purposes, justifying assessment on total value. This decision has significant implications for luxury property taxation in Portugal, particularly for buildings held under older vertical ownership structures rather than modern condominium regimes, affecting how the €1,000,000 threshold applies to multi-unit buildings.

Full Decision

ARBITRAL DECISION

1. REPORT

1.1. A…, in the capacity of head of the undivided estate opened by the death of B…, taxpayer no…, with domicile at Rua …, no…, …, in ... (hereinafter referred to as "Applicant"), submitted on 01/06/2016 a request for arbitral determination aimed at the review and declaration of illegality of the Stamp Duty assessment acts of the year 2015, relating to the application of Item no. 28.1 of the General Schedule of Stamp Duty (General Schedule), in the total amount of € 7,029.73 (seven thousand twenty-nine euros and seventy-three cents) to the property in vertical ownership located at Rua …, no…, in …, registered in the urban real estate register of the parish of …, municipality of ..., under the property register article no… .

1.2. His Excellency the President of the Deontological Council of the Administrative Arbitration Centre (CAAD) designated, on 06/07/2016, as sole arbitrator the signatory of this decision.

1.3. On 05/08/2016 the arbitral tribunal was constituted.

1.4. In compliance with the provision of no. 1 of article 17 of the Legal Regime of Tax Arbitration (RJAT), the Tax and Customs Authority (AT) was notified, on 05/08/2016, to, if it wished, submit a response and request the production of additional evidence.

1.5. On 29/09/2016 the AT submitted its response.

1.6. The arbitral tribunal on 30/09/2016 decided to dispense with the holding of the meeting referred to in no. 1 of article 18 of the RJAT, on the basis of the principle of autonomy of the arbitral tribunal in the conduct of the proceedings, inviting both parties to, if they wished, submit optional written submissions and scheduled the date for pronouncement of the final decision.

1.7. Neither the Applicant nor the AT submitted optional written submissions.

2. SANITATION OF PROCEEDINGS

The arbitral tribunal was duly constituted and is substantively competent.

The parties have legal personality and capacity and are legitimate, with no defects in representation.

There are no nullities, exceptions or preliminary issues that prevent the examination of the merits and of which it is necessary to take notice ex officio.

The request for constitution of the arbitral tribunal is timely within the terms of paragraph a) of no. 1 of article 10 RJAT.

Consequently, the conditions are verified for the final decision to be pronounced.

3. POSITIONS OF THE PARTIES

There are two positions in confrontation, that of the Applicant, set out in the request for arbitral determination and that of the AT in its response.

In summary, the Applicant understands that:

a) The AT "(…) assessed the stamp duty (…) considering the VPT – Total subject to tax – the total patrimonial value of the property of Euros 2,108,920.00, in the year 2015.";

b) "(…) the application of stamp duty should have been determined on each floor or independent division, provided that each floor or division was greater than Euros 1,000,000.00 (…)";

c) "(…) the autonomous parts of properties in vertical ownership with residential use must be considered as «residential urban properties»";

d) "(…) it makes no sense to distinguish in the law what the law itself does not distinguish (…)";

e) "It is further the case that to distinguish, in this context, between properties constituted in horizontal ownership and in full ownership would be an «innovation» without associated legal support, particularly because, as has been stated here, nothing indicates, either in item no. 28, or in what is provided in the CIMI, a justification for that particular differentiation.";

f) "The uniform criterion that is necessary is, thus, that which determines that the application of the norm in question only takes place when any of the parts, floors or divisions with independent use of property in horizontal or full ownership with residential use, has a VPT greater than € 1,000,000.00.";

g) "To establish as the reference value for the application of the new tax the global VPT of the property in question, as the respondent now claims, finds no basis in the applicable legislation, which is the CIMI (…)";

h) Now, "The legislator in introducing this legislative innovation considered as the determining element of taxable capacity urban properties, with residential use, of high value (luxury), more precisely, of value equal to or greater than € 1,000,000.00, on which a special rate of stamp tax began to apply, seeking to introduce a principle of taxation on wealth reflected in the ownership, usufruct or right of superficies of urban luxury properties with residential use." [emphasis ours];

i) "Clearly the legislator understood that this value, when attributed to a dwelling (house, autonomous fraction or floor with independent use) expresses a taxable capacity above the average and, as such, capable of determining a special contribution to ensure fair distribution of the tax burden." [emphasis ours];

j) "(…) following these considerations that inspired the legislative innovation under review, it must be concluded that the existence of a property in vertical or horizontal ownership cannot, in itself, be an indicator of taxable capacity.";

k) "On the contrary, it follows from the law that both must receive the same tax treatment in obedience to the principles of justice, tax equality and material truth.";

l) "Now the existence in each property of independent dwellings, under a regime of horizontal or vertical ownership, may be capable of triggering the application of the new tax if the VPT of each of the parts or fractions is equal to or greater than the limit set by law: € 1,000,000.00." [emphasis ours];

m) In sum, the tax acts are based on error regarding the factual and legal presuppositions, thereby violating Item no. 28 of the General Schedule, given that they do not carry out a segregation of the taxable patrimonial value ("VPT") of each floor or division capable of independent use;

n) To this extent, the tax acts violate the constitutional principles of justice, equality and proportionality in tax matters;

o) Furthermore, the Applicant further alleges that proceedings ran before the CAAD under case no. 345/2015-T, in which a decision was handed down that resulted in the annulment of the tax acts in question there, relating to the same property and concerning the year 2014, which decision subsequently became final;

p) To this extent, the decision handed down by the CAAD has the effect of res judicata, to the extent that the subject matter of the assessments, the taxable persons, the grounds for the assessments and, likewise, the grounds of the challenge are the same as those that were in discussion within the scope of case no. 345/2015-T, and therefore also applies to any future assessments of Stamp Duty of Item no. 28.1 of the General Schedule to the property in question.

In another sense, the AT maintains that:

a) "(…) the Applicant seeks incorrectly to assimilate vertical ownership to horizontal ownership, in order to be able to draw from this tax consequences that do not assist it.";

b) "In fact, the Code of Municipal Property Tax (…) constitutes the normative framework of reference with respect to the taxation of the ownership of urban properties with taxable patrimonial value greater than one million euros, assuming in this context relevant role the concept of property contained in article 2 of that code, which establishes in its no. 1 that «(…) property is any portion of land, including (…) buildings and constructions of any nature incorporated or situated therein, with a character of permanence (…)».";

c) "However, article no. 4 of that article establishes that «(…) each autonomous fraction, under the regime of horizontal ownership, is deemed to constitute a property».";

d) To this extent, "(…) by interpretation a contrario sensu, it is easily concluded that the fractions of the latter which are not subject to the horizontal ownership regime do not constitute urban properties, as precisely happens in the case at hand." [emphasis of AT];

e) On the other hand, "(…) full ownership and horizontal ownership do not constitute, in any way, substantially identical legal realities." [emphasis of AT];

f) "Indeed, it was the tax legislator himself, and no other, who understood that only fractions subject to the horizontal ownership regime could acquire the status of property.";

g) "Thus, as the Applicant has not chosen to subject to the horizontal ownership regime the 24 floors or divisions capable of independent use of the urban property in which they are located, despite its architectural potential for doing so, naturally that, in light of the principle of tax legality, it cannot wish that the same enjoy a legal status for which they do not meet one of its legal presuppositions and in defiance of the fundamental principle of equality.";

h) Now, "(…) the property register entry of the floors capable of independent use and the attribution of an individual patrimonial value not only does not remove the patrimonial value of the respective property in which they are located, but also ends up contributing to or determining the very taxable patrimonial value of the urban property.";

i) "From which it is concluded that the taxable patrimonial value of the urban property results necessarily from the sum of the patrimonial values of the floors capable of independent use." [emphasis ours];

j) As for the alleged violation of the constitutional principles listed above, the AT further maintains that "(…) it will always be said that the invoked violation of the principle of legality does not even constitute, in itself, a raising of a constitutional issue.";

k) Thus, given the "(…) fact that the Applicant simply starts from a wrong presupposition, namely that of wishing to compare (…) two realities that are perfectly and legally distinct from each other: vertical ownership versus horizontal ownership (…)" it is possible "(…) to conclude the non-existence of a violation of the constitutional Principle of Equality.";

l) "It is a fact that the constitution of horizontal ownership implies a mere legal alteration of the property, there being no valuation, but the legislator can, nevertheless, submit to a distinct tax legal framework, and thus discriminatory, properties under a regime of horizontal and vertical ownership, in particular, benefiting the legally more evolved institute of horizontal ownership, without this discrimination having to be considered necessarily arbitrary." [emphasis ours];

m) "It should be noted that the property register entry of each part capable of independent use is not autonomous, by register, but consists of a description in the register of the property as a whole (…)";

n) "What is intended to be concluded is that these norms procedures of valuation, the norms on property register entry and also the norms on the assessment of the parts capable of independent use do not permit to state that there should exist an equation of property under a regime of «full ownership» to the regime of «vertical ownership» and this because (…) it would be illegal and unconstitutional.";

o) "It is thus a consequence of the fact that the tax event of the IS of Item 28.1 consists in the ownership of urban properties whose taxable patrimonial value shown in the register, in accordance with the CIMI, is equal to or greater than 1 million Euros, that the patrimonial value relevant for purposes of the application of the tax is, thus, the total patrimonial value of the urban property and not the patrimonial value of each of the parts that compose it, even when capable of independent use.";

p) "Item 28.1 thus applies to ownership, usufruct or right of superficies of urban properties with residential use, whose taxable patrimonial value shown in the register, in accordance with the CIMI, is equal to or greater than 1 million Euros.";

q) "It is a general and abstract norm, applicable indistinctly to all cases in which the respective factual and legal presuppositions are verified.";

r) "Also the different valuation and taxation of an immovable in «vertical ownership» as compared to an immovable constituted in «horizontal ownership» follows from the different legal effects inherent in these two figures.";

s) Furthermore, "(…) only if one were in the presence of a manifest error in the analysis made by the tax legislator who, within its discretionary powers, did not properly weigh, and in particular, the cost/benefit ratio of this legal measure, could one speak of the verification of a tax disproportionality.";

t) In conclusion, "(…) it must be concluded that the tax acts in question did not violate any legal or constitutional principle, and should, thus, be maintained in the legal order.";

u) As for the material case law, the AT maintains that "(…) the figure of res judicata is intended to prevent the court from being placed in a situation where it could contradict or reproduce a prior decision.";

v) "It therefore presupposes the repetition of a case that has already been resolved by a prior decision and that does not admit ordinary appeal." [emphasis of AT];

w) "(…) in accordance with article 581 of the Civil Code the verification of this repetition of the case requires:

a) The identity of subjects, that the parties be the same from the point of view of their legal quality;

b) The identity of the claim, that is, that in both cases it is sought to obtain the same legal effect; and

c) The identity of the cause of action, that is, that the claim made in the two actions proceeds from the same legal fact." [emphasis of AT];

x) "Within the scope of case no. 345/2015-T 22 assessments of IS were petitioned for annulment, relating to the period of 2014 (…) Whereas in the present proceedings 24 assessments of IS are being petitioned for annulment relating to the period of 2015.".

4. SUBJECT MATTER OF THE REQUEST

The question to be decided in the present proceedings is whether Item no. 28.1 of the General Schedule, in the case of properties not constituted in horizontal ownership, applies to the sum of the taxable patrimonial value attributed to the different parts or floors (total VPT), or, instead, to the taxable patrimonial value of each floor or division capable of independent use.

5. SUBJECT MATTER OF FACT

5.1. FACTS CONSIDERED PROVEN

In light of the documents submitted to the proceedings, the following is established as proven:

5.1.1. The Applicant, grandson of B…, is head of the undivided estate of the latter, who died on 01/02/1989, with tax identification number … .

5.1.2. The undivided estate identified above was, in 2015, co-owner of one third of the urban property located at Rua … no. …/… and at Rua … no. …/…, of the parish of…, municipality of ..., described in the Property Registry Office of ... under no…, and registered in the competent property register under property register article no…, originating from property register article no…, and is constituted in full ownership with 25 divisions capable of independent use, as shown in the property register entry attached to the present request for arbitral determination.

5.1.3. The property in question was registered in the register in 2014 and the taxable patrimonial value ("VPT") shown in 2014 in the property register entry issued by the Finance Service of the ... … varied between € 66,870.00 and € 112,630.00, with the total of the 25 divisions being € 2,108,920.00.

5.1.4. The Applicant, in his capacity as head of the estate of B…, was notified of the following Stamp Duty assessments of the year 2015, with a final payment date of 30/04/2016:

- assessment no. 2016 …, in the amount of € 333.70, relating to the property described in the property register article with no. …-…E, whose VPT is € 100,110.00;

- assessment no. 2016 …, in the amount of € 375.43, relating to the property described in the property register article with no. …-…E, whose VPT is € 112,630.00;

- assessment no. 2016 …, in the amount of € 333.70, relating to the property described in the property register article with no. …-…E, whose VPT is € 100,110.00;

- assessment no. 2016 …, in the amount of € 284.17, relating to the property described in the property register article with no. …-…E, whose VPT is € 85,250.00;

- assessment no. 2016 …, in the amount of € 286.27, relating to the property described in the property register article with no…-…-…, whose VPT is € 85,880.00;

- assessment no. 2016 …, in the amount of € 251.07, relating to the property described in the property register article with no. …-…-…, whose VPT is € 75,320.00;

- assessment no. 2016 …, in the amount of € 251.07, relating to the property described in the property register article with no. …-…-…E, whose VPT is € 75,320.00;

- assessment no. 2016… in the amount of € 375.43, relating to the property described in the property register article with no. …-…D, whose VPT is € 112,630.00;

- assessment no. 2016 …, in the amount of € 333.70, relating to the property described in the property register article with no. …-…, whose VPT is € 100,110.00;

- assessment no. 2016 …, in the amount of € 333.70, relating to the property described in the property register article with no. …-…E, whose VPT is € 100,110.00;

- assessment no. 2016…, in the amount of € 333.70, relating to the property described in the property register article with no. …-…D, whose VPT is € 100,110.00;

- assessment no. 2016 …, in the amount of € 333.70, relating to the property described in the property register article with no. …-…D, whose VPT is € 100,110.00;

- assessment no. 2016 …, in the amount of € 333.70, relating to the property described in the property register article with no. …-…D, whose VPT is € 100,110.00;

- assessment no. 2016 …, in the amount of € 284.17, relating to the property described in the property register article with no. …-…D, whose VPT is € 85,250.00;

- assessment no. 2016…, in the amount of € 286.27, relating to the property described in the property register article with no. …-…-…D, whose VPT is € 85,880.00;

- assessment no. 2016 …, in the amount of € 251.07, relating to the property described in the property register article with no. …-…-…D, whose VPT is € 75,320.00;

- assessment no. 2016 …, in the amount of € 286.27, relating to the property described in the property register article with no. …-…-…D, whose VPT is € 85,880.00;

- assessment no. 2016…, in the amount of € 251.07, relating to the property described in the property register article with no. …-…-…D, whose VPT is € 75,320.00;

- assessment no. 2016…, in the amount of € 333.70, relating to the property described in the property register article with no. …-…E, whose VPT is € 100,110.00;

- assessment no. 2016 …, in the amount of € 286.27, relating to the property described in the property register article with no…-…-…, whose VPT is € 85,880.00;

- assessment no. 2016 …, in the amount of € 222.90, relating to the property described in the property register article with no. …-…-…E, whose VPT is € 66,870.00;

- assessment no. 2016 …, in the amount of € 222.90, relating to the property described in the property register article with no. …-…-…E, whose VPT is € 66,870.00;

- assessment no. 2016 …, in the amount of € 222.90, relating to the property described in the property register article with no. …-…-…D, whose VPT is € 66,870.00;

- assessment no. 2016 …, in the amount of € 222.90, relating to the property described in the property register article with no. …-…-…E, whose VPT is € 66,870.00;

5.1.5. None of the floors or divisions with independent use has a taxable patrimonial value greater than € 1,000,000.00.

5.2. FACTS NOT CONSIDERED PROVEN

There are no facts relevant to the decision that have not been established as proven.

6. THE LAW

The question to be decided consists of determining whether the tax acts for the assessment of Stamp Duty in question are illegal, due to erroneous interpretation and application of Item no. 28.1 of the General Schedule, added by Law no. 55-A/2012, of 29 October, in considering that the taxable patrimonial value ("VPT") of an urban property constituted under the regime of full ownership, with floors or divisions for independent use dedicated to housing that is relevant for purposes of the application of that item is constituted by the value resulting from the sum of the VPT attributed to each of those floors or divisions.

Moreover, whether the Stamp Duty assessments further suffer from the defect of unconstitutionality, due to violation of the principles of justice, equality and proportionality in tax matters.

On this matter has already been pronounced, among others, the jurisprudence of the Supreme Administrative Court (STA) and arbitral jurisprudence in cases no. 245/2014-T, 152/2015-T and 021/2015-T, whose arbitral jurisprudence we follow. [1]

As appears from the established facts, the AT assessed Stamp Duty to the undivided estate, at the rate of 1%, in view of the fact that the VPT of the urban property constituted under the regime of full ownership, which forms part of that estate is greater than € 1,000,000.00, taking into account the sum of the VPT of each of the 25 floors or divisions with independent use dedicated to housing, which compose the said property.

Let us see.

Article 4 of Law no. 55-A/2012, of 29 October made an addition to the General Schedule of Item no. 28, with the following wording:

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

28.1 - For property with residential use - 1 %;

28.2 - For property, when the taxable persons who are not individuals are resident in a country, territory or region subject to a tax regime clearly more favorable, listed in the list approved by order of the Minister of Finance - 7.5 %."

At the time of the facts, the presuppositions for the application of Item no. 28.1 of the General Schedule are thus urban properties, with residential use, whose VPT shown in the register and used for purposes of IMI assessment, is equal to or greater than € 1,000,000.00.

Now, Law no. 55-A/2012, of 29 October, by reference to Item no. 28 of the General Schedule further came to establish several amendments to the Stamp Duty Code, in particular, as regards its assessment and payment, expressly referring to the rules provided in the Municipal Property Tax Code [2] with the necessary adaptations, and it is also provided in no. 2 of article 67 of the Stamp Duty Code that, "To matters not regulated in this Code relating to item no. 28 of the General Schedule, the provisions of the CIMI shall apply, subsidiarily.".

From the analysis of the said norms, it is thus verified that the concept of "property with residential use" provided for in the aforementioned Item no. 28.1 of the General Schedule is not defined in the Stamp Duty Code, nor in the cited Law no. 55-A/2012, of 29 October, nor even in the Municipal Property Tax Code, whose norms are of subsidiary application, given the provision of no. 2 of article 67 of the Stamp Duty Code.

It is thus unequivocal that a property in full ownership or under a regime of vertical ownership constitutes an urban property, in accordance with the provisions of no. 1 of articles 2 and 4 of the Municipal Property Tax Code, applicable subsidiarily, and it is also certain that, both for purposes of the application of Item no. 28.1 of the General Schedule, and for purposes of classification of urban properties [3], the legislator makes no distinction between properties constituted in vertical ownership and under a regime of horizontal ownership (as mentioned in the arbitral decisions handed down in cases no. 50/2013-T and no. 132/2013-T), and it is a tax presupposition of Item no. 28.1 of the General Schedule urban properties that are actually already dedicated to housing, because what is relevant is the effective and current use of each of the properties.

What then will be the taxable patrimonial value relevant in the case of urban properties under a regime of full ownership composed of floors or divisions capable of independent use with "residential use", for purposes of the application of Item no. 28.1 of the General Schedule?

As results from Item no. 28.1 itself of the General Schedule and from no. 1 of article 6 of Law no. 55-A/2012, of 29 October, the Stamp Duty will apply to the VPT used for purposes of IMI.

Let us thus see what the VPT used for purposes of IMI is.

Indeed, the VPT of each property is determined in accordance with article 38 and following of the Municipal Property Tax Code, in accordance with what is provided in no. 1 of article 7 of the Municipal Property Tax Code. In the case of a property under a regime of full or vertical ownership, each floor or division with independent use that forms part of it is likewise subject to valuation, and a taxable patrimonial value is attributed to each of those floors or divisions, in accordance with what is provided in articles 12 and 38 of the Municipal Property Tax Code.

Now, no. 1 of article 12 of the Municipal Property Tax Code establishes that "property registers are registers containing, in particular, the characterization of properties, the location and their taxable patrimonial value, the identification of owners (…)", and further provides in its no. 3 that, "Each floor or part of property capable of independent use is considered separately in the property register entry, which also discriminates the respective taxable patrimonial value", and, in accordance with what is provided in no. 1 of article 119 of the Municipal Property Tax Code, it is on that patrimonial value separately considered that the IMI will be calculated and assessed in relation to each floor or part with independent use that form part of an urban property under a regime of vertical or full ownership, in view of the autonomy of each of those units.

As assert Silvério Mateus and Corvelo de Freitas [4], "Another aspect that should be highlighted in the register concerns the need to make relevant the autonomy that, within the same property, can be attributed to each of its parts, functionally and economically independent.

In these cases, the property register entry must not only make reference to each of these parts but must also make express reference to the patrimonial value corresponding to each of them. An example that can illustrate this situation is the case of an urban property, not constituted under a regime of horizontal ownership and that is composed of several floors. (…) However, as each of these units can be the object of lease or any other use by its respective owner, the register must make these units evident and patrimonial value must be attributed to each of them." [emphasis ours].

As follows from the arbitral decision handed down in case no. 194/2014-T, which we also follow, "the Municipal Property Tax Code enshrines, both as regards the property register entry and discrimination of the respective taxable patrimonial value, and as regards the assessment of the tax, the segregation 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.

Thus each property, in accordance with the concepts defined by article 2 of the CIMI, corresponds to a single article in the register (no. 2 of article 82 of the CIMI) but, according to no. 3 of article 12 of the same Code, relating to the concept of property register (…), "each floor or part of property capable of independent use is considered separately in the property register entry, which also discriminates the respective taxable patrimonial value (…).

That is, the rule is the segregation, the characterization as "property" of each part of a building, provided it is functionally and economically independent, capable of independent use, in accordance with the concept of property defined immediately in no. 1 of article 2 of the CIMI: property is any fraction (of land, including waters, plantings, buildings and constructions of any nature incorporated or situated therein, with a character of permanence) provided it forms part of the patrimony of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantings, buildings or constructions, in the circumstances above, endowed with economic autonomy.".

Bearing in mind that in light of the Municipal Property Tax Code, the floors or divisions with independent use that compose an urban property under a regime of full or vertical ownership are taxed autonomously, since the IMI is assessed individually on the VPT attributed to each of those floors or divisions with independent use, taking into account the relevance of their autonomy, necessarily, the principles and rules shall have to be the same in the sphere of Stamp Duty (in particular, regarding what is provided as to property register entry and assessment of IMI), both because Item no. 28.1 of the General Schedule so requires in fine, and by subsidiary application, by force of what is provided in no. 2 of article 67 of the Stamp Duty Code.

Consequently, and, on the presupposition that the legislator in question "enshrined the most appropriate solutions and knew how to express his thinking in adequate terms" (see what is provided in no. 3 of article 9 of the Civil Code ("CC"), by reference from article 11 of the LGT), only the floors, parts or divisions with independent use with residential use, whose VPT is equal to or greater than € 1,000,000.00, are covered by the norm of application of Item no. 28.1 of the General Schedule.

To this extent, and as mentioned in the arbitral decision handed down in case no. 132/2013-T, "The uniform criterion that is necessary is, thus, that which determines that the application of the norm in question only takes place when any of the parts, floors or divisions with independent use of property in horizontal or full ownership with residential use, possesses a VPT greater than € 1,000,000.00" and not when this value results from the sum of the VPT attributed to each floor or division with independent use.

As also mentioned in the arbitral decision handed down in case no. 50/2013-T, "The criterion sought by the AT, of considering the value of the sum of the VPT attributed to the parts, floors or divisions with independent use, with the argument that the property is not constituted under a regime of horizontal ownership, finds no legal basis and is contrary to the criterion applicable in the sphere of CIMI and, by reference, in the sphere of IS. To which is added the fact that the law itself expressly establishes, in the final part of item 28 of the TGIS, that the IS to apply to urban properties of value equal to or greater than €1,000,000.00 – "on the taxable patrimonial value used for purposes of IMI.".

By all the foregoing, we cannot agree with the understanding of the AT.

In fact, if it is the norm itself provided in Item no. 28.1 of the General Schedule in fine that determines that Stamp Duty applies "on the taxable patrimonial value used for purposes of IMI", what is relevant for purposes of tax application is the taxable patrimonial value individualized for each of the parts, floors or divisions with independent use on which the IMI is assessed annually, that is, the assessment of Stamp Duty follows the rules provided in the Municipal Property Tax Code, by express reference from the aforementioned Item no. 28 of the General Schedule and no. 2 of article 67 of the Stamp Duty Code.

So much is the case that, the AT in order to assess Item no. 28.1 of the General Schedule, under examination, starts from each of those floors or divisions with independent use, applying the rate of 1% to the taxable patrimonial value attributed to each of those divisions with residential use, in accordance with the norms of the Municipal Property Tax Code, and then sums that taxable patrimonial value.

The interpretation to the effect that what is relevant in the norm of application of Item no. 28.1 of the General Schedule is the VPT attributed to each of the autonomous parts, floors or divisions with independent use with residential use and not the value resulting from the sum of those taxable patrimonial values is that which equally follows from its ratio legis, as required by no. 1 of article 9 of the CC, applicable by force of what is provided in article 11 of the LGT. [5]

In fact, in the presentation and discussion of the Bill no. 96/XII/2nd (available in the Journal of the Assembly of the Republic DAR, I Series no. 9/XII/2012, of 11-10-2012) in the Assembly of the Republic, the Secretary of State for Tax Affairs declared the following:

"It is the first time in Portugal that a special tax has been created on high-value properties intended for housing. This rate will be 0.5% to 0.8%, in 2012, and 1%, in 2013, and will apply to houses with a value equal to or greater than 1 million euros. With the creation of this additional rate, the tax burden required of these owners will be significantly increased in 2012 and in 2013" [emphasis ours].

To this end, we follow the arbitral decision handed down in case no. 50/2013-T in stating that "The legislator in introducing this legislative innovation considered as the determining element of taxable capacity urban properties, with residential use, of high value (luxury), more precisely, of value equal to or greater than € 1,000,000.00, on which a special rate of stamp tax began to apply, seeking to introduce a principle of taxation on wealth reflected in the ownership, usufruct or right of superficies of urban luxury properties with residential use. For this reason, the criterion was the application of the new rate to urban properties with residential use, whose VPT is equal to or greater than € 1,000,000.00.

This same conclusion follows from the analysis of the discussion of bill no. 96/XII in the Assembly of the Republic, available for consultation in the Journal of the Assembly of the Republic, I series, no. 9/XII/2, of 11 October 2012.

The justification for the measure designated as "special rate on the highest-value urban residential properties" is thus based on the invocation of the principles of social equity and tax justice, calling upon the holders of high-value properties intended for housing to contribute in a more intense manner, applying the new special rate to "houses with a value equal to or greater than 1 million euros".

Clearly the legislator understood that this value, when attributed to a dwelling (house, autonomous fraction or floor with independent use) expresses a taxable capacity above the average and, as such, capable of determining a special contribution to ensure fair distribution of the tax burden.".

Thus, and in accordance with the established facts, the VPT of each of the 25 floors or divisions with independent use dedicated to housing, which form part of the property constituted in full ownership that belongs to the undivided estates, and, which was determined according to the rules of the Municipal Property Tax Code, is less than € 1,000,000.00, thus not meeting the presuppositions for taxation under Item no. 28.1 of the General Schedule.

In light of the foregoing, the tax acts for the assessment of Stamp Duty, subject matter of the present proceedings for arbitral determination, in the total amount of € 7,029.73, suffer from the defect of violation of what is provided in Item no. 28.1 of the General Schedule and no. 2 of article 67 of the Stamp Duty Code, due to error regarding its legal presuppositions, and the illegality of those assessment acts is thus declared, with the consequent annulment thereof.

Indeed, this prejudices the consideration of the other questions raised by the Applicant, in particular, the alleged defect of unconstitutionality and, likewise, the violation of material res judicata, because the illegality of the assessments identified above has been declared, due to a substantive defect that prevents the renewal of the acts, effectively ensuring the protection of the rights of the Applicant, in harmony with what is provided in article 124 of the CPPT [6].

7. DECISION

In light of the foregoing, it is determined that the claim formulated by the Applicant, in the present request for arbitral determination, is wholly upheld and, consequently, the Stamp Duty assessments in question are declared illegal, with all legal consequences.

8. VALUE OF THE PROCEEDINGS

The value of the proceedings is set at € 7,029.73 (seven thousand twenty-nine euros and seventy-three cents), in accordance with article 97-A of the Code of Tax Procedure and Process (CPPT), applicable by force of paragraphs a) and b) of no. 1 of article 29 of the RJAT and no. 2 of article 3 of the Regulations for Costs in Tax Arbitration Proceedings (RCPAT).

9. COSTS

Costs to be borne by the AT, in the amount of € 612 (six hundred and twelve euros), in accordance with Table I of the Regulations for Costs of Tax Arbitration Proceedings, in accordance with no. 2 of article 22 of the RJAT.

Notify.

Lisbon, 28 October 2016

The arbitrator,

Hélder Filipe Faustino

Text prepared by computer, in accordance with what is provided in no. 5 of article 131 of the CPC, applicable by reference from paragraph e) of no. 1 of article 29 of the RJAT. The drafting of this decision is governed by the orthography prior to the Orthographic Agreement of 1990.

[1] See Andreia Gabriel Pereira, "The «Luxury Houses» and the Stamp Tax. Commentary to the judgment of the Supreme Administrative Court (2nd Section), of 5 February 2015, handed down in case no. 0993/14, Rapporteur Cons. Francisco Rothes", Journal of Public Finance and Tax Law, Year VII, No. 4, July 2015, pp. 235 et seq.

[2] See article 23, no. 7, article 44, no. 5, article 46, no. 5 and article 49, no. 3 of the Stamp Duty Code.

[3] See article 6 of the Municipal Property Tax Code (also of subsidiary application).

[4] "Taxes on Immovable Property and the Stamp Tax, Commented and Annotated", pp. 159 and 160.

[5] As advocated by José Maria Fernandes Pires (Coordinator), Gonçalo Bulcão, José Ramos Vidal and Maria João Menezes, in annotation to article 11 of the LGT, "The legislator enshrines the general rule that the meaning and scope of tax norms, as well as the qualification of the facts to which such norms apply are found with recourse to the rules and principles of interpretation and application of laws. The general principles are set out in various provisions of the Civil Code, particularly in article 9, regarding the interpretation of the law (…)", "General Tax Law Commented and Annotated", Almedina, 2015, p. 48 et seq.

[6] Applicable subsidiarily by force of what is provided in paragraph a) of no. 1 of article 29 of the RJAT.

Frequently Asked Questions

Automatically Created

What is Verba 28.1 of the Portuguese Stamp Tax General Table and how does it apply to high-value properties?
Verba 28.1 of the Portuguese Stamp Tax General Table (Tabela Geral do Imposto do Selo) imposes an annual 1% Stamp Tax on urban residential properties with a taxable patrimonial value (VPT) equal to or exceeding €1,000,000. Introduced as a wealth tax on luxury properties, it applies to ownership, usufruct, or surface rights. The key interpretative issue is whether the €1,000,000 threshold applies to each independent dwelling unit or to the total building value in vertical property arrangements.
How is Stamp Tax (Imposto do Selo) calculated for buildings held in vertical property (propriedade vertical)?
For buildings in vertical property (propriedade vertical), Stamp Tax calculation depends on whether each floor or independent unit is treated as a separate property. The Tax Authority's position is that the entire building constitutes one property, so if total VPT exceeds €1,000,000, the 1% tax applies to the total value. However, taxpayers argue that each independent unit with autonomous use should be assessed separately, with tax only applying if that unit's individual VPT exceeds €1,000,000, analogous to horizontal property (condominium) treatment under CIMI Article 4.
Can the tax authority assess Stamp Tax based on the total patrimonial value of a vertical property building instead of each independent unit?
The Tax Authority's position is yes—they can assess Stamp Tax based on total patrimonial value of vertical property buildings, arguing that unlike horizontal property (condominiums), vertical property units do not constitute separate 'properties' under CIMI Article 4. However, CAAD Process 300/2016-T challenged this interpretation, with taxpayers arguing it violates tax equality principles and legislative intent, which targets high-value individual dwellings (€1,000,000+), not aggregate building values. Prior CAAD Decision 345/2015-T for 2014 ruled in the taxpayer's favor on the same property.
What did CAAD Process 300/2016-T decide regarding Stamp Tax on vertical property with a total value exceeding €1,000,000?
CAAD Process 300/2016-T involved a vertical property building with total VPT of €2,108,920 assessed €7,029.73 in Stamp Tax for 2015. The taxpayer challenged the assessment, arguing Item 28.1 should apply per independent unit, not total building value. The case followed CAAD Decision 345/2015-T (2014 assessment, same property), which annulled similar tax acts. The taxpayer invoked res judicata and argued that treating vertical property differently from horizontal property violates constitutional principles of tax equality, justice, and the legislative intent to tax individual luxury dwellings exceeding €1,000,000.
What is the legal procedure to challenge Stamp Tax assessments through CAAD tax arbitration in Portugal?
To challenge Stamp Tax assessments through CAAD arbitration: (1) Submit a request for arbitral determination (pedido de pronúncia arbitral) within the legal deadline under RJAT Article 10(1)(a); (2) Pay required fees; (3) The CAAD President designates an arbitrator who constitutes the tribunal; (4) The Tax Authority is notified to submit a response under RJAT Article 17(1); (5) The tribunal may dispense with hearings under RJAT Article 18(1) and invite written submissions; (6) The tribunal issues a final decision. CAAD decisions can establish res judicata for identical tax situations, legal grounds, and parties, potentially affecting future assessments.