Process: 501/2015-T

Date: April 15, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 501/2015-T) addresses a critical interpretation of Stamp Tax (Imposto de Selo) under Item 28.1 of the General Stamp Duty Table (TGIS) for properties in vertical ownership. The dispute involves €11,605.26 in Stamp Duty assessed in 2014 on a Lisbon building comprising 19 residential units held in vertical ownership (propriedade vertical), not horizontal property regime. The central legal question concerns whether the €1,000,000 threshold triggering the 1% annual Stamp Tax applies to each independent unit individually or to the aggregate taxable patrimonial value (VPT) of all units combined. The Claimant argued that since no individual unit exceeds €1,000,000 in VPT, the tax should not apply, and that aggregating values violates constitutional equality principles by treating vertical ownership differently from horizontal property regimes where each fraction is taxed separately. The Tax Authority contended that despite IMI assessment rules treating each independent unit separately, Stamp Duty legislation requires considering the entire property as one taxable unit when held in full ownership, regardless of internal divisions. The arbitral tribunal examined the legislative intent of Law 55-A/2012, which introduced this high-value property tax, noting the absence of explicit definitions for 'property with residential designation' in either the Stamp Duty Code or TGIS. The tribunal's analysis focused on systematic interpretation alongside CIMI provisions and constitutional principles of tax equality and legal certainty. This case has significant implications for owners of multi-unit buildings not constituted under horizontal property regimes, potentially affecting numerous similar properties throughout Portugal and establishing precedent for distinguishing between legal property structures for Stamp Tax purposes.

Full Decision

The Arbitrator Dr. Maria Antónia Torres, designated by the Deontological Council of the Administrative Arbitration Center ("CAAD") to form the Single Arbitral Tribunal, constituted on 20 October 2015, hereby decides as follows:

  1. REPORT

1.1. A…, Tax ID No…, head of household of the estates opened by the death of B… (Tax ID No…) and C… (Tax ID No…), hereinafter referred to as "Claimant", requested the constitution of an arbitral tribunal, under article 2, paragraph 1, item a), and article 10, both of Decree-Law No. 10/2011, of 20 January (hereinafter "RJAT"[1]).

1.2. The request for arbitral decision concerns the declaration of illegality and consequent annulment of the tax assessment acts for Stamp Duty in the total amount of €11,605.26 (eleven thousand six hundred and five euros and twenty-six cents), relating to the year 2014, which are hereby set out and reproduced for all legal purposes, which the Respondent in its reply did not contest as to their existence or amount, and which concern the urban property owned by the Claimant, located at Avenue…, No.… in…, Parish of…, Lisbon, currently registered in the urban property register under article…, in vertical ownership, composed of 6 floors with 19 storeys or units of independent use and intended for residential purposes, as evidenced by the documents attached to the initial petition.

1.3. To support its request, the Claimant argues that the Stamp Duty assessments which are the subject of this petition are illegal due to violation of the scope of application rule of item 28.1 of the TGIS. The Claimant considers that, since the property is in vertical ownership as it was at that date, divided by 19 units, all areas of independent use, the Tax Authority cannot, as it did, sum the patrimonial values of the units susceptible to independent use, given that none of these units, by itself, has a Taxable Patrimonial Value (VPT) equal to or greater than 1,000,000 euros. And that the scope of application rule, in the interpretation put into practice by the Tax Authority, is unconstitutional by violation of the principle of equality.

1.4. The Tax Authority argues that the request for declaration of illegality and consequent annulment of the disputed assessments should be ruled unfounded, given that it maintains that although the assessment of Stamp Duty under the conditions provided for in item 28.1 of the TGIS is processed in accordance with the rules of the Municipal Property Tax Code (CIMI), the truth is that the legislator reserves aspects that require appropriate adaptations.

The Tax Authority understands that this is the case with properties in full ownership, even if with storeys or units susceptible to independent use, because although the Municipal Property Tax (IMI) is assessed with respect to each part susceptible to independent use, for purposes of Stamp Duty what is relevant is the property in its entirety, thus arguing for the legality of the tax assessment acts because they constitute a correct application of the law to the facts.

1.5. The parties agreed to waive the meeting of the arbitral tribunal provided for in article 18 of the RJAT.

  1. CURE

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

The parties have legal personality and capacity, show themselves 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 defects were identified.

  1. MATTER OF FACT

With relevance for the decision on the merits, the Tribunal considers the following facts to be proven:

  1. The Claimant was, at the date of the assessments sub judice, owner of the urban property which was the subject of those same assessments, under the regime of "full ownership" (i.e., not subject to the horizontal property regime) to which a global VPT superior to €1,000,000.00 was attributed, corresponding to the sum of the partial VPTs of each of the units with independent use.

  2. In conformity with what was mentioned in the initial petition and in the reply given by the Respondent, none of the units susceptible to independent use, to which an autonomous VPT was attributed by the Respondent, has a VPT exceeding the amount of €1,000,000.

  3. The Claimant was notified to pay stamp duty on the aforementioned property, the Respondent having considered the Claimant to be a taxable subject for stamp duty under item 28.1 of the TGIS, by being the owner of a property with a taxable patrimonial value exceeding €1,000,000.

Unproven Facts

No essential facts, with relevance for the appreciation of the merits of the case, were found to be unproven.

Grounds for the Matter of Fact

The conviction regarding the facts given as proven was based on the documentation submitted by the Claimant, whose authenticity and correspondence to reality were not questioned by the Respondent.

  1. QUESTION TO BE DECIDED

The essential question to be decided in this case is to determine, with reference to a property not constituted under the horizontal property regime, integrated by various storeys with independent use and residential designation, which Taxable Patrimonial Value (VPT) is relevant, determining the correct criterion for the tax incidence in light of the law, in order to determine whether this should be assessed by the sum of the taxable patrimonial value attributed to the different storeys (global VPT) or, rather, whether it should be attributed to each of the residential storeys.

  1. ON THE LAW

The question to be decided relates to whether the patrimonial value relevant for purposes of determining the applicability of Item 28.1 of the TGIS, when a property not constituted in horizontal property is involved, is that of each unit considered autonomously or the sum of the taxable patrimonial value attributed to each of those units.

The question arises by virtue of taxation under stamp duty of the ownership, usufruct or surface right of urban properties whose taxable patrimonial value recorded in the register is equal to or greater than €1,000,000, the tax being due at the rate of 1% on the taxable patrimonial value used for IMI purposes, per property with residential designation.

For this reason, it is important to determine, when a property not constituted in horizontal property is involved, the concept of "property with residential designation": whether it should be interpreted as corresponding to each unit considered autonomously and apply to its respective taxable patrimonial value or whether it should correspond to the totality of the autonomous units, and consequently apply to the sum of the taxable patrimonial value attributed to each of those units.

Since neither the Stamp Duty Code, nor its respective General Table, nor Law No. 55-A/2012, of 29 October (which approved the item of the TGIS under consideration) provides a legal definition of "property with residential designation", it is important to determine the correct interpretation of this expression, presuming that the legislator knew how to express his intent in the most adequate form, in its systematic integration with the standards contained in the Municipal Property Tax Code and, likewise, in the spirit of the law.

Item 28 of the TGIS under consideration 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 patrimonial value recorded in the register, pursuant to the Municipal Property Tax Code (CIMI), is equal to or greater than €1,000,000 — on the taxable patrimonial value used for IMI purposes:

28.1 — Per property with residential designation — 1%;

28.2 — Per property, when the taxable subjects who are not natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime, listed in the list approved by ordinance of the Minister of Finance — 7.5%."

(Our emphasis)

Law No. 55-A/2012, of 29 October came into force on 30 October 2012, in accordance with its article 7, paragraph 1, which determined that it would come into force "on the day following its publication".

The applicable rates are as follows:

i) Properties with residential designation assessed under the Municipal Property Tax Code: 0.5%;

ii) Properties with residential designation not yet assessed under the Municipal Property Tax Code: 0.8%;

iii) Urban properties when the taxable subjects who are not natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime, listed in the list approved by ordinance of the Minister of Finance: 7.5%.

It happens, however, that neither the Stamp Duty Code nor Law No. 55-A/2012, of 29 October specify the concept of "urban property with residential designation", so in accordance with article 67 of the Stamp Duty Code, the interpretation of this concept should be sought in the Municipal Property Tax Code.

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

In the Municipal Property Tax Code, the concept of property is defined in its article 2, from which it follows that "For purposes of this Code, property is any portion of land, including waters, plantations, buildings and constructions of any nature incorporated into or situated upon it, with a character of permanence, provided that it forms part of the patrimony of a natural or legal person and, in normal circumstances, has economic value (...)", clarifying itself in paragraph 4 of this legal provision that "For purposes of this tax, each autonomous unit 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 under the Municipal Property Tax, autonomous units under the horizontal property regime would have a treatment distinct from parts of a property susceptible to independent use.

It happens, however, that a more careful analysis of the regime allows us to conclude precisely the opposite.

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

(Our emphasis)

Indeed, article 12, paragraph 3 of the Municipal Property Tax Code provides in this sense, by determining that "each storey or part of a property susceptible to independent use is considered separately in the matricular registration which likewise discriminates the respective taxable patrimonial value."

According to article 119 of the Municipal Property Tax Code "The services of the General Directorate of Taxes send to each taxable subject, before the end of the month prior to the month of payment, the competent collection document, with discrimination of the properties, their parts susceptible to independent use, their respective taxable patrimonial value and the tax amount attributed to each municipality of location of the properties.".

In sum, for purposes of taxation under Municipal Property Tax, each independent unit, even if integrating the same property, is considered separately, being assigned its own taxable patrimonial value and being taxed autonomously.

Thus, the understanding affirmed in the Arbitral Decision rendered in Case No. 50/2013 cannot be disregarded, according to 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 unambiguous, for the definition of the rule of incidence of the new tax. Thus, the new stamp duty would only apply if any of the parts, storeys or units with independent use presented a VPT exceeding €1,000,000.00."(Our emphasis)

Moreover, it is this separate treatment of each unit susceptible to independent use that makes it possible, in the application of the use coefficient (cf. article 41 of the Municipal Property Tax Code), to take into account the different purposes of each unit that compose a single property.

What is relevant in this respect is the actual use of each of the parts susceptible to independent use, regardless of whether the property is classified for residential purposes under article 6 of the Municipal Property Tax Code and, regardless of whether it is an autonomous unit or merely a unit susceptible to independent use.

In fact, according to this logic of the system, an urban property classified as residential can be composed of various independent units, in which one or more may have a non-residential designation, in accordance with article 41 of the Municipal Property Tax Code.

This will occur, for example, if in a property in full ownership with storeys or units susceptible to independent use, licensed for residential purposes, one of its independent units is used for commerce or services, which actually occurs in the property in question in this case. In this hypothesis, the units in question would not have residential designation.

From this analysis it can be concluded that the concept of "property with residential designation", used in Item 28 of the TGIS, encompasses each of the autonomous units with independent use of properties in full ownership with units susceptible to independent use that have such designation.

In view of the foregoing, the understanding of the Respondent cannot be followed, which would result, among other things, in a violation of the principle of equality, fiscal justice and contributory capacity, constitutionally enshrined.

As referred to in the decision rendered in case 132/2013-T of this CAAD:

(...) in the discussions relating to the proposed law No. 96/XII in the National Assembly (...) such measure, called a "special tax on high-value urban residential properties", was justified with the need to comply with the principles of social equity and fiscal justice, imposing a more significant burden on holders of properties with high value intended for residential use, and, in that measure, making the new "special tax" apply to "houses valued at one million euros or more."

(Our emphasis)

Thus it is presumed a contributory capacity (much) above average that justifies a "special" contributory effort for those who have a "house" or "property" whose value is at least one million euros. The legislator's intent seems, therefore, to indicate that the scope of the rule of incidence is to tax independent, individualized realities and not those resulting from an aggregation or sum, even if juridical.

That is, it cannot be inferred from this measure that the legislator intended the taxation of properties whose units susceptible to independent use did not individually reach that value.

In view of the foregoing, and by virtue of none of the independent units that integrate the Claimant's property having a taxable patrimonial value exceeding €1,000,000, the assessments under consideration suffer from the vice of violation of law, by error in the legal prerequisites, which justifies the declaration of their illegality and the corresponding annulment of the tax assessment acts now under consideration.

In view of the declaration of illegality of the assessments which are the subject of the present case, due to the vice of violation of law by error in the legal prerequisites, the examination of the other matters raised on a subsidiary basis is rendered unnecessary.

  1. DECISION

In view of the foregoing, it is decided to rule that the request for arbitral decision is well-founded, with the consequent annulment, with all legal effects, of the stamp duty assessment acts better identified in the case file, in the total amount of Euros 11,605.26 (eleven thousand six hundred and five euros and twenty-six cents).

The value of the case is fixed at Euros 11,605.26 (eleven thousand six hundred and five euros and twenty-six cents), in accordance with the provisions of articles 3, paragraph 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), 97-A, paragraph 1, item a) of the Tax Procedure Code (CPPT) and 306 of the Code of Civil Procedure (CPC).

The amount of costs is fixed at Euros 918 (nine hundred and eighteen euros) under article 22, paragraph 4 of the RJAT and Table I attached to the RCPAT, at the charge of the Tax and Customs Authority, 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, 15 April 2016

The Arbitrator

(Maria Antónia Torres)

Text prepared by computer, in accordance with article 131, paragraph 5 of the Code of Civil Procedure, applicable by reference from article 29, paragraph 1, item e) of the RJAT.

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

[1] Acronym for Legal Regime of Tax Arbitration.

Frequently Asked Questions

Automatically Created

What is the Stamp Tax (Imposto de Selo) under Clause 28.1 of the TGIS and when does it apply to high-value properties?
Item 28.1 of the General Stamp Duty Table (TGIS), introduced by Law 55-A/2012 of October 29, establishes an annual Stamp Tax on ownership, usufruct, or surface rights of urban properties with residential designation whose taxable patrimonial value (VPT) recorded in the property register equals or exceeds €1,000,000. The tax rate is 1% applied annually to the VPT used for Municipal Property Tax (IMI) purposes. This tax targets high-value residential real estate and became effective as a wealth tax measure on valuable property holdings. The assessment is made annually based on the VPT registered according to the Municipal Property Tax Code (CIMI). Payment obligations fall on the owner, usufructuary, or surface right holder as of January 1st of each tax year.
Can the Tax Authority aggregate the taxable values of independent units in a vertical property to meet the €1,000,000 threshold?
This is the core dispute in Process 501/2015-T. The Tax Authority aggregated the individual VPTs of all 19 independent units within the vertical property to reach a total exceeding €1,000,000, thereby triggering the Stamp Tax. The Claimant contested this approach, arguing that each unit should be evaluated separately since none individually meets the threshold. The Tax Authority justified aggregation by distinguishing between IMI assessment rules (which evaluate each independent unit separately) and Stamp Duty rules, claiming that properties held in full ownership (vertical property) should be considered as a single taxable unit for Stamp Duty purposes, regardless of internal divisions into independent-use units. The tribunal examined whether this aggregation constitutes a correct legal interpretation or an unlawful extension of the tax base.
How does the CAAD arbitral tribunal treat vertical property differently from horizontal property for Stamp Tax purposes?
The CAAD arbitral tribunal's analysis centered on interpreting 'property with residential designation' under Item 28.1 of TGIS. The critical distinction lies in the legal property regime: horizontal property (propriedade horizontal) consists of legally autonomous fractions, each with separate ownership and registration, whereas vertical property (propriedade vertical) remains under unified full ownership despite containing physically independent units. The tribunal examined whether Stamp Duty follows IMI's approach (treating each independent-use unit separately) or applies different criteria. The decision hinges on whether the absence of horizontal property constitution means the entire building constitutes one 'property' for Stamp Tax purposes, or whether the physical reality of independent residential units should prevail over the legal ownership structure, potentially treating vertical property units analogously to horizontal fractions for tax equity purposes.
Is the aggregation of property values in vertical ownership a violation of the constitutional principle of equality in Portuguese tax law?
The Claimant raised constitutional objections based on the equality principle (Article 13 of the Portuguese Constitution), arguing that aggregating values in vertical property while taxing horizontal property fractions separately creates arbitrary discrimination without reasonable justification. This argument posits that two functionally identical buildings—one in horizontal property with 19 fractions, another in vertical ownership with 19 independent units—face different tax treatment solely due to legal structuring, not economic capacity. If individual fractions in horizontal property below €1,000,000 escape taxation while identical units in vertical property are taxed through aggregation, this may violate horizontal equity principles requiring similar treatment of similar situations. The constitutional analysis requires determining whether the legal distinction between property regimes provides sufficient objective justification for differential tax treatment or constitutes prohibited arbitrary discrimination.
What is the procedure for challenging Stamp Tax assessments on vertical property through CAAD arbitration?
The procedure follows the Legal Framework for Tax Arbitration (RJAT - Decree-Law 10/2011 of January 20). Taxpayers must submit an arbitration request to the Administrative Arbitration Center (CAAD) within the statutory deadline, typically within 90 days of notification or implicit rejection of a prior administrative complaint. The request must identify the contested tax assessment acts, state the amount in dispute, present legal grounds for illegality, and include supporting documentation. In this case, the Claimant challenged €11,605.26 in Stamp Duty assessments for 2014. The CAAD Deontological Council designates an arbitrator (here, Dr. Maria Antónia Torres) who constitutes the arbitral tribunal. Both parties submit written pleadings—initial petition and reply—with the option to waive oral hearings if agreed. The tribunal examines jurisdiction, legal standing, procedural regularity, establishes facts, and decides on the merits. Decisions are binding and subject to limited judicial review on specific grounds.