Process: 390/2016-T

Date: January 20, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD arbitration process 390/2016-T addressed whether Stamp Duty under item 28.1 of the General Stamp Duty Table (TGIS) applies to buildings in vertical property (full ownership) when individual units do not exceed €1,000,000 but their aggregate patrimonial value does. The dispute centered on a Lisbon property comprising 5 floors with 13 independent residential units, with a total Tax Patrimonial Value (VPT) of €1,106,250. The Tax Authority assessed €11,062.50 in Stamp Duty by aggregating all unit values. Claimants argued this violated tax legality principles, contending that since no individual unit exceeded €1,000,000, the tax should not apply. They claimed the AT unlawfully discriminated against vertical property versus horizontal property regimes, where each autonomous fraction would be assessed separately. The AT defended its position, arguing that for properties in full ownership—despite having independent units—the entire property constitutes the relevant taxable object, not individual units. The core legal question was whether the €1,000,000 threshold in item 28.1 TGIS applies to the aggregate property value or to each independent unit individually. This case has significant implications for owners of buildings in vertical property regime with multiple rental units or divisions, as it determines whether high-value buildings escape Stamp Duty merely by not being formally subdivided into horizontal property.

Full Decision

ARBITRAL DECISION

Dr. Henrique Nogueira Nunes, arbitrator designated by the Deontological Council of the Administrative Arbitration Centre ("CAAD") to form the Arbitral Tribunal, constituted on 6 October 2016, hereby decides as follows:

1. REPORT

1.1

A..., with tax identification number..., head of the estate of B..., with tax identification number..., C..., with tax identification number... and D..., with tax identification number..., hereinafter designated as "Claimants", have requested the constitution of the Arbitral Tribunal under articles 2, no. 1, paragraph a) and 10 of Decree-Law no. 10/2011, of 20 January (hereinafter "RJAT").

1.2

The request for arbitral ruling has as its object the declaration of illegality, and consequent annulment, of the act of assessment of Stamp Duty in the total amount of € 11,062.50 (eleven thousand and sixty-two Euros and fifty cents), relating to the year 2015, whose collection notices are identified in the administrative file submitted by the Respondent (or simply "AT"), and which are hereby given as pleaded and reproduced for all legal purposes, which relate to the urban real property owned by the estate of B..., located at Avenue..., no..../, in Lisbon, under matrix article no..., comprising 5 floors with 13 units with independent use, not being subject to the horizontal property regime, all of which are designated for residential purposes.

1.3

To support their request, the Claimants allege that the assessment of Stamp Duty that is the subject of this petition suffers from the defect of illegality due to violation of the rule of incidence of item 28.1 of the General Table of Stamp Duty (TGIS). They consider that, as the property is in full ownership, as it was on the date of the taxable event in question in the present case, comprising 5 floors divided into 13 units with independent use, the AT cannot, as it did, sum the patrimonial values of the units and divisions capable of independent use, given that none of these units or divisions, by itself, has a Tax Patrimonial Value (VPT) equal to or exceeding € 1,000,000. On the other hand, they argue that the AT's action in imposing stamp duty on properties in vertical ownership, considering them as a whole, corresponds to an illegal criterion and arbitrary and unlawful discrimination which, for reasons of legality and equity, violates the rule of incidence provided in item 28.1 of the TGIS, and the AT cannot take the total value of the property as the reference value for fulfilling the rule of incidence when the legislator established a different rule in the context of the Real Estate Tax Code.

They contend that the interpretation put into practice by the AT violates the principles of legality and tax equality, and also that of the prevalence of material truth over legal-formal reality, and therefore they seek the annulment of the Stamp Duty assessment now challenged in the present case.

1.4

The AT, for its part, argues that the request for declaration of illegality, and consequent annulment of the assessment in dispute, should be ruled unfounded, since it contends that with respect to the assessment of Real Estate Tax (IMI), in the case of properties in full ownership, the value that serves as the basis for calculating the tax is, indisputably, that registered in the property register as being the total patrimonial value, and that although the assessment of Stamp Duty, under the conditions provided in item 28.1 of the TGIS, is carried out in accordance with the rules of the Real Estate Tax Code (CIMI), the truth is that the legislator reserves aspects that require the appropriate adaptations.

The AT contends that this corresponds to the case of properties in full ownership, even though with units or divisions capable of independent use, since although Real Estate Tax is assessed with respect to each part capable of independent use, for purposes of Stamp Duty the property in its entirety is relevant, arguing thus for the legality of the tax acts because they constitute a correct application of the law to the facts, and concludes for the maintenance of the assessment act and, consequently, for the unfoundedness of the Claimants' request.

1.5

The Tribunal, in accordance with the request made by the Respondent, and which did not meet with opposition from the Claimants, decided to dispense with the holding of the first meeting of the Arbitral Tribunal, in accordance with article 18 of the RJAT, and also to dispense with the witness evidence presented by the Claimants, which was deemed unnecessary in light of the documentary evidence existing in the case. No exceptions were identified.

Both parties were equally dispensed from presenting Closing Arguments given the extensive evidence produced in the case.

A deadline was set for the issuance of the arbitral decision up to 31 January 2017.

1.6

The Tribunal was duly constituted and is competent ratione materiae, in accordance with article 2 of the RJAT.

The parties have legal personality and capacity, show themselves to be properly interested parties and are duly represented (cf. articles 4 and 10, no. 2 of the RJAT and article 1 of Administrative Order no. 112-A/2011, of 22 March).

No procedural defects were identified.

2. THE QUESTION TO BE DECIDED

The thema decidendum is to determine, with reference to a property in full ownership, not subject to the horizontal property regime, comprised of various units with independent use, in the present case with residential designation, which is the relevant Tax Patrimonial Value (VPT), assessing the correct criterion of incidence of the tax under the law, so as to determine whether this should be assessed by the sum of the tax patrimonial value attributed to the different units (global VPT) or, rather, whether it should be attributed to each of the residential units individually considered.

3. FACTUAL MATTERS

For purposes of assessment and decision on the merits, the following facts are deemed proven:

A) On the date of the assessment sub judice, the urban real property that is the subject of the disputed assessment was in a regime of full ownership (not subject to the horizontal property regime) located at Avenue..., nos.../.., in Lisbon, parish of..., municipality of Lisbon, under matrix article no..., forming part of the estate of B..., to which was attributed a total VPT in the amount of € 1,106,250.00€, corresponding to the sum of the partial VPT of each one of the units with independent use (cf. Urban Property Registers submitted by the Claimants with the arbitral petition).

B) The property identified above is comprised of five floors, with thirteen units with independent use (cf. Urban Property Registers submitted by the Claimants with the arbitral petition).

C) None of the units capable of independent use, to which an autonomous VPT was assigned by the Respondent, and independently of their actual use - residential or otherwise - has an individualized VPT that exceeds the value of €1,000,000 (cf. Urban Property Registers submitted by the Claimants with the arbitral petition).

D) The claimant head of the estate was notified to effect payment of stamp duty assessed on the basis of item 28.1 of the TGIS, on the aforementioned property, divided into three tax payment instalments, in the months of April, July and November (cf. Administrative file submitted by the Respondent).

E) The total amount of the Stamp Duty assessment with reference to the year 2015 is € 11,062.50.

F) The AT, considering the global VPT attributed to the property in question in the present case, understood that the objective requirements for the assessment of Stamp Duty were met, arising from item no. 28 of the TGIS, amended by article 4 of Law no. 55-A/2012, of 29/10.

G) On 12 July 2016, the Claimants submitted a request for constitution of the Arbitral Tribunal with the CAAD – cf. electronic request in the CAAD system.

4. FACTS NOT PROVEN

There are no facts with relevance to the decision on the merits that have not been proven.

5. REASONING FOR THE FACTUAL DECISION

As to the essential facts, the agreed-upon matter is conformed in identical manner by both parties and the conviction of the Tribunal was formed on the basis of the documentary (official) elements joined to the case and discriminated above, the authenticity and truthfulness of which were not questioned by either party.

6. ON THE LAW

Given the positions of the parties assumed in the pleadings presented, the central question to be resolved by this arbitral tribunal consists in assessing the legality of the act of Stamp Duty assessment relating to the year 2015.

The question to be decided concerns determining whether the patrimonial value relevant for purposes of objective incidence under item 28.1 of the TGIS, when there is at issue a property not subject to the horizontal property regime, is that of each unit autonomously considered, or, if instead, should correspond to the sum of the tax patrimonial value attributed to each of these units.

The decision issued by this Arbitration Centre in Case no. 203/2016-T will be closely followed, agreeing with the conclusions then formulated by the Arbitral Tribunal that was constituted to examine that Case and which examined the same question of law at issue in the present case.

Law no. 55-A/2012, of 29 October, amended article 1 of the Stamp Duty Code, and added to the General Table of Stamp Duty, Item 28, creating a new taxable reality, consisting of the ownership, usufruct or surface right of urban real properties whose tax patrimonial value contained in the matrix, pursuant to the Real Estate Tax Code (CIMI), equals or exceeds € 1,000,000.00.

Therefore, it is important to determine, when at issue is a property not subject to the horizontal property regime, whether the concept of "property with residential designation" should be interpreted as corresponding to each unit autonomously considered and inciding on the respective patrimonial value or if, instead, it should correspond to all of the autonomous units, and consequently should incide on the sum of the tax patrimonial value attributed to each of these units.

Item 28 of the TGIS under examination was added by Law no. 55-A/2012, of 29 October with the following wording:

"28 - Ownership, usufruct or right of superficies of urban real properties whose tax patrimonial value contained in the matrix, pursuant to the Real Estate Tax Code (CIMI), equals or exceeds € 1,000,000 — on the tax patrimonial value used for purposes of Real Estate Tax: 28.1 — For property with residential designation — 1%; 28.2 — For property, when the taxable persons who are not natural persons are resident in a country, territory or region subject to a clearly more favourable tax regime, contained in the list approved by executive order of the Minister of Finance — 7.5%."

However, neither the Stamp Duty Code nor Law no. 55-A/2012, of 29 October, specify the concept of "urban property with residential designation".

It results from the provision in no. 2 of article 67 of the Stamp Duty Code that "To matters not regulated in the present Code relating to item no. 28 of the General Table shall apply, subsidiarily, the provision of the CIMI." - Wording given by article 3 of Law no. 55-A/2012 of 29 October.

For its part, in the Real Estate Tax Code the concept of property is defined in no. 1 of its article 2, from which it results that "For purposes of the present Code, property is any parcel of land, including waters, plantations, buildings and constructions of any nature incorporated therein or situated thereon, with the character of permanence, provided it forms part of the assets of a natural or legal person and, in normal circumstances, has economic value (...)."

And it is clarified in no. 4 of this legal provision that "For purposes of this tax, each autonomous fraction, in the horizontal property regime, is regarded as constituting a property".

From an isolated reading of this legal provision we could be led, in a somewhat biased interpretation, to understand that under the Real Estate Tax, autonomous fractions in the horizontal property regime would have treatment distinct from parts of a property capable of independent use.

However, a more careful analysis of the regime allows us to reach precisely the opposite conclusion.

As was emphasized by the Ombudsman to the Secretary of State for Fiscal Affairs, in letter dated 2 April 2013, "the registration in the real property register of properties in vertical ownership, comprised of parts capable of independent use, obeys the same rules as the registration of properties comprised in the horizontal property regime, and the respective Real Estate Tax, as well as the new Stamp Duty, are assessed individually in relation to each one of the parts."

Indeed, in this same sense article 12, no. 3 of the Real Estate Tax Code provides, in determining that "each unit or part of property capable of independent use is considered separately in the matrix registration which also discriminates the respective tax patrimonial value."

In accordance with article 119 of the Real Estate Tax Code, "The services of the Tax Authority shall send to each taxpayer, by the end of the month prior to that of payment, the corresponding collection document, with discrimination of the properties, their parts capable of independent use, respective tax patrimonial value and the tax charge attributed to each municipality of the location of the properties."

In light of all the above, for purposes of taxation under Real Estate Tax, each independent unit, even if forming part of the same property, is considered separately, being attributed its own patrimonial value and being taxed autonomously.

Following the understanding endorsed in the Arbitral Decision handed down in Case no. 50/2013-T, in accordance with which "if the legal criterion requires 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 property regime, it clearly established the criterion, which must be unique and unequivocal, for the definition of the rule of incidence of the new tax. Thus, the new stamp duty tax would only apply if any of the parts, units or divisions with independent use presented a VPT exceeding € 1,000,000.00."

Having in mind that the registration in the real property register of properties in vertical ownership, for purposes of the Real Estate Tax Code, follows the same rules of registration of properties comprised in the horizontal property regime, and the respective Real Estate Tax, as well as Stamp Duty, are assessed individually in relation to each one of the parts, it does not seem to this tribunal that there exists any doubt that the legal criterion to define the incidence of the new tax will have to be the same.

In this context, if the law requires, with respect to Real Estate Tax, the issuance of individualized assessment notices for the autonomous parts of properties in vertical ownership, in the same manner as it establishes for properties in the horizontal property regime, it will require, in the same terms, with respect to the rule of incidence of Item no. 28 of the TGIS.

And, furthermore, it must be said that this was precisely the understanding adopted by the Respondent, in issuing, as it did, individualized assessment notices, relating to each one of the units capable of autonomous use, demonstrating that, in its opinion, the aforementioned fractions, despite not being legally constituted in the horizontal property regime, would, for all purposes, be independent of one another. However, the latter overlooked that it could not, by virtue of the framework previously stated, proceed to the sum of the individual VPT's of the aforementioned units, seeking to reach a value that was already within the scope of the basis of incidence of Item no. 28 of the TGIS.

In summary, the criterion established by the AT, of considering the value of the sum of the individual VPT's attributed to the parts, units or divisions with independent use, making use of the fact that the property in question in the present case is not subject to the horizontal property regime, does not find, in the eyes of this tribunal, legal support, and is in particular contrary to the criterion applicable under Real Estate Tax and, by referral (in the terms mentioned above), under Stamp Duty.

In this context, this tribunal considers that the criterion defended by the Respondent violates the principles of legality and tax equality.

Being the case, as it is, of a property constituted in vertical ownership, the incidence of Stamp Duty must be determined, not by the tax patrimonial value resulting from the sum of the tax patrimonial value of all units capable of independent use (individualized as such in the matrix article), but rather by the tax patrimonial value attributed to each one of these units.

In this same sense, the majority of decisions issued by this Arbitration Centre correspond, and also those of the Judicial Courts, standing out, by way of mere example, the Judgments issued by the Supreme Administrative Court in cases with the numbers 01534/15; 01354/15 and 047/15.

In light of the foregoing, and considering that none of the independent units that make up the property in question in the present case has a patrimonial value exceeding € 1,000,000, the disputed assessment suffers from the defect of violation of law due to error in the legal presuppositions, which justifies the declaration of its illegality and the corresponding annulment of all tax acts in issue in the present case with reference to Stamp Duty collected under item no. 28.1 of the TGIS for the year 2015.

7. DECISION

In light of the foregoing, this Singular Arbitral Tribunal hereby decides:

  • To rule the request for arbitral ruling well-founded and to declare the consequent annulment, due to defect of violation of law by error in the legal presuppositions, of the act of assessment of Stamp Duty, relating to 2015, better identified in the case, in the total amount of Euros 11,062.50.

The value of the case is fixed at Euro 11,062.50, in accordance with the provision of articles 3, no. 2 of the Regulations of Costs in Tax Arbitration Proceedings (RCPAT), 97-A, no. 1, paragraph a) of the Code of Administrative Procedure and 306 of the Code of Civil Procedure.

The amount of costs is fixed at Euro 918.00, under article 22, no. 4 of the RJAT and Table I attached to the RCPAT, to be borne by the Respondent, in accordance with the provision of articles 12, no. 2 of the RJAT and 4, no. 4 of the RCPAT.

Notification to be made.

Lisbon, 20 January 2017.

The Arbitrator,

Dr. Henrique Nogueira Nunes

This text was prepared by computer, in accordance with article 131, no. 5 of the Code of Civil Procedure, applicable by referral of article 29, no. 1, paragraph e) of the RJAT.

The wording of this arbitral decision is governed by the spelling prior to the 1990 Orthographic Agreement.

Frequently Asked Questions

Automatically Created

What is the Stamp Tax (Imposto do Selo) under Verba 28.1 of the TGIS and when does it apply to residential properties?
Stamp Tax under item 28.1 of the TGIS applies an annual tax on residential property rights when the Tax Patrimonial Value (VPT) equals or exceeds €1,000,000. Introduced in 2012 as an additional wealth tax, it applies at rates ranging from 0.7% to 1% depending on property value and ownership structure. The tax targets high-value residential properties, whether for own use or rental purposes.
Can the Tax Authority aggregate the patrimonial values (VPT) of independent units in a vertical property to meet the €1,000,000 threshold?
The central dispute in process 390/2016-T was precisely this issue. The Tax Authority argued it could aggregate the VPT of all independent units in vertical property to reach the €1,000,000 threshold, treating the entire building as one taxable object. Claimants contested this interpretation, arguing that each independent unit should be assessed individually, and since none exceeded €1,000,000, no Stamp Duty was due. This contrasts with horizontal property, where each autonomous fraction is clearly a separate taxable unit.
How does vertical property differ from horizontal property for Stamp Tax purposes in Portugal?
Vertical property (propriedade vertical) refers to buildings in full ownership not subject to horizontal property regime, even if containing multiple independent units or floors. Each unit lacks separate title registration. In horizontal property (propriedade horizontal), the building is legally subdivided into autonomous fractions, each with independent ownership and separate matrix registration. For Stamp Tax purposes, horizontal property fractions are unquestionably assessed individually, while vertical property creates ambiguity about whether aggregation applies.
What principles of tax legality and equality apply to Stamp Tax on buildings with independent units?
The claimants invoked the principles of tax legality (requiring clear legal basis for taxation), tax equality (prohibiting arbitrary discrimination between similar situations), and prevalence of material truth over formalism. They argued that imposing Stamp Duty on vertical property by aggregating values, while horizontal property escapes taxation with identically-valued units, violates equality principles and creates arbitrary discrimination based solely on legal form rather than economic substance.
What was the outcome of CAAD arbitration process 390/2016-T regarding Stamp Tax on vertical property?
The decision text provided is incomplete, ending before the tribunal's ruling. However, the case framed the fundamental question: whether the €1,000,000 threshold applies to aggregate property value or individual independent units in vertical property. The tribunal had to determine whether the Tax Authority's aggregation method constituted lawful interpretation of item 28.1 TGIS or violated tax legality principles by extending the tax beyond its intended scope.