Process: 566/2014-T

Date: February 20, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitration case (Process 566/2014-T) concerns the application of Stamp Tax (Imposto de Selo) under Verba 28 of the General Stamp Tax Table (TGIS) to a mixed-use property in Lisbon held in vertical ownership. The applicant, a co-owner holding a 1/2 share, challenged IS assessments on a building containing 20 independent divisions: 18 residential units and 2 commercial units. The central dispute involves whether the €1,000,000 threshold for luxury property taxation should be applied to each independent residential unit individually or to the aggregate value of all residential units combined. The applicant argued that since no individual residential unit exceeded €1,000,000 in taxable patrimonial value, IS should not apply, despite the total residential value reaching €1,065,510. She further contended that Verba 28 targets luxury residential properties, not mixed-use properties, and that vertical ownership properties should receive equal tax treatment to horizontal ownership (condominium) properties, where only fractions individually exceeding the threshold would be taxed. The Tax Authority (AT) countered that the property must be considered as a single legal entity for IS purposes, distinguishing vertical ownership from horizontal ownership condominiums. AT emphasized that while IMI and IS are assessed on each independent division, the property in its entirety remains relevant for tax purposes since there is no autonomous property matrix registration for each unit. The tribunal's analysis centers on interpreting CIMI provisions regarding property classification and valuation, particularly Article 7(2)(b) concerning independent divisions, and determining the correct application of the €1,000,000 threshold under Verba 28 TGIS to properties in vertical ownership with multiple residential units.

Full Decision

ARBITRAL DECISION

I – REPORT

1 – A..., NIF ..., resident at Avª …, Lisbon, submitted on 30/07/2014 a request for constitution of the arbitral tribunal, pursuant to the provisions of paragraph a) of no. 1 of article 2, no. 1 of article 3 and paragraph a) of no. 1 of article 10, all of RJAT[1], with the AT[2] being requested, with a view to examining the legality of the tax acts levying IS[3], relating to the year 2013 affecting a building with apartments and independent divisions situated at ..., Lot 10, registered in the urban property matrix of the parish of ... under no. ... of which the applicant is co-owner with the share (1/2), the other being B....

2 – The request for constitution of the arbitral tribunal was made without exercising the option to designate an arbitrator, and was accepted by the Esteemed President of CAAD[4] and automatically notified to AT on 30/07/2014.

3 – Pursuant to the provisions of no. 1 of article 6 of RJAT, by decision of the Esteemed President of the Deontological Council, duly communicated to the parties within the legally applicable time periods, Arlindo José Francisco was designated as arbitrator, who communicated to the Deontological Council and to the Administrative Arbitration Centre his acceptance of the appointment within the regularly stipulated time period.

4 – The tribunal was constituted on 01/10/2014 in accordance with the provisions contained in paragraph c) of no. 1 of article 11 of RJAT, as amended by article 228 of Law no. 66-B/2012 of 31 December.

5 – With its request, the applicant seeks the declaration of illegality of the tax acts levying item 28 of TGIS[5] which affected the TaxablePatrimonialValue[6] of the independent divisions for residential use of the property in question of which she is co-owner.

6 – She invokes, in summary, the following:

6.1 – The property in question has mixed use since of the twenty divisions capable of independent use, only eighteen have residential use, with a global TaxablePatrimonialValue of € 1,065,510.00 and the legislator when creating item 28 of TGIS, intended to tax not the real estate assets but the luxury real estate assets, hence taxation applies only to properties with residential use and not to properties with mixed use.

6.2 – Such value was calculated separately, as provided in no. 2 paragraph b) of article 7 of CIMI[7], and none of the apartments or independent divisions with residential use has a TaxablePatrimonialValue equal to or greater than €1,000,000.00.

6.3 – The contested IS was calculated on the TaxablePatrimonialValue of each of the apartments or independent divisions with residential use individually as per the assessments contained in documents attached, 1 to 18, which, in the applicant's view, are afflicted with illegality insofar as none of the apartments individually considered has a TaxablePatrimonialValue equal to or greater than €1,000,000.00.

6.4 – A property in vertical or horizontal ownership cannot, by itself, be an indicator of contributive capacity, with the law providing for equality of tax treatment and thus, if a property in horizontal ownership would only pay IS for the fractions that had patrimonial value equal to or greater than €1,000,000.00, the same should apply to properties in vertical ownership with apartments or independent divisions.

6.5 – It is therefore evident the illegality of the assessments for not verifying the legal premise of the incidence of IS provided in item 28 of TGIS.

7 – For its part, AT, in summary, takes the view:

7.1 – That the applicant's position is not correct since, for purposes of IS, the property in its entirety is relevant, despite IMI[8] or IS being assessed on each apartment or division capable of independent use;

7.2 – AT further states that a property in full ownership and a property in horizontal ownership have different valuation and taxation from which different legal effects arise; whereas in horizontal ownership there is a division of full ownership and autonomy of each fraction, in the property in full ownership there is a single legal reality;

7.3 – Each part capable of independent use is not autonomous, by property matrix, having a description of the property in its entirety;

7.4 – It concludes that the tax acts in question are legal and should be maintained, with AT being absolved from the request.

II – PROCEEDINGS

The tribunal was regularly constituted and is competent ratione materiae, in accordance with article 2 of RJAT.

The parties have legal personality and capacity, show themselves to be legitimate and are regularly represented in accordance with articles 4 and 10 no. 2 of RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March.

In its response AT requested dispensation with the meeting referred to in article 18 of RJAT and that the tribunal proceed directly to the decision of the case, should the applicant not object.

Notified the applicant, on 03/11/2014, of this request, she came on 04/11/2014 to express her adhesion to the AT's position regarding said dispensation, whereupon the tribunal deemed the conditions to be met for pronouncing the final decision.

III – REASONING

1 – The issues to be resolved with relevance for the proceedings are the following:

a) To ascertain whether a property in full ownership with parts or divisions capable of independent use, with residential use, should be taxed in IS on the TaxablePatrimonialValue corresponding to the sum of each of the independent parts or divisions with residential use when equal to or greater than €1,000,000.00, concluding on the legality of the assessments in question.

b) Or whether IS should only apply to the TaxablePatrimonialValue of each of the independent parts or divisions when, unitarily considered, equal to or greater than €1,000,000.00 and conclude on the illegality of said assessments.

2 – Factual Matters

The factual matters relevant and proved on the basis of the elements attached to the proceedings are the following:

a) The applicant is co-owner (1/2) of an urban property in full ownership with parts or divisions capable of independent use, registered in the urban property matrix under article ... of the parish of ..., municipality of Lisbon.

b) The property in question has eighteen parts or divisions capable of independent use assigned to housing and the remainder assigned to commercial use.

c) The contested IS was calculated individually for each part capable of independent use with residential use, although none of them has a TaxablePatrimonialValue equal to or greater than €1,000,000.00.

d) The sum of the TaxablePatrimonialValue of the parts or divisions with residential use is €1,065,510.00.

e) AT issued the assessment notes for IS calculated on each of the parts or divisions capable of independent use with residential use since the sum of the TaxablePatrimonialValue of each of them is equal to or greater than €1,000,000.00.

3 – Applicable Law

a) The legal issue to be resolved is whether, in accordance with the provisions of item 28.1 of TGIS, the sum of the TaxablePatrimonialValue of each of the parts or divisions capable of independent use should be considered, since none of them has a value equal to or greater than €1,000,000.00.

b) Given that CIS[9] refers to CIMI for the regulation of the concept of property and of matters not regulated regarding item 28 of TGIS (no. 6 of article 1 and no. 2 of article 67, both of CIS), it is in CIMI that we must observe the concepts that allow us to resolve the issue.

c) The general concept of property is contained in article 2 of CIMI. In article 3 of the same statute the legislator, using criteria of use and location, established the concept of rural properties, and thereafter, in a classification by negation, in article 4, established that urban properties will be all those that should not be classified as rural.

d) Article 6 of CIMI divides urban properties into: residential, commercial, industrial or for services, building sites and others.

e) In the present case we are faced with an urban property with parts or divisions capable of independent use with residential use and others with commercial use.

f) Each of the parts or divisions capable of independent use that compose the property in question fulfills the concept of property established in article 2 of CIMI, inasmuch as they are physically and economically independent and form part of the patrimony of a natural or legal person, in the present case a natural person in co-ownership;

g) Pursuant to no. 4 of article 2 of CIMI each autonomous fraction, under the regime of horizontal ownership is deemed to constitute a property, but there is nothing in law that permits discrimination between properties in horizontal and vertical ownership with respect to their identification as urban residential properties;

h) AT in making the IS assessment made its calculation on the TaxablePatrimonialValue of each of the parts or divisions with independent use with residential use, but ultimately considered the global TaxablePatrimonialValue and verifying it was greater than €1,000,000.00, summed the IS values calculated unitarily;

i) But this procedure has no legal support, since none of the parts or divisions with independent use with residential use, each of them fulfilling the concept of property set out in article 2 of CIMI, has a TaxablePatrimonialValue equal to or greater than €1,000,000.00, the requirement necessary for there to be IS taxation;

j) Nor can it be said that there is different valuation and taxation of a property in full ownership with parts or divisions capable of independent use, compared to a property in horizontal ownership. In truth it does not exist in IMI just as it cannot exist in IS, since the applicable legislation is the same;

k) The criterion of taxation must be uniform, that is, if a residential fraction of a property in horizontal ownership is only taxed in IS if its TaxablePatrimonialValue is equal to or greater than €1,000,000.00, equally an apartment or part of a property capable of independent use of a property in vertical ownership with residential use will only be taxed in IS if its TaxablePatrimonialValue is equal to or greater than €1,000,000.00;

l) As already stated the apartment or part of a property capable of independent use of a property in vertical ownership meets the concept of property established in the Municipal Property Tax Code, just as the autonomous fractions of properties in horizontal ownership.

m) In this perspective and considering that none of the parts or divisions capable of independent use for residential destination or use has a TaxablePatrimonialValue equal to or greater than €1,000,000.00 it is necessary to conclude that the IS assessment acts are illegal for not having observed the conditions defined in item 28 of TGIS;

n) We agree with the conclusion of Professor Miguel Patrício in case 132/2013 in considering the interpretation made by AT, non-conforming with the Law and the CRP[10].

o) And nor can it be said that AT's procedure would be justified by the need to impose coherence to the tax system from the legislator's perspective.

p) This, when introducing item 28 in TGIS, aimed to subject to tax those who had greater contributive capacity exteriorized through luxury properties with residential use.

q) As is known, properties like the one in the present case, are already quite old, with rents, most of the time, well below the market, already possessing pronounced degradation and which could in no way be within the "legislative intent".

IV – RULING

In light of the foregoing the tribunal decides as follows:

a) To declare the request for arbitral pronouncement well-founded, considering illegal the IS assessment notes in question, their annulment with all legal consequences arising therefrom.

b) Case value €2,663.83, having regard to the provisions contained in article 299 no. 1 of CPC[11], 97-A of CPPT[12] and article 3 no. 2 of RCPAT[13].

c) Costs to be borne by the respondent, under no. 4 of article 22 of RJAT, fixing their amount at €612.00 in accordance with table I of RCPAT.

Notify

Lisbon, 20 February 2015

Text prepared by computer, pursuant to article 131, no. 5 of CPC, applicable by reference from article 29, no. 1, paragraph e) of RJAT, with blank lines and reviewed by me.

The drafting of this decision is governed by the spelling prior to the orthographic agreement.

The sole arbitrator,

Arlindo José Francisco

[1] Acronym for Legal Regime for Arbitration in Tax Matters
[2] Acronym for Tax and Customs Authority
[3] Acronym for Stamp Tax
[4] Acronym for Administrative Arbitration Centre
[5] Acronym for General Table of Stamp Tax
[6] Acronym for Taxable Patrimonial Value
[7] Acronym for Municipal Property Tax Code
[8] Acronym for Municipal Property Tax
[9] Acronym for Stamp Tax Code
[10] Acronym for Constitution of the Portuguese Republic
[11] Acronym for Civil Procedure Code
[12] Acronym for Code of Tax Procedure and Process
[13] Acronym for Costs Regulation in Tax Arbitration Proceedings

Frequently Asked Questions

Automatically Created

How is Stamp Tax (Imposto de Selo) applied under Verba 28 TGIS to properties with independent units valued below €1,000,000?
Under Verba 28 TGIS, the application of Stamp Tax to properties with independent units valued below €1,000,000 depends on whether the units are considered individually or collectively. The Tax Authority's position is that for properties in vertical ownership (full ownership not divided into autonomous fractions), the taxable value is the sum of all residential independent divisions. If this aggregate exceeds €1,000,000, IS is assessed on each residential unit proportionally, even if no individual unit reaches the threshold. This differs from horizontal ownership (condominiums) where each fraction is an autonomous property with separate matrix registration, and the threshold applies to each fraction individually. The key distinction lies in the legal nature of the property: vertical ownership maintains a single legal entity despite having divisions capable of independent use, whereas horizontal ownership creates separate property rights for each fraction.
Does Verba 28 of the General Stamp Tax Table apply to mixed-use properties or only to residential properties?
Verba 28 of the General Stamp Tax Table was designed to tax luxury residential properties, raising the question of whether it applies to mixed-use properties. The applicant's argument emphasized that the legislator intended to tax luxury real estate specifically for residential purposes, not commercial or mixed-use properties. In this case, the building had 18 residential units and 2 commercial units. The legal interpretation hinges on whether the presence of any non-residential use disqualifies the entire property from Verba 28, or whether the tax applies only to the residential portions. The Tax Authority's approach was to apply IS to the residential divisions while excluding commercial areas, suggesting that mixed-use properties can be subject to Verba 28, but only regarding their residential components when the aggregate residential value meets the threshold. This interpretation aligns with Article 6 of CIMI, which classifies urban properties by use categories (residential, commercial, industrial, services).
How is the taxable value determined for a building in vertical ownership with multiple independent divisions under CIMI Article 7(2)(b)?
Article 7(2)(b) of the Property Tax Code (CIMI) provides that when a building contains parts or divisions capable of independent use, the taxable patrimonial value should be calculated separately for each such division. This separate calculation methodology serves both for IMI (Property Tax) and IS (Stamp Tax) purposes. The valuation considers each independent division's characteristics, including area, location, quality of construction, and intended use. In the case of vertical ownership properties, even though valuations are calculated separately for each division per CIMI Article 7(2)(b), these divisions do not have autonomous matrix registrations - instead, the property maintains a single matrix article covering all divisions. For horizontal ownership (condominiums), each fraction has its own autonomous matrix registration. This distinction is crucial for determining how the €1,000,000 threshold applies: whether to each separately-valued division or to the sum of divisions within a single property matrix article. The separate calculation under Article 7(2)(b) serves valuation purposes but does not necessarily create separate properties for tax incidence purposes.
Can co-owners challenge Stamp Tax assessments on high-value properties through CAAD tax arbitration?
Yes, co-owners can challenge Stamp Tax assessments on high-value properties through the Centro de Arbitragem Administrativa (CAAD) tax arbitration system. This case demonstrates that procedural capacity: the applicant, holding a 1/2 co-ownership share, successfully initiated arbitration proceedings under RJAT (Legal Regime of Tax Arbitration) Article 2(1)(a), Article 3(1), and Article 10(1)(a). The request was accepted and an arbitral tribunal was constituted on October 1, 2014. Tax arbitration provides an alternative to judicial courts for resolving disputes regarding the legality of tax acts, including IS assessments under Verba 28 TGIS. Co-owners have legitimate standing to challenge tax assessments affecting their property interests, regardless of their ownership percentage. The arbitration process offers advantages including faster resolution, specialized tax expertise, and lower costs compared to traditional litigation. In this case, the co-owner did not exercise the option to designate an arbitrator, and the President of CAAD appointed the arbitrator automatically, demonstrating the accessibility of the system.
Is the €1,000,000 threshold for luxury property taxation assessed per independent unit or based on the total property value?
The €1,000,000 threshold for luxury property taxation under Verba 28 TGIS is the central legal issue in this case. The applicant argued that the threshold should be assessed per independent unit - since none of the 18 residential divisions individually reached €1,000,000 in taxable patrimonial value, IS should not apply. This interpretation draws on principles of tax equality, suggesting that properties in vertical ownership should receive the same treatment as horizontal ownership condominiums, where only fractions individually exceeding €1,000,000 would be taxed. The Tax Authority contended that the threshold applies to the total property value, specifically the aggregate of all residential divisions. Since the sum of residential units' taxable values was €1,065,510 (exceeding €1,000,000), AT assessed IS on each residential division proportionally. This interpretation emphasizes that vertical ownership properties constitute a single legal reality with one matrix registration, despite having multiple divisions capable of independent use. The resolution depends on interpreting CIMI property concepts and whether the legislator intended Verba 28 to target individual luxury units or luxury properties as whole entities when in vertical ownership.