Process: 551/2014-T

Date: January 19, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Case 551/2014-T addresses the controversial application of Stamp Tax (Imposto do Selo) under Verba 28.1 of the General Stamp Duty Schedule (TGIS) to properties held in vertical ownership (propriedade vertical). The case involved a property in Lisbon with 11 residential apartments and 2 parking spaces, with a total patrimonial value of €2,191,570.00. Verba 28.1 TGIS, introduced by Law 55-A/2012, imposes annual Stamp Tax on residential properties with patrimonial values exceeding €1 million. The central legal dispute concerns whether vertical property should be treated as a single taxable unit or whether each independent part should be assessed separately. The Claimant argued that the Tax Authority illegally aggregated the patrimonial values of the residential units while excluding parking spaces, creating an artificial calculation method without legal basis. The taxpayer contended that each independent unit should be individualized for tax purposes, analogous to autonomous fractions in horizontal property (propriedade horizontal), since Article 12(3) of the Real Property Tax Code requires separate property registration and distinct patrimonial values for each floor or independently-usable part. Additionally, the Claimant challenged the constitutionality of Verba 28.1 TGIS, alleging violation of the equality principle by treating vertical property differently than horizontal property despite being in substantially equivalent situations. The Tax Authority defended that vertical ownership constitutes a single indivisible property for tax purposes, not multiple autonomous parts, and that the taxable patrimonial value must be the sum of residential units. The Authority argued that the principle of legality (Article 103 of the Portuguese Constitution) mandates literal application of the tax provision. The case also raised proportionality concerns since the property was under renovation in 2013, allegedly worth less than the €1 million threshold. This arbitration illustrates the interpretative challenges of applying Verba 28 TGIS to complex property structures and the fundamental distinction between horizontal and vertical property ownership regimes in Portuguese tax law.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Case No. 551/2014 – T

  1.  Report

A - General

1.1. "A", S.A., legal person no. …, with registered office at Av. …, …, …, Door …, in Lisbon (hereinafter designated "Claimant"), filed on 28.07.2014 a request for the constitution of a single arbitral tribunal in tax matters, which was accepted, aiming at the declaration of illegality and annulment of the tax acts for the assessment of Stamp Duty for the year 2013 with date 17.03.2014, relating to item 28.1 of the General Stamp Duty Schedule (hereinafter "GSDS"), relating to real property of which it is the owner, as will be seen below.

1.2. In accordance with the provisions of subparagraph a) of Article 6, paragraph 2 and subparagraph b) of Article 11, paragraph 1 of Decree-Law No. 10/2011, of 20 January, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council of the Administrative Arbitration Centre (CAAD) appointed as arbitrator Nuno Pombo, with the parties, having been duly notified, expressing no opposition to this appointment.

1.3. By order of 11.08.2014, the Tax and Customs Authority (hereinafter designated "Respondent") proceeded to appoint Ms. … and Ms. … to intervene in the present arbitral proceedings, in the name and representation of the Respondent.

1.4. In accordance with the provisions of subparagraph c) of Article 11, paragraph 1 of Decree-Law No. 10/2011, of 20 January, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the arbitral tribunal was constituted on 30.09.2014.

1.5. On 30.09.2014 notification was served on the head of the Respondent's service to, if so wished, within a period of 30 days, submit a response and request production of additional evidence.

1.6. On 30.10.2014 the Respondent submitted its response.

B – Position of the Claimant

1.7. The Claimant was, on the date to which the facts relate, owner of real property in sole or vertical ownership located at the Street …, No. … to …, in Lisbon, with property register number …, of the new civil parish of …, composed of 11 (eleven) apartments (i.e. units/parts with independent use and residential designation) and 2 (two) parking spaces (i.e. units/parts with independent use and non-residential designation), with a total patrimonial value of € 2,191,570.00 (two million one hundred and ninety-one thousand five hundred and seventy euros), to which corresponds the property deed which the Claimant attaches to its request as document No. 23, the contents of which are deemed reproduced herein (hereinafter "the Property").

1.8. The Claimant was notified of the Stamp Duty assessments (hereinafter designated "SD") which are listed in the table of Article 20 of the request for arbitral decision (attached as documents Nos. 1 to 22 to said request, the contents of which are deemed reproduced herein), which were based on Article 1 of the Stamp Duty Code (hereinafter the "SDC"), in item 28.1 of the GSDS, added by Article 4 of Law No. 55-A/2012, of 29 October, the payment deadline for which refers to the end of April 2014.

1.9. The Claimant did not proceed to pay the tax that was demanded of it by the assessments referred to above, by considering them "totally illegal".

1.10. The Claimant bases its request on the defect of violation of law and on the error regarding factual and legal grounds in the application of item 28.1 of the GSDS.

1.11. The Claimant maintains that it was necessary to individualize the floors or parts capable of independent use for the purposes of SD assessment, as is the case with autonomous parts of horizontally-owned properties, it not following from the law that the correspondence of taxable patrimonial value (hereinafter designated "TPV") of a property composed of several independent parts equals the sum of the TPV of the floors or units capable of independent use, especially since, in accordance with paragraph 3 of Article 12 of the Real Property Tax Code (RTPC), "each floor or part of property capable of independent use is considered separately in the property register, which also sets out its respective taxable patrimonial value", and is consequently subject to separate Real Property Tax (RPT) assessment.

1.12. The Respondent, however, to ascertain the TPV of the Property in sole or vertical ownership did not merely proceed to arithmetically add the TPV of each of its parts capable of independent use. For that purpose the Respondent eliminated from the supposed unit constituted by the Property the parts thereof which, in accordance with the respective property deed, are allocated to parking, the Claimant finding no legal basis that authorizes such fiction.

1.13. The Claimant further contends the unconstitutionality of item 28.1 GSDS, on grounds of violation of the constitutional principle of equality, and in particular of equality in the taxation of patrimony, inasmuch as it treats properties constituted in vertical ownership, with parts capable of independent use, in an arbitrarily different manner from those others which are in a substantially equal situation, despite being constituted in horizontal ownership.

1.14. Finally, the Claimant alleges that the assessments in question, relating to 2013, also violate the principles of proportionality and justice, since the Property, in 2013, was under renovation and had a value "evidently less than 1 million euros, as was subsequently defined after the completion of the works in 2014".

C – Position of the Respondent

1.15. The Respondent, in its response, expresses the view that the situation of the Property is literally subsumed in the provision of the item in question, adding that in properties subject to sole ownership there are no autonomous parts to which tax law can attribute the status of property, the Claimant being, accordingly, owner of a single property considered as a unit, and not of each of the parts or fractions capable of independent use of which it is composed, for which reason the TPV on which the incidence of SD of item 28.1 of the GSDS depends had to be, as it was, the sum of the TPV of each part capable of independent use allocated to residential use.

1.16. The Respondent therefore maintains that the tax act in question violated no legal or constitutional provision, and should therefore be maintained in the legal system.

1.17. The Respondent concludes finally to be prohibited from interpreting item 28.1 of the GSDS differently from how it did, since any other interpretation would violate the principle of legality enshrined in Article 103 of the Constitution of the Portuguese Republic.

D – Conclusion of the Report

1.18. By order of 17.11.2014, the arbitral tribunal dispensed with the meeting provided for in Article 18 of the Legal Regime for Tax Arbitration (LRTA), since the parties had already brought to the proceedings the necessary and sufficient factual elements for the rendering of the decision.

1.19. The arbitral tribunal is substantively competent, in accordance with the provisions of Article 2, paragraph 1, subparagraph a) of the LRTA.

1.20. The parties have legal personality and capacity and have standing in accordance with Article 4 and paragraph 2 of Article 10 of the LRTA, and Article 1 of Order No. 112-A/2011, of 22 March.

1.21. The joinder of claims made in the present request for arbitral decision is justified in accordance with the principle of procedural economy, inasmuch as the challenged assessment acts rest on the same factual basis and call for the application of the same rules of law.

1.22. The proceedings are not affected by any nullity nor were raised by the parties any defences that prevent the examination of the merits of the case, and therefore the conditions are met for the rendering of the arbitral decision.

  1.  Factual Matters

2.1. Proven Facts

2.1.1. The Claimant is the sole owner of the Property (doc. No. 23, attached with the request for arbitral decision).

2.1.2. The Property is constituted in sole or vertical ownership, having thirteen units capable of independent use, eleven of which are allocated to residential use and two to parking (docs. Nos. 1 to 23, attached with the request for arbitral decision).

2.1.3. None of the floors or units capable of independent use has a TPV equal to or greater than € 1,000,000.00 (one million euros) - (docs. Nos. 1 to 23, attached with the request for arbitral decision).

2.1.4. The Respondent, for purposes of applying item 28.1 of the GSDS, proceeded to arithmetically add the patrimonial values of each floor or unit capable of independent use allocated to residential use, not having considered for these purposes the TPV of the parts of the Property allocated to parking (docs. Nos. 1 to 23, attached with the request for arbitral decision).

2.1.5. The Property has a TPV of € 2,191,570.00 (two million one hundred and ninety-one thousand five hundred and seventy euros) – (doc. No. 23 attached with the request for arbitral decision).

2.1.6. For purposes of applying item 28.1 of the GSDS, the Respondent considered a "patrimonial value of the property – total subject to tax" of € 1,997,930.00 (one million nine hundred and ninety-seven thousand nine hundred and thirty euros) – docs. Nos. 1 to 22, attached with the request for arbitral decision).

2.1.7. The Claimant was notified of the SD assessments to which refers the table contained in Article 20 of the request for arbitral decision (docs. Nos. 1 to 22, attached with the request for arbitral decision).

2.2. Unproven Facts

There are no facts relevant to the examination of the merits of the case that should be considered unproven.

  1.  Legal Matters

3.1.1. Issues to be Decided

It follows from what has been stated above that the issue to be examined is, fundamentally, whether a property constituted in sole or vertical ownership, but with floors or units with independent uses, is a "property with residential designation" for purposes of applying Article 1 of the SDC and item 28.1 of the GSDS, added by Article 4 of Law No. 55-A/2012, of 29 October.

3.1.2. Item 28.1 of the GSDS

Law No. 55-A/2012, of 29 October, among several amendments it made to the SDC, added, by its Article 4, item 28 to the GSDS, which reads as follows:

"28 - Ownership, usufruct or surface right of urban properties of which the taxable patrimonial value entered in the register, in accordance with the Real Property Tax Code (RTPC), is equal to or greater than € 1,000,000 - on the taxable patrimonial value used for RPT purposes:

28.1 - For property with residential designation - 1%;

28.2 - For property, when the taxpayers who are not individuals are residents of a country, territory or region subject to a clearly more favorable tax regime contained in the list approved by order of the Minister of Finance - 7.5%."

As can be seen, item 28.1 refers to "properties with residential designation". Now, not only is this concept not defined in any provision of the SDC, nor is it used in the RTPC, the code to which Article 67, paragraph 2 of the SDC expressly refers when matters not regulated in the SDC relating to item 28 are involved.

3.1.3. "Vertical ownership" and application of item 28.1 of the GSDS

Without prejudice to the interest, not merely theoretical, of establishing the meaning and scope of the concept of "property with residential designation", it is necessary, first and foremost, to answer the question of whether, for purposes of applying item 28.1 of the GSDS, the TPVs of each floor or unit with independent use and allocated to residential use of a particular building can be added, as the Respondent did regarding the Property.

a) The property register for properties in sole or vertical ownership and the collection of Real Property Tax

It is important to clarify from the outset that "each floor or part of property capable of independent use is considered separately in the property register, which also sets out its respective taxable patrimonial value", as can be read in paragraph 2 of Article 12 of the RTPC. The RPT too, in properties subject to sole ownership, gives typical weight to each floor or part of property capable of independent use (Article 119, paragraph 1 of the RTPC).

That is, it is clear that the legislator, in the RTPC, did not intend to restrict itself to the rigor of the legal form of real rights affecting properties, but rather to the use given to them, namely in cases where a property, from a legal perspective, is composed of different floors or parts capable of independent use.

It could be said, not without reason, that the legislator, for purposes of taxation under RPT, chose to confer autonomy, independence, on each of the parts or on each of the floors of a single property, provided that each shows independent use, to the point of providing for individual registration in the register of each of these independent parts and of imposing on RPT taxation an equally autonomous collection. Notwithstanding the legal existence of a single property, it is the legislator itself who not only recommends but imposes the autonomous consideration of each of the independent parts for purposes of property taxation.

b) Application of item 28.1 of the GSDS to each of the independent parts

If that is the case for RPT, as has been attempted to show, it cannot be otherwise for SD, namely for purposes of applying item 28.1 of the GSDS.

Moreover, this problem, if the tax, RPT or SD, were purely proportional, would not exist or would be harmless, since the sum of the parts would necessarily correspond to the whole. That is not, however, the case here.

As was seen, the SD to which item 28.1 of the GSDS appeals is only due regarding properties with residential designation and, in these, only those which have a TPV equal to or greater than € 1,000,000.00 (one million euros).

No reason is apparent for the disregard of the autonomy of each of the parts capable of independent use of the Property, nor can it be concluded that, for purposes of applying item 28.1 of the GSDS, unity is required which, although beyond dispute in terms of real rights, is not so in the realm of real property taxation.

Regard being had to the letter and spirit of the law, it is not apparent that it is the legislator's intention to apply item 28.1 of the GSDS to each of the parts allocated to residential use of a property when only from the sum of all of them does there result a TPV equal to or greater than the legal threshold.

c) The legislative rationale of item 28.1 of the GSDS

What has been said above does not ignore the avowed purpose of the proponent of the legislative amendment already referred to. The interpretation adopted here is in harmony with what appears to have been the unequivocal intention of the Government, author of the proposal which resulted in this legislative intervention.

At the time of presentation and discussion in Parliament of bill No. 96/XII (2nd), the Secretary of State for Tax Affairs expressly stated[1]:

"The Government proposes the creation of a special tax on urban residential properties of higher value. It is the first time in Portugal that special taxation is created on high-value properties intended for residential use. This tax will be 0.5% to 0.8% in 2012 and 1% in 2013, and will apply to houses of value equal to or greater than 1 million euros."

Now, the Secretary of State for Tax Affairs presents this bill referring, without equivocation, to the word "houses". "Houses of value equal to or greater than 1 million euros", note.

Therefore, notwithstanding the unfortunate legislative technique adopted, it is abundantly clear that item 28.1 of the GSDS cannot be interpreted to encompass each of the floors, units or parts capable of independent use when only from their sum does there result a TPV equal to or greater than what the same item provides. In fact, none of the "houses" of the Property to which we have been referring presents, in itself, "value equal to or greater than 1 million euros".

d) Conclusion

Based on the foregoing, it is the view of the arbitral tribunal that it is affected by illegality the SD assessment based on item 28.1 of the GSDS relating to each of the floors or parts capable of independent use and allocated to residential use of the Property, for the reason that the mentioned item cannot be interpreted to the effect that it can be applied to floors or parts capable of independent use of a property in sole or vertical ownership when only from the sum of each of these floors or parts can there be obtained a TPV equal to or greater than € 1,000,000.00 (one million euros), the TPV of each of these floors or parts not exceeding this legal threshold.

The tribunal's view rejects the finding of unconstitutionality invoked by the Respondent. It is known that it is the responsibility of law – law of the Assembly of the Republic or authorized Decree-Law – to fix the essential elements of the incidence of taxes. However, the view adopted by the arbitral tribunal does not neglect the principle of legality provided for in paragraph 2 of Article 103 of the Constitution of the Portuguese Republic, because, as has been attempted to show by the arguments presented above, the solution advocated results from normative provisions which do not suffer from any organic unconstitutionality.

3.1.4. Moot issue: unconstitutionality invoked by the Claimant

The Claimant raised the issue of the unconstitutionality of item 28.1 of the GSDS with the wording it has today, in the event it were interpreted to the effect that the SD provided for therein could apply to each of the independent floors or parts of the Property allocated to residential use.

Since the arbitral tribunal did not accept the view of the applicability of item 28.1 of the GSDS to the case at hand, it becomes moot and procedurally unnecessary to examine that issue and that of any other defects of which the challenged assessments might suffer.

  1.  Decision

In accordance with and on the grounds set out, the arbitral tribunal decides to uphold the request for arbitral decision with the consequent annulment of the challenged assessments, with all legal consequences.

  1.  Case Value

In accordance with the provisions of paragraph 2 of Article 315 of the Code of Civil Procedure, subparagraph a) of Article 97-A, paragraph 1 of the Code of Procedure in Tax Matters and paragraph 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings, the case value is fixed at € 19,979.30 (nineteen thousand nine hundred and seventy-nine euros and thirty cents).

  1.  Costs

For the purposes of the provisions of paragraph 2 of Article 12 and paragraph 4 of Article 22 of the LRTA and paragraph 4 of Article 4 of the Regulation of Costs in Tax Arbitration Proceedings, the costs are fixed at € 1,224.00 (one thousand two hundred and twenty-four euros), in accordance with Table I attached to the aforesaid Regulation, to be borne entirely by the Respondent.

Notice to be given

Lisbon, 19 January 2015

The Arbitrator

Nuno Pombo

Document prepared by computer, in accordance with paragraph 5 of Article 131 of the Code of Civil Procedure, as applied by reference in subparagraph e) of Article 29, paragraph 1 of Decree-Law No. 10/2011, of 20 January.

The wording of this decision follows the old spelling.

[1] See DAR I Series No. 9/XII -2, of 11 October, page 32.

Frequently Asked Questions

Automatically Created

Does Verba 28.1 of the Tabela Geral do Imposto do Selo apply to buildings held in vertical property (propriedade vertical)?
Yes, according to the Tax Authority's interpretation, Verba 28.1 TGIS applies to buildings held in vertical property (propriedade vertical) when the aggregate patrimonial value of residential units exceeds €1 million. The Authority treats vertical property as a single taxable unit rather than multiple autonomous parts. However, this interpretation was contested in Case 551/2014-T, where the taxpayer argued that each independent unit should be assessed separately, similar to horizontal property. The controversy centers on whether vertical ownership constitutes one indivisible property or multiple taxable units for Stamp Tax purposes under Verba 28 of the General Stamp Duty Schedule.
How is the patrimonial value calculated for Stamp Tax purposes when a building has multiple independent units?
For Stamp Tax purposes under Verba 28.1 TGIS, the Tax Authority calculates patrimonial value by summing the taxable patrimonial values (VPT) of units with residential designation only, excluding non-residential units such as parking spaces. In Case 551/2014-T, the property had 11 apartments and 2 parking spaces totaling €2,191,570.00, but only residential units were aggregated for the €1 million threshold test. The taxpayer challenged this methodology, arguing there is no legal basis for excluding certain independent units from the calculation and that each independently-usable part should be assessed separately according to Article 12(3) of the Real Property Tax Code (CIMI), which requires individual registration and distinct patrimonial values.
Can a taxpayer challenge Imposto do Selo liquidations on high-value residential properties through CAAD arbitration?
Yes, taxpayers can challenge Imposto do Selo liquidations on high-value residential properties through CAAD (Centro de Arbitragem Administrativa) arbitration. Case 551/2014-T demonstrates this procedural right under the Legal Regime for Tax Arbitration (RJAT). The Claimant successfully initiated arbitration proceedings to contest Stamp Tax assessments under Verba 28.1 TGIS for 2013, arguing illegality based on violation of law and error in factual and legal grounds. The CAAD tribunal has substantive competence to review such assessments under Article 2(1)(a) of the RJAT. Taxpayers must file their arbitration request within established deadlines, and the tribunal can examine legality, constitutionality, calculation methodology, and property valuation issues related to Stamp Tax on properties exceeding €1 million.
What is the difference between horizontal and vertical property for Stamp Tax (Imposto do Selo) under Verba 28 TGIS?
The fundamental difference for Stamp Tax under Verba 28 TGIS is that horizontal property (propriedade horizontal) consists of legally autonomous fractions that constitute separate properties for tax purposes, each with independent patrimonial value and separate assessment. In contrast, vertical property (propriedade vertical or sole ownership) is treated by the Tax Authority as a single indivisible property, even when composed of multiple floors or independently-usable parts. In Case 551/2014-T, this distinction created the core controversy: the taxpayer argued that independently-usable units in vertical property should be treated like autonomous fractions in horizontal property, being assessed separately under Article 12(3) CIMI. The Tax Authority maintained that vertical ownership lacks the juridical autonomy of horizontal fractions, requiring aggregation of residential unit values to determine if the €1 million threshold is exceeded for Verba 28.1 TGIS application.
What was the outcome of CAAD Process 551/2014-T regarding Stamp Tax on a property valued above one million euros?
The excerpt provided contains only the Report section of CAAD Process 551/2014-T, presenting the factual background and parties' arguments, but does not include the arbitral tribunal's final decision or reasoning. The case involved a property valued at €2,191,570.00 in Lisbon held in vertical ownership, with the taxpayer challenging 2013 Stamp Tax assessments under Verba 28.1 TGIS. The Claimant argued for illegality based on improper aggregation of independent units, unconstitutionality due to unequal treatment compared to horizontal property, and violation of proportionality principles. The Tax Authority defended literal application of the law treating vertical property as a single unit. The tribunal was constituted on 30 September 2014, and proceedings were deemed ready for decision by 17 November 2014, but the actual ruling and outcome are not contained in the provided text excerpt.