Process: 674/2014-T

Date: March 12, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

This tax arbitration case addresses whether Stamp Duty under Verba 28.1 of the General Stamp Duty Table applies to buildings held in vertical property (propriedade vertical) based on aggregate or individual unit valuations. The claimant, representing an undivided succession, challenged Stamp Duty assessments for 2013 on a residential building registered in sole ownership, arguing that none of the individual units exceeded the €1,000,000 VPT threshold required by Law 55-A/2012. The claimant contended the assessments violated constitutional principles of equality and legality by treating vertical and horizontal property differently without legislative basis, constituting error regarding factual assumptions and violation of substance-over-form principles. The Tax and Customs Authority defended the assessments, arguing that Article 2(4) of CIMI defines only horizontal ownership fractions as separate properties for tax purposes. According to the Authority, vertical property constitutes a single legal-tax reality where the entire building's aggregate VPT determines Stamp Duty liability, not individual units. The Authority justified differential treatment based on distinct legal effects: horizontal ownership creates autonomous, legally independent fractions, while sole ownership remains unified. The taxation measure, implemented during economic crisis, targets high-value residential property wealth and applies uniformly to all properties meeting the statutory criteria. The Authority asserted the measure respects proportionality principles as it achieves revenue objectives with minimum injury to competing interests. The case was submitted to a single arbitrator tribunal constituted under Decree-Law 10/2011, with proceedings dispensing with witness examination and oral arguments. The dispute centers on statutory interpretation of property classification under CIMI and whether the €1,000,000 threshold applies per building or per unit in vertical ownership structures.

Full Decision

ARBITRAL AWARD

Case No. 674/2014-T

I. REPORT

  1. A..., as head of household of the undivided succession of B..., holder of Tax Identification Number ..., resident at Rua ..., Lisbon, Lisbon Tax Office..., has, under Article 10 of Decree-Law No. 10/2011, of 20 January (Legal Framework for Tax Arbitration – RJAT), requested the constitution of a Single Arbitrator Tribunal and filed a request for an arbitral award.

  2. The respondent is the Tax and Customs Authority.

  3. The Claimant seeks a declaration of nullity or, alternatively, the annulment of the Stamp Duty (IS) assessment acts, dated 17 March 2014, enacted under item 28.1 of the General Table of the Stamp Duty Code, added by Article 4 of Law No. 55-A/2012, of 29/12, with reference to the year 2013 and to units capable of independent use, with residential designation, of the urban property registered in sole ownership in the urban property register of the parish of ..., municipality of Lisbon, with registration number ..., on the grounds of violation of law and error regarding the factual assumptions.

  4. The Claimant further seeks that "there be declared the annulment of the respective interest and other charges arising from the assessments in question and the annulment of the enforcement proceedings arising from the same assessments and requests contained therein."

  5. The Claimant further requests the condemnation of the Respondent to pay damages as compensation for the costs of any provision of guarantees for suspension of tax enforcement proceedings.

  6. We are faced with a cumulation of claims permitted by law, since the merit of the same depends on the assessment of the same factual circumstances and the interpretation and application of the same legal principles and rules (Article 3, No. 1, of RJAT).

  7. The Claimant contends that the Stamp Duty assessment acts now contested are null due to violation of the provisions of Article 103, No. 3, of the Constitution of the Republic.

  8. Subsidiarily, the Claimant alleges that the contested assessments are marred by error regarding the factual assumptions, given that none of the units or floors has a tax assessed value (VPT) exceeding €1,000,000.00, such that "the legal requirement relating to the tax assessed value contained in Article 4 of Law No. 55-A/2012 and Item 28 of the General Table of Stamp Duty would not be met," from which follows the violation of the principles of legality and tax equality, as well as the "prevalence of substance over form."

  9. The Claimant contends that the Tax Authority, by treating properties in vertical ownership and properties in horizontal ownership differently, when the legislator chose not to do so, is compromising the coherence of the tax system and violating the constitutional principles of tax legality, justice, equality, and proportionality.

  10. The Claimant further contends that the contested assessments are marred by error regarding the applicable rate, considering that the Stamp Duty rate on Item No. 28 of the General Table of Stamp Duty (GTSD) applicable for the year 2012 is 0.5%.

  11. The Claimant, finally, bases the compensation claim on the right to be reimbursed for the costs, to be determined, arising from any provision of bank guarantees for suspension of tax enforcement proceedings.

  12. The Claimant opted not to designate an arbitrator.

  13. In accordance with the provisions of Article 6, No. 2, paragraph a), and Article 11, No. 1, paragraph b), of RJAT, in the wording introduced by Article 228 of Law No. 66-B/2012, of 31 December, the Ethics Council designated the arbitrator of the arbitration tribunal, who communicated acceptance of the designation within the applicable period.

  14. The parties were notified of this designation and did not express a wish to challenge the designation of the arbitrator, in accordance with Article 11, No. 1, paragraphs a) and b) of RJAT and Articles 6 and 7 of the CAAD Code of Ethics.

  15. Thus, in accordance with the provisions of Article 11, No. 1, paragraph c), of RJAT, in the wording introduced by Article 228 of Law No. 66-B/2012, of 31 December, the single arbitrator tribunal was constituted on 10-12-2014.

  16. The Tax and Customs Authority submitted a response, in which it defends the dismissal of the request for an arbitral award, having raised no exception.

  17. The Tax and Customs Authority sustains its position by asserting, in summary, that:

"8. For purposes of IS, the property in its entirety is relevant because units capable of independent use are not considered property, but only autonomous fractions in the horizontal ownership regime, as provided in No. 4 of Article 2 of the CIMI.

  1. The entry into force of the horizontal ownership regime (Civil Code of 1966), and its express reference in the delimitation of the concept of 'property' provided for in Article 2, No. 4 of CIMI determine the relevance of such a figure in matters of tax scope.

  2. Thus, that provision of Article 2 of CIMI constitutes a reaffirmation of the importance attributed to the horizontal ownership regime in the classification of property for purposes of taxation, in the context of IMI and Stamp Duty.

  3. And what expressly results from the letter of the law is that the legislator intended to tax with item 28.1 in question properties as a single legal-tax reality.

  4. In fact, item 28.1 applies to ownership, usufruct, or right of superficies of urban properties with residential designation, whose tax assessed value recorded in the register, in accordance with CIMI, is equal to or exceeding €1,000,000.00.

  5. It is a general and abstract provision, applicable indistinctly to all cases where the respective factual and legal assumptions are verified.

  6. Also, the different assessment and taxation of a property in sole ownership compared to a property constituted in horizontal ownership derives from the different legal effects inherent to these two figures.

  7. In fact, the constitution in horizontal ownership determines the division/split of sole ownership and the independence or autonomy of each of the fractions that compose it, for all legal purposes, in accordance with No. 2 of Article 4 of CIMI and Articles 1414 and following of the Civil Code, whereas a property in sole ownership constitutes, for all purposes, a single legal-tax reality.

  8. Finally, the different aptitude of properties (residential/services/commercial) sustains the different treatment, having constituted an option of the legislator, for political and economic reasons, to exclude from the scope of IS properties intended for purposes other than residential.

  9. It is important to note that taxation under IS is subject to the criterion of suitability, precisely to the extent that it aims at the taxation of wealth embodied in the ownership of properties of high value, emerging in a context of economic crisis that cannot be ignored.

  10. In fact, the measure implemented seeks to achieve maximum effectiveness with regard to the objective to be achieved, with minimum injury to other interests considered relevant.

  11. Thus, the option for this mechanism for obtaining revenue is justified, which would only be censurable, in light of the principle of proportionality, if it resulted in a clearly indefensible outcome.

  12. We do not believe such to be the case insofar as such a measure is applicable indistinctly to all holders of properties with residential designation having a value exceeding €1,000,000.00.

  13. In conclusion, the defect of lack of scope should be judged as lacking merit, maintaining in the legal order the contested assessments, as they constitute a correct application of the law to the facts."

  14. By order of 28/01/2015, the Tribunal decided to dispense with the holding of the meeting provided for in Article 18 of RJAT, the examination of the witness called by the Claimant, and the submission of arguments.

  15. The Arbitration Tribunal was duly constituted.

  16. The parties have legal personality and capacity and are legitimate (Articles 4 and 10, No. 2, of RJAT and Article 1 of Ordinance No. 112-A/2011, of 22 March).

  17. No nullity is apparent.

II. MATTERS OF FACT

a. Established Facts

  1. The following facts are considered established:

22.1. A... is head of household of the undivided succession of B...;

22.2. Included in the undivided succession of B... is the urban property located at Avenue ... No. 12A, 12B, 12, 12C, 12D and 12E, and at Street ... No. 13, registered in the urban property register of the parish of ..., municipality of Lisbon, with registration number ...;

22.3. The property identified above is registered in the urban property register in sole ownership, also called vertical ownership, and comprises floors or units capable of independent use;

22.4. None of the units capable of independent use has a tax assessed value (VPT) exceeding €1,000,000.00;

22.5. For purposes of Item No. 28 of the General Table of Stamp Duty (GTSD), the Tax and Customs Authority considered the sum of the VPT of the various floors or units with residential designation, applying a rate of 1% on that total value;

22.6. The Tax and Customs Authority issued 17 assessment acts, relating to the year 2013, concerning the tax and property described above, in the total amount of €3,556.40.

b. Unproven Facts

  1. Of the facts with interest for the decision of the case, those not contained in the factual matrix described above were not established.

c. Reasoning for the Findings of Fact

  1. The facts were established on the basis of documentary evidence.

III. MATTERS OF LAW

  1. With the relevant facts established, it is confirmed that the present case concerns exclusively matters of law.

  2. The question to be decided by the Tribunal is whether the tax assessed value (VPT) to be considered for purposes of applying Item 28 of the GTSD, where a property not constituted in horizontal ownership regime is at issue, is the VPT assigned to each floor or unit with independent use and residential designation, or whether it is the total VPT, corresponding to the sum of the VPT of each floor or unit capable of independent use and with residential designation.

  3. Item 28 of the GTSD, now under consideration, was added by Law No. 55-A/2012, of 29 October, with the following wording:

"28 – Ownership, usufruct or right of superficies of urban properties whose tax assessed value recorded in the register, in accordance with the Municipal Property Tax Code (CIMI), is equal to or exceeding €1,000,000.00 – on the tax assessed value for purposes of IMI:

28.1 – For property with residential designation – 1%

28.2 – For property, where the 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 ordinance approved by the Finance Minister – 7.5%."

  1. The Stamp Duty Code (CIS) and its General Table, with the amendments introduced by Articles 3 and 4 of Law No. 55-A/2012, of 29 October, do not clarify the meaning of the expression "property with residential designation."

  2. Article 67, No. 2 of CIS, added by Law No. 55-A/2012, of 29 October, provides that "[m]atters not regulated in this Code concerning item No. 28 of the General Table shall be subject, subsidiarily, to the provisions of the CIMI."

  3. The legislator, in Article 2, No. 1 of CIMI, adopts the following concept of property:

"For purposes of this Code, property is any fraction of territory, including waters, plantations, buildings and constructions of any kind incorporated or situated therein, of a permanent character, 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 above circumstances, endowed with economic autonomy in relation to the land where they are situated, although situated in a fraction of territory that forms an integral part of a different patrimony or does not have a patrimonial character."

  1. As observed by SILVÉRIO MATEUS and CURVELO DE FREITAS, "No. 1 of this article [of Article 2] provides for the existence of three requirements necessary for there to be the concept of property, namely, physical structure, patrimonial character, and economic value" (Property Taxes. Stamp Duty, Lisbon, Engifisco, 2005, p. 101, note No. 1.1).

  2. In this manner, floors or units of independent use of a property registered in the urban property register in sole ownership are not excluded from the concept of property, relevant for purposes of CIMI and CIS.

  3. No. 4 of Article 2 of CIMI further provides that:

"for purposes of this tax [IMI], each autonomous fraction in the horizontal ownership regime shall be considered as constituting a property."

  1. Once again, from this provision does not result the exclusion from the concept of property of floors or units of independent use of a property in sole ownership.

  2. In No. 4 of Article 2 of CIMI the legislator clarifies, unequivocally, that autonomous fractions of properties registered in horizontal ownership are considered properties for purposes of IMI.

  3. However, such does not justify the interpreter in making an interpretation a contrario, so as to exclude from the concept of property the units of independent use of properties registered in sole ownership.

  4. It appears, in fact, that the underlying purpose of No. 2 of Article 4 is precisely to permit an extensive interpretation of the provisions of No. 1 of Article 2, so as to include in the concept of property the units (fractions, floors or divisions) of independent use.

  5. This meaning appears, moreover, to be confirmed by the provision of No. 3 of Article 12 of CIMI, which is transcribed below:

"Each floor or part of a property capable of independent use shall be considered separately in the property registration, which also discriminates its respective tax assessed value."

  1. From which it follows that the units of independent use of properties registered in sole ownership are subject to assessment on the basis of the criteria provided for in Article 38 of CIMI.

  2. Article 6 of CIMI enumerates the types of urban properties and provides that "[r]esidential, commercial, industrial or service buildings or structures are those buildings or constructions licensed for such purposes or, in the absence of a license, that have as their normal destination each of these purposes."

  3. As stated in the Arbitral Award rendered in Case No. 50/2013,

"From this we can conclude that, in the view of the legislator, what matters is not the legal-formal rigor of the concrete situation of the property but rather its normal use, the purpose to which the property is destined. We further conclude that for the legislator the situation of the property in vertical or horizontal ownership did not matter, as no reference or distinction is made between them. What matters is the substance underlying its existence as an urban property and its use."

  1. In considering the literal element of interpretation, we note that, in the final part of the provision contained in item 28.1 of the GTSD, it is determined that the taxable value corresponds to the "tax assessed value used for purposes of IMI."

  2. The Tax and Customs Authority considers as the VPT relevant for purposes of applying item 28.1 of the GTSD the total VPT of the property registered in sole ownership, in manifest contradiction with the practice of a plurality of assessment acts, relating to the various floors capable of independent use.

  3. From the literal element of interpretation, in combination with the systematic and teleological elements, it results that the tax assessed value to be considered for purposes of applying item 28.1 of the CIS is that corresponding to each of the units capable of independent use.

  4. And it appears to us that this is also the understanding most in accord with the principle of prevalence of substance over form.

  5. Furthermore, this understanding is most in accord with the Constitution of the Portuguese Republic, notably the principles of typicality, equality, proportionality, and legal certainty and protection of citizens' legitimate expectations, inherent in the principle of the Rule of Law.

  6. The Tax and Customs Authority, by applying item 28.1 of the GTSD in different ways depending on whether the residential unit is located in a property registered in horizontal ownership or in sole ownership, is allowing a formal criterion of differentiation to prevail, to the detriment of the material equality required by the Fundamental Law.

  7. From the point of view of contributory capacity, as an operative criterion of the principle of equality, which postulates material equality, it is irrelevant whether the property is in vertical or horizontal ownership – the contributory capacity evidenced is the same, and the application of item 28.1 of the GTSD should be made on the same terms.

  8. Being possible to interpret item 28.1 of the GTSD in conformity with the Constitution, a judgment of unconstitutionality of the norm contained therein should be avoided.

  9. Thus, with regard to properties registered in sole ownership, only the floor or unit capable of independent use with residential designation whose VPT is equal to or exceeding €1,000,000.00 is subject to Stamp Duty by applying item 28.1 of the GTSD.

  10. Given that, in the present case, none of the floors for which Stamp Duty was assessed by applying Item 28.1 of the GTSD has a VPT equal to or exceeding €1,000,000.00, it is concluded that the respective assessment acts are illegal.

  11. In a sense contrary to the Claimant's claim, it should be emphasized that violation of constitutional principles does not, in principle, result in nullity of tax acts, except when these offend the essential content of a fundamental right, which does not occur in the present case.

  12. The Claimant further submits a request for compensation for damages resulting from any provision of bank guarantees to ensure suspension of tax enforcement proceedings.

  13. However, the Claimant did not prove, in the course of proceedings, that such guarantees were actually provided, and the Tribunal cannot condemn the Respondent to pay compensation on the basis of a mere hypothesis that a guarantee might be provided by the Claimant.

IV. DECISION

In view of the foregoing and on the grounds stated, the Arbitration Tribunal decides:

a) To dismiss the request for a declaration of nullity of the contested assessment acts;

b) To uphold the request for annulment, with all legal effects, of the contested assessment acts;

c) To dismiss the request for condemnation of the Respondent to pay damages for any provision of guarantees for suspension of tax enforcement proceedings.

V. VALUE OF THE CASE

The value of the case is fixed at €3,556.40, in accordance with Article 97-A, No. 1, paragraph a), of the Code of Procedure and Tax Procedure and Article 3, No. 2, of the Regulation of Costs in Tax Arbitration Proceedings.

VI. COSTS

In accordance with Article 22, No. 4, of RJAT, the amount of costs is fixed at €612.00, in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Respondent.

Lisbon, 12 March 2015

The Arbitrator,

Paulo Nogueira da Costa

Frequently Asked Questions

Automatically Created

Is Stamp Tax under Verba 28.1 TGIS applicable to buildings held in vertical property (propriedade vertical)?
Yes, Stamp Tax under Verba 28.1 TGIS is applicable to buildings held in vertical property (propriedade vertical). According to the Tax Authority's position upheld in this arbitration, properties in sole ownership not divided into horizontal fractions constitute a single legal-tax reality for Stamp Duty purposes. The entire property is assessed as one unit, and if the aggregate tax assessed value (VPT) equals or exceeds €1,000,000, the property falls within the scope of Verba 28.1. This contrasts with horizontal ownership (propriedade horizontal), where Article 2(4) of CIMI recognizes individual autonomous fractions as separate properties. The Tax Authority argues this differential treatment is justified by the distinct legal nature and effects of these ownership regimes, as established in the Civil Code and CIMI.
How does the €1,000,000 VPT threshold apply to individual units in a vertically owned property for Imposto do Selo purposes?
For properties held in vertical ownership (sole ownership), the €1,000,000 VPT threshold applies to the entire building's aggregate tax assessed value, not to individual units separately. The Tax Authority maintains that individual units within a vertically owned property are not considered autonomous properties under Article 2(4) of CIMI, which grants such status only to fractions in horizontal ownership regimes. Consequently, even if each individual unit or floor has a VPT below €1,000,000, Stamp Duty under Verba 28.1 applies if the total building VPT meets or exceeds the threshold. This interpretation treats the vertically owned building as a unified legal-tax entity, where all units are assessed collectively rather than as independent taxable properties. The claimant's argument that individual unit values should be assessed separately was rejected by the Tax Authority.
Does differential tax treatment of vertical and horizontal property violate the constitutional principles of equality and legality?
According to the Tax Authority's defense, the differential tax treatment of vertical and horizontal property does not violate constitutional principles of equality and legality. The Authority argues that different legal regimes produce different legal effects that justify distinct tax treatment. Horizontal ownership creates legally autonomous and independent fractions for all purposes under Articles 1414 et seq. of the Civil Code and Article 2(4) of CIMI, while vertical property (sole ownership) constitutes a single legal-tax reality. The measure applies uniformly to all property holders meeting the statutory criteria (residential properties with VPT ≥ €1,000,000), regardless of ownership structure. The Authority further contends that the taxation respects proportionality principles as it targets high-value residential property wealth during economic crisis, achieving revenue objectives with minimum impairment of other interests. The differential treatment reflects the legislator's policy choice based on legal distinctions already established in property and tax law.
Can a taxpayer challenge Stamp Tax assessments on residential property through CAAD tax arbitration under Decree-Law 10/2011?
Yes, taxpayers can challenge Stamp Tax assessments on residential property through CAAD (Centro de Arbitragem Administrativa) tax arbitration under Decree-Law 10/2011. This case demonstrates the procedural mechanism: the claimant successfully invoked Article 10 of the Legal Framework for Tax Arbitration (RJAT) to request constitution of a single arbitrator tribunal. The arbitration proceedings accepted jurisdiction over the challenge to Stamp Duty assessments under Verba 28.1 TGIS, including claims for nullity, annulment, interest cancellation, enforcement proceeding annulment, and damages for guarantee costs. The tribunal was properly constituted when the Ethics Council designated an arbitrator (as the claimant opted not to designate one), and both parties were notified without challenge. Article 3(1) of RJAT permits cumulation of claims when they depend on assessment of the same factual circumstances and legal principles, as occurred here with multiple related claims against the same Stamp Duty assessments.
What are the legal grounds for nullity or annulment of Stamp Tax liquidations under Article 103(3) of the Portuguese Constitution?
The legal grounds for nullity or annulment of Stamp Tax liquidations under Article 103(3) of the Portuguese Constitution include: (1) violation of constitutional tax legality principles, where the claimant alleged the assessments violated constitutional requirements; (2) error regarding factual assumptions (erro sobre os pressupostos de facto), where the claimant argued individual units did not meet the €1,000,000 VPT threshold specified in Article 4 of Law 55-A/2012 and Verba 28 TGIS; (3) violation of tax equality and proportionality principles through allegedly arbitrary differential treatment of vertical versus horizontal property; (4) violation of substance-over-form principles (prevalência da substância sobre a forma); (5) error regarding the applicable rate, with the claimant contending the 2012 rate of 0.5% should apply; and (6) violation of tax system coherence through inconsistent treatment of economically equivalent situations. These grounds can support either nullity (invalidade radical) or annulment (anulabilidade) depending on the severity and nature of the alleged legal violation.