Process: 407/2015-T

Date: December 15, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 407/2015-T) addresses a fundamental dispute regarding the application of Verba 28.1 of the General Stamp Tax Table (TGIS) to vertical property arrangements. The usufructuary challenged Stamp Tax assessments for 2014 on a building with 14 independent residential units held under vertical ownership, with a total tax assessment value (VPT) of €2,309,640. The core legal question concerns whether the €1,000,000 threshold under Verba 28.1 TGIS applies to each individual unit separately or to the aggregate value of the entire property. The claimant argued that vertical property should receive the same treatment as horizontal property (condominium), where each autonomous unit is taxed individually for both IMI and Stamp Tax purposes. Since no individual unit exceeded €1,000,000 (ranging from €95,520 to €221,050), the claimant contended that Verba 28.1 should not apply. She further argued that applying the aggregate value standard violated the constitutional principle of fiscal equality under Article 13 of the Portuguese Constitution (CRP) and Article 120 of CIMI. The Tax Authority defended its position by emphasizing the fundamental legal distinction between vertical and horizontal property ownership structures. In vertical property, despite independent divisions, there exists a single property registration and unified legal reality, whereas horizontal property involves divided ownership with autonomous units. The Tax Authority cited Constitutional Court Decision 590/2015, which upheld Verba 28 TGIS against constitutional challenges. The case proceeded under the RJAT framework with the parties waiving the oral hearing under Article 18, proceeding directly to written submissions. This case exemplifies critical issues in Portuguese property taxation concerning the interpretation of statutory thresholds in different ownership structures and constitutional limits on taxation.

Full Decision

ARBITRAL DECISION

I – REPORT

1 – A..., CF[1]... resident at Rua..., nº ... –... Dtº Lisbon, in the capacity of usufructuary, presented on 02/07/2015 a petition 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[2], with the Tax Authority (AT)[3] being named as respondent, for the purpose of reviewing the legality of the tax assessment acts for Stamp Duty (IS)[4], relating to the year 2014 concerning a property with floors and divisions with independent use located at Rua ... nº ... in the parish of..., registered in the respective urban property roll under article..., area ... Lisbon Finance Service

2 – The petition for constitution of the arbitral tribunal was filed without exercing the option to designate an arbitrator, and was accepted by His Excellency the President of the CAAD[5] and automatically notified to the Tax Authority on 06/07/2015.

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

4 - The tribunal was constituted on 11/09/2015 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 her petition, the claimant seeks the declaration of illegality of the tax assessment acts for item 28 of the TGIS[6] which concerned the tax assessment value of the parts or independent divisions of the aforementioned property with residential designation, all as better appears in pages 1 and 2 of the petition.

6 - She invokes for this purpose, in summary, in her capacity as usufructuary of the property, the following:

6.1- The property was subject to the assessment provided for in Law 60-A/2011 with notification to the claimant of the tax assessment values determined in January 2013 and none of the floors that compose the property in question has a TAV[7] equal to or greater than € 1,000,000.00 and they vary, individually, between € 95,520.00 and € 221,050.00

6.2 In her view, the assessments challenged here suffer from the defect of violation of Law, making erroneous interpretation and application of item 28.1 of the TGIS, while they will violate the constitutional principle of tax equality, inherent in article 13 of the CRP[8] and furthermore there is violation of article 120 of the CIMI[9], applicable pursuant to no. 5 of article 44 of the CIS[10]

6.3 – She considers that, for the purposes of IMI[11], properties in vertical ownership with parts susceptible of independent use are subject to the same rules as properties in horizontal ownership, being, in both cases, IMI calculated individually for each part susceptible of independent use in vertical ownership, or unit in horizontal ownership.

6.4 – The IS contested was determined on the basis of the TAV of each of the floors or independent divisions with residential designation, individually, as if they were true autonomous units of horizontal ownership, the legislator of item 28 of the TGIS having made no distinction between the floors or independent divisions of vertical ownership and the autonomous units of horizontal ownership

6.5- Although in vertical ownership there is only a single property, the legislator imposes separate taxation of each one of the parts susceptible of independent use, for the purposes of taxation in IMI.

6.6 – She also cites some decisions of the formed arbitral tribunals which go in the direction defended by her.

7 – In turn, the Tax Authority understands:

7.1- That the claimant is not correct inasmuch as what is relevant for the incidence of IS is the total TAV of the urban property and not the TAV of each part that compose it, even if susceptible of independent use

7.2- The Tax Authority further states that a property in full ownership and a property in horizontal ownership have different valuation and taxation from which different legal effects arise; while in horizontal ownership there is a division of full ownership and autonomy of each of the units, in a property in full ownership there is a single legal reality;

7.3 - Each part susceptible of independent use is not autonomous, by the property roll, possessing a registration of the property in its entirety;

7.4 – It concludes that item 28.1 of the TGIS applies to urban properties with residential designation, that the property in question has a value greater than € 1,000,000.00, therefore the assessments challenged here do not suffer from any illegality and should be maintained

II – ASSESSMENT

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

The parties have legal personality and capacity, demonstrate themselves as legitimized and are regularly represented in accordance with articles 4 and 10 no.2 of the RJAT and article 1 of Regulation no. 112-A/2011, of 22 March.

In her response, the Tax Authority, considered that only a question of law was at issue and requested the waiver of the holding of the meeting of article 18 of the RJAT as well as the production of submissions.

The tribunal, by order of 19 October 2015, granted a period of 10 days for the claimant to pronounce herself on the request, which she did on 30 of the same month, stating that she waived the meeting of article 18 of the RJAT, but intended to produce submissions

On the same date the tribunal issued an order dispensing with the meeting of article 18 of the RJAT and granting a period of 10 days for the production of submissions for the claimant and respondent, alternately, in this order and set the date of 15 December 2015 for the decision

After these were produced, the parties, in essence, maintain their respective points of view as to the disputed matter. The respondent submitted a Decision of the Constitutional Court[12] (no. 590/2015) in which it was decided that the provision contained in item 28 of the TGIS does not violate the principles of tax equality, contributive capacity, nor that of proportionality.

The proceedings are not affected by nullities, no issues have been raised that obstruct the examination of the merits of the case, we consider the conditions met for the decision to be issued.

III – REASONS

1 – Issue to be resolved in the present proceedings

To determine whether item 28.1 of the TGIS applies to the sum of the TAVs of the parts or divisions susceptible of independent use, intended for residential purposes when it is equal to or greater than € 1,000,000.00, or, only applies to the individual TAV of each of them when it is equal to or greater than € 1,000,000.00, as happens in the case of properties in horizontal ownership.

2 – Statement of facts

The factual matters relevant and proven on the basis of the elements attached to the proceedings are the following:

a) The claimant is usufructuary of an urban property in full ownership, with parts or divisions susceptible of independent use intended for residential purposes, registered in the urban property roll of the parish of ... under article ... of the Lisbon finance service area... .

b) The property consists, according to the property roll, of 14 floors or divisions susceptible of independent use with residential designation whose total TAV is € 2,309,640.00

c) None of the floors or divisions susceptible of independent use has a TAV equal to or greater than € 1,000,000.00 and which is found individually determined in the respective property roll and ranging between € 95,520.00 and € 221,050.00.

d) The claimant was notified for payment of IS in the amount of € 23,096.40, in May 2015 relating to 2014, determined individually for each floor or division susceptible of independent use, as per the collection documents sent and attached to the proceedings.

e) From them it appears that the Tax Authority calculated IS individually for each one of the floors or divisions susceptible of independent use, and that none of them has a value equal to or greater than € 1,000,000.00

f) However, it considered that the total TAV of the property exceeded that amount and then made the sum of the tax determined individually and arrived at the taxation challenged here.

3 – On the law

a) The issue to be resolved is whether, in accordance with the provisions of item 28.1 of the TGIS, one should or should not consider the sum of the TAV of each one of the parts or divisions susceptible of independent use, given that none of them has a value equal to or greater than €1,000,000.00 or, whether we should consider their individual TAV, for the purposes of taxation in IS.

b) Taking into account that the CIS refers to the CIMI the regulation of the concept of property and of matters not regulated regarding item 28 of the TGIS (no. 6 of article 1 and no.2 of article 67 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 contained in article 2 of the CIMI, in article 3 of the same statute the legislator, using criteria of use and location established the concept of rural properties, and then, in a classification by exclusion, in its article 4, establishes that urban properties shall be all those that should not be classified as rural.

d) Article 6 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 dealing with urban property with parts or divisions susceptible of independent use with residential designation.

f) Each one of the parts or divisions susceptible of independent use that compose the property in question meets the concept of property established in article 2 of the CIMI, insofar as they are physically and economically independent and form part of the assets of a natural or legal person, in the present case, it concerns a usufructuary.

g) Pursuant to no. 4 of article 2 of the CIMI each autonomous unit, in the system of horizontal ownership is held to constitute a property, but there is nothing in the law that permits making the discrimination between properties in horizontal ownership and vertical, regarding their identification as urban residential properties.

h) The Tax Authority in making the taxation in IS made its calculation on the basis of the TAV of each one of the parts or divisions with independent use with residential designation, but in the end considered the global TAV and verifying that it was greater than € 1,000,000.00, summed the values of IS determined individually.

i) But this procedure has no legal support, since none of the parts or divisions with independent use with residential designation, each of them meeting the concept of property enunciated in article 2 of the CIMI, has a TAV equal to or greater than € 1,000,000.00, the requirement necessary for there to be taxation in IS.

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 of independent use, compared to a property in horizontal ownership. In fact it does not exist in IMI just as it could not exist in IS, since the applicable legislation is the same, with the necessary adaptations.

k) The criterion of taxation must be uniform, that is, if a residential unit of a property in horizontal ownership is only taxed in IS if its TAV is equal to or greater than € 1,000,000.00, equally a floor or part of a property susceptible of independent use of a property in vertical ownership with residential designation will only be taxed in IS if its TAV is equal to or greater than € 1,000,000.00.

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

m) From this perspective and considering that none of the parts or divisions susceptible of independent use with destination or residential designation has a TAV equal to or greater than €1,000,000.00 it is necessary to conclude that the IS assessment acts are illegal by not having observed the conditions defined in item 28 of the TGIS.

n) The criterion used by the Tax Authority in considering the sum of the TAVs of the parts or divisions susceptible of independent use, arguing that the property is not constituted in horizontal ownership, lacks legal support, the opposite being what results from the application of the CIMI provisions, applicable by referral.

o) From the tribunal's perspective, independently of the question of constitutionality already decided in the decision of the Constitutional Court, what is incorrect is the application of the provision made by the Tax Authority, in taxing individually tax assessment values inferior to € 1,000,000.00, situation contrary to the provision of the provision.

IV – OPERATIVE PART

In view of the foregoing, the tribunal decides as follows:

a) To declare the petition for arbitral pronouncement well-founded with the consequent annulment of the IS assessment acts challenged here relating to the year 2014 in the global amount of € 23,096.40

b) To fix the value of the case at € 23,096.40, considering the provisions contained in article 299 no.1 of the CPC[13], 97-A of the CPPT[14] and article 3 no. 2 of the RCPAT[15].

c) Costs at the charge of the respondent, pursuant to no. 4 of article 22 of the RJAT, fixing its amount at € 1,224.00 in accordance with Table I of the RCPAT.

Notify.

Lisbon, 15 December 2015

Text prepared by computer, in accordance with article 131 no. 5 of the CPC, applicable by referral of article 29 no. 1, paragraph (e) of the RJAT, with blank verses and reviewed by me.

The sole arbitrator,

Arlindo José Francisco

[1] Acronym for Tax Filer
[2] Acronym for Legal Framework for Arbitration in Tax Matters
[3] Acronym for Tax Authority and Customs Authority
[4] Acronym for Stamp Duty
[5] Acronym for Administrative Arbitration Centre
[6] Acronym for General Table of Stamp Duty
[7] Acronym for Tax Assessment Value
[8] Acronym for Constitution of the Portuguese Republic
[9] Acronym for Municipal Property Tax Code
[10] Acronym for Stamp Duty Code
[11] Acronym for Municipal Property Tax
[12] Acronym for Constitutional Court
[13] Acronym for Civil Procedure Code
[14] Acronym for Code of Tax Procedure and Process
[15] Acronym for Regulation of Costs in Tax Arbitration Proceedings

Frequently Asked Questions

Automatically Created

Does Verba 28.1 of the TGIS apply to individual units of a building held in vertical property when no single unit exceeds €1,000,000 VPT?
Under Portuguese tax law, Verba 28.1 of the TGIS applies to urban properties with residential designation when their value equals or exceeds €1,000,000. The central dispute concerns whether, for vertical property buildings with multiple independent units, this threshold applies to each unit individually or to the aggregate property value. The Tax Authority position holds that vertical property constitutes a single legal reality with one property registration, therefore the total VPT of €2,309,640 triggers Verba 28.1 even though no individual unit exceeds €1,000,000. The claimant argued that vertical property units should be treated like horizontal property units, with individual assessment against the threshold. This interpretation dispute has significant implications for Stamp Tax liability on multi-unit vertical properties.
How does Portuguese tax law distinguish between vertical property and horizontal property for Stamp Tax (Imposto do Selo) purposes?
Portuguese tax law distinguishes vertical property (propriedade vertical) from horizontal property (propriedade horizontal) based on ownership structure and property registration. Horizontal property involves divided ownership where each unit constitutes an autonomous property with separate registration, independent taxation for IMI purposes, and distinct legal existence. Vertical property, despite having floors or divisions susceptible of independent use, maintains a single property registration and unified ownership structure. For Stamp Tax purposes under Verba 28 TGIS, the Tax Authority applies this distinction by aggregating all unit values in vertical property to determine threshold application, whereas horizontal property units are assessed individually. However, claimants argue this creates inequitable treatment since Article 120 CIMI and Article 44(5) CIS suggest vertical property units should receive comparable treatment to horizontal units for tax calculation purposes.
Can a usufructuary challenge Stamp Tax assessments before the CAAD arbitral tribunal under the RJAT?
Yes, a usufructuary has legal standing (legitimidade) to challenge Stamp Tax assessments before the CAAD arbitral tribunal under the RJAT framework. In Process 407/2015-T, the usufructuary successfully initiated arbitration proceedings under Article 2(1)(a), Article 3(1), and Article 10(1)(a) of the RJAT. The tribunal confirmed the usufructuary's legal personality, capacity, and legitimacy under Articles 4 and 10(2) RJAT and Regulation 112-A/2011. Usufructuaries are directly affected by Stamp Tax assessments on properties subject to their usufruct rights, giving them standing to contest liquidation acts. The procedural requirements include filing a petition for constitution of the arbitral tribunal, with automatic notification to the Tax Authority, designation of arbitrators, and tribunal constitution within statutory timeframes. The case demonstrates that real rights holders beyond full owners can access tax arbitration mechanisms.
Does applying Verba 28 TGIS to the aggregate VPT of a vertical property building violate the constitutional principle of fiscal equality under Article 13 CRP?
The claimant argued that applying Verba 28 TGIS to the aggregate VPT of vertical property violates Article 13 CRP's constitutional principle of fiscal equality because it creates disparate treatment between economically similar situations. Properties in horizontal ownership with identical unit values would not trigger Verba 28.1 since each autonomous unit falls below €1,000,000, while vertical property with the same divisions and values faces taxation based on aggregate value. The claimant contended this violates principles of contributive capacity and proportionality. However, the Tax Authority countered with Constitutional Court Decision 590/2015, which held that Verba 28 TGIS does not violate equality, contributive capacity, or proportionality principles. The Authority emphasized that different legal structures (unified vertical property versus divided horizontal property) justify differential tax treatment, and the distinction reflects legitimate policy choices by the legislator rather than arbitrary discrimination prohibited under Article 13 CRP.
What is the procedural framework for contesting Imposto do Selo liquidation acts through tax arbitration at CAAD?
The procedural framework for contesting Imposto do Selo liquidation acts through CAAD tax arbitration follows the RJAT (Legal Regime of Tax Arbitration). The process begins with filing a petition for constitution of the arbitral tribunal under Article 2(1)(a) and Article 10(1)(a) RJAT, identifying the Tax Authority as respondent. The petitioner may designate an arbitrator or allow assignment by the CAAD President. Following acceptance, the Tax Authority receives automatic notification. An arbitrator is designated per Article 6(1) RJAT by the Deontological Council, and the tribunal constitutes under Article 11(1)(c) RJAT. Parties may request waiver of the Article 18 RJAT oral hearing if only legal questions are at issue, proceeding directly to written submissions with alternating opportunities for claimant and respondent. The tribunal sets a decision deadline (here, December 15, 2015). This streamlined procedure provides taxpayers an alternative to traditional administrative and judicial review, with specialized arbitrators deciding tax disputes efficiently.