Process: 643/2015-T

Date: March 17, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration decision (Process 643/2015-T) addresses a critical issue in Portuguese Stamp Tax law: whether Verba 28 of the Tabela Geral do Imposto do Selo (TGIS) applies to vertical property buildings based on total property value or per independent unit. Eight co-owners challenged Stamp Duty assessments for 2012 on an urban property in Lisbon comprising five floors with independent residential units, each with separate entrances and autonomous use.

The taxpayers argued that although not formally constituted as horizontal property (propriedade horizontal), their building possessed all characteristics permitting such constitution. They emphasized that for Municipal Property Tax (IMI), Contribuição Autárquica (CA), and Contribuição Predial (CP) purposes, each independent unit was always taxed separately based on its individual patrimonial value (VPT). Since no individual unit's VPT reached the €1,000,000 threshold established in Verba 28.1 TGIS for residential property Stamp Duty, they contended no tax was due. The taxpayers invoked constitutional principles of equality and material truth, arguing inconsistent treatment compared to horizontal property regimes.

The Tax Authority (AT) maintained that Verba 28 TGIS applies to the aggregate VPT of the entire urban property when it equals or exceeds €1,000,000, regardless of whether component parts have independent economic use. The AT argued that vertical property unity remains unaffected by divisible occupation, and the fact that IMI calculations consider individual units does not alter Stamp Duty application to the property's total value.

This case highlights fundamental questions about property taxation uniformity in Portugal, particularly the intersection between property registration systems (vertical versus horizontal ownership) and tax incidence rules. The decision has significant implications for owners of multi-unit buildings not constituted as condominiums, affecting interpretation of wealth taxes on high-value residential properties.

Full Decision

ARBITRATION DECISION

I – REPORT

1 – A… TIN[1]… resident at Avenue…, nº…–… Left side…-…Lisbon, B…, TIN … …, resident at Avenue … nº…,… upper floor right side …-… Lisbon ; Head of the Estate succession of, TIN…, domiciled at Avenue … nº …- … Left side –…-…Lisbon, represented by C… TIN…, resident at street … nº … –…right side …-… – Lisbon, D…, TIN…, resident at Street … …,… …-… Cascais, E…, TIN…, resident at Avenue … nº…, … Left side…-… Lisbon, F… TIN …, resident at Street … nº … –… Left side Lisbon, G…, TIN…, resident at Avenue … nº…, … Right side …-… Lisbon and H…, TIN…, resident at Street…, plot … … Left side…-…LISBON, in coalition, as provided for in article 3º nº 1 of RJAT[2], filed on 20/10/2015 a petition for constitution of the arbitral tribunal, pursuant to the provisions of subparagraph a) of nº 1 of article 2º, of nº 1 of article 3º and of subparagraph a) of nº 1 of article 10º, all of RJAT[2], with the AT[3] being called upon, with a view to assessing the legality of the acts of assessment of Stamp Duty[4] (IS), relating to the year 2012 affecting an urban property located at Street … nº …/… with floors and divisions with independent use registered in the urban property register of the parish of … under article…, area of the … Lisbon tax authority office of which the identified applicants are co-owners.

2 – The petition for constitution of the arbitral tribunal was filed without exercising the option of appointment of arbitrator, being accepted by the esteemed President of CAAD[5] and automatically notified to the AT on 21/10/2015.

3 – Under the terms and effects of the provision of nº 1 of article 6º of RJAT, by decision of the esteemed President of the Deontological Council, duly communicated to the parties, within the legally applicable timeframes, Arlindo José Francisco was appointed as arbitrator, who communicated to the Deontological Council and to the Administrative Arbitration Centre his acceptance of the appointment within the regularly stipulated timeframe.

4 - The tribunal was constituted on 04/01/2016 in accordance with the provisions contained in subparagraph c) of nº 1 of article 11º of RJAT, in the version introduced by article 228º of Law nº 66-B/2012 of 31 December.

5 – With their petition, the applicants seek the declaration of illegality of the acts of assessment of item 28 of TGIS[6] which affected the patrimonial value of the parts or independent units of the property already identified with residential use, all as better stated in the petition.

6- They invoke for this purpose, in summary, the following:

6.1- The property, although not constituted in horizontal ownership, enjoys all the requirements that would permit such constitution.

6.2 – Both IMI[7], and CA[8] and CP[9] were always calculated on the TPV[10] of each one of the divisions or floors susceptible of independent use, as if they were fractions of horizontal ownership.

6.3 If this were not the case, they would long ago have proceeded with the constitution of horizontal ownership, whereby they understand there is no reason for different procedure within the scope of Stamp Duty and the AT in acting as it did violated constitutional principles of equality and the prevalence of material truth.

6.4 Item 28.1 of TGIS provides for the incidence of Stamp Duty on properties with residential use, whose TPV is equal to or greater than €1,000,000.00, which does not occur with the divisions or independent floors of the property in question and it makes no sense that this autonomy should not be respected, as it always was, regarding the incidence of IMI of CA and of CP, whereby it requests the annulment of the assessment acts and reimbursement of Stamp Duty paid improperly increased by indemnity interest.

7 – For its part the AT, in summary, understands:

7.1 – That item 28 of TGIS applies to TPV equal to or greater than €1,000,000.00, of urban properties with residential use.

7.2 – In the concrete case the total TPV is greater than €1,000,000.00, being irrelevant the TPV of each one of the parts that compose it even when susceptible of independent use.

7.3 - The unit of the urban property in vertical ownership composed of several floors or divisions is not affected, by the fact that the same are susceptible of independent economic use.

7.4 – The fact that IMI is calculated on the basis of the TPV of each one of the divisions or floors with independent economic use does not affect the application of item 28 of TGIS to the totality of the TPV of the property in question, concluding that Stamp Duty was correctly assessed, there being no place for the payment of indemnity interest, given that no error attributable to the services was verified.

II – CASE MANAGEMENT

The tribunal was regularly constituted and is competent as to subject matter, in accordance with article 2º of RJAT.

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

In its reply the AT considered that the position of the parties is clearly defined and requested the dispensation of the meeting referred to in article 18º of RJAT as well as the production of submissions, with the tribunal ruling as follows: "Once attached is the reply of the AT and the respective administrative file and there being no evidence production subsequent to the presentation of the petition for arbitral ruling, nor having been raised exceptions that it is necessary to examine before deciding on the merits of the petition, there is seen to be no need to hold the meeting referred to in article 18º of RJAT nor is there place for submissions. Thus, if the Parties raise no objections, within the period of 10 days, pursuant to the principles of the autonomy of the Arbitral Tribunal in the conduct of the proceedings, celerity, simplification and procedural informality (articles 19º, nº 2, and 29º, nº 2, of RJAT) the holding of the meeting provided for in article 18º and submissions is dispensed with, the proceedings proceeding to final decision. The date 17-03-2016 is indicated for pronouncement thereof, the applicant being required, until said date, to provide proof, with the CAAD, of payment of the subsequent arbitration fee".

Nothing was said and the proceedings not suffering from nullities, we consider the conditions to be met for the decision to be pronounced.

III – GROUNDS FOR DECISION

1 – Issues to be determined in the present proceedings

1.1 To determine whether item 28.1 of TGIS applies to the sum of the TPV of the parts or divisions susceptible of independent use, intended for residential purposes when it equals or exceeds €1,000,000.00, or applies only to the individual TPV of each one of them when the same equals or exceeds €1,000,000.00, as occurs in the case of properties in horizontal ownership.

1.2 Should the petition be declared well-founded, whether or not there shall be place for the payment of indemnity interest on the amounts paid by the applicant.

2 – Matters of Fact

The material and proven matters of fact based on the elements attached to the proceedings are as follows:

a) The applicants are co-owners of the property already identified and requested the ex officio revision of the assessments placed at issue here which was rejected by the competent organs of the AT.

b) The property is registered in the register in full ownership, composed of 5 floors with right and left sides, divisions with independent use intended for residential purposes.

c) The Stamp Duty in question was calculated on the TPV of each division with independent use, although the TPV of each one is less than €1,000,000.00.

d) The assessments questioned were paid by the applicants during the period of respective voluntary collection.

2 – Matters of Law

a) The issue to be resolved is whether in accordance with the provision of item 28.1 of TGIS one should or should not consider the sum of the TPV of each one of the parts or divisions susceptible of independent use, since none of them has a value equal to or greater than €1,000,000.00 or whether we should attend to its individual TPV, for purposes of Stamp Duty taxation.

b) Taking into account that the CSI[11] refers to the CIMI[12] the regulation of the concept of property and matters not regulated regarding item 28 of TGIS (nº 6 of article 1º and nº 2 of article 67º both of CSI) it is in the CIMI that we must observe the concepts that will allow us to determine the issue.

c) The general concept of property is contained in article 2º of CIMI, in article 3º of the same diploma the legislator, using criteria of use and location established the concept of rustic properties, coming then, in a classification by negation, in its article 4º to establish that urban properties shall be all those that should not be classified as rustic.

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

e) In the concrete case we are in the presence of an urban property with 10 parts or divisions susceptible of independent use with residential use.

f) Each one of the parts or divisions susceptible of independent use that compose the property in question fulfils the concept of property established in article 2º of CIMI, in that they are physically and economically independent and are part of a patrimony.

g) Under the terms of nº 4 of article 2º of CIMI each autonomous fraction, in the regime of horizontal ownership is considered as constituting a property, but there is nothing in the law that permits making the distinction between properties in horizontal and vertical ownership, regarding their identification as urban residential properties.

h) Nor should it be said that the registration in the property register of each part susceptible of independent use is not autonomous by register, the system is similar to that of horizontal ownership, in truth in this regime there is only one article and the respective fractions belong to that article, just as in vertical ownership there is only one article and the parts susceptible of independent use belong to that article.

i) There is no legal basis for the taxation in Stamp Duty of the parts or divisions with independent use with residential use, fulfilling, each one of them, the concept of property enunciated in article 2º of CIMI, that have a TPV less than €1,000,000.00, a requirement necessary for there to be Stamp Duty taxation.

j) Nor should it be said that there is a different valuation and taxation of a property in full ownership with parts or divisions susceptible of independent use, faced with a property in horizontal ownership. In truth it does not exist in IMI just as it cannot exist in Stamp Duty, since the applicable legislation is the same, with the necessary adaptations.

k) The taxation criterion must be uniform, that is, if a residential fraction of a property in horizontal ownership is only taxed in Stamp Duty if its TPV is equal to or greater than €1,000,000.00, equally a floor or part of property susceptible of independent use of a property in vertical ownership with residential use will only be taxed in Stamp Duty if its TPV is equal to or greater than €1,000,000.00.

l) As already stated the floor or part of property susceptible of independent use of a property in vertical ownership meets the concept of property established in CIMI, just as the autonomous fractions of properties in horizontal ownership.

m) In this perspective and considering that none of the parts or divisions susceptible of independent use with destination or residential use has TPV equal to or greater than €1,000,000.00 it is inevitable to conclude that the acts of assessment of Stamp Duty are illegal by not having observed the conditions defined in item 28 of TGIS.

n) The criterion used by the AT in considering the sum of the TPV of the parts or divisions susceptible of independent use, arguing that the property is not constituted in horizontal ownership, lacks legal support, being the contrary that results from the application of the norms of CIMI, applicable by cross-reference.

o) From the tribunal's point of view, independently of the question of the constitutionality of item 28.1 of TGIS already decided in the Constitutional Court[13] judgment 590/2015, what is at issue is the application of the norm made by the AT, in taxing individually patrimonial values inferior to €1,000,000.00, a situation contrary to the provision of the norm.

3 - Indemnity Interest

a) Being declared the illegality of the debt and the consequent annulment, the AT is obliged to reconstitute the situation that would exist if the annulled assessment act had not been practised, in accordance with the provisions contained in article 100º of LGT[14].

b) In this sense is pronounced Diogo Leite Campos/Benjamim Silva Rodrigues/Jorge Lopes de Sousa in annotation to the aforementioned article 100º of LGT, 2nd edition.

c) In this way, verifying that the AT applied item 28.1 of TGIS to values inferior to the provision of the norm (€1,000,000.00), without the adequate legal support, and facing the proven payment, it is understood that the applicant is entitled to the payment of indemnity interest in the precise terms of nº 1 of article 43º of LGT and article 61º of CPPT[15], applicable by force of nº 1 subparagraphs a), b) and c) of article 29º of RJAT.

IV OPERATIVE PART

In light of the foregoing the tribunal decides as follows:

a) To declare the petition for arbitral ruling well-founded with the consequent annulment of the assessment acts of Stamp Duty here impugned relating to the year 2012 in the aggregate amount of €16,178.34.

b) To fix the value of the case at €16,178.34, considering the provisions contained in articles 299º nº 1 of CPC[16], 97-A of CPPT and article 3º nº 2 of RCPAT[17].

c) To declare the obligation of the AT to reimburse the tax comprovably paid increased by indemnity interest, calculated at the legal rate, from the date on which the payment occurred until the date on which the reimbursement occurs.

d) Costs to be borne by the respondent, pursuant to nº 4 of article 22º of RJAT, fixing its amount at €1,224.00 in accordance with table I of RCPAT.

Notify.

Lisbon, 17 March 2016

Text elaborated by computer, in accordance with article 131º nº 5 of CPC, applicable by cross-reference of article 29º nº 1, subparagraph e) of RJAT, with blank verses and reviewed by me.

The sole arbitrator,

Arlindo José Francisco

[1] Acronym for Taxpayer.

[2] Acronym for Legal Regime of Arbitration in Tax Matters.

[3] Acronym for Tax and Customs Authority.

[4] Acronym for Stamp Duty.

[5] Acronym for Administrative Arbitration Centre.

[6] Acronym for General Table of Stamp Duty.

[7] Acronym for Municipal Property Tax.

[8] Acronym for Municipal Contribution.

[9] Acronym for Property Contribution.

[10] Acronym for Taxable Patrimonial Value.

[11] Acronym for Stamp Duty Code.

[12] Acronym for Municipal Property Tax Code.

[13] Acronym for Constitutional Court.

[14] Acronym for General Tax Law.

[15] Acronym for Code of Tax Procedure and Process.

[16] Acronym for Code of Civil Procedure.

[17] Acronym for Regulation of Costs in Tax Arbitration Proceedings.

Frequently Asked Questions

Automatically Created

How does Verba 28 of the Tabela Geral do Imposto do Selo apply to vertical property buildings with independent units?
Verba 28 of TGIS applies Stamp Tax to urban properties with residential use when their taxable patrimonial value (VPT) equals or exceeds €1,000,000. For vertical property buildings with independent units not constituted as horizontal property, the Tax Authority interprets this provision as applying to the total aggregate VPT of the entire property, regardless of whether individual floors or units have autonomous economic use. The key controversy is whether the property should be considered as a single taxable unit or whether each independent division should be assessed separately, as occurs with horizontal property fractions.
Can a building not constituted as horizontal property be taxed per independent unit under Portuguese Stamp Tax?
Portuguese tax law distinguishes between buildings formally constituted as horizontal property versus those in vertical ownership with independent units. The Tax Authority's position is that a building not constituted as horizontal property (condominium) cannot be taxed per independent unit for Stamp Tax purposes under Verba 28 TGIS, even if units have autonomous use and separate entries. However, taxpayers argue this creates inequality since IMI (Municipal Property Tax) treats such independent units separately. The formal legal constitution of the property regime, not merely functional independence, determines the tax treatment.
What is the difference between vertical and horizontal property for Imposto do Selo purposes in Portugal?
For Imposto do Selo (Stamp Tax) purposes, the critical difference between vertical and horizontal property lies in tax incidence methodology. Horizontal property (propriedade horizontal) consists of legally constituted autonomous fractions, each with separate registration and individual VPT assessment. Under this regime, Verba 28 TGIS applies to each fraction independently. Vertical property (propriedade vertical), even with physically independent units, is registered as a single property unit. The Tax Authority applies Verba 28 to the total property value, while IMI paradoxically taxes each independent division separately, creating a legal inconsistency challenged by taxpayers.
How is the taxable value (VPT) determined for buildings with independent floors under Verba 28 TGIS?
Under Verba 28 TGIS, for buildings with independent floors not constituted as horizontal property, the Tax Authority determines taxable value by aggregating the VPT of all floors and divisions composing the single registered property. This contrasts with IMI methodology, which assesses each floor or division with independent use separately. When the aggregate VPT reaches or exceeds €1,000,000, Stamp Tax applies to the entire property value, even if no individual unit surpasses this threshold. Taxpayers contest this interpretation, arguing each autonomous unit should be valued independently for Stamp Tax as it is for IMI.
What are the grounds for challenging Stamp Tax assessments on co-owned properties before CAAD arbitration?
Grounds for challenging Stamp Tax assessments on co-owned properties before CAAD include: (1) violation of constitutional equality principles when identical properties receive different treatment based solely on formal ownership structure; (2) inconsistent application of tax law when IMI recognizes unit independence but Stamp Tax does not; (3) improper interpretation of Verba 28 TGIS regarding what constitutes the taxable 'property' unit; (4) failure to respect material truth over legal formalism when properties possess all characteristics of horizontal ownership except formal constitution; and (5) disproportionate taxation violating taxpayers' legitimate expectations based on established administrative practice for other property taxes.