Process: 417/2016-T

Date: February 8, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD arbitral decision 417/2016-T addresses a critical Stamp Tax issue under Verba 28.1 TGIS concerning vertical property taxation. The claimant challenged a €10,072.60 Stamp Tax assessment on a Lisbon building comprising 15 independent units across 5 floors, with a total TPV of €1,253,020. The central legal question was whether the €1,000,000 threshold for Stamp Tax incidence should apply to the aggregated building value or individual unit values. The claimant argued that since no individual unit exceeded €1,000,000 TPV, the tax was illegal, violating equality principles and misapplying Verba 28.1. The property, held in sole ownership (propriedade vertical) without horizontal property regime, presented unique taxation challenges. The Tax Authority defended aggregation, arguing that while IMI assesses each independent unit separately, Stamp Tax under Verba 28.1 requires considering the property as a whole for vertical ownership structures. This case highlights the distinction between horizontal property (condomínio) and vertical property (sole ownership with autonomous units) for Portuguese tax purposes. The arbitral tribunal analyzed whether IMI Code rules apply uniformly to Stamp Tax or require specific adaptations for vertical property configurations. The decision impacts property owners with high-value buildings divided into multiple units, clarifying whether subdivision strategies can avoid Stamp Tax liability. The case demonstrates CAAD's role in resolving complex real estate taxation disputes, examining the interplay between property registration values, ownership structures, and tax incidence criteria under Portuguese fiscal law.

Full Decision

ARBITRAL DECISION

The arbitrator, Dr. Henrique Nogueira Nunes, appointed by the Ethics Council of the Centre for Administrative Arbitration ("CAAD") to form the Arbitral Tribunal, constituted on 18 October 2016, hereby decides as follows:

1. REPORT

1.1. A…, with tax identification number…, hereinafter referred to as the "Claimant", requested the constitution of the Arbitral Tribunal pursuant to articles 2, paragraph 1, subparagraph a) and 10 of Decree-Law No. 10/2011 of 20 January (hereinafter "RJAT").

1.2. The request for arbitral pronouncement has as its object the declaration of illegality and consequent annulment of the Stamp Tax assessment act, in the total amount of €10,072.60 (ten thousand and seventy-two Euros and sixty cents), relating to the year 2015, whose collection notices were attached by the Claimant with the arbitral petition and which are hereby considered articulated and reproduced for all legal purposes, concerning the urban property located at Street …, No. … to …, in Lisbon, under registration number … of the parish of …, composed of 5 floors with 15 separate units capable of independent use, not subject to the horizontal property regime, of which 10 units are for residential use and 5 shops for commercial purposes.

1.3. To support its request, the Claimant alleges that the Stamp Tax assessment that is the subject of this petition is vitiated by breach of law due to violation of the rule of incidence of item 28.1 of the TGIS. It contends that, with the property being in sole ownership, as it was on the date of the taxable event in question in this case, the Tax Authority cannot, as it did, sum the property values of the floors and separate units capable of independent use, given that none of these floors or units, by itself, has a TPV equal to or greater than €1,000,000. Furthermore, it argues that the Tax Authority's conduct in imposing stamp tax on properties in vertical ownership, considering them as a whole, violates the principle of equality, and that the Tax Authority cannot take as a reference value for filling the rule of incidence the total value of the property merely because it is in vertical ownership.

It seeks, in summary, the annulment of the Stamp Tax assessment at issue in this case.

1.4. The Tax Authority, in turn, contends that the request for declaration of illegality and consequent annulment of the contested assessment should be ruled unfounded, arguing that as regards the Municipal Property Tax assessment, in the case of properties in sole ownership, the value that serves as the basis for the tax calculation is, unquestionably, the value recorded in the property register as the total property value, and that although the Stamp Tax assessment under the conditions set forth in item 28.1 of the TGIS is processed in accordance with the rules of the Municipal Property Tax Code, the truth is that the legislature reserves aspects that require appropriate adaptations.

It maintains that this corresponds to the case of properties in sole ownership, even with floors or separate units capable of independent use, because although Municipal Property Tax is assessed in relation to each part capable of independent use, for purposes of Stamp Tax the property as a whole is relevant, thus arguing for the legality of the tax acts because they constitute a correct application of law to the facts, and concludes for the maintenance of the assessment act and, consequently, for the unfoundedness of the Claimant's request.

1.5. The Tribunal, in accordance with what was petitioned by the Respondent and which met no opposition from the Claimant, decided to waive the holding of the first meeting of the Arbitral Tribunal, in accordance with article 18 of the RJAT. No exceptions were identified. Both parties were equally exempted from filing Submissions considering the evidence produced in the case. A deadline was set for pronouncement of the arbitral decision until 13 February 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, are shown to be legitimate and are duly represented (cf. articles 4 and 10, paragraph 2 of the RJAT and article 1 of Ordinance No. 112-A/2011 of 22 March).

No procedural nullities were identified.

2. ISSUE TO BE DECIDED

The thema decidendum is to determine, with reference to a property in sole ownership, not subject to the horizontal property regime, composed of various floors with independent use, in casu, with residential use, which is the Taxable Property Value (TPV) relevant for determining whether the correct criterion of incidence of the tax in light of the law is, whether this should be assessed by the sum of the taxable property value attributed to the different floors (global TPV) or whether, instead, it should be assessed individually for each residential floor considered separately.

3. FACTUAL MATTER

With relevance to the appreciation and decision on the merits, the following facts are deemed proven:

A) On the date of the assessment sub judice, the urban property subject to the contested assessment was subject to sole ownership regime (not subject to the horizontal property regime) located at Street …, No. … to …, in Lisbon, parish of …, municipality of Lisbon, under registration number …, to which a total TPV of €1,253,020.00€ was assigned, corresponding to the sum of the TPV of each one of the separate units capable of independent use (cf. Administrative File attached by the Respondent with the arbitral petition).

B) The property identified above is composed of five floors with fifteen separate units capable of independent use (cf. Urban Property Register contained in the Administrative File attached by the Respondent with its Reply).

C) None of the floors capable of independent use, to which an autonomous TPV was assigned by the Respondent, and regardless of its actual use - residential or otherwise - has an individualized TPV exceeding the value of €1,000,000.00 (cf. Urban Property Register attached by the Respondent with its Reply).

D) The Claimant was notified to effect payment of the stamp tax assessed on the basis of item 28.1 of the TGIS on the aforementioned property (cf. Documents of stamp tax payment assessed with reference to the year 2015 attached by the Claimant with the arbitral petition).

E) The total value of the Stamp Tax assessment with reference to the year 2015 is €10,072.60.

F) The Tax Authority, considering the global TPV assigned to the property at issue in this case, understood that the objective requirements for the Stamp Tax assessment resulting from item No. 28 of the TGIS, amended by article 4 of Law No. 55-A/2012 of 29/10, were met.

G) On 21 July 2016, the Claimant filed 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 ON FACTUAL MATTERS

As regards the essential facts, the settled matter is conformed identically by both parties and the Tribunal's conviction was formed on the basis of the documentary (official) elements attached to the case and discriminated above, whose authenticity and veracity were not questioned by either party.

6. ON THE LAW

Considering the positions of the parties assumed in the pleadings filed, the central issue to be resolved by this arbitral tribunal consists of assessing the legality of the Stamp Tax assessment act relating to the year 2015.

The question to be decided concerns determining whether the property value relevant for purposes of objective incidence item 28.1 of the TGIS, when a property not subject to the horizontal property regime is at issue, is that of each floor or separate unit individually considered, or whether, instead, it should correspond to the sum of the taxable property value attributed to each one of these floors or separate units.

This Tribunal will follow closely the Decision issued by this same Arbitral Tribunal in Case No. 390/2016-T, which addressed the same legal issue at issue in the present case.

Law No. 55-A/2012 of 29 October amended article 1 of the Stamp Tax Code and added to the General Table of Stamp Tax, Item 28, creating a new reality subject to tax, consisting of ownership, usufruct or surface right of urban properties whose taxable property value contained in the register, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than €1,000,000.00.

For this reason, it is important to determine, when a property not subject to the horizontal property regime is at issue, whether the concept of "property with residential use" should be interpreted as corresponding to each unit individually considered and incurring tax on its respective property value, or whether, instead, it should correspond to the entirety of the autonomous units, and consequently incurring tax on the sum of the taxable property 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 surface right of urban properties whose taxable property value contained in the register, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than €1,000,000 — on the taxable property value used for purposes of Municipal Property Tax: 28.1 — For property with residential use — 1%; 28.2 — For property, where the taxable persons who are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by ordinance of the Minister of Finance — 7.5%."

It happens, however, that neither the Stamp Tax Code nor Law No. 55-A/2012 of 29 October define the concept of "urban property with residential use."

It follows from the provisions in paragraph 2 of article 67 of the Stamp Tax Code that "To matters not regulated in this Code concerning item No. 28 of the General Table, the provisions of the CIMI shall apply subsidiarily." — Wording given by article 3 of Law No. 55-A/2012 of 29 October.

In turn, in the Municipal Property Tax Code, the concept of property is defined in paragraph 1 of its article 2, from which it follows that "For purposes of this Code, property is any parcel of land, including water, plantations, buildings and constructions of any nature incorporated therein or based thereon, with a permanent character, 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 paragraph 4 of this legal provision that "For purposes of this tax, each autonomous fraction, under the horizontal property regime, is deemed to constitute a property."

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

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

As was emphasized by the Ombudsman to the Secretary of State for Tax Affairs in a memorandum dated 2 April 2013, "the registration in the register of properties in vertical ownership, composed of parts capable of independent use, follows the same rules as the registration of properties constituted in horizontal ownership, and the respective Municipal Property Tax, as well as the new Stamp Tax, are assessed individually in relation to each one of the parts."

Indeed, in this same sense, article 12, paragraph 3 of the Municipal Property Tax Code provides that "each floor or part of a property capable of independent use is considered separately in the registration record which equally discriminates the respective taxable property value."

In accordance with article 119 of the Municipal Property Tax Code "The services of the Tax Directorate-General send to each taxable person, by the end of the month prior to that of payment, the competent collection document, with discrimination of the properties, their parts capable of independent use, respective taxable property value and the tax amount charged to each municipality of the location of the properties."

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

Following the understanding endorsed in the Arbitral Decision issued 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 ownership, 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 tax would only be incurred if one of the parts, floors or separate units capable of independent use presented a TPV greater than €1,000,000.00."

Having regard to the fact that the registration in the register of properties in vertical ownership, for purposes of the Municipal Property Tax Code, follows the same registration rules for properties constituted in horizontal ownership, and the respective Municipal Property Tax, as well as Stamp Tax, are assessed individually in relation to each one of the parts, it does not appear to this Tribunal that there is any doubt that the legal criterion for defining the incidence of the new tax must be the same.

In this context, if the law requires, as regards Municipal Property 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 horizontal ownership, it will require, in the same terms, as regards the rule of incidence of Item No. 28 of the TGIS.

It should also be noted that this was precisely the understanding adopted by the Respondent, when it issued, as it did, individualized assessment notices, referring to each one of the separate units or floors capable of autonomous use, demonstrating that, in its opinion, the aforementioned units, despite not being legally constituted under the horizontal property regime, would, for all purposes, be independent from each other. However, the latter overlooked the fact that it could not, by virtue of the framework outlined above, proceed to sum the individual TPVs of the aforementioned floors, seeking to achieve a value that would fall within the scope of the rule of incidence of item No. 28 of the TGIS.

In summary, the criterion established by the Tax Authority of considering the sum value of the individual TPVs assigned to the parts, floors or separate units capable of independent use, relying on the fact that the property at issue in this case was not subject to the horizontal property regime, does not find, in this Tribunal's understanding, legal support, and is, in particular, contrary to the criterion applicable under Municipal Property Tax and, by referral (in the terms mentioned above), under Stamp Tax.

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

Being, as it is, a property constituted in vertical ownership, the incidence of Stamp Tax should be determined, not by the taxable property value resulting from the sum of the taxable property value of all floors or separate units capable of independent use (individualized as such in the registration), but rather by the taxable property value attributed to each one of these floors.

In this same sense, the majority of decisions issued by this Centre for Arbitration have corresponded, and also by the Courts, standing out, merely by way of example, the Decisions issued by the Supreme Administrative Court in cases numbered 01534/15; 01354/15 and 047/15.

In light of the above, and considering that none of the floors or separate units forming the property at issue in this case has a property value exceeding €1,000,000, the contested assessment is vitiated by breach of law due to error in the legal prerequisites, which justifies the declaration of its illegality and the corresponding annulment of all tax acts at issue in this case with reference to the Stamp Tax collected pursuant to item No. 28.1 of the TGIS relating to the year 2015.

7. DECISION

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

  • To rule the request for arbitral pronouncement well-founded and declare the consequent annulment, for breach of law due to error in the legal prerequisites, of the Stamp Tax assessment act relating to 2015, better identified in this case, in the total amount of Euros 10,072.60.

The value of the case is fixed at Euro 10,072.60, in accordance with the provisions of articles 3, paragraph 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), 97-A, paragraph 1, subparagraph a) of the Tax Procedure Code and 306 of the Civil Procedure Code.

The amount of costs is fixed at Euro 918.00, pursuant to article 22, paragraph 4 of the RJAT and Table I attached to the RCPAT, to be borne by the Respondent, in accordance with the provisions of articles 12, paragraph 2 of the RJAT and 4, paragraph 4 of the RCPAT.

Let notice be given.

Lisbon, 8 February 2017.

The Arbitrator,

Dr. Henrique Nogueira Nunes

Text drawn up by computer, in accordance with article 131, paragraph 5 of the Civil Procedure Code, applicable by referral of article 29, paragraph 1, subparagraph e) of the RJAT.

The drafting of this arbitral decision is governed by the orthography prior to the 1990 Orthographic Agreement.

Frequently Asked Questions

Automatically Created

Is Stamp Tax under Verba 28.1 TGIS applicable to vertical property buildings where no individual unit exceeds €1,000,000 VPT?
Based on CAAD Process 417/2016-T, the applicability of Stamp Tax under Verba 28.1 TGIS to vertical property depends on how the €1,000,000 VPT threshold is calculated. The claimant argued that since no individual unit exceeded €1,000,000 VPT, the tax should not apply. However, the Tax Authority maintained that for vertical property (sole ownership with autonomous units), the aggregate VPT of €1,253,020 should be considered, making the tax applicable. The case centered on whether vertical property should be treated as a single taxable unit or as separate units for Stamp Tax purposes, despite none individually meeting the threshold.
Can the Portuguese Tax Authority aggregate patrimonial values of independent units in vertical property for Stamp Tax purposes?
The Portuguese Tax Authority's position in this case was that it can aggregate patrimonial values of independent units in vertical property for Stamp Tax purposes. The Tax Authority argued that although IMI (Municipal Property Tax) assesses each independent unit separately, Stamp Tax under Verba 28.1 TGIS requires different treatment. For properties in sole ownership (vertical property), even with autonomous units, the property as a whole is relevant for Stamp Tax calculation. The Authority maintained this represents a correct application of law, arguing that Stamp Tax rules, while following IMI Code procedures, require specific adaptations for ownership structure differences.
Does taxing vertical property as a whole under Verba 28.1 TGIS violate the constitutional principle of equality?
The claimant argued that taxing vertical property as a whole under Verba 28.1 TGIS violates the constitutional principle of equality (princípio da igualdade). The argument was that aggregating values solely because the property remains in vertical ownership (not divided into horizontal property/condominium regime) creates discriminatory treatment. Properties with identical autonomous units would face different Stamp Tax treatment based purely on ownership structure rather than economic reality. However, the Tax Authority defended that the distinction between vertical and horizontal property ownership is legally relevant and justified for tax purposes, representing legitimate legislative differentiation rather than unconstitutional discrimination.
How does CAAD arbitration process work for challenging Stamp Tax assessments on real estate in Portugal?
The CAAD (Centro de Arbitragem Administrativa) arbitration process for challenging Stamp Tax assessments involves: (1) Filing an electronic arbitration request with CAAD under RJAT (Decree-Law 10/2011); (2) Appointment of an arbitrator by CAAD's Ethics Council; (3) Constitution of the Arbitral Tribunal; (4) Exchange of written pleadings (petition and reply); (5) Optional waiver of oral hearings with party consent; (6) Documentary evidence submission; (7) Arbitral decision within established deadline. In Process 417/2016-T, the claimant filed on July 21, 2016, the tribunal was constituted on October 18, 2016, both parties waived the first meeting and submissions, and the decision deadline was set for February 13, 2017. The process provides faster resolution than traditional administrative courts.
What is the difference between horizontal and vertical property for Imposto do Selo taxation under Portuguese law?
Under Portuguese Imposto do Selo taxation, horizontal property (propriedade horizontal/condomínio) refers to buildings divided into autonomous fractions with separate ownership under the horizontal property regime, where each fraction has independent VPT assessment. Vertical property (propriedade vertical) refers to buildings in sole ownership containing multiple autonomous units capable of independent use but NOT constituted as separate horizontal property fractions. For IMI purposes, both are assessed per autonomous unit. However, for Stamp Tax under Verba 28.1 TGIS, the Tax Authority argued that vertical property should be taxed based on aggregate building value, while horizontal property fractions would be taxed individually. This distinction became the core dispute in Process 417/2016-T, determining whether the €1,000,000 threshold applies to the whole building or individual units.