Process: 504/2015-T

Date: August 3, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 504/2015-T) addresses the controversial application of Stamp Duty under Item 28.1 of the Portuguese General Stamp Duty Table (TGIS). The provision imposes a 1% annual tax on residential properties with a tax patrimonial value (TPV) exceeding €1,000,000, introduced by Law 55-A/2012 as part of Portugal's budgetary consolidation measures under the Economic and Financial Adjustment Program with the IMF, European Commission, and ECB. The central dispute concerns a property held in vertical ownership (full ownership) comprising independent floors - basement/ground floor, first floor, and attic - with a combined TPV of €1,248,680. The Tax Authority assessed stamp duty on three separate fractions totaling €12,486.90 annually. The claimant challenged this assessment on dual grounds: first, arguing Item 28.1's unconstitutionality for violating equality and taxpaying capacity principles by arbitrarily targeting only residential properties above €1 million while exempting commercial properties and multiple lower-value holdings; second, contesting whether the €1 million threshold applies to the aggregate property value or to each independent division separately. The Tax Authority defended the assessment as necessary for fiscal consolidation and social equity, arguing that vertical ownership differs fundamentally from horizontal ownership (condominium) and should be taxed as a single unit. The claimant referenced Constitutional Court Decision 590/2015, which had previously upheld Item 28.1's constitutionality, yet maintained the unconstitutionality argument. The case also involved a claim for compensation for an undue bank guarantee of €5,660.40 provided to suspend enforcement. This decision carries significant implications for Portuguese property owners with high-value residential assets structured in vertical ownership, particularly regarding whether independent floors within a single property can escape taxation if individually valued below the €1 million threshold.

Full Decision

CAAD: Tax Arbitration

Process No.: 504/2015-T

Subject: Stamp Duty – Item 28.1 of the General Stamp Duty Table; floors or divisions susceptible of independent use; compensation for undue guarantee provision

Arbitral Decision

Report

A…, taxpayer no. …, resident at Street …, … in …, owner of the urban property registered in the urban property matrix of the parish of … under article …, hereinafter designated as the Claimant, comes pursuant to the provisions of paragraph a) of no. 1 of article 2, paragraphs a) and b) of no. 2 of article 5 and paragraph a) of no. 1 of article 10, all of the Legal Regime of Tax Arbitration ("LRTA") approved by Decree-Law no. 10/2011, of 20 January, to request the CONSTITUTION OF THE SINGULAR ARBITRAL TRIBUNAL, with a view to the declaration of illegality of the act of assessment of Stamp Duty ("SD") under item 28.1 of the General Table of Stamp Duty (hereinafter "GTSD") annexed to Law no. 150/99, of 11 September, which approves the Stamp Duty Code (hereinafter "Stamp Duty Code"), which fell upon the Basement/Ground Floor, 1st Floor and Attic of the urban property above identified, referring to the year 2014, of which notification was received through the collection documents numbers 2015…, 2015… and 2015…, all of 20/03/2015, concerning the first installment of SD, which he does for the following reasons:

REQUEST FOR ARBITRAL PRONOUNCEMENT

The request for arbitral pronouncement aims at:

a) the declaration of illegality of the act of assessment of SD better identified, on grounds of unconstitutionality of item 28.1 of the GTSD.

b) the declaration of illegality of the act of assessment of SD better identified, on grounds of errors in the factual and legal assumptions.

c) the condemnation of the Tax Authority to pay compensation for undue guarantee.

I ALLEGATIONS OF THE CLAIMANT

  1. The Claimant is the sole and legitimate owner of the urban property above identified, entirely devoted to residential use, constituted in vertical ownership, and, as indicated, is composed of floors and divisions of independent use corresponding to the ground floor, 1st floor and attic, respectively, "CVRC", "1st" and "AGFT".

  2. The Claimant was notified of the 1st installment of the tax assessed as follows:

Fraction Collection Note of 1st Installment Value 1st Installment Value 2nd Installment Value 3rd Installment
CVRC 2015… 1,478.38 1,478.38 1,478.38
1st 2015… 1,534.54 1,534.54 1,534.54
AGFT 2015… 1,149.38 1,149.38 1,149.38
Total 4,162.30 4,162.30 4,162.30

  1. The Claimant does not accept the Stamp Duty assessments which, in his view, are illegal both in light of the rules governing the Portuguese tax system and the rules of tax incidence.

  2. Proposing to discuss the legality of the assessments, the Claimant did not proceed to voluntary payment, requested the suspension of the enforcement proceedings and presented, on 27-07-2014, a bank guarantee, in the amount of €5,660.40.

  3. Item 28.1 of the GTSD, by subjecting to SD only urban properties or land for construction with residential allocation, with tax patrimonial value exceeding €1,000,000.00, is unconstitutional for violation of the principle of equality and taxpaying capacity.

  4. On the other hand, it allows:

a) that a certain taxpayer, with real estate assets that taken together exceed 1 million euros, escapes the incidence because each property, individually considered, is below 1 million euros;

b) only to burden ownership of urban properties or land for construction with residential allocation, leaving out the owners of commerce, services or industry even if the TPV is equally exceeding 1 million euros;

c) because it burdens exclusively owners of residential urban properties, with TPV exceeding 1 million euros, leaving out, for example, all owners of properties below that value (e.g. €950.00).

  1. The principle of Equality does not translate into uniform treatment of all citizens, but imposes identical treatment for identical situations, prohibiting arbitrariness.

  2. Now, item 28.1 of the GTSD was introduced by Law no. 55-A/2012, of 29 October in an effort at budgetary consolidation, having been presented in parliamentary debate as a measure to reinforce equity, with all contributing according to their financial capacity.

  3. The Constitutional Court has already appreciated the matter, among others, in the Decision of the Constitutional Court no. 590/2015, delivered in process 542/2014, which did not judge unconstitutional the rule contained in item 28 and 28.1 of the GTSD, added by art. 4 of Law no. 55-A/2012, of 29 October.

  4. It ends by requesting the declaration of illegality, on grounds of errors of fact or law, of the assessments identified with all legal consequences such as the amounts of the assessments, increased by default and compensatory interest.

II - RESPONSE OF THE TAX AUTHORITY

  1. The legislator justifies this taxation, first of all, in obtaining fiscal revenue necessary for budgetary consolidation provided for in the Economic and Financial Adjustment Program, agreed between the Government and the IMF, the European Commission and the ECB, and also in reinforcing social equity guaranteeing an effective distribution of sacrifices.

  2. In the property card, the property is described as constituted in full ownership, with floors or divisions susceptible of independent use and has a total tax patrimonial value of €1,248,680.00, the value on which the Tax Authority assessed the tax.

  3. Horizontal ownership is a more evolved specific regime of property than full ownership, so to claim that the interpreter apply by analogy the regime of horizontal ownership to full ownership is abusive and illegal, especially since tax law contains no lacuna.

III - PROCEDURAL ADJUSTMENT

  1. The Tribunal is competent and is regularly constituted, pursuant to articles 2 no. 1, paragraph a), 5, and 6, all of the LRTA.

  2. The parties have legal personality and capacity, are legitimate and are legally represented, pursuant to articles 4 and 12 of the LRTA and article 1 of Ordinance 112-A/2011, of 22 March.

It is now necessary to appreciate the merits of the request.

IV – MATTER TO BE DECIDED

  1. The substantive question at issue consists in ascertaining whether, for purposes of taxation of item 28.1 of the GTSD, the TPV of a property in full ownership is the sum of the TPV of each floor or division susceptible of independent use or is the TPV of each floor or division independent, but integral to the same property and which are devoted to residential use.

V - THE LAW

  1. Item 28 of the GTSD provides:

28 - Ownership, usufruct or right of surface of urban properties whose tax patrimonial value registered in the matrix, pursuant to the Code of Municipal Tax on Real Property (CMTRP), is equal to or greater than (euro) 1,000,000 - on the tax patrimonial value used for purposes of CMTRP:

28.1 - For each residential property or for land for construction whose authorized or intended building is for residential purposes, pursuant to the provisions of the Code of CMTRP - 1%

  1. The Tax Authority understands that in a property, in vertical ownership, the rule contained in item 28 of the GTSD, determines that the criterion for its incidence is the global TPV of the property, which does not appear to conform either to the principle of tax legality.

  2. For the legislator of the rule, the situation of the property in vertical ownership or in horizontal ownership was not relevant, since no reference or distinction is made between them which are figures of civil law.

  3. It is important to keep in mind that the registration of each floor, or part of the property susceptible of independent use, but integral to the same property, is considered separately in the property registration of the total property, which discriminates the tax patrimonial value of each of the parts susceptible of independent use (no. 2 of art. 12 of the CMTRP), and that the CMTRP is assessed individually, in relation to each floor or part of the property susceptible of independent use (art. 119, no. 1 of the CMTRP).

  4. When the "structure" of properties in vertical ownership is addressed, the legal framework considers the floors or divisions susceptible of independent use, individually, treating them as independent units, similarly to the autonomous fractions of properties in horizontal ownership.

  5. As extracted from the arbitral decision previously cited "considering that the registration in the matrix of properties in vertical ownership, constituted by different parts, floors or divisions with independent use, pursuant to the CMTRP, obeys the same registration rules as properties built in horizontal ownership, assessed individually in relation to each of the parts, offers no doubt that the legal criterion for defining the incidence of the new tax must be the same."

  6. The legislator adopted, not formal-legal rigor, as was recognized and appears in the arbitral decision in process no. 50/2013-T, but rather its normal use, the purpose for which the property is intended, making prevail the material truth underlying its existence and its use.

  7. The subjection to stamp tax, in these cases, is determined by the conjunction of two facts:

  8. The residential allocation

and

  1. The TPV attributed to each of those floors or divisions susceptible of independent use registered in the matrix being equal to or exceeding 1,000,000.00

  2. The subjection to Stamp Duty is, therefore, determined not by the TPV of the property, but by the TPV of each floor or division susceptible of independent use, so, in this domain, stamp tax will only apply if any of the parts, floors or divisions with independent use, presented a TPV equal to or exceeding €1,000,000.00.

VI – Prejudiced Knowledge Issues

  1. Regarding matters of fact, the Tribunal is not required to pronounce on everything alleged by the parties, but rather it is incumbent upon it to select the facts that matter for the decision, the proven and unproven matters (art. 123, no. 2 of the Tax Procedure Code and art. 607, no. 3 of the Civil Procedure Code, applicable "ex vi" art. 29, no. 1 paragraphs a) and e) of the LRTA). Thus, the facts relevant to the judgment of the case are chosen and selected according to their legal relevance, which is established in attention to the various plausible solutions of the legal questions (cfr. former art. 511 of the CPC corresponding to current 596, applicable "ex vi" of art. 29, no. 2 e) of the LRTA).

  2. In fact, art. 124 of the Tax Procedure Code, subsidiarily applicable by force of art. 29, no. 1 of the LRTA, when establishing an order of knowledge of defects, presupposes that, judged to be well-founded a defect that ensures the effective protection of the rights of the challengers, it is not necessary to know the rest, because if it were always necessary to appreciate all the defects imputed to the acts challenged, it would be indifferent the order of their knowledge.

VII - DECISION

In light of the above, we conclude that the Claimant is right and, consequently, it is decided:

a) To declare the illegality of the assessments subject to this proceeding and, consequently, to find the request for arbitral pronouncement well-founded, with the consequent annulment, with all legal effects, of the acts of stamp tax assessment better identified in the file.

b) To find well-founded the request for compensatory interest petitioned by the claimant.

VALUE OF THE PROCEEDING – The following are the assessments of Stamp Duty under review which the Claimant wishes to see annulled:

1st Floor 4,603.60
AGFT 3,448.10
CVRC 4,435.10 Total: 12,886.80

In accordance with the provisions of art. 306, no. 1 and 2 of the Civil Procedure Code and 97-A, no. 1, paragraph a) of the Tax Procedure Code and 3, no. 2 of the Regulations on Costs in Tax Arbitration Proceedings, the value of the proceeding is set at €12,886.80.

COSTS - The costs, in the amount of €918.00 - Table I, annexed to the Regulations on Costs in Tax Arbitration Proceedings, are entirely charged to the respondent (Article 24-A of the CAAD Regulations).

Notify and Register

Lisbon, 2016-08-03

The Arbiter,

(Fernando Pinto Monteiro)

Frequently Asked Questions

Automatically Created

What is Verba 28.1 of the Portuguese Stamp Tax General Table and how does it apply to high-value residential properties?
Verba 28.1 of the Portuguese Stamp Tax General Table (TGIS) is an annual 1% wealth tax levied on residential urban properties or construction land designated for residential purposes with a tax patrimonial value equal to or exceeding €1,000,000. Introduced by Law 55-A/2012 on October 29, 2012, as part of Portugal's Economic and Financial Adjustment Program, this provision targets high-value residential real estate ownership, usufruct, or surface rights. The tax applies to the tax patrimonial value registered in the property matrix pursuant to the Municipal Property Tax Code (CIMI). It was designed to enhance budgetary consolidation and reinforce social equity by ensuring that owners of valuable residential properties contribute according to their financial capacity. The tax is paid in three annual installments and applies exclusively to residential properties, exempting commercial, industrial, or service properties regardless of their value.
Can Stamp Tax be levied separately on each independent unit of a vertically-owned property exceeding €1,000,000?
The central legal dispute in CAAD Process 504/2015-T addresses precisely this question. The Tax Authority's position is that Stamp Tax under Item 28.1 cannot be levied separately on individual floors or divisions of a property held in vertical ownership (full ownership). Instead, the tax applies to the aggregate tax patrimonial value of the entire property. In this case, the property's total TPV of €1,248,680 exceeded the €1 million threshold, triggering the tax liability. The Tax Authority argues that vertical ownership is distinct from horizontal ownership (condominium regime), and each legally independent floor within vertical ownership remains part of a single property unit. The taxpayer contested this interpretation, arguing that each floor or division susceptible of independent use should be assessed separately against the €1 million threshold. However, the Tax Authority maintained that applying the horizontal ownership regime by analogy to vertical ownership would be abusive and illegal, as tax law contains no lacuna requiring such interpretation. The property matrix separately registers each floor's TPV but treats them as components of one unified property.
What are the legal grounds for challenging Stamp Tax assessments on properties with independent floors or divisions?
Property owners can challenge Stamp Tax assessments on properties with independent floors or divisions on multiple legal grounds. First, unconstitutionality arguments can be raised, alleging that Item 28.1 violates the constitutional principle of equality (Article 13 of the Portuguese Constitution) and the principle of taxpaying capacity (Article 104). Taxpayers may argue that the provision arbitrarily discriminates by taxing only residential properties while exempting equally valuable commercial or industrial properties, and by allowing owners of multiple properties each below €1 million to escape taxation while penalizing single high-value property owners. Second, errors in factual assumptions can be alleged if the Tax Authority incorrectly calculated the tax patrimonial value or misidentified the property's characteristics. Third, errors in legal assumptions involve challenging the Tax Authority's interpretation of 'each residential property' under Item 28.1, particularly whether properties in vertical ownership with independent divisions should be assessed as a single unit or separately. Fourth, taxpayers can request suspension of enforcement proceedings and provide bank guarantees, then claim compensation for undue guarantees if they prevail. These challenges are typically brought before the Tax Arbitration Court (CAAD) pursuant to the Legal Regime of Tax Arbitration.
Is the unconstitutionality of Verba 28.1 of the TGIS a valid defense in Portuguese tax arbitration proceedings?
While unconstitutionality arguments regarding Verba 28.1 of the TGIS can be raised in Portuguese tax arbitration proceedings before CAAD, their likelihood of success is significantly limited by prior Constitutional Court jurisprudence. In Process 504/2015-T, the claimant argued that Item 28.1 violates constitutional principles of equality and taxpaying capacity, citing that it allows taxpayers with multiple properties each valued below €1 million to escape taxation, exclusively burdens residential property owners while exempting commercial properties of equal value, and creates arbitrary distinctions. However, the Portuguese Constitutional Court had previously addressed these arguments in Decision 590/2015 (Process 542/2014), declining to declare Item 28.1 unconstitutional. Despite this precedent, taxpayers may still raise unconstitutionality defenses in arbitration proceedings, as CAAD tribunals must consider all legal arguments presented. The arbitral tribunal can analyze whether the specific application of Item 28.1 violates constitutional principles, even if the provision itself has been upheld. Nevertheless, taxpayers should be aware that Constitutional Court precedent heavily influences arbitral decisions, and unconstitutionality arguments alone may prove insufficient without compelling distinguishing factors or evolving constitutional interpretation.
How can property owners claim compensation for undue guarantees provided in Stamp Tax disputes before CAAD?
Property owners can claim compensation for undue guarantees (indemnização por prestação indevida de garantia) provided in Stamp Tax disputes before CAAD by including this request in their arbitration petition. In Process 504/2015-T, the claimant specifically requested condemnation of the Tax Authority to pay compensation for an undue bank guarantee of €5,660.40 provided on July 27, 2014, to suspend enforcement proceedings. The legal framework allows taxpayers who challenge tax assessments and provide guarantees to suspend collection to claim compensation if they ultimately prevail in demonstrating the assessment's illegality. The compensation typically covers financial costs incurred from providing the guarantee, including bank fees, commissions, and interest charges. To successfully claim this compensation, taxpayers must: (1) have provided a bank guarantee or equivalent security to suspend tax enforcement; (2) prevail in the arbitration by obtaining a declaration of illegality of the contested tax assessment; (3) specifically request compensation for undue guarantee in the arbitral petition pursuant to Article 53 of the Tax Procedure and Process Code (CPPT); and (4) document the actual financial burden incurred. The CAAD tribunal has jurisdiction to award such compensation as part of its decision, ensuring taxpayers are made whole for costs unnecessarily incurred due to illegal tax assessments.