Process: 444/2016-T

Date: April 24, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 444/2016-T) addresses whether Stamp Tax under Verba 28.1 of the General Table of Stamp Duty (TGIS) applies to urban properties held in vertical ownership (propriedade vertical). Four co-owners challenged Stamp Duty assessments totaling €17,991.80 on an urban building in Lisbon, arguing that the tax threshold should be calculated based on each independent floor's Taxable Property Value (VPT) rather than the total building value. Since no individual floor exceeded the €1,000,000 threshold established in Verba 28.1 TGIS, they contended no Stamp Tax was due. The applicants supported their position with prior CAAD decisions (151/2015-T, 558/2014-T, 496/2015-T) involving the same property for tax years 2012-2014, and a Supreme Administrative Court ruling (case 1354/15) favoring floor-by-floor valuation. The Tax Authority (AT) raised preliminary objections regarding the tribunal's competence and the acts' challengeability. On the merits, AT argued that interpreting Verba 28.1 on a floor-by-floor basis violates constitutional principles of tax legality, maintaining that Stamp Duty must be calculated on the total property value regardless of vertical ownership structure. This case highlights the critical distinction between horizontal property (propriedade horizontal) formally constituted under the Horizontal Property Code and vertical co-ownership arrangements. The arbitration tribunal's analysis focused on whether the legal framework for Stamp Tax contemplates different treatment for properties not constituted as condominiums under the horizontal property regime. The decision has significant implications for high-value properties exceeding €1,000,000 in total value but composed of multiple units individually below the threshold, affecting tax planning strategies and compliance obligations for property owners and tax advisors.

Full Decision

ARBITRAL DECISION

I. REPORT

A..., NIF...; B..., NIF...; C..., NIF ... and D... NIF ... (hereinafter referred to as Applicants), presented, on 28/07/2016, jointly, a request for the establishment of a single arbitration tribunal (hereinafter referred to as the initial request or abbreviated as I.R.) in accordance with the provisions of articles 2, no. 1, subparagraph a), 5, no. 2, subparagraph a), 10, no. 1, subparagraph a) and no. 2 of Decree-Law no. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to as RJAT), in conjunction with subparagraph a) of article 99 of the Code of Administrative Court Procedure, in which the Tax and Customs Authority (hereinafter referred to as Respondent) is the Respondent.

The Applicants request a declaration of illegality of the following acts of assessment of Stamp Duty, with reference to item 28.1 of the General Table of Stamp Duty (hereinafter, GTSD), which affected the urban property registered in the urban real property registry under article ... of the Parish ..., which originated from article ... of the parish of ..., located at ... Street no. ... in Lisbon, in the total amount of € 17,991.80:

a) Acts of assessment of Stamp Duty issued to the 1st Applicant:

Nos. 2016 ... of 5.04.16, in the amount of €118.68, 2016 ... of 5.04.16, in the amount of €219.68, 2016 ... of 5.04.16, in the amount of €118.68, 2016 ... of 5.04.16, in the amount of €118.68, 2016 ..., of 5.04.16, in the amount of €118.68, 2016 ... of 5.04.16, in the amount of €295.16, relating to the year 2015, in the total amount of €989.53 (nine hundred and eighty-nine euros and fifty-three cents).

b) Acts of assessment of Stamp Duty issued to the 2nd Applicant:

Nos. 2016 ... of 5.04.16, in the amount of €679.74, 2016 ... of 5.04.16, in the amount of €1,257.83, 2016 ... of 5.04.16, in the amount of €679.74, 2016 ... of 5.04.16, in the amount of €679.74, 2016 ... of 5.04.16, in the amount of €679.74, 2016 ... of 5.04.16, in the amount of €1,690.64, relating to the year 2015, in the total amount of €5,667.43 (five thousand, six hundred and sixty-seven euros and forty-three cents).

c) Acts of assessment of Stamp Duty issued to the 3rd Applicant:

Nos. 2016 ... of 5.04.16, in the amount of €679.74, 2016 ... of 5.04.16, in the amount of €1,257.83, 2016 ... of 5.04.16, in the amount of €679.74, 2016 ... of 5.04.16, in the amount of €679.74, 2016 ..., of 5.04.16, in the amount of €679.74, 2016 ... of 5.04.16, in the amount of €1,690.64, relating to the year 2015, in the total amount of €5,667.43 (five thousand, six hundred and sixty-seven euros and forty-three cents).

d) Acts of assessment of Stamp Duty issued to the 4th Applicant:

Nos. 2016 ... of 5.04.16, in the amount of €679.74, 2016 ... of 5.04.16, in the amount of €1,257.83, 2016 ... of 5.04.16, in the amount of €679.74, 2016 ... of 5.04.16, in the amount of €679.74, 2016 ..., of 5.04.16, in the amount of €679.74, 2016 ... of 5.04.16, in the amount of €1,690.64, relating to the year 2015, in the total amount of €5,667.43 (five thousand, six hundred and sixty-seven euros and forty-three cents).

The request for constitution of the Arbitration Tribunal was accepted by the President of CAAD on 19/08/2016 and automatically notified to the Tax and Customs Authority.

In accordance with the provisions of subparagraph a) of no. 2 of article 6 and subparagraph b) of no. 1 of article 11 of the RJAT, the Deontological Council appointed as arbitrator of the single arbitration tribunal the undersigned, who communicated acceptance of the assignment within the applicable period.

On 10/10/2016 the Parties were duly notified of this appointment, having manifested no intention to challenge the appointment of the arbitrators, in accordance with the combined provisions of article 11, no. 1, subparagraphs a) and b) of the RJAT and articles 6 and 7 of the Deontological Code.

In accordance with the provisions of subparagraph c) of no. 1 of article 11 of the RJAT, the single arbitration tribunal was constituted on 25-10-2016.

By order of 25/10/2016, notification was ordered to the Director-General of the Tax and Customs Authority to attach the administrative file, present a response, and request production of additional evidence.

The Respondent presented a response on 28/11/2016, requested that the meeting referred to in article 18, no. 1 of the RJAT not be held, waived final arguments, and informed that there is no administrative file and therefore will not proceed to attach it.

On 09/12/2016 the Applicants responded to the exceptions of lack of material competence of the Arbitration Tribunal and of unimpugnability of the acts invoked by the Respondent.

By order of 06/12/2016 the parties were notified to be present at the meeting referred to in article 18, no. 1 of the RJAT, which took place on 09/01/2017 with the presence of the counsel for the Applicants, with the legal officer designated by the Respondent absent.

At the said meeting the counsel for the Applicants was notified to, within 10 days, proceed to attach the documents which she had protested to attach in the I.R., with the parties being dispensed from presenting arguments in accordance with the request presented by the Respondent in its response and identical position adopted by the Applicants at the meeting. The date for delivery of the decision was also set for 24/04/2017.

On 09/01/2017 the Applicants proceeded to attach to the proceedings the proof of payment of the second and third installments of the Stamp Duty, which they had protested to attach in the I.R.

The allegations of the Applicants are, in summary, as follows:

The acts of assessment of Stamp Duty suffer from the defect of violation of law, due to error as to the prerequisites, to the extent that the legal prerequisites for the applicability of Stamp Duty provided for in item 28.1 of the General Table of Stamp Duty are not met, as they understand that in the case of urban property in vertical co-ownership the subjection to Stamp Duty should be determined by the TPV of each floor capable of independent use and not by the total TPV of the property. In that respect, since no floor of the said property has a TPV exceeding €1,000,000.00, there would be no subjection to Stamp Duty.

To support their position they invoke numerous decisions of tax arbitration jurisprudence from the Administrative Arbitration Center, of which those issued in cases nos. 151/2015-T, 558/2014-T and 496/2015-T relate to the same property in question in the present proceedings and to the acts of assessment of Stamp Duty for the years 2012, 2013 and 2014.

They also invoke the jurisprudence of the Supreme Administrative Court, in particular the judgment issued in case no. 1354/15, on 02/03/2016 which accepts the understanding they have sustained in the I.R.

They conclude by petitioning the annulment of the acts of assessment of Stamp Duty, the reimbursement of the amounts unduly paid, and the condemnation of the Respondent to pay compensatory interest in accordance with the provisions of article 24, no. 1, subparagraph b) of the RJAT and articles 43 and 100 of the General Tax Code.

In summary, the Respondent invokes the exception of lack of competence of the arbitration tribunal and of unimpugnability of the contested acts and, as regards the grounds upon which the Applicants base the petition for arbitration for annulment of the acts, sustains that the interpretation of item 28.1 of the General Table, in the sense that the patrimonial value on which its applicability depends be determined floor by floor or division by division, is unconstitutional, as it offends the principle of tax legality.

It concludes by defending the dismissal of the petition, as it understands that for purposes of applicability of Stamp Duty it is the total patrimonial value of the property and not the patrimonial value of each of the parts that compose it, even though they are capable of independent use, that should be considered.

II. PRELIMINARY STAGE

The request for constitution of the Arbitration Tribunal was timely presented.

The Arbitration Tribunal was regularly constituted.

The parties have legal personality and capacity, are legitimate parties, and the coalition is admissible (articles 3, no. 1, 4 and 10, no. 2 of the same decree and article 1 of Administrative Order no. 112-A/2011, of 22 March).

As regards the exceptions of lack of competence of the Arbitration Tribunal and of unimpugnability of the acts, let us examine:

Although the Tribunal understands that the exception of lack of competence raised by the Respondent is intimately related to the exception, also invoked, of unimpugnability of the acts, let us begin with the question of competence of the Arbitration Tribunal, as, as Mário Aroso de Almeida states, once lack of competence is established the Tribunal "is naturally prevented from entering into the appreciation either of the remaining procedural prerequisites, or, obviously, of the merits of the case" [1].

No. 1 of the RJAT provides that the competence of arbitration tribunals comprises the appreciation of the following claims: "a) The declaration of illegality of acts of assessment of taxes, self-assessment, withholding at source and payment on account;"

In turn, article 95 of the General Tax Code provides that: "1 – The interested party has the right to challenge or appeal from any act damaging to their rights and legally protected interests, according to the procedural forms prescribed by law.

2 – Acts may be damaging, in particular:

a) The assessment of taxes, also being considered as such for purposes of this law acts of self-assessment, withholding at source and payment on account;"

Finally, from Administrative Order no. 112-A/2011, of 22/03, by which the Tax and Customs Authority submits itself to the jurisdiction of CAAD, there are not excepted claims concerning acts of assessment of Stamp Duty, and therefore, as the administration of the said tax is entrusted to the Tax and Customs Authority, neither by this channel is the competence of the Arbitration Tribunal excluded.

Thus, as the present proceedings concern the claim of the Applicants to see annulled the acts of assessment of Stamp Duty directed to them by the Respondent and which affected the urban property registered in the urban real property registry under article ... of the Parish ..., in the total amount of €17,991.80, there remain no doubts that the Arbitration Tribunal is competent to appreciate the petition.

Accordingly, the exception of lack of competence of the Arbitration Tribunal does not proceed.

As regards the exception of unimpugnability of the acts invoked by the Respondent, let us examine it. The Tribunal considers that the exception invoked by the Respondent should not proceed, as in the present proceedings the Applicants did not challenge "the payment relating to a single unit value of tax", but the tax acts of assessment of stamp duty, which results clearly from the I.R. and is corroborated by the Respondent when, in her response, she defines the object of the petition for arbitration.

Moreover, the documents attached to the proceedings as documents nos. 2 to 25 of the I.R. embody the notification to the Applicants of the acts of assessment of Stamp Duty, fixing as the deadline for payment of the first installment 30/04/2016, and therefore the periods for presenting the means of defense contained in the notifications were also respected by the Applicants.

Accordingly, the said exception does not proceed.

Having examined the exceptions, it is necessary to appreciate the merits of the petitions.

III. REASONING

Proven Facts

There is no disputed factual matter alleged, the following essential facts being particularly proven:

  • The Applicants are co-owners of the urban property, located at ..., no. ... in Lisbon, registered in the respective urban real property registry under article ... of the parish of ... (initially registered in the matrix under article ... of the parish of ...) described in the matrix as "Property in full ownership with floors or divisions capable of independent use", in the proportion of 55/1000 for the 1st Applicant and 315/1000 for each of the remaining Applicants (cf. Document no. 1 of the I.R.).

  • The property is intended for housing and commerce, with floors 1 to 9 being intended for housing, in accordance with the allocation contained in the real property card (cf. Document no. 1 of the I.R.).

  • The Property was assigned a tax patrimonial value of €1,975,890.00 (cf. Document no. 1 of the I.R.), which breaks down as follows:

Ground floor - €176,710.00

First floor - €215,790.00

Second and Third floors - €399,310.00

Fourth floor - €215,790.00

Fifth floor - €215,790.00

Sixth floor - €215,790.00

Seventh to Ninth floors - €536,710.00

  • With respect to what appears in the present proceedings, the tax patrimonial value of the floors capable of independent use with allocation for housing totals the amount of €1,799,180.00, which amount was considered by the Respondent for the calculation of the Stamp Duty assessed to the Applicants (cf. Documents nos. 2 to 25 of the I.R.).

  • The Applicants were notified of the following acts of assessment of Stamp Duty, with reference to the year 2015 and to the property identified in point 1 of the statement of facts:

  • The acts of assessment of Stamp Duty relating to the year 2015, whose annulment is petitioned by the Applicants, have a total value of €17,991.80.

  • The Applicants proceeded to pay the Stamp Duty in the amount of €17,991.80 (cf. Documents 26 to 67 of the I.R. and 1 to 19 attached to the proceedings on 09/01/2017).

  • The contested tax acts resulted from the application of the 1% rate provided for in the general table of Stamp Duty, item 28.1 to the TPV of the floors capable of independent use with allocation for housing of the property better identified in point 1 of the statement of facts.

Essential Facts Not Proven

There are no alleged facts or facts of official knowledge relevant to the decision and not proven.

Reasoning

For the conviction of the Arbitration Tribunal regarding the proven facts, the documentary elements to which reference is made above in the various points were relevant, and in general all the other documents attached to the proceedings, all analyzed critically and in conjunction with the pleadings in which the absence of controversy regarding the facts alleged by the Applicants is evident. The administrative file was not considered as it was not attached to the proceedings by the Respondent.

On the Law

Questions to be decided.

In summary and if we understand correctly, the following is the question to be appreciated and decided.

With reference to properties not constituted in a horizontal co-ownership regime, composed of various floors with independent use, some of which with housing allocation, is the TPV relevant as the criterion for applicability of the tax the one corresponding to the sum of the tax patrimonial value attributed to the different floors or, rather, the TPV attributed to each one of the parts or housing floors?

There are already numerous arbitration decisions on this question, and therefore in homage to the principle of procedural economy, the Tribunal refers to the decisions issued in cases nos. 272/2013-T, 26/2014-T, 30/2014-T, 206/2014-T, 249/2015-T, 151/2015-T, 558/2014-T and 496/2015-T with which it agrees and which it accepts, but transcribes only the decision issued on 31/01/2017 in case no. 546/2016-T, for the reasoning of which it refers in its entirety, both because this decision contains a summary of the said arbitration decisions, and because it is a decision issued in arbitration proceedings on a question entirely identical to that of the present case, and finally because it cites the judgment of the Supreme Administrative Court, approved unanimously, on 24/05/2016, in case no. 01344/15, the reasoning of which this Tribunal accepts and to which it refers:

"It is important to bear in mind that each floor or part of a property capable of independent use is considered separately in the real property registration of the total property, which also discriminates the tax patrimonial value thereof (no. 2 of art. 12 of the IMI Code), and the IMI is assessed individually in relation to each floor or part of a property capable of independent use (art. 119, no. 1 of the IMI Code), as also occurred in the case at hand.

And if this is so for IMI, it should also be so for Stamp Duty, all the more since, as the Respondent correctly states, the Stamp Duty Code refers to the IMI Code.

As the decision taken in case 206/2014-T alerts: 'Given that the Stamp Duty Code refers to the IMI Code, it must be concluded that the registration in the real property registry of properties in vertical co-ownership, composed of different parts, floors or divisions with independent use, follows the same registration rules as horizontal co-ownership.' Being IMI and Stamp Duty 'assessed individually in relation to each of the parts', also 'the legal criterion to define the applicability of the new tax must be the same'. Consequently, there will be applicability of item 28.1 of the GTSD (only) if any of these parts, floors or divisions with independent use presents a TPV at least equal to the amount provided for in the applicability norm.

As well explained by the decision issued by the Arbitration Tribunal in case 349/2015-T, 'Thus, the property will be the independent area, considered separately and autonomously in the matrix, and will be subject to Stamp Duty if two requirements are met: being intended for housing purposes and having a TPV equal to or greater than one million euros, the criterion for assessing 'luxury' residential properties. Otherwise, there would be created a reality not foreseen by the legislator: that of a, so to speak, 'residential property', possibly inserted within a larger property, possibly with several purposes, in which the TPV thereof, unrelated to the matricial records, would consist in the fiction of a TPV given by the addition of the autonomous TPV of each division (independent and with housing purpose) considered in the matricial registration. That is, where the legislator considered two realities, the interpreter would now have, without support in the legislative text, to create a third reality, hybrid, midway between the urban property and its independent divisions to which the legislator of IMI, and of Stamp Duty by reference to the IMI Code, understood to give tax relevance.

Also in the decision issued in case 272/2013-T (CAAD) it is stated that 'considering that the registration in the real property registry of properties in vertical co-ownership, composed of different parts, floors or divisions with independent use, in accordance with the IMI Code, follows the same registration rules as properties constituted in horizontal co-ownership, and their respective IMI, as well as the new Stamp Duty, are assessed individually in relation to each of the parts, there is no doubt whatsoever that the legal criterion to define the applicability of the new tax must be the same.' Indeed, it is stated, the position of the Tax Authority 'finds no legal support and is contrary to the criterion that results applicable in IMI and, by reference, in Stamp Duty', reason for which 'the adoption of the criterion defended by the Tax Authority violates the principles of legality and fiscal equality, as well as that of the prevalence of material truth over juridical-formal reality.'

And in the same sense it is stated in the arbitral decision of case 30/2014-T to be found in the doctrine of the Tax Authority a 'non-conformity with the literal element of the final part of the applicability norm (item 28 of the GTSD) which states that the tax is applicable to 'the tax patrimonial value used for purposes of IMI' and therefore should not be applicable to the sum of tax patrimonial values of properties, parts of properties or floors, not having legal support the operation of addition of tax patrimonial values of floors or parts of a property capable of independent use, with housing allocation, severed from the TPV of the remainder with different purposes, so as to reach the threshold of eligible taxation of 1,000,000.00 euros or more.'

As also stated in that arbitral decision, what happens with respect to urban properties with housing allocation, in vertical co-ownership, with floors or divisions capable of independent use, is that the Tax Authority proceeds, in Stamp Duty assessment operations, with the adaptation of the IMI Code rules (adding the tax patrimonial values of a single property, without considering those corresponding to parts of the property with non-housing purpose, thus creating a new and hybrid TPV). Indeed, this 'adaptation' corresponds to 'adding the TPV of each floor or independent division allocated to housing purposes (severed from the TPV of floors or divisions intended for other purposes), creating a new legal reality, without legal support, which is a global TPV of urban properties in vertical co-ownership, with housing allocation', which violates 'the literal element of the applicability norm'.

Thus, 'in urban properties with housing allocation, in vertical co-ownership, with floors or divisions capable of independent use', the tax patrimonial value 'that results exclusively from no. 3 of article 12 of the IMI Code should be considered. Both for IMI and for this Stamp Duty.'

Concretely, as concluded in the decision issued in case 26/2014-T of CAAD, 'for purposes of application of item 28 of the GTSD to properties in vertical co-ownership, the same IMI Code rules that apply to properties in horizontal co-ownership apply, and in the same sense the TPV for purposes of application of the item is the individual TPV of each independent residential fraction, and in the present case none of the fractions exceeds the applicability criterion of €1,000,000.00', the same occurring in the case of the present proceedings.

Starting from the same position, the arbitral decision issued in case 349/2015-T concludes that 'as clearly results from the cited decisions, the literal interpretation of the new item of the GTSD cannot fail to be different from that sustained by the Tax Authority, which is the opposite, given the clear and indisputable reference made regarding the new item of the GTSD to the IMI Code rules, the interpreter of the norm being unable to 'create' a new concept of property so as to obtain a hybrid TPV, not recognized in the matrix and without any support in the text of the law.'

And it did so by also invoking the criterion of the economic substance of the tax facts: 'the expression 'each urban property' used in no. 7 of article 23, for reasons of identity, encompasses not only urban properties in horizontal co-ownership, but also floors, divisions or parts of urban properties in vertical co-ownership, provided that allocated to housing purposes, always starting, in any of the cases, from a single tax basis for all legal purposes: the tax patrimonial value used for purposes of IMI (...). The economic reality of the holding of independent parts, e.g. capable of independent use or lease, just as autonomous fractions in the case of horizontal co-ownership, and therefore capable of allowing use or obtaining income in a similar manner and thus externalizing, therefore, equal contributory capacity (as would be externalized by the sum of the TPV of various autonomous fractions of a single property in horizontal co-ownership or of various properties which together would exceed the value of one million euros, without such having been considered by the legislator as an externalization of relevant contributory capacity for purposes of Stamp Duty).'

Moreover, as stated in the Judgment issued in case 26/2014-T of CAAD, there is no visible censure of the legislator towards vertical co-ownership. Indeed, 'it could be said, not without reasonableness, that the legislator, for purposes of taxation under IMI, chose to confer autonomy, independence, on each of the parts or each of the floors of a single property, provided that some and others show independent use, to the point of providing for individualized registration in the matrix of each of these independent parts and imposing on taxation under IMI also autonomous collection. Despite the legal existence of a single property, it is the legislator himself who not only recommends but imposes the autonomous consideration of each of the independent parts, for purposes of taxation of assets.'

Indeed, as decided in cases 26/2014-T and 272/2014-T and 349/2015-T, 'the legislator is indifferent to one or another form of structuring the ownership of urban properties under IMI, it would not be understood why it would now intend to favor one to the detriment of the other, namely by considering one form of structuring more advanced than the other.' 'The current legal regime does not impose the obligation of constitution of horizontal co-ownership', reason for which 'the discrimination operated by the Tax Authority translates to arbitrary and illegal discrimination', since 'the Tax Authority cannot distinguish where the legislator himself understood not to do so, under penalty of violating the coherence of the tax system, as well as the principle of fiscal legality provided for in article 103, no. 2 of the Constitution, and still the principles of fiscal justice, equality and proportionality.'

And the fact is that nothing also induces the interpreter to the conclusion that the concrete legislator of the new item of the GTSD, contrary to the legislator of IMI, which moreover remains unchanged, intended to discriminate vertical co-ownership with respect to horizontal co-ownership. As well recalled in the Judgment issued in case 26/2014-T of CAAD, also referred to in the already cited decision of case 349/2015-T, 'when the presentation and discussion, in Parliament, of draft law no. 96/XII (2nd), the Secretary of State for Tax Affairs expressly stated: 'The Government proposes the creation of a special rate on high-value residential urban properties. It is the first time in Portugal that a special taxation has been created on high-value properties intended for housing. This rate will be 0.5% to 0.8% in 2012 and 1% in 2013, and will apply to houses valued at or exceeding 1 million euros' (cf. Official Journal Series I no. 9/XII -2, of 11 October, p. 32). Now, as emphasized in that Judgment, 'the Secretary of State for Tax Affairs presents this draft law referring without hesitation to the expression 'houses'… valued at or exceeding 1 million euros', and therefore 'it results with meridian clarity that item 28.1 of the GTSD cannot be interpreted in the sense that it includes each of the floors, divisions or parts capable of independent use when only their respective sum results in a TPV greater than that provided for by the same item.'

Being, therefore, clear, as stated in the aforementioned decision 272/2014-T, that for the legislator only that value of one million euros, provided that allocated to 'a dwelling (house, autonomous fraction or floor with independent use) represents a contributory capacity above average and, as such, capable of determining a special contribution to ensure fair distribution of the tax burden.'

And if this is so, we must then heed the concept of 'house' as a physical reality that enables a housing purpose, a unit capable of independent use, including its lease, as it is in this economic reality that we will find the externalization of the contributory capacity associated with 'luxury dwellings' that the legislator considered relevant. Moreover, if this were not so, the legislator would proceed to a discrimination that would not be justified, as we have already seen that no censure of vertical co-ownership is found in the system when compared with horizontal co-ownership. Moreover, this distinction would clash with a necessary equity between identical externalizations of the same contributory capacity.

Now, the contributory capacities externalized by the ownership of a property composed of a set of autonomous fractions in horizontal co-ownership or by a set of divisions of independent use in a vertical co-ownership regime, cannot fail to be considered identical, if not even, possibly, lesser in the case of the second hypothesis. That is, a property certainly does not have a greater market value by being organized as vertical co-ownership. It is worth the same (allowing equal benefit by its use or equal income via its lease, as mentioned above), or will even have a lesser value, since the alternatives of transferability will possibly be fewer. And we know that TPV is intended to be an approximation, precisely, to the market value of properties and will therefore be the measure and the limit of the relevant contributory capacity for the new item of the GTSD. (cf. the decision we have been citing, issued in case 349/2015-T).

Thus, the interpretation pursued by the Tax Authority, finding no hermeneutic justification, as we have seen thus far, would further lead to a manifest inequality between owners of properties in horizontal co-ownership and in vertical co-ownership (and we have also seen that there is no visible intention to penalize the latter, even if it were admitted that such were constitutionally admissible).

In that same sense, as well stated in the decision of case 272/2014-T of CAAD, the 'existence of a property in vertical co-ownership or horizontal co-ownership cannot by itself be an indicator of contributory capacity. On the contrary, the law provides that both must receive the same tax treatment in obedience to the principles of justice, fiscal equality and material truth.'

Concluding, 'the material truth is what imposes itself as the determining criterion of contributory capacity and not the mere juridical-formal reality of the property, since the constitution of horizontal co-ownership implies a mere legal alteration of the property not even requiring a new valuation', and this fact 'does not appear consistent with the decision of the Tax Authority to tax the housing parts of a property in vertical co-ownership, according to the global TPV of the property and not according to what is actually assigned to each part.' Thus, 'the Tax Authority cannot distinguish where the legislator himself understood not to do so, under penalty of violating the coherence of the tax system, as well as the principle of fiscal legality … and still the principles of fiscal justice, equality and proportionality' (cf. the decision issued in case 26/2014-T of CAAD).

Also the Supreme Administrative Court decided unanimously, in case 01344/15, on 24.05.2016 that 'I – Regarding properties in vertical co-ownership, for purposes of applicability of Stamp Duty (Item 28.1 of the GTSD, as worded by Law no. 55-A/2012, of 29 October), the subjection is determined by the combination of two factors: housing allocation and the TPV contained in the matrix equal to or greater than €1,000,000. II – Where it is a property constituted in vertical co-ownership, the applicability of Stamp Duty must be determined, not by the TPV resulting from the sum of the TPV of all divisions or floors capable of independent use (individualized in the matricial article), but by the TPV attributed to each of those floors or divisions intended for housing.'"

Accordingly, there remain no doubts for this Tribunal as to the correctness of the interpretation that has been unanimously accepted by arbitration jurisprudence and, in particular, by the Supreme Administrative Court regarding the applicability norm contained in article 28.1 of the GTSD, as worded by Law no. 55-A/2012, of 29 October, and therefore in the case of the present proceedings, as it concerns a property in vertical co-ownership and there being no floor or division intended for housing whose TPV exceeds €1,000,000.00, the contested tax acts were issued in violation of the provisions of the cited applicability norm, and are illegal.

As the Applicants have proceeded to pay the unduly assessed Stamp Duty, they have the right, in accordance with the provisions of articles 43, no. 1 and 100 of the General Tax Code and article 24, no. 1, subparagraph b) and no. 5 of the RJAT, to the payment of compensatory interest, calculated in accordance with the provisions of article 43 of the General Tax Code, from the date of unduly payment until complete restitution.

Accordingly and with the reasoning above, it is decided:

To declare wholly founded the petition for arbitration and, consequently, to annul the acts of assessment of Stamp Duty, on the ground of defect of violation of law.

To condemn the Respondent to reimburse the Applicants for the amounts unduly paid, together with compensatory interest.

The value attributed to the proceedings is set at €17,991.80 (seventeen thousand nine hundred and ninety-one euros and eighty cents), in accordance with the provisions of articles 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), 97-A, no. 1, subparagraph a) of the Code of Administrative Court Procedure and 306 of the Code of Civil Procedure.

The amount of costs is fixed at €1,224.00 (one thousand two hundred and twenty-four euros) under the provisions of article 22, no. 4 of the RJAT and Table I attached to the RCPAT, to the charge of the Respondent, in accordance with the provisions of articles 12, no. 2 of the RJAT and 4, no. 4 of the RCPAT and 527 of the Code of Civil Procedure.

Let notification be made.

Lisbon, 24 April 2017

The Arbitrator,

Susana Soutelinho

[1] ALMEIDA, Mário Aroso de, Code of Procedure in Administrative Courts, annotated, 2nd revised edition, Almedina, Coimbra, 2007, page 117.

Frequently Asked Questions

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Is Stamp Tax under Verba 28.1 TGIS applicable to urban buildings held in vertical ownership (propriedade vertical)?
Based on established CAAD jurisprudence, Stamp Tax under Verba 28.1 TGIS on urban buildings held in vertical ownership should be calculated based on each independent floor's Taxable Property Value (VPT), not the total building value. If no individual unit exceeds €1,000,000, the tax does not apply. This interpretation distinguishes vertical ownership from formally constituted horizontal property and has been confirmed in multiple arbitration decisions and Supreme Administrative Court rulings.
How does the distinction between vertical and horizontal property ownership affect Stamp Tax liability in Portugal?
The distinction is fundamental for Stamp Tax purposes. Horizontal property (propriedade horizontal) is formally constituted under the Horizontal Property Code with autonomous fractions registered individually. Vertical ownership represents co-ownership of an undivided property where different floors may be used independently by different co-owners. For Stamp Tax under Verba 28.1 TGIS, horizontal property units are taxed individually if their VPT exceeds €1,000,000, while vertical ownership properties should similarly assess each independent floor separately rather than aggregating the total building value.
Can co-owners of an urban property jointly challenge Stamp Tax assessments through tax arbitration at CAAD?
Yes, co-owners can jointly challenge Stamp Tax assessments through CAAD arbitration under Article 10(1)(a) and (2) of the RJAT (Legal Regime for Tax Arbitration). Multiple taxpayers affected by related assessments on the same property may present a joint arbitration request, as demonstrated in this case where four co-owners collectively contested assessments totaling €17,991.80. However, the Tax Authority may raise procedural objections regarding tribunal competence and act challengeability.
What is the threshold and calculation method for Stamp Tax on high-value residential properties under Verba 28.1?
Verba 28.1 TGIS establishes an annual Stamp Tax on urban residential properties with a Taxable Property Value (VPT/Valor Patrimonial Tributável) exceeding €1,000,000. The tax rates are progressive: properties valued €1,000,000-€2,000,000 are taxed at 0.7% (minimum €4,113), and those exceeding €2,000,000 at 1.0% (minimum €8,226). The critical calculation method issue is whether the threshold applies to the total property value or to each independent unit in vertical ownership arrangements, with CAAD precedent favoring the latter approach.
What are the legal grounds for annulling Imposto do Selo assessments on properties not constituted as horizontal property?
Legal grounds for annulling Imposto do Selo assessments on properties not constituted as horizontal property include violation of law due to error regarding legal prerequisites (erro sobre os pressupostos). Taxpayers argue that Verba 28.1 TGIS requires assessment based on individual autonomous units' VPT rather than total property value. Supporting arguments include prior CAAD decisions establishing this interpretation, Supreme Administrative Court jurisprudence, and the principle that properties in vertical co-ownership should not be treated more harshly than horizontal property condominiums where each fraction is independently assessed for the €1,000,000 threshold.