Process: 636/2016-T

Date: April 20, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitral case (Process 636/2016-T) addresses whether Verba 28.1 of the General Stamp Duty Table (TGIS) applies to vertical property buildings based on individual unit values or aggregate property value. The claimant challenged stamp duty assessments totaling €10,668.60 on 13 independent housing units within a single urban property in Lisbon. Each unit's Tax Equity Value (VPT) ranged from €57,690 to €86,190—well below the €1,000,000 threshold triggering Verba 28.1's 1% stamp duty rate. The Tax Authority aggregated all units to exceed the threshold, assessing duty on each unit separately. The claimant argued this violated IMI Code Article 12(3), which requires separate property registration and VPT determination for each independent-use division. The claimant contended that vertical property units with autonomous economic functionality should receive identical treatment to horizontal property fractions, with stamp duty incidence determined by individual VPT. Constitutional violations were alleged regarding fiscal equality (Article 13), tax legality (Article 103), and contributory capacity principles (Articles 81, 104 CRP). The Tax Authority defended its position citing IMI Code Articles 2(4), 3(3), 8, and 80(2), arguing that vertical property remains a single legal unit despite functional divisions. The AT distinguished vertical property from horizontal ownership regime, asserting that only total property VPT determines Verba 28.1 applicability, regardless of independent economic use. This dispute centers on whether tax law must maintain consistent property valuation criteria across different taxes (IMI versus stamp duty) and whether aggregating values to trigger higher tax brackets violates constitutional tax principles. The case has significant implications for owners of multi-unit buildings under vertical ownership regime.

Full Decision

ARBITRAL DECISION

I. REPORT

A…, with the NIF…, resident at Rua…, no.…, …, in Lisbon, in the capacity of HEAD OF ESTATE of the inheritance of B…, with the NIPC … (hereinafter referred to as the Claimant), hereby, pursuant to the combined provisions of article 99 of the Code of Procedure and Tax Procedure (CPPT), article 2, no. 1, subparagraph a) and article 10, no. 1, subparagraph a), of Decree-Law no. 10/2011, of 20 January, which approved the Legal Regime of Arbitration in Tax Matters (RJAT), requests the constitution of an Arbitral Tribunal, in which the Tax and Customs Authority (hereinafter AT or Respondent) is the Respondent, with a view to the declaration of illegality and consequent annulment of the assessments of Stamp Duty (Item 28.1 of the TGIS), referring to the year 2015 and to the various divisions of independent use and residential allocation of the urban property registered in the property register of the parish of …, municipality of Lisbon, under the article …, in the total value of € 10,668.60 (ten thousand, six hundred and sixty-eight euros and sixty cents).

Furthermore, the Claimant requests the condemnation of the Respondent to the restitution of the amounts unduly paid, by way of set-off, increased by compensatory interest, in accordance with the legal terms.

Summary of the Parties' Positions

a. Of the Claimant:

As grounds for the request to annul the Stamp Duty assessment acts (item 28.1 of the TGIS) referring to the year 2015 and to the property identified in the request for arbitral decision, the Claimant invokes the following:

1. The urban property identified and to which the impugned Stamp Duty assessments refer is a property in full ownership, comprised of floors or divisions capable of independent use, whose tax equity value was determined separately, in accordance with article 7, no. 2, subparagraph b), of the IMI Code;

2. On each of the thirteen floors or divisions capable of independent use, intended for housing, the Tax Authority assessed the Stamp Duty of Item 28.1 of the General Table of Stamp Duty (TGIS), at the rate of 1%, on the respective Tax Equity Value (TEV);

3. Although the TEV of the divisions intended for housing varies between € 57,690.00 and € 86,190.00, the AT considers that the criterion used by the rule of incidence of Item 28.1 of the TGIS is to consider the global TEV of the property, provided it exceeds € 1,000,000.00;

4. By contrast, it is the understanding of the Claimant that this is not the correct normative interpretation of Item 28.1 of the TGIS, but rather that, for purposes of incidence, in the case of properties in vertical ownership, the relevant TEV is that which has been assigned to each of the floors or divisions of independent use, with residential allocation;

5. The Claimant considers that the criterion used by the AT is illegal, since the latter cannot consider as a reference value for the incidence of Stamp Duty of Item 28.1 of the TGIS a criterion different from that used under IMI, in accordance with the referral made by no. 2 of article 67 of the Stamp Duty Code;

6. To that extent, it must be concluded that, if in accordance with the provision of no. 3 of article 12 of the IMI Code, "each floor or part of a property capable of independent use is considered separately in the property registration, which also discriminates its respective tax equity value", the autonomous parts of properties in vertical ownership, with residential allocation, must be regarded as "residential urban properties";

7. It is, therefore, the understanding of the Claimant that the normative interpretation of item 28.1 of the TGIS, supported by the AT, is unconstitutional, due to violation of "the principles of fiscal equality, tax legality, contributory capacity (…), set forth in articles 13, 18, 81, subparagraph b), 103 and 104, all of the Portuguese Constitution".

b. Of the Respondent:

Notified in accordance with the terms and for the purposes provided for in article 17 of the RJAT, the AT presented a response in which it defended the legality and maintenance of the assessment acts that are the subject of the present request for arbitral decision, with the following grounds:

1. The Claimant intends that the criterion for the taxation of the autonomous parts of properties in vertical ownership must be identical to that for the taxation of properties in horizontal ownership, and for this purpose, the TEV assigned to each of the floors or fractions of urban properties in vertical ownership must be considered;

2. However, from the combination of the rules of articles 2, no. 4, 3, no. 3 and 8, all of the IMI Code, it is extracted that the taxable fact of the stamp duty of item 28.1 of the TGIS consists of the ownership, usufruct or right of superficies of urban properties whose tax equity value recorded in the property register, in accordance with the CIMI, is equal to or greater than € 1,000,000.00 and that the equity value relevant for purposes of the incidence of the duty is the total equity value of the urban property and not the equity value of each of the parts that compose it, even when capable of independent use;

3. In accordance with article 80, no. 2 of the CIMI, except as provided in articles 84 and 92 of the same Code, each property corresponds to a single property registration, the provision of no. 3 of article 12 of the CIMI being relevant, a rule that already appeared in the body of article 232, rule 1, of the Code of Contribution on Real Property and Tax on Agriculture, only for purposes of the autonomy that, within the same property, can be attributed to each of its parts, economically and functionally independent;

4. But the unity of the urban property in vertical ownership, composed of various floors or divisions, is not affected by the fact that all or some of those floors or divisions are capable of independent economic use, since such property remains one only, and its parts are not distinct legally equated with the autonomous fractions of properties under the horizontal ownership regime;

5. For which reasons the tax equity value upon which the incidence of the stamp duty of item 28.1 of the TGIS depends had to be, as it was, the total equity value of the property and not that of each of its independent parts;

6. Nor does the fact that the IMI was determined as a function of the tax equity value of each part of the property with independent economic use affect the application of item 28.1 of the TGIS, since the determining fact for the application of that item is the total equity value of the property and not separately that of each of its parcels, and any other interpretation would violate the letter and spirit of item 28.1 of the TGIS and the principle of legality of the essential elements of the duty, provided for in article 103, no. 2 of the Portuguese Constitution.

The AT concludes by requesting the waiver of holding the meeting referred to in article 18 of the RJAT, of the production of arguments, as well as the waiver of sending the administrative file, on the ground that no "grace procedure has been initiated", there are no exceptions to be considered, the facts on which the decision is requested are established, and the matter is exclusively one of law, expressly accepting the documentary evidence offered by the Claimant.

II. CASE MANAGEMENT

1. The singular arbitral tribunal is competent and was properly constituted on 24 January 2017, in accordance with articles 2, no. 1, subparagraph a), 5 and 6, all of the RJAT.

2. The Parties have legal personality and capacity, are legitimate and are legally represented, in accordance with articles 4 and 10 of the RJAT, and article 1 of Ordinance no. 112-A/2011, of 22 March.

3. The case does not suffer from defects that would invalidate it.

4. The joinder of claims is admissible, in accordance with the provision of no. 1 of article 3 of the RJAT, to the extent that the request for arbitral decision formulated, as well as its merits, depend on the assessment of the same circumstances of fact and the interpretation and application of the same principles or rules of law, in the concrete case, item 28.1 of the General Table of Stamp Duty.

5. At the request of the Arbitral Tribunal, the Respondent subsequently attached the administrative file to the case.

6. By arbitral order of 13 March 2017, the holding of the meeting referred to in article 18 of the RJAT was waived, to which the Parties did not object.

7. Invited to produce written arguments, the Parties made no submissions.

III. REASONS

III.1 MATTERS OF FACT

The factual matters relevant to the understanding and decision of the case, after critical examination of the documentary evidence attached to the request for arbitral decision and the administrative file attached to the case, are established as follows:

1. The urban property to which the impugned Stamp Duty assessments refer, registered in the property register of the parish of …, municipality of Lisbon, under the article …, is composed of 24 floors or divisions of independent use, of which 10 are intended for "garage", 1 for "commerce" and the remaining 13 for "housing", with its "Total Equity Value" of € 1,133,110.00, as shown in the copy of the property record attached to p. i.;

2. None of its 13 floors or divisions of independent use and residential allocation has a tax equity value (TEV) equal to or greater than € 1,000,000.00, the sum of their respective TEVs being the amount of € 1,066,860.00, as demonstrated by the collection notices relating to the first installments of each assessment, attached to the request;

3. The Claimant was notified by the AT to proceed with payment of the Stamp Duty assessments of item 28.1 of the TGIS, for the year 2015, at the rate of 1%, on the TEV of each of the floors or divisions of independent use, intended for housing, appearing in each collection document relating to the first installment of those assessments as "Equity Value of the property – total subject to duty: 1,066,860.00";

4. On 10 May 2016, a request for Grace Claim of the Stamp Duty assessments of item 28.1 of the TGIS, for the year 2015, which are the subject of the present case, was filed with the Tax Office of Lisbon …, as shown by the stamp affixed by the aforementioned Tax Office on the respective duplicate, with a copy attached to the arbitral request;

5. In accordance with the Respondent's Response, no grace administrative procedure was initiated;

6. From the administrative file subsequently sent to the case by the AT, it appears that full payment of the impugned assessments was made, by set-off with credits of the same nature: of the first installments, on 6 July 2016; of the second installments, on 23 July 2016 and of the third installments, on 4 November 2016;

7. There are no facts relevant to the decision of the case that should be considered unproven.

III.2 AS TO THE LAW

1. The issue to be decided

The main issue brought before the Tribunal by the Claimant is whether the subjection to Stamp Duty, in accordance with item no. 28 of the General Table of Stamp Duty (TGIS), of an urban property not constituted in horizontal ownership, is determined by the Tax Equity Value (TEV) corresponding to each of the parts of the property, economically independent and with residential allocation, as it contends, or whether it is determined by the global TEV of the property, which would correspond to the sum of all TEVs of the floors or divisions of independent use and with residential allocation that compose it, in accordance with the interpretation given by the AT to the aforementioned rule.

2. On the merits of the 2015 Stamp Duty assessments

The rule of objective incidence contained in item 28.1 of the TGIS, in the form given to it by Law no. 83-C/2013 of 31 December (State Budget for 2014), applicable to the impugned assessments, establishes the subjection to Stamp Duty of the ownership, usufruct or right of superficies of residential urban properties and land for construction whose authorized or planned building is for housing and whose TEV recorded in the property register, in accordance with the Code of Municipal Property Tax (CIMI), is equal to or greater than € 1,000,000.00.

The concepts of urban property and residential urban property are defined in the CIMI, with subsidiary application to matters relating to item 28 of the TGIS, by virtue of the referral made by no. 2 of article 67 of the Stamp Duty Code.

Property is, in the definition of article 2 of the CIMI, "any parcel of territory, encompassing waters, plantations, buildings and constructions of any nature incorporated or established thereon, with a character of permanence, provided it forms part of the patrimony of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the aforementioned circumstances, endowed with economic autonomy in relation to the land where they are located, although situated in a parcel of territory that constitutes an integral part of a different patrimony or does not have a proprietary nature" (no. 1) and, also, the autonomous fractions of properties constituted under the horizontal ownership regime (no. 4).

Properties may be rural, urban or mixed, with urban properties being defined, in a residual manner, by article 4 of the CIMI, as all those that should not be classified as rural, without prejudice to what is provided regarding mixed properties.

There are, however, various types of urban properties, in accordance with the classification established by article 6 of the CIMI, whose no. 1 classifies them as: a) residential, b) commercial, industrial or for services, c) land for construction and, d) other, with nos. 2, 3 and 4 of the same article delimiting what should be understood by each of those designations.

Residential urban properties are, therefore, buildings or constructions licensed for housing or which, in the absence of a license, have housing as their normal destination (housing purposes).

Now, the property that forms part of the Undivided Estate represented by the Claimant and to which the assessments now impugned refer, is an urban property not constituted under the horizontal ownership regime, which comprises 24 (twenty-four) floors or divisions of independent use, 10 (ten) of which are intended for garage, 1 (one) for commerce and the remaining 13 (thirteen) for housing, that is, floors or divisions that fall within more than one of the classifications of no. 1 of article 6 of the CIMI.

With regard to the determination of the tax equity value of properties with parts falling within more than one of the classifications of no. 1 of article 6 of the CIMI, the rule of article 7, no. 2, subparagraph b), of the same Code applies, which provides that "If the different parts are economically independent, each part is evaluated by applying the corresponding rules, and the value of the property is the sum of the values of its parts."

And there is no other rule in the IMI Code in which reference is made to the "value [global] of the property". Nor does the supposed "global value" of the property assume any relevance at the level of the assessment of Municipal Property Tax, not only because all divisions of independent use of a given urban property not constituted under the horizontal ownership regime are taxed for IMI purposes, regardless of their allocation, but also because each floor or part capable of independent use "is considered separately in the property registration, which also discriminates its respective tax equity value" (article 12, no. 3 of the CIMI).

This is not the case with Stamp Duty, item 28.1 of the TGIS, a rule that encompasses within the scope of its incidence, in addition to land for construction whose authorized or planned building is for housing, residential properties.

However, the urban property whose 2015 Stamp Duty assessments, item 28.1 of the TGIS, for the year 2015, are the subject of the present case, comprising floors or divisions capable of independent use, some intended for housing and others for purposes other than housing, cannot, globally, be considered a residential urban property, for purposes of the aforementioned rule of incidence, since the law is clear in subjecting to Stamp Duty urban properties of (exclusively) residential allocation, whose TEV, for IMI purposes, is equal to or greater than € 1,000,000.00.

Nor does it appear acceptable that the floors or divisions allocated to housing, which make up the aforementioned property, can be segregated from the whole, to, as a whole, integrate the concept of residential property provided for in the rule of incidence of item 28.1 of the TGIS, and therefore, it cannot be accepted that the AT formulates a rule of incidence ex novo, different from that created by the legislator, under penalty of violation of the principle of tax legality, inherent in article 103, no. 2 of the Portuguese Constitution.

What is believed to result from the ratio legis underlying the rule of item 28 of the TGIS, introduced by Law no. 55-A/2012 of 29 October, is that the legislator intended to tax the ownership, usufruct and right of superficies of residential units with TEV equal to or greater than € 1,000,000.00, as an index of high contributory capacity. However, as emerges from the proven facts, none of the floors or divisions capable of independent use and of residential allocation has a TEV equal to or greater than that defined in the rule of incidence.

Moreover, it is settled case law, both of the tax arbitral tribunals and of the Supreme Administrative Court, within the scope of the original wording of item 28.1 of the TGIS (for which there is no reason to see divergence for the situations covered by the wording in force for 2015) and to which this tribunal adheres, that, "I - With regard to properties in vertical ownership, for purposes of the incidence of Stamp Duty (Item 28.1 of the TGIS, in the wording of Law no. 55-A/2012, of 29 October), the subjection is determined by the combination of two factors: residential allocation and TEV recorded in the property register equal to or greater than € 1,000,000.

II - Where a property is constituted in vertical ownership, the incidence of Stamp Duty must be determined, not by the TEV resulting from the sum of the TEV of all divisions or floors capable of independent use (individualized in the property article), but by the TEV assigned to each of those floors or divisions intended for housing." – see the summary of the Decision of the SAC, of 29/09/2016, Case no. 0560/16, available at http://www.dgsi.pt and further case law cited therein.

For the reasons set out, having found the defect of violation of law, by error in the application of the law, resulting from the incorrect interpretation of the rule of incidence of item no. 28.1 of the TGIS, it is necessary to conclude that the impugned assessments cannot be maintained in the legal order.

3. As to the request for compensatory and default interest

In accordance with the provision of no. 1 of article 43 of the General Tax Law (LGT), applicable subsidiarily to the tax arbitral process, by virtue of article 29, no. 1, subparagraph a), of the RJAT, "Compensatory interest is due when it is determined, in a grace claim or judicial challenge, that there was an error attributable to the services resulting in payment of the tax debt in an amount greater than that legally due."

The cumulative requirements for the right to compensatory interest are, therefore: "– that there be an error in an assessment act of a tax; – that it be attributable to the services; – that the existence of such error be determined in a grace claim process or judicial challenge; – that this error has resulted in payment of a tax debt in an amount greater than that legally due."[1]

The tax arbitral process was designed as an alternative means to the judicial challenge process (see the legislative authorization granted to the Government by article 124, no. 2 (first part) of Law no. 3-B/2010, of 28 April – State Budget Law for 2010), and it should be understood that the arbitral tribunals functioning under the aegis of the CAAD have the same powers that, in a judicial challenge process, are attributed to the tax courts, such as that of assessing the error attributable to the services.

In the present case, it is manifest that, having the illegality of the Stamp Duty assessment acts been declared, due to the incorrect application of the rule of objective incidence contained in item 28.1 of the TGIS having been demonstrated, which justifies their annulment, the right of the Claimant to compensatory interest must be recognized on the amounts unduly paid, from the date of the respective payment, as provided for in no. 5 of article 61 of the CPPT, since such illegality is exclusively attributable to the Tax Administration, which performed those tax acts without the necessary legal support.

4. Questions on which knowledge is precluded

In the decision, the judge must pronounce on all questions that must be assessed, refraining from pronouncing on questions which must not be known (final segment of no. 1 of article 125 of the CPPT), and the questions which fall within the powers of cognition of the tribunal are, in accordance with no. 2 of article 608 of the CPC, applicable subsidiarily to the tax arbitral process, by referral of article 29, no. 1, subparagraph e), of the RJAT, "the questions which the parties have submitted for its consideration, except those whose decision is precluded by the solution given to others (…)".

In light of the solution given to the questions relating to the determination of the TEV relevant for the application of the rule of incidence contained in item 28.1 of the TGIS and to the payment of compensatory interest in favor of the Claimant, knowledge of the remaining questions raised by the Parties is precluded, in particular those relating to the unconstitutionality of the aforementioned rule, since the same is not susceptible to the interpretation that, in this case, was made by the AT.

IV. DECISION

Based on the facts and legal grounds set out above and, in accordance with article 2 of the RJAT, decision is rendered, finding the present request for arbitral decision entirely well-founded:

a. To declare the illegality of the Stamp Duty assessments (item 28.1 of the TGIS) for the year 2015, now impugned, due to error in the legal assumptions, determining their annulment;

b. To condemn the AT to the restitution of the amounts unduly paid by the Claimant as Stamp Duty for 2015, increased by compensatory interest, from the date of each payment, until the date of the issuance of the respective credit notes.

VALUE OF THE CASE: In harmony with the provision of article 306, nos. 1 and 2 of the CPC, article 97-A, no. 1, subparagraph a) of the CPPT and article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the case is assigned the value of € 10,668.60 (ten thousand, six hundred and sixty-eight euros and sixty cents).

COSTS: Calculated in accordance with article 4 of the Regulation of Costs in Tax Arbitration Proceedings and Table I attached thereto, in the amount of € 918.00 (nine hundred and eighteen euros), payable by the Tax and Customs Authority.

Lisbon, 20 April 2017.

The Arbitrator,

/Mariana Vargas/

Text prepared by computer, in accordance with no. 5 of article 131 of the CPC, applicable by referral of subparagraph e) of no. 1 of article 29 of Decree-Law 10/2011, of 20 January.

The drafting of this decision is governed by the Orthographic Agreement of 1990.

[1] See SOUSA, Jorge Lopes de, Code of Procedure and Tax Procedure – annotated and commented, Volume I, Áreas Publisher, 2006, p. 472.

Frequently Asked Questions

Automatically Created

Does Verba 28.1 of the TGIS apply to each independent unit or to the global value of a vertical property building?
Verba 28.1 of the TGIS application depends on whether vertical property constitutes a single legal unit or multiple taxable properties. The claimant argues that Article 12(3) of the IMI Code requires separate treatment of each independent-use division, making individual unit VPT the relevant threshold. The Tax Authority contends that Article 80(2) CIMI establishes one property equals one registration, requiring global VPT calculation. The core dispute is whether stamp duty incidence criteria must align with IMI valuation methodology under Article 67(2) of the Stamp Duty Code's referral provision.
How is the taxable patrimonial value (VPT) determined for stamp duty on buildings with multiple independent housing units?
For stamp duty purposes on multi-unit buildings, VPT determination follows Article 67(2) of the Stamp Duty Code, which references CIMI valuation rules. The dispute centers on whether Article 12(3) CIMI—requiring separate VPT for each independent-use floor or division—controls stamp duty incidence, or whether Article 80(2) CIMI's one-property-one-registration principle mandates aggregate valuation. The claimant argues consistency requires using individually-assigned VPT values recorded in property registration. The AT argues total property VPT controls Verba 28.1 applicability regardless of internal divisions.
Can the Tax Authority aggregate individual unit values to exceed the €1,000,000 threshold for Verba 28.1 stamp tax?
The Tax Authority's aggregation methodology is the central legal controversy. The AT argues that Articles 2(4), 3(3), and 8 of the IMI Code establish that total urban property VPT determines Verba 28.1 incidence, not individual component values. The claimant challenges this as violating Article 103(2) CRP's tax legality principle and creating discriminatory treatment between vertical property (aggregated values) versus horizontal property (individual fraction values). The constitutionality challenge alleges violation of fiscal equality (Article 13 CRP) and contributory capacity principles (Articles 81(b), 104 CRP) when aggregation artificially triggers higher tax brackets.
What is the legal basis for challenging stamp tax assessments on vertical property buildings before the CAAD arbitral tribunal?
The legal basis for CAAD arbitral jurisdiction derives from Article 2(1)(a) and Article 10(1)(a) of Decree-Law 10/2011 (RJAT), combined with Article 99 CPPT. Property owners may challenge stamp duty assessment illegality through arbitral proceedings, seeking annulment of assessment acts and restitution of unduly paid amounts. Article 3(1) RJAT permits joinder of multiple related assessments (here, 13 units for 2015). The challenge must demonstrate either incorrect legal interpretation of Verba 28.1 TGIS incidence rules or constitutional violations of tax principles under Articles 13, 103, and 104 CRP.
Are property owners entitled to refund and compensatory interest when stamp tax is unlawfully assessed on individual housing units below the €1,000,000 threshold?
Property owners are entitled to restitution of unduly paid stamp duty plus compensatory interest under general tax restitution principles when assessments are annulled. If the tribunal finds Verba 28.1 TGIS was unlawfully applied because individual unit VPT values below €1,000,000 should control incidence rather than aggregated values, the €10,668.60 paid becomes an undue payment. Compensatory interest accrues from payment date until restitution under Article 43 LGT and Article 61 CPPT, compensating taxpayers for temporary loss of funds due to illegal taxation. The claimant specifically requested condemnation of the Respondent to restitution increased by compensatory interest.