Process: 31/2014-T

Date: June 4, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD arbitration case 31/2014-T addressed whether Stamp Tax (Imposto de Selo) under Item 28 of the TGIS applies to properties in vertical ownership when individual units fall below the €1,000,000 threshold but the aggregate value exceeds it. The applicant owned a building with 14 residential floors/divisions capable of independent use, with a total taxable patrimonial value (VPT) of €1,028,590. Each individual unit had a VPT between €62,790 and €79,070, well below the €1,000,000 threshold. The Tax Authority assessed Stamp Duty totaling €3,428.57 by calculating tax on each division individually. The applicant argued that since no individual floor exceeded €1,000,000, the legal condition for Stamp Duty incidence under Item 28 TGIS was not met, particularly as the property was in vertical ownership (not constituted as horizontal property until 2013). The company invoked principles of fiscal equality, arguing that horizontal property units would only be taxed individually if they exceeded the threshold. The Tax Authority countered that for Stamp Duty purposes, the property in its entirety is relevant, emphasizing that full ownership represents a single legal reality unlike horizontal property where each unit has autonomy. The central legal question concerned whether vertical property should aggregate VPT values of all divisions or assess each division separately for determining Stamp Tax liability under the €1,000,000 threshold established in Item 28 of the TGIS.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Case No. 31/2014 – T

I – REPORT

1 – A, Lda., legal entity number …, with headquarters …, filed on 15/01/2014 a request for constitution of the arbitral tribunal, pursuant to the provisions of paragraph a) of no. 1 of article 2, of no. 1 of article 3 and of paragraph a) of no. 1 of article 10, all of the RJAT[1], with the Tax and Customs Authority[2] being required, with a view to assessing the legality of the tax assessment acts for Stamp Duty[3], relating to the year 2012 (3rd instalment) affecting a property with storeys and divisions with independent use located … registered in the urban property matrix of the parish … under no. ….

2 – The request for constitution of the arbitral tribunal was made without exercising the option of designating an arbitrator, and was accepted by the Esteemed President of CAAD[4] and automatically notified to the Tax and Customs Authority on 15/01/2014.

3 – Pursuant to the provisions of no. 1 of article 6 of the RJAT, by decision of the Esteemed President of the Deontological Council, duly communicated to the parties within the legally applicable deadlines, Arlindo José Francisco was appointed as arbitrator, who communicated to the Deontological Council and to the Centre for Administrative Arbitration the acceptance of the appointment within the regularly established deadline.

4 – The tribunal was constituted on 25/03/2014 in accordance with the provisions contained in paragraph c) of no. 1 of article 11 of the RJAT, in the version introduced by article 228 of Law no. 66-B/2012 of 31 December.

5 – With its request, the applicant seeks the declaration of illegality of the tax assessment acts for the levy of item 28 of the TGIS[5] that affected the patrimonial value of the urban property registered in the respective matrix under article … (ExTINT U – …) of the parish … municipality of … of which it is the owner.

6 – It invokes the following for this purpose:

6.1 – The illegality of the Stamp Duty assessments, supported, from its perspective, on the fact that the property in 2012 was not yet constituted as horizontal property, but rather as vertical property, with a total of 14 storeys and divisions capable of independent use, all intended for residential use with a total TPV[6] of € 1,028,590.00;

6.2 – This value was calculated separately, as provided in no. 2 paragraph b) of article 7 of the CIMI[7], with the TPV of each storey or division with independent use and residential intended use varying between €62,790.00 and €79,070.00, therefore none of them with TPV equal to or exceeding €1,000,000.00.

6.3 – The contested Stamp Duty was assessed on the TPV of each one of the storeys or independent divisions with residential intended use individually as shown in assessments contained in document 1, which in its view are affected by illegality to the extent that none of the storeys individually considered have TPV equal to or exceeding €1,000,000.00.

6.4 – A property in vertical or horizontal ownership could not, by itself, be an indicator of taxpaying capacity, a principle of fiscal equality following from the law and thus, if a property in horizontal ownership would only pay Stamp Duty for the units that had patrimonial value equal to or exceeding €1,000,000.00, the same should occur for properties in vertical ownership with storeys or divisions with independent use.

6.5 – It is therefore evident the illegality of the assessments as the legal condition for the incidence of Stamp Duty provided in item 28 of the TGIS was not verified.

7 – For its part the Tax and Customs Authority holds:

7.1 – That the applicant is not correct since for purposes of Stamp Duty the property in its entirety is relevant, despite the Municipal Property Tax being assessed for each storey or division capable of independent use;

7.2 – The Tax and Customs Authority further notes that a property in full ownership and a property in horizontal ownership have different valuation and taxation from which different legal effects follow; while in horizontal ownership there is a division of full ownership and autonomy of each unit, in the property in full ownership there is a single legal reality;

7.3 – Each part capable of independent use is not autonomous, by matrix, possessing a discretion of the property in its entirety;

7.4 – It concludes that the tax acts challenged here are legal and should be maintained, the Tax and Customs Authority should be absolved of the request.

II – CASE MANAGEMENT

The tribunal was regularly constituted and is competent in respect of the subject matter, in accordance with article 2 of the RJAT.

The parties have personality and procedural capacity, show themselves to be legitimate and are regularly represented in accordance with articles 4 and 10 no. 2 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March.

In its reply the Tax and Customs Authority requested the waiver of the hearing referred to in article 18 of the RJAT and that it proceed directly to the decision of the case, should the applicant not oppose.

The applicant being notified on 06/05/2014 of this request, no opposition was expressed, whereby the tribunal considered that the conditions were met for the pronouncement of the final decision.

III – GROUNDS FOR DECISION

1 – The matters to be resolved of interest to the case are the following:

a) To determine whether a property in full ownership with parts or divisions capable of independent use, intended for residential use, should be assessed for Stamp Duty on the TPV corresponding to the sum of each one of the independent parts or divisions with residential intended use when equal to or exceeding €1,000,000.00, or whether Stamp Duty should only be assessed on the TPV of each one of the independent parts or divisions when, individually considered, is equal to or exceeding €1,000,000.00;

b) To determine further whether, in case the illegality of the assessment is declared, there will be entitlement to compensation of the applicant for the costs incurred with the security that is to be provided to stay the tax enforcement proceedings that may be instituted against it as a consequence of the non-voluntary payment of the assessments challenged.

2 – Factual Matters

The relevant factual matters proved on the basis of the elements attached to the case file are the following:

a) The applicant is the owner of an urban property in full ownership with parts or divisions capable of independent use, registered in the urban property matrix of the parish … under no. … (Extint U – …), municipality of …;

b) Only in 2013 was the property constituted as horizontal property, until then the property was in vertical ownership with 14 storeys or divisions capable of independent use intended for residential use;

c) The sum of the TPV of the parts or divisions with residential intended use is €1,028,590.00;

d) Each one of the storeys or divisions capable of independent use has TPV well below the €1,000,000.00 that item 28 of the TGIS requires for there to be assessment for Stamp Duty;

e) The Tax and Customs Authority calculated the Stamp Duty individually for each one of the storeys or divisions capable of independent use, making the sum at the end, determining a total Stamp Duty to be paid of €3,428.57;

f) The applicant did not pay the Stamp Duty in question.

3 – On the Law

3.1 – As to Stamp Duty

a) The legal question to be resolved in the first place is whether in accordance with the provisions of item 28.1 of the TGIS the sum of the TPV of each one of the parts or divisions capable of independent use should or should not be considered, since none of them has value equal to or exceeding €1,000,000.00;

b) Having in mind that the Code of Stamp Duty[9] refers to the Code of Municipal Property Tax for the regulation of the concept of property and of matters not regulated as to item 28 of the TGIS (no. 6 of article 1 and no. 2 of article 67 both of the Code of Stamp Duty), it is in the Code of Municipal Property Tax that we will have to observe the concepts that will allow us to resolve the question;

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

d) Article 6 of the cited Code of Municipal Property Tax divides urban properties into: residential, commercial, industrial or services, construction land and others;

e) In the present case we are dealing with an urban property with parts or divisions capable of independent use with residential intended use;

f) Each one of the parts or divisions capable of independent use that compose the property in question fulfils the concept of property established in article 2 of the Code of Municipal Property Tax, to the extent that they are physically and economically independent and form part of the patrimony of a natural or legal person, in the present case a legal person;

g) Under no. 4 of article 2 of the Code of Municipal Property Tax each autonomous unit, in the regime of horizontal ownership is considered to constitute a property, but there is nothing in the law that allows making the discrimination between properties in horizontal and vertical ownership with regard to their identification as urban residential properties;

h) The Tax and Customs Authority in making the assessment for Stamp Duty made its calculation on the TPV of each one of the parts or divisions with independent use with residential intended use, only that at the end it considered the global TPV and verifying it to be exceeding €1,000,000.00, it summed the values of Stamp Duty determined individually;

i) But this procedure has no legal support, since none of the parts or divisions with independent use with residential intended use, each of them fulfilling the concept of property stated in article 2 of the Code of Municipal Property Tax, has a TPV equal to or exceeding €1,000,000.00, a requirement required for there to be assessment for Stamp Duty;

j) Nor should it be said that there is a different valuation and taxation of a property in full ownership with parts or divisions capable of independent use, as against a property in horizontal ownership. In truth it does not exist in Municipal Property Tax[8] just as it cannot exist in Stamp Duty, since the applicable legislation is the same;

k) The criterion of assessment must be uniform, that is, if a residential unit of a property in horizontal ownership is only assessed for Stamp Duty if its TPV is equal to or exceeding €1,000,000.00, equally a storey or part of property capable of independent use of a property in vertical ownership with residential intended use will only be assessed for Stamp Duty if its TPV is equal to or exceeding €1,000,000.00;

l) As already stated the storey or part of property capable of independent use of a property in vertical ownership meets the concept of property established in the Code of Municipal Property Tax, just as the autonomous units of properties in horizontal ownership;

m) In this perspective and considering that none of the parts or divisions capable of independent use with destination or residential intended use has TPV equal to or exceeding €1,000,000.00 it is necessary to conclude that the acts of assessment of Stamp Duty are illegal for not having observed the conditions defined in item 28 of the TGIS;

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

3.2 – As to the request for compensation regarding the costs with security with a view to staying the tax enforcement proceedings that may eventually be instituted due to lack of voluntary payment.

a) The applicant in addition to the annulment of the Stamp Duty further requests that the Tax and Customs Authority bear the costs with the security that it may have to provide to stay the tax enforcement proceedings[10] that may be instituted against it for non-voluntary payment of the Stamp Duty;

b) It supports such request on articles 53 of the General Tax Law[11] and 171 of the Procedure and Process for Tax Matters[12];

c) No proof was made of the institution of tax enforcement proceedings, nor of the type of security provided or to be provided;

d) It should be said that attachment of assets necessary to secure payment may serve as security, which in case of annulment of the debt will have no cost for the person against whom execution is sought;

e) In this perspective the tribunal understands that the request, although legitimate, lacks better proof either of its implementation or of the need for costs on the part of the applicant, whereby we consider it unfounded.

IV – RULING

Given the foregoing the tribunal decides as follows:

a) To declare the arbitral claim well-founded with the consequent annulment of the acts of assessment of Stamp Duty challenged here;

b) To declare the request for compensation requested by the applicant under article 53 of the General Tax Law and 171 of Procedure and Process for Tax Matters unfounded;

c) Value of the case: €3,428.57 having in view the provisions contained in article 299 no. 1 of the Code of Civil Procedure[13], 97-A of Procedure and Process for Tax Matters and article 3 no. 2 of the Regulation of Costs in Tax Arbitration Proceedings[14];

d) Costs to be borne by the respondent, under no. 4 of article 22 of the RJAT, the amount being fixed at €612.00 in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings.

Notify

Lisbon, 4 June 2014

Document drafted by computer, under article 131, no. 5 of the Code of Civil Procedure, applicable by reference from article 29, no. 1, paragraph e) of the RJAT, with blank verses and revised by me.

The drafting of the present decision is governed by the spelling prior to the orthographic agreement.

The sole arbitrator,

Arlindo José Francisco

[1] Acronym for Legal Regime of Arbitration in Tax Matters
[2] Acronym for Tax and Customs Authority
[3] Acronym for Stamp Duty
[4] Acronym for Centre for Administrative Arbitration
[5] Acronym for General Table of Stamp Duty
[6] Acronym for Taxable Patrimonial Value
[7] Acronym for Code of Municipal Property Tax
[8] Acronym for Municipal Property Tax
[9] Acronym for Code of Stamp Duty
[10] Acronym for Tax Enforcement Proceedings
[11] Acronym for General Tax Law
[12] Acronym for Procedure and Process for Tax Matters
[13] Acronym for Code of Civil Procedure
[14] Acronym for Regulation of Costs in Tax Arbitration Proceedings

Frequently Asked Questions

Automatically Created

Does Stamp Tax (Imposto de Selo) under Verba 28 TGIS apply to vertical property buildings with a global VPT over €1,000,000?
The case addressed whether Stamp Tax under Item 28 TGIS applies when a vertical property building has a global VPT exceeding €1,000,000 but no individual unit reaches this threshold. The applicant's building had 14 residential divisions with total VPT of €1,028,590, though each unit individually valued between €62,790-€79,070. The legal dispute centered on whether vertical property should be taxed as a single entity based on aggregate value or whether each division should be assessed separately for the €1,000,000 threshold.
How is the taxable value (VPT) calculated for buildings with independent units not constituted as horizontal property?
For buildings with independent units not constituted as horizontal property (vertical ownership), the VPT calculation method was disputed in this case. The Municipal Property Tax Code (CIMI) Article 7(2)(b) provides for separate calculation of TPV for each floor or division with independent use. The applicant argued each division should be valued separately, while the Tax Authority maintained that for Stamp Duty purposes under Item 28 TGIS, the property should be considered in its entirety as a single legal reality, despite separate IMI assessments for each division.
Can the tax authority aggregate individual unit values to exceed the €1,000,000 Stamp Tax threshold under Verba 28?
The core dispute concerned whether the Tax Authority can aggregate individual unit values in vertical property to exceed the €1,000,000 Stamp Tax threshold. The Tax Authority's position was that full ownership properties constitute a single legal entity for Stamp Duty purposes, unlike horizontal property where each unit has autonomous matrix registration. The applicant contended this violated fiscal equality principles, as horizontal property units would only face Stamp Tax if individually exceeding €1,000,000, and the same treatment should apply to vertical property divisions.
What is the difference between vertical and horizontal property for Stamp Tax purposes under Portuguese tax law?
The distinction between vertical and horizontal property for Stamp Tax purposes under Portuguese law is significant. Horizontal property involves division of full ownership with autonomy for each unit through separate matrix registration, creating distinct legal realities. Vertical property (full ownership with divisions capable of independent use) represents a single legal entity, even when divisions have separate IMI assessments. The Tax Authority argued this fundamental difference justifies different Stamp Tax treatment, while the applicant claimed both should be taxed consistently based on individual unit values relative to the €1,000,000 threshold.
What was the outcome of CAAD arbitration process 31/2014-T regarding Stamp Tax on residential property units?
CAAD arbitration process 31/2014-T was filed by a company challenging Stamp Duty assessments totaling €3,428.57 on a residential property with 14 divisions in vertical ownership. The arbitral tribunal was constituted on March 25, 2014, with parties waiving the hearing and proceeding directly to decision. The case examined whether Item 28 TGIS requires assessment based on aggregate property value (€1,028,590 total) or individual division values (none exceeding €1,000,000). The provided text does not include the final decision, as it terminates mid-section during the legal analysis portion of the arbitral award.