Process: 386/2014-T

Date: December 5, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD arbitration case 386/2014-T addressed a fundamental question regarding Stamp Tax (Imposto do Selo - IS) under Item 28 of the General Stamp Tax Table (TGIS): whether the combined patrimonial tax value (PTV) of residential units within a single property in full ownership should trigger the luxury property tax threshold of €1,000,000, or whether each independent unit should be assessed individually. The claimant, representing an undivided estate co-owning an urban property with multiple independent units (17 residential, 3 commercial, and 2 parking spaces), challenged IS assessments arguing that none of the individual residential units had a PTV exceeding €1,000,000, despite the combined residential PTV totaling €3,296,559.48. The taxpayer contended that the Tax Authority erroneously aggregated values, creating unjustified inequality compared to properties formally constituted under horizontal property regime, where each unit would be taxed separately. The Tax Authority defended its position, asserting that full ownership properties merit different treatment than horizontal property arrangements. The arbitral tribunal analyzed the fundamental concepts in the Municipal Property Tax Code (CIMI), particularly Article 2, which defines property as physically and economically independent units forming part of a natural or legal person's assets. Critically, Article 2(4) of CIMI expressly states that each autonomous unit under horizontal property regime constitutes a separate property, but the law contains no provision discriminating between horizontal and vertical ownership arrangements. This case highlights the importance of property structuring for tax purposes and establishes precedent for how IS should apply to complex ownership situations involving multiple independent units within a single registered property, with significant implications for luxury real estate taxation in Portugal.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration
Case no. 386/2014 – T
Subject: IS – Item 28 of TGIS

I – REPORT

1 – A, with …, with the NIF[1] …, in the capacity of head of household of the undivided estate with the NIF …, co-owner of the urban property registered in the respective property register under the article … of the parish of …, filed on 21/05/2014 a request for constitution of the arbitral tribunal, pursuant to the provisions of subparagraph a) of no. 1 of article 2º, of no. 1 of article 3º and of subparagraph a) of no. 1 of article 10º, all of the RJAT[2], the AT[3] being requested, with a view to examining the legality of the tax assessment acts concerning IS[4], levied on the aforementioned property, better identified in the property record attached by the claimant and which is hereby deemed to be entirely reproduced.

2 – The request for constitution of the arbitral tribunal was filed without exercising the option of designating an arbitrator, being accepted by His Excellency the President of CAAD[5] and automatically notified to the AT on 23/05/2014.

3 – Pursuant to the provisions of no. 1 of article 6º of the RJAT, by decision of His Excellency the President of the Deontological Council, duly communicated to the parties, within the legally applicable time limits, Arlindo José Francisco was appointed as arbitrator, who communicated to the Deontological Council and to the Administrative Arbitration Centre his acceptance of the appointment within the regularly stipulated period.

4 - The tribunal was constituted on 28/07/2014 in accordance with the provisions contained in subparagraph c) of no. 1 of article 11º of the RJAT, as amended by article 228º of Law no. 66-B/2012 of 31 December.

5 – With his request the claimant seeks the declaration of illegality of the tax assessment acts concerning item 28 of the TGIS[6] which were levied on the patrimonial tax value of the urban property already identified, of which the undivided estate that he represents is co-owner.

6- He invokes for this purpose, in summary, that the illegality of the IS assessments results, in his view, from the fact that erroneously the combined value of the residential units was considered, thus incurring in unjustified inequality compared to properties formally constituted in horizontal property regime, since in fact none of the independent units with residential allocation have PTV[7] equal to or exceeding € 1,000,000.00 and what the legislative intent intended was to tax luxury properties with residential allocation, which is not the case.

7 – For its part the AT, also in summary, considers the claimant has no reason inasmuch as for IS purposes the treatment is different for a property in full ownership and a property in horizontal property regime and that the legislator may subject both realities to a different legal framework, favouring the legally more evolved institute, considering that the tax acts here challenged do not violate any legal provision and should therefore be maintained.

II – CASE MANAGEMENT

The tribunal was regularly constituted and is competent ratione materiae, according to article 2º of the RJAT.

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

In its response the AT requested the dispensation of the meeting referred to in article 18º of the RJAT and that the matter proceed directly to the decision of the case, should the claimant not object.

The claimant, notified on 03/10/2014 of this request, in a submission of 08/10/2014 manifested its agreement with the proposal.

The tribunal consented to this request of the parties and considered that the conditions for issuing the final decision were met.

III – REASONING

1 – The legal issues to be resolved with relevance for the proceedings are the following:

a) To determine whether a property in full ownership with parts or divisions susceptible to independent use, some with residential allocation and others for commerce, should be taxed on IS on the PTV corresponding to the sum of each of the parts or independent divisions with residential allocation when equal to or exceeding € 1,000,000.00, or whether IS should only be levied on the PTV of each of the parts or independent divisions with residential allocation when, individually considered, is equal to or exceeding € 1,000,000.00;

b) To further determine whether, in the event the assessment is declared illegal, indemnificatory interest should be payable on the amounts paid unduly.

2 – Statement of Facts

The material facts relevant and proven on the basis of the elements filed in the proceedings are the following:

a) The claimant is the head of household of an undivided estate owning part of an urban property in full ownership with parts or divisions susceptible to independent use, registered in the urban property register under the article ... of the parish of ..., municipality of ....

b) The property in question has a PTV of € 6,753,805.43, having independent units allocated to covered parking, others allocated to services and the remainder to residential use as shown in the respective property record.

c) The claimant was notified of the stamp duty owed in the amount of € 4,337.01, with the amount to be paid in April 2014 of € 2,838.70 which was satisfied on the 14th of that month.

d) The total PTV of the parts or divisions susceptible to independent use with residential allocation is € 3,296,559.48, with reference to 2013.

e) The AT made the calculation of IS individually for each of the parts susceptible to independent use with residential allocation and proceeded with its notification also individually.

f) From the said notification notices, it is verified that in none of them the PTV taxed is equal to or exceeding € 1,000,000.00.

3 – On the Law

3.1 – Regarding IS

a) The legal issue to be resolved in the first place is to determine whether in accordance with the provisions of item 28.1 of the TGIS one should or should not consider the sum of the PTV of each of the parts or divisions susceptible to independent use, given that none of them has a value equal to or exceeding € 1,000,000.00.

b) Taking into account that the CIS[8] refers to the CIMI[9] the regulation of the concept of property and of matters not regulated regarding item 28 of the TGIS (no. 6 of article 1º and no. 2 of article 67º both of the CIS), it is in the CIMI that we must observe the concepts that allow us to resolve the issue.

c) The general concept of property is found in article 2º of the CIMI. In article 3º of the same statute the legislator, using criteria of allocation and location established the concept of rural properties, coming then, in a classification by negation, in its article 4º, establish that urban properties will be all those that should not be classified as rural.

d) Article 6º of the aforementioned CIMI divides urban properties into: residential, commercial, industrial or for services, land for construction and others.

e) In the present case we are faced with an urban property with parts or divisions susceptible to independent use with residential allocation (17); 3 allocated to services and 2 to covered parking.

f) Each of the parts or divisions susceptible to independent use that make up the property in question meets the concept of property established in article 2º of the CIMI, inasmuch as they are physically and economically independent and form part of the assets of a natural or legal person, in this case an undivided estate.

g) Pursuant to no. 4 of article 2º of the CIMI each autonomous unit, under the horizontal property regime is deemed to constitute a property, but there is nothing in law that allows discrimination between properties in horizontal and vertical ownership as regards their identification as urban residential properties.

h) The AT in making the IS taxation made its calculation on the PTV of each of the parts or divisions with independent use with residential allocation, considering them, individually, as a property, except that finally it considered the overall PTV and verifying it to be greater than € 1,000,000.00, it summed the IS values calculated individually.

i) But this sum of values has no legal basis, since none of the parts or divisions with independent use with residential allocation, each of them meeting the concept of property stated in article 2º of the CIMI and thus considered by the AT, in the taxation, has a PTV equal to or exceeding € 1,000,000.00, the requirement necessary for IS taxation to exist, therefore there was no reason for its calculation.

j) Nor should it be said that there is a different valuation and taxation of a property in full ownership with parts or divisions susceptible to independent use, compared to a property in horizontal ownership. In truth it does not exist in IMI just as it cannot exist in IS, since the applicable legislation is the same.

k) The criterion of taxation must be uniform, that is, if a residential unit of a property in horizontal ownership is only taxed on IS if its PTV is equal to or exceeding € 1,000,000.00, likewise an apartment or part of a property susceptible to independent use of a property in vertical ownership with residential allocation will only be taxed on IS if its PTV is equal to or exceeding € 1,000,000.00.

l) As already stated, the apartment or part of a property susceptible to independent use of a property in vertical ownership meets the concept of property established in the IMI Code, just as the autonomous units of properties in horizontal ownership.

m) It is thus treated by the AT when it proceeded with its evaluation, the calculation of IMI, the IS and also when it purges the non-residential part.

n) In not following the same criterion when it intends to make IS taxation it may breach no. 3 of article 104º of the CRP[10];

o) In fact, another company or citizen who has a property alongside, with the same structure, use and PTV, but in horizontal ownership, would not be taxed on IS which would manifestly contradict the constitutional norm referred to which provides for the taxation of property as a contribution to equality among citizens.

p) In this perspective and considering that none of the parts or divisions susceptible to independent use intended for or allocated to residential use has PTV equal to or exceeding € 1,000,000.00 it is necessary to conclude that the IS assessment acts are illegal for not having observed the conditions defined in item 28 of the TGIS.

3.2 – Regarding the request for indemnificatory interest.

a) The claimant in addition to the annulment of the IS in question (€ 4,337.01) requests the payment of indemnificatory interest under article 43º and article 100º of the LGT, given that there has been undue payment of the tax obligation.

b) The tribunal considers that, given the illegality of the assessment acts, when the amounts paid unduly are returned to it, they should be increased by indemnificatory interest under no. 1 of article 43º of the LGT and article 61º of the CPPT.

IV – OPERATIVE PART

Given the foregoing the tribunal decides as follows:

a) Declare the request for arbitral decision well-founded with the consequent annulment of the IS assessment acts here challenged and the return of the obligations unduly paid (€ 4,337.01)

b) Declare the obligation of the AT to pay indemnificatory interest to the claimant, at the legal rate, from the date of the payments of the obligations in question and the date on which the reimbursement occurs.

c) Fix the value of the case at € 4,337.01 having regard to the provisions contained in article 299º no. 1 of the CPC[11], 97-A of the CPPT[12] and article 3º no. 2 of the RCPAT[13];

d) Costs against the respondent, under no. 4 of article 22º of the RJAT, fixing the amount thereof at € 612.00 in accordance with Table I of the RCPAT.

Let notification be made

Lisbon, 05 December 2014

Document prepared by computer, pursuant to article 131, no. 5 of the CPC, applicable by reference to article 29º, no. 1, subparagraph e) of the RJAT, with blank verses and reviewed by me.

The drafting of this decision is governed by the orthography prior to the orthographic agreement.

The sole arbitrator,

Arlindo José Francisco

[1] Acronym for Tax Identification Number
[2] Acronym for Legal Regime for Tax Arbitration
[3] Acronym for Tax Authority and Customs Authority
[4] Acronym for Stamp Duty
[5] Acronym for Administrative Arbitration Centre
[6] Acronym for General Stamp Duty Table
[7] Acronym for Patrimonial Tax Value
[8] Acronym for Stamp Duty Code
[9] Acronym for Municipal Property Tax Code
[10] Acronym for Constitution of the Portuguese Republic
[11] Acronym for Civil Procedure Code
[12] Acronym for Code of Tax Procedure and Process
[13] Acronym for Costs Regulation in Tax Arbitration Proceedings

Frequently Asked Questions

Automatically Created

What is Verba 28 of the General Stamp Tax Table (TGIS) and how does it apply to high-value residential properties?
Item 28 (Verba 28) of the General Stamp Tax Table (TGIS) establishes an annual Stamp Tax (Imposto do Selo) on high-value residential properties with a patrimonial tax value (VPT) equal to or exceeding €1,000,000. The tax applies at progressive rates: properties valued between €1,000,000 and €2,000,000 are taxed at 0.7% (€7 per €1,000), while properties exceeding €2,000,000 face a 1% rate (€10 per €1,000). This luxury property tax was introduced to generate revenue from high-value real estate and applies to properties with residential allocation, whether owned individually or jointly. The tax is assessed annually based on the patrimonial tax value registered in the property matrix, and property owners receive individual notifications of amounts due. Under Item 28.1 of TGIS, the key threshold is whether the residential property's value meets or exceeds the €1,000,000 minimum, triggering these special Stamp Tax obligations distinct from standard property transaction taxes.
How does Portuguese tax law distinguish between total ownership and horizontal property for Stamp Tax (IS) purposes?
Portuguese tax law distinguishes between full ownership (propriedade plena) and horizontal property regime (propriedade horizontal) for Stamp Tax purposes through different assessment methodologies. Under Article 2(4) of the Municipal Property Tax Code (CIMI), each autonomous unit under horizontal property regime is expressly deemed to constitute an independent property for tax purposes. This means that in a condominium building, each apartment is taxed individually based on its own patrimonial tax value. However, for properties in full ownership containing multiple independent units not formally constituted as horizontal property, the Tax Authority has argued for aggregate valuation of residential units. The controversy in case 386/2014-T centered on whether this differential treatment is legally justified. The CIMI establishes general property concepts in Articles 2-6, defining properties based on physical and economic independence, allocation (residential, commercial, services, etc.), and registration. While the law clearly protects horizontal property unit independence, it remains ambiguous about whether properties with multiple physically independent units under single ownership should be aggregated or separately assessed for Stamp Tax purposes under Item 28 of TGIS.
Can the combined patrimonial value (VPT) of individual housing units trigger Stamp Tax if none individually exceeds €1,000,000?
The central question in CAAD case 386/2014-T was whether combined patrimonial values of individual housing units can trigger Stamp Tax under Item 28 of TGIS when none individually exceeds €1,000,000. The claimant's property had 17 residential units with a total combined PTV of €3,296,559.48, but no single unit reached the €1,000,000 threshold. The Tax Authority calculated and notified IS individually for each residential unit, yet none triggered the tax liability when assessed separately. The claimant argued that aggregating values created unjustified inequality compared to properties formally constituted under horizontal property regime, where each unit would unquestionably be taxed independently. The tribunal's analysis focused on CIMI Article 2, which establishes that each physically and economically independent unit constitutes a property. Critically, while Article 2(4) explicitly addresses horizontal property units as separate properties, the law contains no provision discriminating between horizontal and vertical ownership for taxation purposes. This suggests that independent units should be assessed individually regardless of formal property regime structure, meaning combined values should not trigger IS liability if individual units fall below the €1,000,000 threshold.
What was the outcome of CAAD arbitration process 386/2014-T regarding Stamp Tax on undivided inheritance property?
CAAD arbitration process 386/2014-T examined Stamp Tax assessments on an undivided estate's urban property containing multiple independent residential, commercial, and parking units. The claimant, acting as head of household for the undivided estate co-owning the property registered in the urban property matrix, challenged IS assessments under Item 28 of TGIS. The property had a total PTV of €6,753,805.43, with residential units totaling €3,296,559.48. The Tax Authority assessed IS on individual residential units, but none individually had PTV equal to or exceeding €1,000,000. The arbitral tribunal, constituted on July 28, 2014, with arbitrator Arlindo José Francisco, analyzed whether properties in full ownership with independent units should be taxed on the combined PTV of residential portions or on each unit individually. The tribunal's legal reasoning emphasized CIMI Article 2's definition of property as physically and economically independent units, and noted that Article 2(4) treats horizontal property units as separate properties. While the provided text is incomplete, the tribunal's reasoning direction suggests that each independent unit should be considered separately for IS purposes, regardless of whether the property is formally constituted under horizontal property regime, potentially leading to a finding that the IS assessments were illegal since no individual unit exceeded the €1,000,000 threshold.
How can taxpayers challenge Stamp Tax assessments on jointly owned properties through CAAD tax arbitration?
Taxpayers can challenge Stamp Tax assessments on jointly owned or undivided properties through CAAD (Administrative Arbitration Centre) tax arbitration by filing a request for constitution of arbitral tribunal under the RJAT (Legal Regime of Tax Arbitration). The process demonstrated in case 386/2014-T includes: (1) Filing a formal request identifying the specific tax acts being challenged, the legal grounds for illegality, and relevant property documentation; (2) The request can be filed without designating an arbitrator, allowing the CAAD President to appoint one; (3) The Tax Authority is automatically notified and has opportunity to respond; (4) The arbitral tribunal is constituted within legal timeframes and parties can request dispensation of oral hearings if both agree; (5) The tribunal examines the legality of assessments based on applicable law, particularly TGIS, CIS (Stamp Tax Code), and CIMI provisions. In this case, the claimant successfully initiated arbitration by demonstrating standing as head of household for the undivided estate, providing property registration documentation, and articulating clear legal arguments regarding inequality of treatment compared to horizontal property regimes. Tax arbitration offers an alternative to judicial courts, providing faster resolution by specialized arbitrators with tax law expertise, making it particularly valuable for complex property taxation issues involving multiple ownership interests or disputed valuation methodologies.