Process: 378/2015-T

Date: January 25, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

Process 378/2015-T addresses the application of Stamp Tax (Imposto de Selo) under Verba 28.1 of the General Stamp Tax Table (TGIS) to buildings held in full vertical ownership rather than horizontal property regime. The claimant owned an urban property comprising 24 independent units (13 residential, 10 garage, 1 commercial) not constituted as horizontal ownership. The Tax Authority assessed Stamp Tax on individual residential units, calculating the tax based on the aggregate taxable patrimonial value (VPT) of all residential fractions (€1,066,860), which exceeded the €1,000,000 threshold established in Verba 28.1 TGIS. The claimant contested these assessments, arguing that each autonomous unit should be treated separately for tax purposes, with individual VPTs ranging from €57,690 to €86,190—all below the statutory threshold. The central legal question concerned whether the relevant VPT for Stamp Tax incidence should be the total property value or the value of each independent unit. The claimant invoked Article 2(4) of the Municipal Property Tax Code (CIMI), arguing no legal basis exists to discriminate between vertical and horizontal ownership regarding identification of urban residential properties. The Tax Authority countered that Article 80(2) of CIMI establishes each property corresponds to one registry entry, with exceptions only for mixed properties and horizontal ownership. The claimant further alleged the Tax Authority's interpretation violated constitutional principles of tax equality, legality, contributive capacity, and material truth, creating arbitrary discrimination between legally equivalent situations. The case raised fundamental questions about the application of luxury property taxation to vertically-owned buildings with multiple independent units and the proper interpretation of tax incidence rules when properties capable of autonomous use have not been formally constituted under horizontal ownership regime.

Full Decision

ARBITRAL DECISION

I - REPORT

  1. Request

A..., taxpayer no. ..., resident at Street..., ..., 2nd floor, ...-... Lisbon, hereinafter referred to as Claimant, submitted, on 12-06-2015, under the provisions of paragraph a) of article 2, section 1 and article 10 of Decree-Law no. 10/2011, of 20 January, which approves the Legal Framework for Arbitration in Tax Matters (RJAT), a request for arbitral ruling, wherein the Respondent is the AT - Tax and Customs Authority, with a view to:

  • The annulment of the acts of assessment of Stamp Tax levied under item 28.1 of the General Schedule of Stamp Tax, relating to the year 2014 and embodied in the documents:

· 2015..., in the amount of 861.90 euros, fraction 1st D

· 2015..., in the amount of 861.90 euros, fraction 1st E

· 2015..., in the amount of 861.90 euros, fraction 2nd D

· 2015..., in the amount of 861.90 euros, fraction 2nd E

· 2015..., in the amount of 861.90 euros, fraction 3rd D

· 2015..., in the amount of 861.90 euros, fraction 3rd E

· 2015..., in the amount of 861.90 euros, fraction 4th D

· 2015..., in the amount of 861.90 euros, fraction 4th E

· 2015..., in the amount of 861.90 euros, fraction 5th D

· 2015..., in the amount of 861.90 euros, fraction 5th E

· 2015..., in the amount of 567.90 euros, fraction CV126

· 2015..., in the amount of 610.80 euros, fraction R/C D

· 2015..., in the amount of 861.90 euros, fraction R/C E

  • The reimbursement to the Claimant of the amounts unduly paid relating to the contested assessments, plus corresponding compensatory interest.

To support its request, the Claimant alleges, in summary:

  • The Claimant is the owner of the urban property in full vertical ownership located at Street..., numbers ... to..., Lisbon, registered in the tax urban real property register under article no. ... of the Parish of...;

  • The aforementioned property is composed of twenty-four independent-use fractions, of which thirteen are intended for residential use, ten are intended for garage use, and one is intended for commercial use, and is not established in horizontal ownership;

  • The taxable property value of each of the thirteen fractions devoted to residential use, determined separately, at the date of the assessments, is between 57,690.00 euros and 86,190.00 euros;

  • The sum of the property values of the thirteen fractions devoted to residential use amounts to 1,066,860.00 euros;

  • Under the provisions of item 28 of the General Schedule of Stamp Tax (TGIS), the taxation of urban properties therein mentioned depends on the verification of three elements, namely ownership, taxable property value equal to or exceeding 1,000,000 euros, and residential use;

  • Being the case that section 4 of article 2 of the Code of Municipal Tax on Real Property (CIMI) (applicable in the context of Stamp Tax by virtue of article 1, section 6 of the Code of Stamp Tax) provides that each autonomous fraction in the horizontal ownership regime is regarded as constituting a property, nothing in law points to discrimination between properties in vertical and horizontal ownership, as regards their identification as urban residential properties, from which it is concluded that autonomous parts of properties in vertical ownership with residential use should be considered urban residential properties;

  • The Tax Authority itself admits that this is so, because from the assessments it has issued it results that the value of incidence taken into account is the property value of each floor with independent use, and furthermore those assessments are individualized – one assessment act on each of the floors comprising the aforementioned urban property;

  • It further follows that the taxation of item 28 of the TGIS is based on the taxable property value used for IMI purposes, as stated in the law itself (final part of item 28.1 of the TGIS);

  • In the same sense militates the subjectivist element of interpretation. If the intention of the legislator, with the institution of taxation of item 28.1 of the TGIS, was to tax luxury housing, the residential parts of a property in vertical ownership cannot be subject to taxation as a function of the overall taxable property value of the property, but can only be so as a function of the taxable property value attributed to each part;

  • The interpretation that the Tax Authority makes of item 28.1 of the TGIS is unconstitutional, by violation of the principles of fiscal equality, tax legality, contributive capacity, justice, and the prevalence of material truth over legal-formal reality, set forth in articles 13, 18, 81(b), 103 and 104 of the Portuguese Constitution, because with this interpretation the Tax Administration treats equal situations (properties in horizontal ownership and properties in full ownership composed of parts capable of independent use) differently.

  1. Response

In its Response, the Respondent AT - Tax and Customs Authority, alleges, in summary:

  • The taxable fact of stamp tax under item 28.1 of the TGIS consists of the ownership, usufruct or right of superficies of urban properties whose taxable property value appearing in the register, under the terms of the CIMI, is equal to or exceeding 1,000,000 euros;

  • The taxable property value relevant for purposes of the incidence of the tax is, therefore, the total taxable property value of the urban property and not the property value of each of the parts that comprise it, even when capable of independent use;

  • Article 80, section 2 of the CIMI declares that each property corresponds to a single land registry entry, a rule that is excepted for mixed properties and for urban properties in horizontal ownership;

  • The property in question is not a property in horizontal ownership;

  • The unity of the urban property in vertical ownership composed of various floors or divisions is not affected by the fact that all or part of the floors or divisions are capable of independent economic use;

  • In the present case, the taxable property value on which the incidence of stamp tax under item 28.1 of the General Schedule depends had to be, as it was, the overall property value and not that of each of its independent parts;

  • The fact that the IMI was calculated as a function of the taxable property value of each part of property with independent economic use does not equally affect the application of item 28, no. 1, of the General Schedule, resulting from the determining fact that the application of that item of the General Schedule is the total taxable property value of the property and not separately that of each of its parcels;

  • Regarding the violation of the constitutional principle of tax equality, the AT considers that the provision of item 28.1 of the TGIS does not constitute any violation of the constitutional principle of equality, there being no discrimination in the taxation of properties constituted in horizontal ownership and of properties in full ownership with floors or divisions capable of independent use, or between properties with residential use and properties with other uses;

  • The establishment of horizontal ownership implies, it is a fact, merely a legal alteration of the property, there being no assessment (office – circular no. 40,025, of 11.08.2006, of the DSCA), but the legislator can, nevertheless, subject to a distinct tax legal framework, therefore discriminatory, properties in the regime of horizontal and vertical ownership, in particular benefiting the legally more evolved institute of horizontal ownership, without such discrimination being necessarily considered and solely for this reason, arbitrary;

  • The contested assessments and the interpretation that the Tax Authority makes of item 28 of the TGIS do not constitute any unconstitutionality;

  • It would be unconstitutional, by offensive to the principle of tax legality, the interpretation of item 28.1 of the General Schedule, in the sense that the taxable property value on which its incidence depends is calculated globally and not floor by floor or division by division.

  1. Meeting provided for in article 18 of the RJAT and pleadings

With the agreement of the Parties, the Tribunal determined the dispensation of the meeting provided for in article 18 of the RJAT.

The Parties dispensed with presenting final pleadings.

II. SANITATION

The single Arbitral Tribunal was regularly constituted on 24-08-2015, the Arbitrator having been appointed by the Deontological Board of CAAD, with the respective legal and regulatory formalities fulfilled (articles 11, section 1, paragraphs a) and b) of the RJAT and 6 and 7 of the Deontological Code of CAAD), and is competent ratione materiae, in accordance with article 2 of the RJAT.

The Parties have legal personality and capacity and are regularly represented.

No procedural defects were identified.

III. REASONING

Questions to be decided

The following are the questions to be decided by the Tribunal:

  • The applicability of item 28.1 of the TGIS to urban properties in vertical ownership formed by parts capable of independent use considered as a whole, with the consequence that the taxable property value to be taken into account for purposes of incidence of the tax shall be, in case of affirmative answer, the taxable property value of the property;

  • In case of affirmative answer to the previous question, the constitutionality of the rule of incidence contained in item 28.1 of the TGIS, if interpreted in the sense of encompassing land for construction, in light of the constitutional principle of equality.

Factual matter

The following are the facts considered proven as relevant to the decision:

  • The Claimant was, at the date of the alleged taxable fact, owner of the urban property in full vertical ownership located at Street of..., numbers ... to..., Lisbon, registered in the tax urban real property register under article no. ... of the Parish of...;

  • It is a property described as urban, in full vertical ownership, composed of parts capable of independent use;

  • The sum of the property values of the thirteen fractions devoted to residential use amounts to 1,066,860.00 euros;

  • The Claimant was notified of the following assessments of stamp tax, under item 28.1 of the TGIS, on the independent parts of the aforementioned property with residential use and relating to the year 2014:

¾ 2015..., in the amount of 861.90 euros, fraction 1st D

¾ 2015..., in the amount of 861.90 euros, fraction 1st E

¾ 2015..., in the amount of 861.90 euros, fraction 2nd D

¾ 2015..., in the amount of 861.90 euros, fraction 2nd E

¾ 2015..., in the amount of 861.90 euros, fraction 3rd D

¾ 2015..., in the amount of 861.90 euros, fraction 3rd E

¾ 2015..., in the amount of 861.90 euros, fraction 4th D

¾ 2015..., in the amount of 861.90 euros, fraction 4th E

¾ 2015..., in the amount of 861.90 euros, fraction 5th D

¾ 2015..., in the amount of 861.90 euros, fraction 5th E

¾ 2015..., in the amount of 567.90 euros, fraction CV126

¾ 2015..., in the amount of 610.80 euros, fraction R/C D

¾ 2015..., in the amount of 861.90 euros, fraction R/C E

  • The total amount of tax assessed in the aforementioned assessments is 10,668.60 euros;

  • At the date of submission of the request for arbitral ruling, the Claimant had proceeded to pay the first installment of the assessed amounts, totaling 3,556.20 euros.

The indicated facts were considered proven on the basis of the documentation attached to the case.

On the law

3.1. On the question of the legality of the assessment acts

The question to be decided in the present case has been the subject of numerous arbitral decisions to date.

The jurisprudential orientation of these arbitral decisions is not entirely uniform.

Part of this jurisprudence goes in the direction of considering contrary to the constitutional principle of equality the interpretation that the Respondent makes of item 28.1 of the TGIS, in the case of vertical properties in full ownership composed of parts capable of independent use, which consists of taking the sum of the taxable property values of the parts with residential use to determine the incidence of item 28.1 of the TGIS. This orientation has been echoed by, among others, the arbitral decisions rendered in cases 181/2013-T, 182/2013-T, 183/2013-T, 218/2013-T and 14/2014-T.

Recently, the Constitutional Court, in judgment no. 692/2015, of 16 December 2015 (case no. 51/2014), ruled in the sense of the constitutionality of the rule of incidence contained in item 28.1 of the General Schedule of Stamp Tax, when interpreted in the sense that it includes urban residential properties in full ownership composed of parts susceptible to independent use and considered separately in the land registry entry.

In the meantime, the Supreme Administrative Court pronounced itself on this same question, in its judgment of 09-09-2015, rendered in case no. 47/15.

In this judgment, which we take as the basis of our decision in the present case, the SAC holds:

"The concept of 'property (urban) with residential use' was not defined by the legislator. Neither in Law no. 55-A/2012, which introduced it, nor in the IMI Code, to which section 2 of article 67 of the Code of Stamp Tax (equally introduced by that Law) refers subsidiarily. And it is a concept that, probably owing to its imprecision – a fact all the more serious as it is as a function of it that the scope of objective incidence of the new taxation is delineated –, had a short life, because it was abandoned upon the entry into force of the State Budget Law for 2014 (Law no. 83-C/2013, of 31 December), which gave new wording to that item no. 28 of the General Schedule, and which now delineates its scope of objective incidence through the use of concepts that are legally defined in article 6 of the IMI Code.

From the letter of the law nothing unequivocal follows, indeed, because it itself in using a concept that it did not define and that also was not found defined in the statute to which it referred subsidiarily lent itself, unnecessarily, to ambiguities, in matter – of tax incidence – in which certainty and legal security should also be paramount concerns of the legislator."

And the Court continues:

"(…)This present subject matter is, from the outset by virtue of article 67, section 2 of the Code of the IS, subject to the norms of the IMI Code, - 'to matters not regulated in the present code relating to item 28 of the General Schedule, the CIMI applies subsidiarily'.

As such, and as has been mentioned so many times, in the understanding of this court, the mechanism for ascertainment of the TPV relevant for purposes of the aforementioned item, is that which is found provided for in the IMI Code.

Now, article 12, section 3 of the IMI Code establishes that 'each floor or part of property capable of independent use is considered separately in the land registry entry, which also discriminates its respective taxable property value'.

The legislator devaluing, in accordance with the terms previously mentioned, any prior establishment of horizontal or vertical ownership.

In effect, for the latter (legislator), what is relevant is the material truth underlying its existence as an urban property and its use.

It may be noted that the ATA itself appears to agree with the criterion exposed, which is why the assessments that it itself issues are very clear in their essential elements, from which results that the value of incidence is that corresponding to the TPV of each of the floors and the assessments individualized.

Therefore, if the legal criterion imposes the issuance of individualized assessments for the autonomous parts of properties in vertical ownership, in the same manner as it establishes for properties in horizontal ownership, it clearly established the criterion, which must be single and unequivocal, for the definition of the rule of incidence of the new tax.

Thus, there would only be incidence of IS (within Item no. 28 of the TGIS) if any of the parts, floors or divisions with independent use presented a TPV exceeding €1,000,000.00.

The ATA cannot consider as the reference value for the incidence of the new tax the total value of the property, when the legislator itself established a different rule in the context of IMI (and, as previously mentioned, this is the code applicable to matters not regulated regarding Item no. 28 of the TGIS).

In conclusion, the current legal framework does not impose the obligation to establish horizontal ownership, so that the action of the ATA translates itself into arbitrary and illegal discrimination.

In fact, the ATA cannot distinguish where the legislator itself understood not to do so, under penalty of violating the coherence of the tax system, as well as the principle of tax legality provided for in article 103 of the Constitution of the Portuguese Republic, and also the principles of justice, equality and proportionality of taxation.

In the case in question, the property(ies) in question was(were) found, at the date relevant to the facts, established in full ownership and had(had) […] fractions with independent use, as results from the documents […].

Given that none of these fractions has a property value equal to or exceeding €1,000,000.00, as results from the documents attached to the file, it is concluded that the legal prerequisite of incidence was not fulfilled."

Thus, following closely the jurisprudence of the cited judgment:

The incidence of item 28.1 of the TGIS is composed of several elements:

i) The qualification of the property as urban

ii) The dedication to residential use (in the wording in force at the date of the taxable fact)

iii) The taxable property value equal to or exceeding 1,000,000 euros.

A property, for purposes of item 28.1 of the TGIS is the same as a property for purposes of the Municipal Tax on Real Property, by virtue of article 1, section 6 of the CIS.

The Code of Stamp Tax not defining what should be understood by "property with residential use," the interpretation of the concept must be based on the letter of the law itself, as a starting point. Based on the letter of the law, property with residential use is that whose normal destination is residential.

If, to ascertain the residential use, the Respondent – interpreting the law – takes as its basis each part of the property in full ownership, as if it were a property, it cannot take as its basis the entire property, to ascertain the fulfillment of the element relating to taxable property value.

But in truth the Respondent does not even take as its basis the taxable property value of the property, but rather the sum of the taxable property values of the various parts with residential use, a procedure that has no support whatsoever in the letter of the law, nor is it logical and demonstrates that the Respondent does not take as the basis of incidence the property as a whole.

Facing the uncertainty of the legal formulation, the interpreter must decide whether the unit to be considered to ascertain incidence is the part or is the whole. If it is the part, all criteria must be verified in relation to the part. If it is the whole, all criteria will have to be verified in relation to the whole.

For all the foregoing, it is necessary to conclude that the contested assessments of stamp tax are illegal, by violation of tax law, in that they incide on independent parts of properties in full ownership but taking as their basis the taxable property value of the sum of those same parts.

3.2. On the question of the right to compensatory interest

The Claimant further petitions for the payment of compensatory interest.

In light of the reasoning expended, it must be concluded that the illegality of the contested assessments results from errors attributable exclusively to the Tax Administration.

In truth, it being demonstrated that the Claimant paid unduly assessed tax, by virtue of the provisions of articles 61 of the CPPT and 43 of the LGT, the Claimant has the right to compensatory interest on the amounts paid, such interest to be calculated from the date of payment of the unduly assessed tax until the date of issuance of the respective credit note, counting the period for that payment from the beginning of the period for spontaneous execution of the present decision (art. 61, nos. 2 to 5, of the CPPT) until the issuance of the respective credit note, all at the rate calculated in accordance with the provisions in no. 4 of article 43 of the LGT.

IV. DECISION

For the reasons set forth:

1st: The request for annulment of the contested assessment acts is wholly upheld;

2nd: The Respondent is condemned, under article 24, section 1, paragraph b), to refund the amount of 3,556.20 euros (three thousand, five hundred and fifty-six euros and twenty cents), plus corresponding compensatory interest.

The value of the economic utility of the case is fixed at 10,668.60 euros.

Costs: Pursuant to article 22, section 4, of the RJAT, the amount of costs is fixed at 918.00 euros, in accordance with Table I annexed to the Regulation of Costs in Proceedings of Tax Arbitration, to be borne by the Respondent.

Let this arbitral decision be registered and notified to the parties.

Lisbon, Center for Administrative Arbitration, 25 January 2016

The Arbitrator

(Nina Aguiar)

Frequently Asked Questions

Automatically Created

Is Stamp Tax (Imposto de Selo) under Verba 28 TGIS applicable to buildings in vertical property (propriedade vertical) with individual units below €1,000,000?
The applicability of Stamp Tax under Verba 28 TGIS to vertically-owned buildings with individual units below €1,000,000 depends on the interpretation of the taxable base. According to the Tax Authority's position in this case, Stamp Tax applies when the total aggregate taxable patrimonial value (VPT) of the entire vertical property exceeds €1,000,000, regardless of whether individual units fall below this threshold. The Tax Authority argues that Article 80(2) of CIMI establishes that each property corresponds to a single registry entry, with exceptions only for horizontal ownership and mixed properties. Since a vertically-owned building constitutes a single property for registry purposes, the relevant VPT is the total property value. However, the claimant contested this interpretation, arguing that autonomous units with independent economic use should be treated separately, similar to horizontal ownership fractions under Article 2(4) of CIMI. The claimant maintained that when individual residential units each have VPT below €1,000,000, Stamp Tax should not apply, as the tax was intended to target luxury housing based on individual dwelling values rather than aggregate building values.
How is the taxable patrimonial value (VPT) calculated for Stamp Tax purposes on a building not constituted in horizontal property?
For Stamp Tax purposes on buildings not constituted in horizontal property, the Tax Authority's position is that the taxable patrimonial value (VPT) must be calculated based on the total aggregate value of the entire urban property as registered for Municipal Property Tax (IMI) purposes. According to Article 80(2) of CIMI, each property corresponds to a single land registry entry, with specific exceptions for mixed properties and properties in horizontal ownership regime. Since vertical ownership does not fall within these exceptions, the property maintains its unity as a single real estate asset for tax purposes, despite potentially containing multiple floors or divisions capable of independent economic use. Therefore, the VPT relevant for Verba 28.1 TGIS incidence is the overall property value appearing in the tax register under CIMI terms, not the separate values of individual parts. However, taxpayers have challenged this interpretation, arguing that when the Tax Authority itself issues separate IMI assessments for each independent unit and calculates IMI based on individual unit values, the same valuation methodology should apply for Stamp Tax. The claimant in this case contended that the law (final part of Verba 28.1 TGIS) expressly bases taxation on the VPT used for IMI purposes, which in practice meant individual unit values.
Can a taxpayer challenge Stamp Tax assessments on individual housing units within a vertically owned building at CAAD?
Yes, taxpayers can challenge Stamp Tax assessments on individual housing units within vertically-owned buildings at the Administrative Arbitration Center (CAAD). This case itself demonstrates such a challenge, filed under Article 2(1)(a) and Article 10 of Decree-Law 10/2011 of 20 January, which establishes the Legal Framework for Arbitration in Tax Matters (RJAT). The claimant successfully initiated arbitral proceedings seeking annulment of thirteen separate Stamp Tax assessments issued for different residential fractions within the vertical property, plus reimbursement of amounts paid and compensatory interest. Taxpayers may contest both the legal interpretation applied by the Tax Authority (such as whether individual units or total building value should be considered for the €1,000,000 threshold) and constitutional issues (including alleged violations of tax equality, legality, contributive capacity, and material truth principles). The arbitration process provides an alternative to judicial courts for resolving tax disputes, offering a specialized forum for complex tax law questions. Challenges may address substantive issues regarding tax incidence, calculation methodologies, valuation disputes, and fundamental rights violations, as well as procedural irregularities in the assessment process.
What are the legal requirements under Verba 28 of the Stamp Tax General Table for taxing residential urban properties?
Under Verba 28.1 of the General Stamp Tax Table (TGIS), three cumulative legal requirements must be satisfied for taxing residential urban properties: (1) the taxpayer must hold ownership (propriedade), usufruct (usufruto), or right of superficies (direito de superfície) over the urban property; (2) the property must be classified as urban residential property (prédio urbano habitacional); and (3) the taxable patrimonial value (valor patrimonial tributável - VPT) appearing in the tax register under the terms of the Municipal Property Tax Code (CIMI) must equal or exceed €1,000,000. The tax is assessed annually as of January 1st on properties meeting these criteria. The VPT reference is specifically to the value determined for IMI purposes and officially registered with the Tax Authority. The taxable persons are the holders of the qualifying real rights (ownership, usufruct, or superficies) as of the annual assessment date. Regarding what constitutes 'urban residential property,' the legislation does not explicitly address whether this refers to entire buildings in vertical ownership or individual autonomous units within such buildings. This ambiguity has generated disputes like the present case, where the Tax Authority interprets the requirement as applying to the complete registered property (entire vertical building), while taxpayers argue that autonomous residential units capable of independent use should be treated individually, particularly when such units are separately assessed for IMI purposes.
Are property owners entitled to compensatory interest (juros indemnizatórios) when Stamp Tax liquidations on vertical property units are annulled?
Yes, property owners are generally entitled to compensatory interest (juros indemnizatórios) when Stamp Tax liquidations on vertical property units are annulled, provided the legal requirements are met. Under Portuguese tax law, specifically Article 43 of the General Tax Law (Lei Geral Tributária), taxpayers are entitled to compensatory interest when they have made undue payments of taxes that are subsequently annulled or declared unlawful through administrative or judicial proceedings. The interest compensates taxpayers for the financial loss resulting from the State's retention of funds to which it was not entitled. In this case, the claimant expressly requested reimbursement of amounts unduly paid relating to the contested assessments plus corresponding compensatory interest. The entitlement arises automatically upon successful annulment of the tax assessments—no separate proof of damages is required. Compensatory interest is calculated from the date of undue payment until the date of reimbursement, using the legally established interest rate. The Tax Authority is obligated to reimburse both the principal amount (the tax unduly collected) and the accrued compensatory interest within the timeframe established by law following the final decision. This mechanism ensures taxpayers are made whole for the opportunity cost and financial prejudice suffered due to unlawful tax collection, reflecting the constitutional principle that taxation must respect legality and contributive capacity.