Process: 484/2016-T

Date: May 7, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Process 484/2016-T addresses the controversial application of Stamp Tax under Item 28.1 of the General Stamp Tax Table (TGIS) to vertical property structures in Portugal. The claimant challenged 2015 Stamp Tax assessments totaling €12,374 on an urban building with 10 independent units across 5 floors, registered under full ownership (not horizontal property regime). The Portuguese Tax Authority (AT) aggregated all units' tax property values, triggering the €1 million threshold for residential property taxation. However, the claimant argued each physically and economically independent unit should be taxed separately under Article 12(3) of the Municipal Property Tax Code (CIMI), which mandates separate registration for floors capable of independent use. Critically, a prior CAAD decision (335/2015-T) had already declared identical assessments for tax years 2012 and 2014 illegal and ordered their annulment. The case highlights the fundamental conflict between vertical property (full ownership with separate divisions) and horizontal property (autonomous units), and whether separate property register entries under CIMI Article 12(3) constitute independent properties for Stamp Tax purposes. The claimant also noted that two units serve commercial purposes, challenging the residential classification. This ruling has significant implications for multi-unit building owners regarding Stamp Tax liability thresholds and the res judicata effect of prior CAAD arbitral decisions on subsequent tax years involving identical legal issues.

Full Decision

ARBITRAL DECISION

A – REPORT

1. A…, with Tax Identification Number …, with tax residence at Rua…, no.…, …, …-… Lisbon, has requested the establishment of an arbitral tribunal, pursuant to the provisions of articles 2, no. 1, a) and 10, nos. 1 and 2 of the Legal Framework for Tax Arbitration, provided for in Decree-Law 10/2011, of 20 January, hereinafter designated "LFTA" and articles 1 and 2 of Ordinance no. 112-A/2011, of 22 March, with the Tax and Customs Authority (hereinafter designated as "TCA") being summoned.

2. The Claimant seeks, with her request, a declaration of illegality of the acts of assessment of Stamp Tax, relating to the year 2015, concerning the urban property registered in the property register under article … of the parish of … .

3. The request for establishment of the arbitral tribunal was accepted by the President of the Tax Administrative Arbitration Centre and automatically notified to the Tax and Customs Authority on 05-09-2016.

3.1. The Claimant failed to appoint an arbitrator, whereby, pursuant to the provisions of item a) of no. 2 of article 6 and item b) of no. 1 of article 11 of the LFTA, the President of the Ethics Council appointed the undersigned as arbitrator of the arbitral tribunal, who communicated acceptance of the appointment within the prescribed period.

3.2. On 19-10-2016 the parties were notified of the appointment of the arbitrator, and no objection was raised.

3.3. In accordance with the provisions of item c) of no. 11 of the LFTA, the arbitral tribunal was established on 11-11-2016.

3.4. Accordingly, the Arbitral Tribunal is properly established to examine and decide on the subject matter of the proceedings.

4. In support of the request for arbitral determination, the Claimant alleged, in summary, as follows:

Proceedings took place within the scope of the Tax Administrative Arbitration Centre in process 335/2015-T, for determination regarding the illegality of the criterion that determined the stamp tax assessment acts, item 28.1 of the GTST, on the 10 units of the urban property of the case, relating to the tax years 2012 and 2014, and a decision was rendered, which has become final, which upheld the objection, declaring the illegality and consequent annulment of the contested assessments and restitution of the amounts paid plus interest, the TCA having already partially complied with that decision.

Despite the arbitral tribunal having declared the illegality of the assessments of item 28.1 of the GTST relating to the tax years 2012 and 2014 of the property of the case, in April 2016, with reference to the tax year 2015, the TCA proceeded to assess stamp tax on the 10 independent units of the property of the present case.

The contested acts in the present case are the stamp tax assessments relating to the tax year 2015, assessments of 05 April 2016, concerning the 10 floors of the property of the case, with a total collection of 12,374.00€ (twelve thousand three hundred and seventy-four euros), each assessment for voluntary payment in three annual installments, with the 1st due in April, the 2nd in July and the 3rd in November of the current year 2016, and as of the present date the 1st and 2nd installments have been notified to the claimant, which she has already paid.

The Claimant is the owner of the urban property under a regime of full ownership located at Rua … …-…, cornering with Rua …, in Lisbon, registered in the urban property register of the parish of … under article … and described in the land registry office in Lisbon.

The identified property predates 1951 and consists of five floors with ten units of use.

The physical and economic autonomy of the 10 units that comprise the building determined that these have been, since the date of its construction, let out, with two – those corresponding to the 1st right floor and the 1st left floor – being let for non-residential purposes – commercial.

Although she had the conditions to do so, the fact is that to date the property has not been established as horizontal property, being registered separately with each floor considered separately.

The physical characteristics of the property and consequent economic autonomy of all its units implies that, for tax purposes, it is not assessed as a whole, being subject to tax property valuation assessment, as follows from the law, only the physical and economic units that comprise it, separately, floor by floor.

Nevertheless, the TCA understood that the property is subject to the objective scope of item no. 28.1 of the GTST, since the sum of the property value of each of its aforementioned physically and economically independent units exceeds the amount of €1,000,000.00 (one million euros).

The property of the case is registered under the provisions of no. 3 of article 12 of the Municipal Property Tax Code (hereinafter MPTC), under which: "Each floor or part of a property capable of independent use is considered separately in the property register entry, which also discriminates the respective tax property value".

In light of the facts set out and their legal framework, the claimant understands that the assessments of the case are tainted by the defect of violation of law, and therefore their annulment is necessary, in the manner decided in case no. 335/2015-T.

The assessments made violate the principles of legality, fiscal equality and the prevalence of material truth over legal-formal reality.

There is also the argument of the legal impossibility of classification of the property of the case as residential property.

The Claimant thus concludes that the assessments subject to the arbitral request are illegal.

5. In turn, the Respondent responded alleging, in summary:

Liability to stamp tax under item 28.1 of the General Table attached to the STC results from the combination of two facts: residential use and the tax property value of the urban property registered in the property register being equal to or greater than €1,000,000.00.

Urban properties may be, among others, residential or service properties, under items a) and b) of no. 1 of article 6 of the MPTC.

The property is described in the register under a regime of full ownership, consisting of divisions or floors capable of independent use.

Taking into account the property registration information contained in the property record, the Claimant does not succeed, with the documents presently attached to the case, in proving facts that contradict the residential nature of the divisions.

It follows from the analysis of article 2, no. 1 of the MPTC that a "property in full ownership with floors or divisions capable of independent use" is, unquestionably, different from a property under a horizontal ownership regime, consisting of autonomous units, that is, multiple properties.

Article 12 of the MPTC establishes the concept of property register, and its no. 3 concerns, exclusively, the form of recording property register data.

Since the properties are under a regime of full ownership, not possessing autonomous units, to which the tax law attributes the qualification of property, because from the notion of property in article 2 of the MPTC, only the autonomous units of property under horizontal ownership regime are considered as properties – no. 4 of the aforementioned article 2 of the MPTC.

Horizontal ownership and vertical ownership are differentiated legal institutions.

The establishment of horizontal ownership implies, it is a fact, a mere legal alteration of the property, there being no reassessment (official – circular no. 40,025, of 11.08.2008, of the DSCA), but the legislator may, however, subject to a different tax legal framework, and thus discriminatory, properties under horizontal and vertical ownership regimes, in particular, benefiting the more legally developed institution of horizontal ownership, without such discrimination being necessarily deemed arbitrary.

The property register entry of each part capable of independent use is not autonomous, by register, but consists of an entry in the register of the property in its entirety.

It is thus a consequence, of the tax fact of stamp tax under item 28.1 consisting of ownership of urban properties whose tax property value contained in the register, under the terms of the MPTC, is equal to or greater than €1,000,000.00, the property value relevant for purposes of the incidence of the tax being thus the total property value of the urban property and not the property value of each of the parts that comprise it, even when capable of independent use.

In this manner, one cannot conclude for an alleged discrimination in violation of the principle of equality when, in truth, we are dealing with distinct realities, valued by the legislator differently.

The Respondent thus concludes that the assessed acts of stamp tax contested by the Claimant are legal and should thus be maintained.

6. By order of 12-01-2017, the meeting provided for in article 18 of the LFTA and the submission of arguments were, with the agreement of the parties, dispensed with.

* * *

B – ASSESSMENT OF JURISDICTION AND ADMISSIBILITY

7.1. The tribunal is competent and is properly established.

7.2. The parties have legal personality and capacity, show themselves to be legitimate and are properly represented (articles 4 and 10, no. 2, of the LFTA and article 1 of Ordinance no. 112-A/2011, of 22 March).

7.3. The proceedings do not suffer from nullities, no objections having been raised.

* * *

C. DECISION

1. MATTERS OF FACT

1.1. PROVEN FACTS

The following facts are considered proven:

a) The Claimant is the owner of the urban property under a regime of full ownership located at Rua … …-…, cornering with Rua … …, in Lisbon, registered in the urban property register of the parish of … under article … .

b) The property, not established under a horizontal ownership regime, predates 1951, consisting of five floors and comprises a total of ten units with independent use, with eight devoted to residential use and two to commercial use.

c) The sum of the property values of all floors and divisions with residential use totals 1,237,400.00 €.

d) None of the floors, considered in isolation, has a property value greater than 1,000,000.00 €.

e) The TCA assessed stamp tax individually on the tax property values of the floors or parts capable of independent use, at the rate of 1%, by application of the provisions of item 28.1 of the GTST, concerning the year 2015.

f) By arbitral decision rendered in case no. 335/2015-T, the illegality of the stamp tax assessments relating to the years 2012 and 2014 was declared, concerning the same property;

g) The Claimant proceeded to pay the first two installments of the tax.

1.2 The facts were given as proven on the basis of the documents attached to the proceedings.

1.3 UNPROVEN FACTS

There are no facts given as unproven with relevance to the examination of the request.

2. THE LAW

The fundamental question to be examined in this proceeding is the interpretation to be given to item 28.1 of the General Table of the Stamp Tax, in the wording of Law no. 83-C/2013, of 31 December, in order to ascertain whether, with respect to properties not established under a horizontal ownership regime that include floors or divisions capable of independent use, the tax property value relevant for purposes of application of the tax is that attributed individually to each of them or, conversely, is that corresponding to the sum of all of them.

Item 28 of the General Table of Stamp Tax provides:

- "Ownership, usufruct or right of superficies of urban properties whose tax property value contained in the register, under the terms of the Municipal Property Tax Code, is equal to or greater than €1,000,000.00 – on the property value for purposes of IMI:

28.1 – For residential property or for land for construction whose construction, authorized or planned, is for residential purposes, under the terms of the IMI Code – 1%

(…)".

Article 6 of Law no. 55-A/2012, of 29 October, provides that the tax property value to be considered in the assessment of stamp tax corresponds to what results from the rules of the Municipal Property Tax Code (MPTC), and no. 2 of article 67 of the Stamp Tax Code (STC) adds that "for matters not regulated in the present Code concerning item no. 28 of the General Table, the provisions of the MPTC apply subsidiarily".

In turn, article 2 of the MPTC gives us the concept of property, establishing article 6 of the same code, in its no. 2, that "residential, commercial, industrial or service buildings or constructions are those licensed for such purpose or, in the absence of a license, that have as their normal destination each of these purposes".

It is with recourse to these provisions that the answer to the question to be decided must be found.

Given that the only comparison that the MPTC makes between properties under horizontal or full ownership can be found in no. 4 of article 2 when it prescribes that "each autonomous unit, under the horizontal ownership regime, is deemed to constitute a property".

In compliance with what, in the definition of the concept of property registers, no. 3 of article 12 of the MPTC, determines that "each floor or part of a property capable of independent use is considered separately in the property register entry, which also discriminates the respective tax property value".

No relevance is thus given by the tax legislator to the fact that a property is established under a horizontal or vertical ownership regime, being relevant only the material truth underlying its existence as an urban property and its use.

That is, there is nothing in the law that permits the conclusion in the sense of obtaining the tax property value of property under a full ownership regime, by summing those attributed individually to the parts that constitute it, as understanding which has been accepted by various arbitral decisions[1] to which we fully adhere and therefore subscribe.

The same understanding has been held by the SAC, namely in decisions of 27-04-2016 – case 01534, of 02-03-2016 – case 01354 and of 09-09-2015 – case 047/15.

For clarity, the following from the decision of 02-03-2016 is transcribed: "with respect to properties in vertical ownership, for purposes of the incidence of Stamp Tax (Item 28.1 of the GTST, in the wording of Law no. 55-A/2012, of 29 October), liability is determined by the combination of two factors: residential use and the tax property value contained in the register equal to or greater than €1,000,000. Thus, in the case of a property established in vertical ownership, the incidence of ST should be determined, not by the tax property value resulting from the sum of the tax property value of all divisions or floors capable of independent use (individualized in the property article), but by the tax property value attributed to each of those floors or divisions intended for residential use".

Moreover, in this case, the property is not exclusively devoted to residential use.

We thus understand that the TCA's position cannot merit approval, in attempting to set as the reference value for the incidence of stamp tax, the overall value of the property in question, as the MPTC does not admit this, which is, as already mentioned, the remissive legal basis supporting that [tax].

Since none of the divisions capable of independent use has a property value greater than one million euros, there is no basis for the incidence of item 28.1 provided for in the GTST.

Whence it is concluded that the assessments subject to the present arbitral request are tainted with illegality, and therefore their annulment is necessary, and the tax paid must be restituted to the claimant, not including therein interest and costs of tax enforcement, as the claimant requested.

COMPENSATORY INTEREST

Beyond the restitution of the improperly paid tax, the Claimant requests that the right to the payment of compensatory interest be declared.

Such right is enshrined in article 43 of the GTL which has as its premise that it be ascertained, in amicable reclamation or judicial impugnation - or in tax arbitration – that there was error attributable to the services resulting in payment of the debt in an amount greater than legally due.

The recognition of the right to compensatory interest in the arbitral proceeding results from the provisions of article 24, no. 5 of the LFTA.

In the case at hand, there was, in fact, error attributable to the TCA in the assessment in question.

Whereby the Claimant has the right to the requested payment of compensatory interest.

3. DECISION

In light of the foregoing, the decision is as follows:

a) to uphold, on the grounds of violation of law, the request for annulment of the tax acts subject to the arbitral request corresponding to the stamp tax assessments for the tax year 2015 concerning the urban article … of the parish of …, Lisbon, as well as the request for payment of compensatory interest;

b) to condemn the Tax and Customs Administration to reimburse to the claimant the amount of tax paid, plus the respective compensatory interest;

c) to condemn the respondent to payment of the costs of the proceedings.

CASE VALUE: In accordance with the provisions of article 306, no. 2 of the Code of Civil Procedure, article 97-A, no. 1, a) of the Tax Procedure Code and article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the case is assigned a value of 12,374.00 € (twelve thousand three hundred and seventy-four euros).

COSTS: Pursuant to the provisions of article 22, no. 4, of the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is set at 918.00 € (nine hundred and eighteen euros), under the terms of Table I attached to the Regulation of Costs in Tax Arbitration Proceedings.

Notify the parties.

Lisbon, 07-05-2017

The Arbitrator

António Alberto Franco

[1] Among others, those rendered in cases 50/2013-T, 131/2013-T, 181/2013-T, 185-2013-T, 177/2014, 206/2014-T and 479/2014.

Frequently Asked Questions

Automatically Created

What is Stamp Tax (Imposto do Selo) under Verba 28.1 of the TGIS and how does it apply to high-value properties in Portugal?
Stamp Tax under Item 28.1 of the TGIS (General Stamp Tax Table) applies annually to urban properties with residential use whose tax property value (VPT) equals or exceeds €1,000,000. The tax rate is progressive, calculated on the portion exceeding €1 million. The key controversy in Process 484/2016-T concerns whether this threshold applies to individual independent units or to the aggregate value of all units in a building under vertical property (full ownership) regime. The Tax Authority argued that buildings not established as horizontal property should be assessed as a single property, while taxpayers contend that Article 12(3) of CIMI requires separate treatment for each floor or division capable of independent use, meaning each unit's value should be assessed independently against the €1 million threshold.
How does the concept of vertical property (propriedade vertical) affect Stamp Tax liability on individual units of a building?
Vertical property (propriedade vertical) refers to buildings under full ownership where floors or divisions are physically and economically independent but not legally constituted as autonomous horizontal property units. Under Article 2 of the Municipal Property Tax Code (CIMI), only autonomous units in horizontal property regime are expressly defined as separate properties. The Tax Authority interprets this to mean vertical property buildings should be treated as single properties for Stamp Tax purposes, aggregating all units' values. However, Article 12(3) CIMI mandates separate property register entries for each floor capable of independent use, with discriminated tax property values. CAAD jurisprudence (as in Process 335/2015-T, the precedent case) tends to favor treating separately registered units as independent properties, meaning Stamp Tax liability depends on each unit's individual value, not the aggregate building value.
Can the Portuguese Tax Authority (AT) issue new Stamp Tax assessments after a prior CAAD arbitral decision declared similar assessments illegal?
Yes, the Tax Authority can issue new assessments for subsequent tax years even after CAAD declares prior assessments illegal, because Stamp Tax under Item 28.1 TGIS is an annual tax with separate taxable events each year. However, Process 484/2016-T illustrates the problematic practice where AT issued 2015 assessments using the identical legal interpretation that CAAD had already ruled illegal for 2012 and 2014 in Process 335/2015-T. While each tax year constitutes a separate administrative act that must be individually challenged, the legal reasoning established in prior CAAD decisions creates strong persuasive precedent. Taxpayers facing repeated illegal assessments must file new arbitration requests for each tax year (within the applicable deadlines), but CAAD typically applies consistent legal interpretations, making subsequent challenges on identical grounds likely to succeed. The Tax Authority's persistence in applying invalidated criteria may also raise issues of good faith and legitimate expectations.
What is the legal procedure for challenging Stamp Tax assessments through CAAD tax arbitration in Portugal?
The CAAD tax arbitration procedure follows the Legal Framework for Tax Arbitration (RJAT - Decree-Law 10/2011). Process 484/2016-T demonstrates the standard procedure: (1) The taxpayer files an arbitration request with CAAD within 90 days of notification or legal deadline for hierarchical appeal; (2) The President accepts the request and automatically notifies the Tax Authority; (3) If the taxpayer doesn't appoint an arbitrator, the Ethics Council President appoints one (as occurred here); (4) Parties are notified of arbitrator appointment with objection rights; (5) The tribunal is formally constituted; (6) The Tax Authority responds to the request; (7) Evidence and hearing phases if necessary; (8) The arbitrator issues a binding decision. The arbitration costs are generally lower than judicial appeals, with fees based on claim value. CAAD decisions on Stamp Tax assessments typically address legality issues (violation of law, legal interpretation) rather than factual assessments, and successful claimants obtain annulment plus restitution of amounts paid with compensatory interest.
What are the consequences when CAAD annuls Stamp Tax assessments on multiple independent units of a single urban property?
When CAAD annuls Stamp Tax assessments on multiple independent units of an urban property, several legal consequences follow: (1) Declaration of illegality and annulment of all contested assessment acts; (2) The Tax Authority must refund all amounts paid by the taxpayer, plus compensatory interest calculated from payment date until restitution; (3) The legal basis used for assessment is definitively rejected for those specific tax years; (4) The decision has res judicata effect for the parties and tax years involved; (5) As Process 484/2016-T demonstrates, annulment for prior years (2012-2014 in Process 335/2015-T) establishes persuasive precedent for subsequent years, though taxpayers must file separate challenges for each new assessment; (6) The Tax Authority cannot re-assess using the same illegal criteria for the annulled years; (7) The arbitral decision, once final, is enforceable against the Tax Authority, which must comply with restitution orders; (8) Failure to comply allows judicial enforcement. However, annulment doesn't automatically prevent new assessments for future years, requiring ongoing vigilance from taxpayers.