Process: 603/2016-T

Date: March 8, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Arbitral Decision 603/2016-T addresses the controversial application of Stamp Tax (Imposto do Selo) under Item 28.1 of the General Stamp Tax Table (TGIS) to vertical property structures. The case involves a company owning nine independent units within a single urban property in Lisbon, each individually valued below €1,000,000 for Municipal Property Tax purposes. The Portuguese Tax Authority assessed Stamp Duty totaling €10,026.50 by aggregating all unit values to reach €1,002,650.00, exceeding the €1 million threshold established by Law 55-A/2012. The claimant challenged this approach, arguing that vertical property units should be taxed individually based on their separate IMI assessments, not collectively as a single property. The Tax Authority countered that the building constitutes one real estate property under full ownership with independent parts, distinguishing it from horizontal property (condominium) regimes. This arbitral proceeding raises fundamental questions about the interpretation of tax incidence rules for vertically divided properties, the legal distinction between horizontal and vertical ownership for tax purposes, and whether autonomous IMI valuations should determine Stamp Tax liability. The outcome has significant implications for property owners and tax practitioners dealing with multi-unit buildings held under single ownership, particularly regarding the €1 million valuation threshold and potential reimbursement rights when assessments are deemed unlawful.

Full Decision

ARBITRAL DECISION

I. REPORT

A..., S.A., commercial company with registered office at Rua ..., nº ... –..., ...-... Lisbon, holder of the sole number of registration and identification of legal entity..., hereinafter designated as Claimant, submitted a request for constitution of an arbitral tribunal in tax matters and request for arbitral ruling, under the provisions of articles 2º no. 1 a) and 10º no. 1 a), both of Decree-Law no. 10/2011, of 20 January (Legal Framework of Arbitration in Tax Matters, abbreviated as RJAT), petitioning the declaration of illegality and consequent annulment of 9 tax assessment acts of Stamp Duty (IS) collection, referring to the year 2015, in the total amount of € 10,026.50, as well as the condemnation of the Respondent to reimburse to the Claimant the amounts unduly assessed and paid, increased by compensatory interest.

To support its request it alleges, in summary:

a) it is the owner of nine units with independent use of the urban real estate property registered in the property registry under article ... of the parish of ..., municipality of Lisbon;

b) each one of the units with independent use was individually assessed for the purposes of the Municipal Property Tax Code (CIMI), with none of them having a taxable property value equal to or greater than 1 million euros;

c) the Tax Administration considered the Claimant to be a taxpayer subject to Stamp Duty, item 28.1 of the General Table of Stamp Duty (TGIS), for being the owner of a real estate property with a taxable property value of € 1,002,650.00, resulting from the sum of the values of the various units with independent use held by the Claimant in that property;

d) the criterion for taxation under Stamp Duty should take into account the taxable property value shown in the registry for each one of the units individually considered;

e) for purposes of subjection or not to Stamp Duty, the Tax Administration cannot consider as reference value the total value of the real estate property constituted in vertical ownership, by summing the values of the units with independent use, as this is not constituted under the horizontal ownership regime;

f) the legislator expressly established that Stamp Duty would apply only to real estate properties whose taxable property value was equal to or greater than 1 million euros, which is not the case for any of the units with independent use held by the Claimant in said property.

The Claimant attached 3 documents and did not list any witnesses.

In the request for arbitral ruling, the Claimant chose not to appoint an arbitrator, and therefore, in accordance with the provisions of article 6º no. 2 a) of RJAT, the undersigned was appointed by the Ethics Council of the Administrative Arbitration Centre, with the appointment being accepted as legally provided.

The collective arbitral tribunal was constituted on 26 December 2016.

Notified in accordance with the terms and for the purposes of article 17º of RJAT, the Respondent submitted its reply, alleging, in summary, the following:

a) the real estate property in question in the present proceedings is constituted under the full ownership regime, with parts susceptible to independent use, encompassing the legal concept of "real estate property";

b) in this case, its taxable property value is determined by the sum of the parts with residential designation;

c) for purposes of Municipal Property Tax (IMI) and Stamp Duty, the Claimant is not the owner of 9 autonomous units, but rather of a single real estate property;

d) horizontal ownership and vertical ownership are differentiated legal institutions, and tax law respects this distinction;

e) the registry recording in accordance with no. 3 of article 12 of CIMI, which is based on the autonomous assessment of floors or independent units, does not affect the application of item 28.1 of the General Table made on the basis of the total taxable property value of the real estate property.

The Respondent did not attach documents or list any witnesses, having attached a copy of the administrative file.

The meeting referred to in article 18º of RJAT, as well as the production of oral and written arguments, was dispensed with, without opposition from the parties, given that, on the one hand, no matters susceptible of discussion at said meeting were raised and, on the other hand, the file contains all the documentary elements necessary and sufficient to decide on Law.

II. QUESTIONS TO BE DECIDED:

Given the positions taken by the Parties, reflected in the arguments presented, it is easily verified that the sole question to be decided comes down to the determination of the taxable property value relevant for purposes of the incidence of Stamp Duty in cases of real estate properties constituted under the full ownership regime, composed of floors or units susceptible to independent use; whether the taxable property value of each one of the divisions of the real estate property individually considered or the taxable property value corresponding to the sum of all the taxable property values of the divisions that compose it.

III. STATEMENT OF FACTS:

a. Proven Facts:

With relevance to the decision to be rendered in the present proceedings, the following facts were established as proven:

  1. There are registered in the property registry in favor of the Claimant nine floors or units susceptible to independent use of the urban real estate property registered under article ... in the urban property registry of the parish of ..., municipality of Lisbon;

  2. For each one of the nine floors or independent units a taxable property value was determined separately, for purposes of Municipal Property Tax (IMI);

  3. The taxable property values referred to in the previous point, individually considered, are less than € 1,000,000.00;

  4. With reference to the year 2015 and to the real estate property referred to in 1. above, the Respondent assessed Stamp Duty corresponding to Item 28.1 of TGIS, in the total amount of € 10,026.50, and the Claimant was notified of such assessments;

  5. The Claimant did not proceed to pay the assessments made;

  6. The Respondent initiated tax enforcement proceedings aimed at the coercive collection of the contested assessments;

  7. In the context of the tax enforcement proceedings initiated, the Claimant requested payment of the enforceable debt in installments;

  8. The Claimant filed an administrative objection against the assessments made, and was notified of its rejection by official letter dated 21/09/2016;

  9. On 11/10/2016, the Claimant submitted a request for constitution of an arbitral tribunal.

b. Unproven Facts

With interest for the proceedings, no other fact was proven.

c. Reasoning on the Statement of Facts

The conviction regarding the facts established as proven was formed based on the documentary evidence attached by the Claimant, indicated with respect to each one of the points and whose correspondence to reality was not questioned.

IV. CASE MANAGEMENT:

The Arbitral Tribunal was regularly constituted and is materially competent.

There are no nullities that invalidate the proceedings.

The parties have legal personality and capacity and are legitimately entitled, with no defects in representation.

V. ON THE LAW:

Having established the proven facts, it is now necessary, by reference to them, to determine which Law is applicable.

Having analyzed the arguments presented by the Parties, it is easily observed that the substance of the question to be examined in the present proceedings lies in determining which taxable property value should be considered for purposes of the incidence of Stamp Duty, provided for in Item 28 of TGIS, added by article 4 of Law no. 55-A/2012, of 29 October, in the case of real estate properties constituted in full ownership, composed of floors or units susceptible to independent use. It is therefore a matter of interpretative nature.

To this end, the Claimant invokes that, although at the date of the assessments in question in the present proceedings the real estate property is not constituted under the horizontal ownership regime, it should be, for purposes of subjection or not to Stamp Duty, treated as such, given the fact that all the units constitute true autonomous units, as they constitute units with independent use.

For its part, the Respondent argues that, as the real estate property is not constituted under the horizontal ownership regime, it cannot be subject to such treatment, the taxable property value of the real estate property corresponding to the sum of the values of its parts and being upon this value, if applicable, Stamp Duty calculated.

For the examination of the question in the present proceedings, it is important, first and foremost, to cite article 4 of Law 55-A/2012, of 29 October, which added to the General Table of Stamp Duty, attached to the Stamp Duty Code, approved by Law no. 150/99, of 11 September, item no. 28, currently with the following wording:

"28. Ownership, usufruct or right of superficies of urban real estate properties whose taxable property value shown in the registry, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than € 1,000,000.00 – on the taxable property value used for purposes of IMI:

28.1 – For residential real estate property or land for construction whose building, authorized or planned, is for residential purposes, in accordance with the IMI Code – 1%;

28.2 – For real estate property, when taxpayers who are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, listed in the list approved by order of the Minister of Finance – 7.5%".

That said,

In accordance with article 2 of CIMI, "real estate property is any portion of territory, including waters, plantations, buildings and structures of any nature incorporated therein or built thereon, with a character of permanence, provided that it forms part of the assets of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or structures, in the above circumstances, endowed with economic autonomy in relation to the land where they are located, although situated in a portion of territory that constitutes an integral part of a different patrimony or does not have a patrimonial nature."

Article 2 no. 4 of the aforementioned article prescribes expressly that each autonomous unit, under the horizontal ownership regime, is considered to constitute a real estate property.

Real estate properties are divided into rural (article 3), urban (article 4) or mixed (article 5), with urban real estate properties being subdivided into 4 types: residential; commercial, industrial or for services; land for construction and others (article 6).

For its part, article 6 no. 2 of CIMI clarifies that "residential, commercial, industrial or for services are buildings or structures licensed for such purpose or, in the absence of a license, that have as their normal purpose each of these purposes".

From the joint analysis of the aforementioned provisions it is verified that CIMI makes no distinction between real estate properties constituted under the horizontal ownership regime or full ownership. Indeed, although article 2 no. 4 expressly refers to autonomous units of real estate properties constituted under the horizontal ownership regime as each constituting a real estate property, the truth is that it does not exclude from such classification units with independent use of real estate properties constituted under full ownership or vertical ownership regime.

And, where the law did not distinguish, the interpreter cannot do so.

It being certain, moreover, that, having analyzed the definition of real estate property contained in article 2 no. 1 of CIMI, we do not find any reason not to include therein units with independent use of real estate properties constituted under full ownership regime, for these constitute a portion of territory that forms an integral part of the assets of a natural or legal person and that has economic value.

Having established the classification of units with independent use of real estate properties constituted under full ownership regime as real estate properties, in accordance with and for the purposes of CIMI, it seems clear to us that each one of these units constitutes real estate properties, for purposes of application of item 28.1 of TGIS.

In the case of the proceedings, each one of the units with independent use is individually classified – cf. point 2 of the proven facts.

Indeed, if the units in question in the present proceedings were not individually classified as a real estate property, it would make no sense to prepare 9 assessment notices for Stamp Duty, one regarding each independent unit.

Indeed, if these units were not classified, individually, as real estate properties, then a single assessment notice should have been prepared, regarding the real estate property.

Note that, as is peacefully accepted by diverse case law, including arbitral[1], the introduction of item 28 in TGIS was aimed at the taxation of urban real estate properties of high value.

It was intended, with the introduction of the taxation provided for in item 28 of TGIS, to tax wealth, manifested in the ownership, usufruct or right of superficies of "luxury" urban real estate properties.

Indeed, as results from the arbitral case law cited above, which we follow closely, it could be said that, having analyzed the discussion of Bill no. 96/XII in the Assembly of the Republic, it is verified that the reasoning for the measure designated as special tax on residential urban real estate properties of highest value is based on the invocation of the principles of social equity and tax justice, calling upon to contribute more intensely the holders of properties of high value intended for residential purposes, making the new special tax apply to houses with value equal to or greater than 1 million euros.

Now, if the objective of the law was to adapt taxation under Stamp Duty to the contributory capacity of taxpayers, it seems that the distinction between real estate properties constituted under the horizontal or vertical ownership regime does not have any relevance.

Indeed, it is not understood how the ownership of certain units in a real estate property under full ownership regime can signify greater wealth and greater contributory capacity than the ownership of the same number of units in a real estate property under horizontal ownership regime.

Manifestly, this is not where the greater or lesser contributory capacity is revealed, all the more so since, as is known, horizontal ownership is a relatively recent legal institution, and it is certain that a large part of old buildings are not constituted in this regime, despite functioning as such in practice.

Now, the principle of the prevalence of substance over form requires that the tax administration value the material truth. And, in the case of the proceedings, the material truth consists in the non-existence of any substantive difference between the units owned by the Claimant and the units of a real estate property constituted in horizontal ownership regime.

In the case of the proceedings, having verified the identity between the units owned by the Claimant and the units of a real estate property constituted under the horizontal ownership regime, no grounds can be invoked to justify the non-application of the same regime to both situations.

And, if in the case of the units of the real estate property constituted under the horizontal ownership regime there is no doubt that the taxable property value relevant for the purpose of determining the application or not of Stamp Duty is the individual value of each one of the units, it is not understood why this question should be raised in the case of units that do not form part of a real estate property constituted in horizontal ownership regime.

Distinguishing, for the purpose of subjection or not to Stamp Duty, the autonomous units of real estate properties constituted under the horizontal ownership regime from the units with independent use of real estate properties constituted under full ownership regime, represents a clear violation of the principles of justice, equality and proportionality in tax matters, of material truth and of contributory capacity, and thus such distinction cannot be accepted.

In the case of the proceedings, as results from the proven facts, none of the units with independent use, or rather, none of the real estate properties owned by the Claimant, has a taxable property value equal to or greater than one million euros, and therefore these are not covered by the rule of incidence provided for in item 28 of TGIS.

In view of all that has been set forth, there is no doubt that the taxable property value relevant for purposes of the incidence of Stamp Duty in cases of real estate properties constituted under full ownership regime, composed of various units with independent use, is the taxable property value of each one of the units of the real estate property and not, as defended by the Respondent, the global taxable property value of the real estate property, corresponding to the sum of all the taxable property values of the units that compose it.

Thus, it is clear that there is no legal basis for the acts of Stamp Duty assessment contested, requiring their annulment.

The Claimant further petitions the condemnation of the Respondent to reimburse it the amounts unduly assessed and paid, increased by compensatory interest.

In the case of the proceedings, it was proven that the Claimant did not proceed to pay the assessments made, despite having, in the context of tax enforcement proceedings initiated for coercive collection of the amounts corresponding, requested payment of such amounts in installments - cf. points 5 to 7 of the proven statement of facts.

However, it is unknown whether the Claimant has effectively paid any amount in the context of said tax enforcement proceedings, and it is certain that, if it has paid any value, this should be reimbursed to it, in view of the already declared illegality of the acts of Stamp Duty assessment made.

In addition to the reimbursement of the amounts that may have been paid, the Claimant also has the right to receive compensatory interest, calculated on the amounts paid.

Indeed, with respect to compensatory interest, article 43 no. 1 of the General Tax Law (LGT) prescribes that "compensatory interest is due when it is determined, in administrative objection or judicial challenge, that there was an error attributable to the services from which resulted payment of the tax debt in an amount greater than that legally due."

In the case now under examination, the error that affects the contested assessments is attributable to the Tax Administration, which assessed the tax without any factual or legal basis, and therefore there is no doubt that the Claimant has the right to receive compensatory interest, calculated at the legal supplementary rate and counted from the date of each one of the payments that may have been made until the effective and complete reimbursement of the amounts paid.

VI. RULING:

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

a) Judge as well-founded the request for declaration of illegality of the acts of assessment of Stamp Duty in the total amount of € 10,026.50 and in consequence:

i) Annul the tax assessment acts of Stamp Duty nos. 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016… and 2016… and the payment notices issued;

ii) Condemn the Respondent to reimburse to the Claimant the tax that may have been paid;

iii) Condemn the Respondent to pay to the Claimant compensatory interest, calculated at the legal supplementary rate, from the date of each payment that may have been made until the effective and complete reimbursement.

The value of the case is set at € 10,026.50, in accordance with item a) of no. 1 of article 97-A of the Tax Code of Procedure and Process, applicable by force of items a) and b) of no. 1 of article 29 of RJAT and no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

In accordance with the provisions of no. 2 of article 12 and no. 4 of article 22 of RJAT and article 4 of RCPAT, the amount of costs is set at € 918.00 in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Respondent, as the unsuccessful party.

Register and notify.

Lisbon, 8 March 2017.

The Arbitrator,

Alberto Amorim Pereira

Document prepared by computer, in accordance with no. 5 of article 131 of the Code of Civil Procedure, applicable by referral from item e) of no. 1 of article 29 of Decree-Law no. 10/2011, of 20/01.

[1] See, among others, decisions rendered in the context of proceedings 48/2013-T, 50/2013-T and 132/2013-T, all available at www.caad.org.pt

Frequently Asked Questions

Automatically Created

Is Stamp Tax (Imposto do Selo) under Verba 28.1 TGIS applicable when individual units in vertical property are each valued below one million euros?
Under Item 28.1 of the General Stamp Tax Table (TGIS), Stamp Tax applies to real estate properties with taxable values equal to or greater than €1,000,000. In Process 603/2016-T, the central dispute concerned whether individual units in vertical property, each valued below this threshold, should be aggregated. The claimant argued that since each of the nine independent units had separate IMI valuations below €1 million, no Stamp Tax should apply. This interpretation emphasizes individual unit assessment consistent with Municipal Property Tax methodology.
Can the Portuguese Tax Authority aggregate the patrimonial values of independent units in a vertical property building to reach the one million euro threshold for Stamp Tax?
The Portuguese Tax Authority's position in this case was that independent units within a vertical property building can be aggregated to determine Stamp Tax liability. The Tax Administration summed the taxable values of all nine units (totaling €1,002,650.00) to exceed the €1 million threshold, arguing the property constitutes a single real estate under full ownership with independent parts. This approach treats vertical property differently from individual ownership situations, focusing on the overall property rather than autonomous divisions, despite each unit having separate IMI assessments.
What is the difference between horizontal and vertical property for purposes of Stamp Tax under Verba 28.1 of the General Stamp Tax Table?
Vertical property and horizontal property (propriedade horizontal/condomínio) represent distinct legal regimes in Portuguese law with different tax implications. Horizontal property involves autonomous fractions with separate ownership rights, each constituting an independent real estate for tax purposes. Vertical property under full ownership means a single owner holds multiple floors or independent units within one building without the condominium structure. For Stamp Tax purposes under Item 28.1 TGIS, this distinction is crucial: the Tax Authority argued that vertical property allows aggregation of unit values, while the claimant contended that autonomous IMI assessments should prevent such aggregation, regardless of the ownership structure.
How does CAAD arbitral tribunal process 603/2016-T address the legality of Stamp Tax assessments on vertically divided properties?
CAAD arbitral tribunal in Process 603/2016-T examined whether Stamp Tax assessments totaling €10,026.50 were lawfully levied on a vertical property with nine units. The tribunal identified the core legal issue as determining which taxable property value applies under Item 28.1 TGIS: individual unit values or their aggregate sum. The proceeding analyzed arguments regarding the legal nature of vertical property, the relevance of separate IMI valuations, the interpretation of Law 55-A/2012 establishing the €1 million threshold, and whether tax law respects distinctions between horizontal and vertical ownership regimes. The tribunal's competence extended to annulling unlawful assessments and ordering reimbursement with compensatory interest.
Are property owners entitled to reimbursement and compensatory interest when Stamp Tax is unlawfully levied on vertical property units below the taxable threshold?
When Stamp Tax is unlawfully levied on vertical property units that individually fall below the €1 million taxable threshold, property owners are entitled to reimbursement of amounts unduly paid plus compensatory interest (juros indemnizatórios). In Process 603/2016-T, the claimant specifically requested annulment of the €10,026.50 assessment and condemnation of the Tax Authority to reimburse amounts paid with compensatory interest. This remedy addresses the financial prejudice suffered by taxpayers due to illegal tax collection, recognizing that the State must compensate for wrongful retention of taxpayer funds. The right to reimbursement derives from the principle that unlawful tax assessments create an obligation to restore the taxpayer's patrimony to its proper state.