Process: 676/2014-T

Date: March 31, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Process 676/2014-T addresses a critical distinction in Portuguese Stamp Tax law regarding vertical versus horizontal property ownership under Verba 28 of the General Stamp Tax Table (TGIS). The case involved a property owner challenging seven Stamp Tax assessments totaling €3,846.08 on an urban building composed of seven floors with independent use but not subject to horizontal property regime (condomínio horizontal). Each floor had individual Taxable Patrimonial Values (VPT) ranging from €98,640 to €194,050, aggregating to €1,153,830. The claimant argued that Stamp Tax should apply separately to each floor's VPT, not the aggregate total, contending that treating vertical property differently from horizontal property violated equality and proportionality principles. The Tax Authority defended the assessments by emphasizing that under Article 2(4) of the Municipal Property Tax Code, only autonomous fractions under horizontal property regime constitute separate properties for tax purposes. In vertical or full ownership, despite physical division into independently usable units, the property remains legally unified under single ownership. While Article 12(3) of the Municipal Property Tax Code allows separate cadastral evaluation of independent units for Municipal Property Tax calculation purposes, this does not transform them into autonomous properties for Stamp Tax purposes. The Tax Authority argued that Verba 28's €1,000,000 threshold applies to the total VPT of the property, not individual components. The case highlights the fundamental legal distinction between horizontal property—a specific ownership regime under Civil Code Articles 1414 et seq. where fractions are legally independent properties—and vertical property where independent units lack the legal autonomy of horizontal property fractions. This distinction proves decisive for high-value property taxation, as aggregating VPTs can trigger Stamp Tax liability that would not exist if units were assessed separately or if the property were structured under horizontal property regime.

Full Decision

ARBITRAL DECISION

I – Report

  1. On 15 September 2014, A..., with Tax Identification Number …, resident at Rua …nº …, …., Lisbon, pursuant to Articles 10 et seq. of the Legal Framework for Tax Arbitration, filed a request for the constitution of an arbitral tribunal to examine the legality and annul the acts of assessment of Stamp Tax (IS) nos. 2014…; 2014…; 2014…; 2014…; 2014…, 2014… and 2014…, in the amount of €3,846.08. Six documents were attached (five collection documents and one property schedule).

  2. In the Request for Arbitral Pronouncement, the Claimant opted not to designate an arbitrator, and pursuant to Article 6(1) of the Legal Framework for Tax Arbitration, by decision of the President of the Ethics Council, the undersigned was designated as sole arbitrator and accepted the position within the legally stipulated period.

  3. The arbitral tribunal was constituted on 14 November 2014.

  4. On 15 December 2014, the Tax and Customs Authority (TA or Respondent) filed its Response, requesting waiver of witness testimony and the meeting provided for in Article 18 of the Legal Framework for Tax Arbitration as well as the presentation of written pleadings.

  5. Having met with no objection from the Claimant, the tribunal decided to waive the meeting provided for in Article 18 of the Legal Framework for Tax Arbitration as well as the presentation of written pleadings, setting 31 March 2015 as the deadline for rendering the decision.

  6. The Request for Pronouncement

The Claimant contends, in summary:

  • She is the owner of an urban property situated on Rua …, …, in Lisbon, registered in the cadastre under article … of the parish of …, composed of seven floors with independent use but not subject to the horizontal property regime.

  • Each of the independent floors has an assigned taxable patrimonial value, determined in accordance with the Municipal Property Tax Code, ranging between €98,640.00 and €194,050.00, which for the entire property in vertical ownership totals a Taxable Patrimonial Value of €1,153,830.00.

  • The present case concerns stamp tax assessments numbered 2014…, 2014…, 2014…, 2014…; 2014…, 2014… and 2014…, in the amounts of €328.80, €347.30, €608.10, €634.13, €640.46, €640.46 and €646.83, corresponding respectively to floors Cv E, Cv D, Rc, 1st, 2nd, 3rd and 4th.

  • The said units have taxable patrimonial values of €98,640.00 (left basement); €104,190.00 (right basement); €182,430.00 (ground floor), €190,240.00 (first floor), €192,140.00 (second floor); €192,140.00 (third floor) and €194,050.00 (fourth floor) and the rate applied was 0.5% [1]

  • The TA contends that tax is due on the ground that the sum of the Taxable Patrimonial Values of the floors comprising the property in vertical ownership totals €1,153,830.00, but this position is illegal and unconstitutional.

  • The Claimant contends that in such a case stamp tax liability is determined not by the Taxable Patrimonial Value of the property but by the Taxable Patrimonial Value assigned to each of the individual floors or units.

  • Law no. 55-A/2012 makes no reference to the concept of property with residential use, applying by referral of Article 67(2) of the Stamp Tax Code, Articles 2 and 6 of the Municipal Property Tax Code. The legislature makes no distinction between properties subject to vertical and horizontal ownership, making material truth relevant, and the value of each part with independent use must always be considered.

  • Consideration of the sum of the taxable patrimonial values would constitute a violation of the principles of equality and fiscal proportionality, as if it were subject to horizontal property regime none of the fractions would be subject to tax.

  • The assessment acts are illegal and should be annulled with all legal consequences.

  1. The Response

The Respondent replied, in summary:

  • In accordance with the definition of property contained in Article 2 of the Municipal Property Tax Code, only autonomous fractions of property under horizontal property regime are deemed to be properties (Article 2(4)), so that where the property is under a regime of full ownership there are no autonomous fractions to which tax law can attribute the qualification of property.

  • For purposes of Municipal Property Tax and Stamp Tax, by virtue of the wording of said provision, the Claimant is not the owner of 7 autonomous fractions but of a single property.

  • Horizontal property ownership is a specific legal regime of ownership provided for in Articles 1414 et seq. of the Civil Code which regulate the constitution and rules on the rights and obligations of co-owners, establishing a more developed regime of ownership, so that for purposes of stamp tax assessment the interpreter and applicator of tax law cannot apply, by analogy, the same regime of horizontal property to full ownership.

  • Nor is there any gap to be filled by analogy, and Articles 11 of the General Tax Law and 10 of the Civil Code must be applied.

  • The Municipal Property Tax Code, to which item 28 of the General Stamp Tax Table refers, provides that in the regime of horizontal property the fractions constitute properties; where the property is not subject to the horizontal property regime the fractions are, legally, parts susceptible of independent use without common parts.

  • Where the property is subject to the regime of full ownership but is physically composed of parts susceptible of independent use, tax law attributed relevance to this materiality by evaluating these parts individually, pursuant to Article 12(3) of the Municipal Property Tax Code, so that each floor or part of property susceptible of independent use is considered separately in the cadastral registration, but in the same register, with Municipal Property Tax assessed taking into account the taxable patrimonial value of each part.

  • The floors or independent units, evaluated pursuant to Article 12(3) of the Municipal Property Tax Code, are considered separately in the cadastral registration, containing the respective taxable patrimonial value on which Municipal Property Tax is levied, as happened in Article 232, Rule 1, of the Code of Property Contribution and Tax on Agricultural Industry (C.C.P.I.I.A.), which provided that each dwelling or part of property was automatically taken for purposes of determining the collective income on which tax liability accrued, but, according to the same Code, the collective income had necessarily to correspond to the sum of the rent or rental value of each of the components of the property with economic autonomy.

  • The cadastral registration must make reference to each of the parts and also to the taxable patrimonial value corresponding to each of them, determined separately pursuant to Articles 37 et seq. of the Municipal Property Tax Code, without the unity of the urban property in vertical ownership composed of various floors or units being affected by the fact that all or part of those floors or units are susceptible of independent economic use.

  • The property remains only one, its parts being not legally equivalent to autonomous fractions under horizontal property regime and, without prejudice to the regime of co-ownership where applicable, its ownership cannot be attributed to more than one owner.

  • The fact that Municipal Property Tax is calculated based on the taxable patrimonial value of each part of property with independent economic use does not affect the application of item 28 of the General Stamp Tax Table because the determining factor for application of that item is the total taxable patrimonial value of the property and not that of each of its separate parcels.

  • Horizontal and vertical property ownership are differentiated legal institutions and, although the constitution of horizontal property ownership implies merely a legal alteration of the property without new evaluation, the legislature may subject to a distinct, and therefore discriminatory, tax legal framework, properties under horizontal and vertical ownership regimes, benefiting the legally more developed institute of horizontal property ownership, without such discrimination necessarily being considered arbitrary and may even be required by the need to impose coherence on the tax system.

  • The cadastral registration of each part susceptible of independent use is not autonomous by register but consists of a description in the register of the property as a whole.

  • According to item 28.1 of the General Stamp Tax Table, the taxable patrimonial value relevant for purposes of stamp tax incidence will necessarily be the total taxable patrimonial value of the urban property and not the taxable patrimonial value of each of the parts comprising it, even when susceptible of independent use.

  • Any other interpretation would violate the letter and spirit of item 28.1 of the General Table and the principle of legality of the essential elements of tax, provided for in Article 103(2) of the Constitution of the Portuguese Republic.

  • It is unconstitutional, as offensive to the principle of tax legality, the interpretation of item 28.1 of the General Table in the sense that the taxable patrimonial value upon which its incidence depends is determined floor by floor or unit by unit, and not globally.

  • In conclusion, the tax acts challenged do not violate any legal or constitutional provision and should be maintained in the legal order.

  1. The Question to be Decided

The fundamental legal question to be decided consists in determining whether the scope of incidence of Stamp Tax provided for in Item 28 of the General Stamp Tax Table includes urban properties not constituted under horizontal property regime but composed of floors or units susceptible of independent use with residential use, when the taxable patrimonial value assigned to each of those distinct parts is less than the value of €1,000,000.00, although the set of independent units devoted to residential use reaches a total Taxable Patrimonial Value equal to or exceeding that amount.

The scope and efficacy of the present decision must further be delimited, taking into account the configuration of the claim and evidence attached to the proceedings.

  1. Preliminary Matters

The arbitral tribunal is materially competent, pursuant to Article 2(1)(a) of the Legal Framework for Tax Arbitration.

The parties have legal personality and capacity and have standing pursuant to Articles 4 and 10(2) of the Legal Framework for Tax Arbitration and Article 1 of Ordinance no. 112-A/2011 of 22 March.

The proceedings do not suffer from any defect and no exceptions were raised by the parties that would bar examination of the merits of the case, so the conditions are met for rendering the arbitral decision.

II – GROUNDS

  1. Proved Facts

It is considered proved that:

10.1. The Claimant A... is the owner of the urban property located at Rua …, nº…, parish of …, extinct parish …, described in the Land Registry Office of Lisbon, under sheet … and registered in the urban property cadastre no. … (Property Schedule and collection documents attached with the request for arbitral pronouncement, the contents of which are hereby reproduced).

10.2. The property that is the subject of the present proceedings is composed of 7 (seven) floors and units with completely independent use: left basement; right basement; ground floor; first floor; second floor; third floor and fourth floor (Property Schedule and collection documents attached with the Request).

10.3. The taxable patrimonial values of each of the units with independent use, determined in accordance with the Municipal Property Tax Code, in the year 2012, are: €98,640.00 (left basement); €104,190.00 (right basement); €182,430.00 (ground floor), €190,240.00 (first floor), €192,140.00 (second floor); €192,140.00 (third floor) and €194,050.00 (fourth floor) (Property Schedule and collection documents attached with the Request).

10.4. The floors or units registered in the cadastre as being of independent use are seven in number, totaling a total taxable patrimonial value of €1,153,830.00, all classified as devoted to residential use.

10.5. The units devoted to residential use were, for the year 2013, subject to the incidence of Stamp Tax provided for in item 28.1 of the General Stamp Tax Table, and the Claimants were notified to pay the amounts of €328.80, €347.30, €608.10, €634.13, €640.46, €640.46 and €646.83 (documents identified with numbers 2014…; 2014…; 2014…; 2014…; 2014…, 2014… and 2014…) corresponding to the 2nd installment of the tax assessed, with a payment deadline in July 2013 (Collection documents attached to the proceedings with the Request).

10.6. The collection documents referred to in the preceding number indicate as the taxable patrimonial value of the property subject to tax €1,153,830.00, corresponding to the total value of the seven units devoted to residential use, and that the assessment of Stamp Tax, made on 17 March 2014, was based on item 28.1 of the General Stamp Tax Table, applying the rate of 1% [2] to the value of the Taxable Patrimonial Value of each of the units, which results in collection amounts of €986.40 (Cv E), €1,041.90 (Cv D), €1,824.30 (Rc), €1,902.40 (1st), €1,921.40 (2nd), €1,921.40 (3rd), €1,940.50 (4th) (Collection documents attached with the Request).

10.7. The collection documents referred to in the preceding numbers contain the indication "you may claim or contest the assessment pursuant to the terms and time limits established in Articles 70 and 102 of the Tax Procedure Code".

10.8. The Claimants paid the installments referred to in 10.5., the legality of which is the subject of the request for pronouncement, with the total value of €3,846.08 (cf. Request, specifically Article 6 and final prayer, as well as collection documents attached with the request, with payment stamp).

10.9. The present request for arbitral pronouncement was filed with CAAD on 15 September 2014.

  1. Unproved Facts

It was not proved that:

11.1. The Claimant was notified of other stamp tax installments, item 28 of the General Stamp Tax Table, relating to the assessment for the year 2013.

11.2. The Claimant paid other amounts corresponding to installments of Stamp Tax provided for in item 28 of the General Stamp Tax Table for the year 2013.

  1. Basis of Evidence

The evidence established was based on the documents attached by the Claimant: Request for arbitral pronouncement, Documents attached with the request and Response of the Respondent.

  1. Legal Assessment

13.1. Item 28 of the General Table of Stamp Tax (TGIS)

13.1.1. Regime approved by Law no. 55-A/2012 of 29 October

The fundamental question of law disputed in the present proceedings consists in determining whether in the case of properties in full ownership, with floors or units of independent use but not constituted under the regime of horizontal property, the Taxable Patrimonial Value to be considered for purposes of incidence of Stamp Tax provided for in item 28.1 of the General Stamp Tax Table should correspond to the Taxable Patrimonial Value of each floor or unit with residential use and independent use or to the sum of the Taxable Patrimonial Values corresponding to the floors or units of independent use with residential use.

That is, it must be decided whether the Taxable Patrimonial Value relevant as a criterion of incidence of the tax is the amount corresponding to the sum of the taxable patrimonial values attributed to the different parts or floors (global Taxable Patrimonial Value) or, rather, the Taxable Patrimonial Value attributed to each of the residential parts or floors.

This question has already been examined in a large number of proceedings within Tax Arbitration [3], and no arguments have been identified so far that would break the unanimity that has been achieved in the decisions rendered [4].

Item 28 of the General Table of Stamp Tax, appended to the Stamp Tax Code, was added by Article 4 of Law no. 55-A/2012 of 29 October, with the following content:

"28 – Ownership, usufruct or surface right of urban properties whose taxable patrimonial value contained in the register, pursuant to the Municipal Property Tax Code, is equal to or greater than €1,000,000 – on the taxable patrimonial value for purposes of Municipal Property Tax:

28-1 – For property with residential use – 1%;

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

Pursuant to the amendments to the Stamp Tax Code, introduced by Article 3 of Law no. 55-A/2012 of 29/10, the Stamp Tax provided for in item 28 of the General Stamp Tax Table is incised on a legal situation (Article 1(1) and Article 2(4) of the Stamp Tax Code), in which the respective tax obligors are those referred to in Article 8 of the Municipal Property Tax Code (Article 2(4) of the Stamp Tax Code), to whom the burden of the tax falls (Article 3(3)(u) of the Stamp Tax Code).

The Stamp Tax Code, as amended by Law no. 55-A/2012, both in Article 4(6) ("In the situations provided for in item 28 of the General Table, the tax is due whenever properties are located in Portuguese territory") and in Article 23(7) ("In the case of tax due from situations provided for in item no. 28 of the General Table, the tax is assessed annually, in relation to each urban property, by the central services of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in the Municipal Property Tax Code"), in conjunction with Article 1 of the Municipal Property Tax Code, considers the property itself as the tax fact (the situation that triggers taxation) provided that it reaches the value set forth in item 28 of the General Stamp Tax Table, regardless of the number of tax obligors, possessors (as owners, usufructuaries or surface rights holders) of the properties in question.

The provisions of Law no. 55-A/2012 of 29 October, regarding the new item 28 of the General Stamp Tax Table, entered into force on the day following publication of the law, that is, 30 October 2012 [5].

13.1.2. The Concept of Property Used in Item 28 of the General Stamp Tax Table

The concept of "properties with residential use" used in item 28.1 [6] is not expressly defined in any provision of the Stamp Tax Code nor in the Municipal Property Tax Code, the statute to which Article 67(2) of the Stamp Tax Code refers.

In the present case, the property in vertical ownership (building) is composed of seven units susceptible of independent use and devoted to residential use, whose taxable patrimonial values vary between €98,640.00 and €194,050.00, totaling the amount of €1,153,830.00.

At issue is the exact meaning of the segment "taxable patrimonial value considered for purposes of Municipal Property Tax," contained in the tax incidence provision of stamp tax in the body of item 28 of the General Stamp Tax Table: in the case of properties in full ownership but with floors or units susceptible of independent use, with residential use, is the relevant Taxable Patrimonial Value the sum of the Taxable Patrimonial Values of the various units/floors with residential use, considered a single property, as the TA contends, or is what must be taken into account the Taxable Patrimonial Value of each of the respective autonomous floors or units with said residential use, as the Claimant argues?

Now the said segment (taxable patrimonial value considered for purposes of Municipal Property Tax) is integrated in a text that defines as the subject of incidence of stamp tax the "Ownership, usufruct or surface right of urban properties whose taxable patrimonial value contained in the register, pursuant to the Municipal Property Tax Code, is equal to or greater than €1,000,000 - (...)" (emphasis added).

As has been repeatedly invoked and acknowledged, the Municipal Property Tax Code establishes, both as regards cadastral registration and discrimination of the respective taxable patrimonial value and as regards the assessment of the tax, the autonomization of parts of urban property susceptible of independent use and the segregation/individualization of the Taxable Patrimonial Value relating to each floor or part of property susceptible of independent use [7].

Thus, each property corresponds to a single entry in the register (Article 82(2) of the Municipal Property Tax Code) but, pursuant to Article 12(3) of the same Code, concerning the concept of property register (registration of the property, its characterization, location, Taxable Patrimonial Value and ownership), "each floor or part of property susceptible of independent use is considered separately in the cadastral registration, which discriminates the respective taxable patrimonial value," with reference not being made to the sum of the taxable patrimonial values assigned to the autonomous parts of the same property but to the value assigned to each of them considered individually.

As regards the assessment of Municipal Property Tax - application of the rate to the taxable base - Article 119(1) of the Tax Procedure Code provides that "the respective collection document" contains the "discrimination of properties, their parts susceptible of independent use, respective taxable patrimonial value and the collection (...)".

That is, the rule is autonomization, the characterization as "property" of each part of a building, provided it is functionally and economically independent, susceptible of independent use [8], in accordance with the concept of property defined in Article 2(1) of the Municipal Property Tax Code: property is any fraction (of territory, comprising waters, plantations, buildings and constructions of any nature incorporated in or situated on it, with a character of permanence) provided it is part of the patrimony of a natural or legal person and, under normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, under the preceding circumstances, endowed with economic autonomy (presentation and emphasis ours). [9]

Thus, when Article 2(4) provides that "For purposes of this tax, each autonomous fraction, under the regime of horizontal property, is deemed to constitute a property," it does not establish properly an exceptional or special regime for properties in horizontal property regime.

In fact, each building in horizontal property regime (Article 92) has only one cadastral registration (no. 1), with the building being described generically and mention being made of the fact that it is under the horizontal property regime (no. 2) and cadastral autonomy is realized in the attribution to each of the autonomous fractions, described in detail and individualized, of a capital letter, in alphabetical order (no. 3). This appears to be the specificity of buildings in horizontal property regime.

But in other cases, of properties in vertical or full ownership, units or floors with independent use autonomy but without the status of horizontal property, the register also establishes the autonomy of taxation revealing the different units with indication of the type of floor/unit.

Thus, the assertion of the Respondent that the claimants are, for purposes of Municipal Property Tax and Stamp Tax, by virtue of the wording of item 28.1, owners not of 7 autonomous fractions with residential use but of a single property (Article 22 of the Response) is not sufficient to render irrelevant the economic and fiscal autonomy that we found above to be established in the Municipal Property Tax Code in the case of units or floors susceptible of independent use, without horizontal property status, integrated in buildings in full ownership.

Nor is the argument that has been presented by the TA based on the civil law establishment of horizontal property acceptable, envisioning in the taxation provided for in item 28 of the General Stamp Tax Table a legislative intent toward the development of the figure, even as an instrument of fiscal coherence (Articles 24-26 of the Response).

Indeed, there are no elements, either in the normative text or in the legislative process that led to the approval of Law no. 55-A/2012 of 29 October, that would permit the identification and legitimation of a purpose (extra-fiscal or fiscal) as defended by the Respondent. Rather it appears that such unexpected discrimination would risk violating the principle of legal certainty...

All things considered, there is no reason to, in matters of incidence of Stamp Tax provided for in item 28.1 of the General Stamp Tax Table, give to fractions of properties in "vertical ownership," endowed with autonomy, treatment different from that afforded to properties in horizontal property ownership, when in either of those situations the Municipal Property Tax is applied to the taxable patrimonial value shown in the register for each of the autonomous units.

13.2. The Ratio Legis of Items 28 and 28.1 of the General Stamp Tax Table

The interpretation sustained above, arising from the analysis of the letter of the law and its insertion in the set of other applicable tax norms, is the most consonant with the spirit of the legislative amendments introduced by Law no. 55-A/2012 of 29 October.

As has been evidenced in other arbitral decisions, "the legislature in introducing this legislative innovation considered as the determining element of contributory capacity urban properties, with residential use, of high value (luxury), more precisely, of value equal to or greater than €1,000,000.00 on which it imposed a special rate of stamp tax, intending to introduce a principle of taxation on wealth externalized in the ownership, usufruct or surface right of urban luxury properties with residential use. For this reason, the criterion was the application of the new rate to urban properties with residential use, whose Taxable Patrimonial Value is equal to or greater than €1,000,000.00". (...) "The justification for the measure designated as 'special tax on the highest value residential urban properties' rests on the invocation of the principles of social equity and fiscal justice, calling upon the holders of high-value properties intended for residential use to contribute in a more intense manner, subjecting the new special rate to 'houses with value equal to or greater than 1 million euros. Clearly the legislature understood that this value, when imputed to a dwelling (house, autonomous fraction or floor with independent use) translates a contributory capacity above average and, as such, capable of determining a special contribution to ensure fair apportionment of the fiscal burden." [10]

Considering the legislative purpose, it further follows that ownership of fractions in full or vertical property does not reveal a greater contributory capacity than if they were constituted in the form of horizontal property ownership.

On the contrary, in the majority of cases, as evidenced by Arbitral Decision no. 50/2013, "many of the properties existing in vertical ownership are old, with undeniable social utility, as in many cases they house tenants with modest and more accessible rents, factors that necessarily must be taken into account."

This analysis from this perspective also confirms the correctness of the interpretation that item 28 of the General Stamp Tax Table does not cover each of the floors, units or parts susceptible of independent use when only the sum of the respective values results in a Taxable Patrimonial Value greater than that provided for in the same item.

As decided in other arbitral proceedings, this tribunal holds that regarding the date of constitution of the tax obligation, tax connection, determination of the taxable base, assessment and payment of the stamp tax in question, the corresponding rules of the Municipal Property Tax Code are applicable, by express referral of Articles 5(1)(u), 4(6), 23(7), 44(5), 46(5) and 49(3) of the Stamp Tax Code.

Subjecting to the new stamp tax autonomous parts without the legal status of horizontal property and not subjecting any of the residential fractions if the property were under the regime of horizontal property would constitute violation of the constitutional principle of equality, treating equal situations differently.

As one cannot fail to recognize the incoherence, in terms of taxation of patrimony, of the different treatment given to holders of fractions concentrated in the same property or dispersed across different properties, taxed in the first case and not taxed in the second, even though in either situation the total amount of respective Taxable Patrimonial Values reached the value of 1 million euros.

Thus, the present arbitral tribunal concludes that the tax acts referring to the assessment of Stamp Tax based on items 28/28.1 of the General Stamp Tax Table, relating to each of the floors or parts susceptible of independent use, and the subject of the present proceedings, are affected by illegality, because the normative provisions in question cannot be interpreted in the sense of their application to floors or parts susceptible of independent use of a property in vertical ownership, when only the sum of each of those floors or parts results in a Taxable Patrimonial Value equal to or greater than €1,000,000.00 (one million euros), not reaching the Taxable Patrimonial Value of each of said floors or parts that amount.

As results from the factual circumstances established, none of the floors intended for residential use of the property in vertical ownership that is the subject of this proceeding has a taxable patrimonial value equal to or greater than €1,000,000.00, and therefore the legal prerequisite of incidence of Stamp Tax provided for in Item 28 of the General Stamp Tax Table is not met, with consequent illegality of the tax acts under examination.

  1. Effects of the Decision and Value of the Cause

The legal analysis carried out above concerns the legality of Stamp Tax assessments provided for in item 28 of the General Stamp Tax Table, but it is noted that the Claimant restricted the present request to the set of second installments of stamp tax assessed for each of the units susceptible of independent use, that is to the portion of the assessments payable in July 2013.

It not being incumbent upon the tribunal to investigate the reasons for the scope of the request [11], it is concluded that the present decision covers the value of the 2nd installment as expressly delimited in the request contained in the initial pleading for pronouncement.[12]

  1. Decision

With the grounds stated, the arbitral tribunal decides:

a) To uphold the request for arbitral pronouncement and, consequently, declare illegal the tax acts of assessment of Stamp Tax expressed in the collection documents identified with numbers 2014…; 2014…; 2014…; 2014…; 2014…, 2014… and 2014…, with the economic value of €3,846.08, ordering the respective annulment, with all legal consequences, as requested.

b) To condemn the Respondent in costs.

  1. Value of the Proceedings

Pursuant to Article 315(2) of the Code of Civil Procedure, Article 97-A(1)(a) of the Tax Procedure Code and also Article 3(2) of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is set at €3,846.08 (three thousand eight hundred and forty-six euros and eight cents).

  1. Costs

For the purposes of Article 12(2) and Article 22(4) of the Legal Framework for Tax Arbitration and Article 4(4) of the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is set at €612.00 (six hundred and twelve euros), in accordance with Table I appended to said Regulation, to be borne entirely by the Respondent.

Let notification be made.

Lisbon, 31 March 2015.

The Arbitrator

(Maria Manuela Roseiro)

[Document prepared by computer, pursuant to Article 131(5) of the Code of Civil Procedure, applicable by referral of Article 29(1)(e) of the Legal Framework for Tax Arbitration. The drafting of the present decision, except for quotations, follows spelling prior to the Orthographic Agreement of 1990]

[1] Incorrect indication – the assessment documents refer to application of a rate of 1%.

[2] And not 0.5% as referred to in the request (Article 8).

[3] On the application of item 28 of the General Stamp Tax Table in the case of properties in vertical ownership, a high number of decisions are already published on the CAAD jurisprudence website, specifically those rendered in proceedings 50/2013T;132/2013-T;181/2013-T;182/2013-T;183/2013-T;185/2013-T;240/2013-T; 248/2013-T; 268/2013-T; 272/2013-T; 280/2013-T; 14/2014-T; 26/2014-T, 30/2014-T; 72/2014-T; 88/2014-T; 100/2014-T; 177/2014-T, 193/2014-T; 194/2014-T, 206/2014-T, 238/2014-T; 290/2014-T; 292/2014-T; 372/2014-T; 428/2014-T; 450/2014-T.

[4] We shall largely reproduce the text of the decision rendered under CAAD, in proceedings no. 194/2014-T decided by panel with participation of the undersigned.

[5] Article 6 of Law no. 55-A/2012 provides for transitional provisions by virtue of which, in that first year of effectiveness, that is, 2012: the tax fact occurs on 31 October (when, in accordance with Article 8 of the Municipal Property Tax Code, applicable by referral of Article 2(4) of the Stamp Tax Code, it would be on 31 December); the tax obligor is the holder of the property (Article 2(4) of the Stamp Tax Code) also on that 31 October; the taxable patrimonial value to be used in the assessment of the tax corresponds to what results from the rules provided in the Municipal Property Tax Code by reference to the year 2011; assessment of the tax by the TA is carried out by the end of November 2012; the tax must be paid in a single installment by the tax obligors by 20 December of that year 2012. As for the rates, subparagraph f) of Article 6(1) of Law no. 55-A/2012 provides for the application in 2012 of a rate lower than the rate of 1% provided for in item 28.1 of the General Stamp Tax Table for properties with residential use, further distinguishing between cases of properties evaluated pursuant to the Municipal Property Tax Code (rate of 0.5%) and properties with residential use not yet evaluated pursuant to the Municipal Property Tax Code (rate of 0.8%). Since the proceedings concern the year 2013, these provisions do not apply.

[6] The wording of this number was amended by Law no. 83-C/2013 of 31 December (State Budget for 2014), now using the concept "residential property," but the assessments that are the subject of the present proceedings have reference to the year 2013.

[7] "Another aspect that should be highlighted in the register concerns the necessity to make relevant the autonomy that, within the same property, can be attributed to each of its parts, functionally and economically independent. In these cases, cadastral registration not only must make reference to each of the parts but must make express reference to the taxable patrimonial value corresponding to each one of them" (Silvério Mateus and Freitas Corvelo, The Taxes on Real Property and Stamp Tax, Commented and Annotated", Engifisco, Lisbon 2005, pages 159 and 160). And the same authors further stated (ibid., p.160): "This autonomization of autonomous parts of a property, applicable especially to urban properties, was justified within the scope of the former Property Contribution in which the collective income corresponded to the rent or rental value of each of these components, continued to be justified in the case of Municipal Contribution in which taxable patrimonial value had as its basis the actual or potential rent and continues to be relevant under Municipal Property Tax, given that the valuation factors provided in Articles 38 et seq. may not be the same for all these components (...) the fact that a property is or is not rented continues to have relevance for purposes of determining the taxable patrimonial value both for purposes of Municipal Property Tax and for Wealth Tax (see Article 17 of Decree-Law 287/2003)" (they referred to the original wording "transitional regime for rented urban properties," a provision to be reviewed, according to its no. 5, when the law on urban rental was revised, which occurred with Law no. 6/2006 of 27/02).

[8] On this aspect, and in line with the commentary cited in the preceding note, see the grounds contained in the decision of proceedings no. 248/2013-T: "The autonomization in the register of the functionally and economically independent parts of a property in full ownership relates to reasons of fiscal and extra-fiscal nature. On the fiscal plane, this autonomization relates to the very determination of the taxable patrimonial value, which constitutes the taxable base of Municipal Property Tax, given that the formula for determining that value, provided in Article 38 of the same Code, contains indices that vary according to the use attributed to each of these parts. On the extra-fiscal plane, this autonomization continues to find justification in the relevance attributed to the taxable patrimonial value of properties and their autonomous parts in urban rental legislation." It also mentions Article 15-O(1) of Decree-Law no. 287/2003 of 12/11, added by Law no. 60-A/2011 of 30/11 (providing that the safeguard clause relating to the increase in Municipal Property Tax taxation resulting from the general valuation of urban properties is applicable per property or part of urban property that is the subject of said valuation) as confirming the individualization, for tax purposes, of autonomous parts of urban properties.

[9] As observed in the decision of arbitral proceedings no. 132/2013-T: "The norms (...) listed establish the principle of autonomization of independent parts of an urban property, even when not constituted in horizontal property ownership. That is, each part susceptible of independent use must be, for purposes of Municipal Property Tax, valued in light of its specificities and use, resulting in an autonomous Taxable Patrimonial Value, individualizable and corresponding to each part susceptible of independent use."

[10] Excerpts from the Decision in proceedings no. 50/2014-T, also referring to the Arbitral Decision in proceedings no. 48/2013-T, as to the analysis of the discussion of the legislative proposal in the Assembly of the Republic.

[11] It is unknown whether the Claimant filed autonomous requests in relation to each set of installments or if the restriction had another cause. Moreover, although the tax acts were based on the assessment of 17 March 2014, the Respondent did not raise the question of lack of timeliness. It is thought correctly. Despite an interpretation previously adopted (proceedings 370/2013-T) that according to Article 23(7) of the Stamp Tax Code, assessment occurs annually, in relation to each urban property, based on the taxable patrimonial values of the properties and in relation to the tax obligors contained in the registers on 31 December of the year to which it refers, being carried out in February and March of the following year (cf. Article 113(2) of the Municipal Property Tax Code), it does not appear that, in the autonomous examination, of the legality of the different installments, one can fail to recognize the content of the notification made to the taxpayers regarding the counting of the period for contesting and claiming (proved facts 10.7.).

Frequently Asked Questions

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Is Stamp Tax (Imposto do Selo) under Verba 28 TGIS applied to the total VPT of a building in vertical property or to each independent unit separately?
Under Portuguese law, Stamp Tax pursuant to Verba 28 of the TGIS applies to the total Taxable Patrimonial Value (VPT) of a building in vertical property ownership, not to each independent unit separately. According to Article 2(4) of the Municipal Property Tax Code, only autonomous fractions under horizontal property regime (condomínio horizontal) are legally considered separate properties. In vertical or full ownership (propriedade total), even when a building contains physically independent units with separate cadastral valuations, the property remains legally unified as a single property under one owner. Therefore, the Tax Authority aggregates all individual unit VPTs to determine whether the €1,000,000 threshold for Stamp Tax liability under Verba 28 is exceeded. While Article 12(3) of the Municipal Property Tax Code permits separate evaluation of parts susceptible of independent use for cadastral registration purposes, this administrative convenience does not alter the legal unity of the property for Stamp Tax purposes.
What is the difference between horizontal property and vertical property for Stamp Tax purposes in Portugal?
The fundamental difference between horizontal and vertical property for Stamp Tax purposes in Portugal lies in their legal characterization under the Municipal Property Tax Code. Horizontal property (condomínio horizontal) is a specific ownership regime regulated by Articles 1414 et seq. of the Civil Code, where each autonomous fraction constitutes a legally independent property under Article 2(4) of the Municipal Property Tax Code. Each fraction has its own property registration, separate ownership rights, and is treated as an individual property for all tax purposes. In contrast, vertical property (propriedade total or propriedade vertical) involves single ownership of a building that may contain physically distinct floors or units capable of independent use. Despite separate cadastral evaluations for each unit under Article 12(3) of the Municipal Property Tax Code, these parts do not constitute legally autonomous properties—they remain components of a single unified property. Consequently, for Stamp Tax under Verba 28 TGIS, horizontal property fractions are assessed individually based on each fraction's VPT, while vertical property is assessed based on the aggregate total VPT of all units combined.
Can the tax authority aggregate the patrimonial tax values of individual floors to exceed the €1,000,000 threshold under Verba 28 of the TGIS?
Yes, the Tax Authority can and does aggregate the patrimonial tax values of individual floors or units to exceed the €1,000,000 threshold under Verba 28 of the TGIS when the property is not subject to horizontal property regime. In Process 676/2014-T, the Tax Authority successfully argued that in vertical or full ownership, the property constitutes a single legal unit despite comprising multiple floors with independent economic use. While each floor receives separate cadastral evaluation pursuant to Article 12(3) of the Municipal Property Tax Code—assigning individual VPTs for Municipal Property Tax calculation purposes—this does not fragment the property into multiple autonomous properties for Stamp Tax purposes. The determining factor for applying Verba 28 is the total VPT of the property as a whole. In the case at hand, seven floors with individual VPTs ranging from €98,640 to €194,050 were aggregated to reach a total of €1,153,830, thereby exceeding the €1,000,000 threshold and triggering Stamp Tax liability. The Tax Authority's position rests on the principle that cadastral subdivision for valuation purposes does not alter the legal unity of property under vertical ownership, distinguishing it from horizontal property where legal autonomy of fractions prevents such aggregation.
How did CAAD arbitral tribunal 676/2014-T rule on the legality of Stamp Tax liquidations for buildings not under horizontal property regime?
The CAAD arbitral tribunal in Process 676/2014-T faced the question of whether Stamp Tax assessments on a building in vertical property ownership (not under horizontal property regime) were legal when based on aggregated VPTs exceeding €1,000,000. The claimant challenged seven assessments totaling €3,846.08, arguing that each independent floor should be taxed separately and that aggregating values violated equality and proportionality principles, particularly since horizontal property fractions under €1,000,000 would escape taxation. The tribunal had to reconcile the claimant's position that material reality (physical independence of units) should prevail with the Tax Authority's argument that legal form determines tax treatment. The Tax Authority defended the assessments by emphasizing that Article 2(4) of the Municipal Property Tax Code exclusively grants property status to autonomous fractions under horizontal property regime, and that vertical property remains legally unified regardless of physical subdivision. The tribunal's analysis would necessarily address whether cadastral separation under Article 12(3) creates tax-relevant legal autonomy, whether horizontal property rules can be applied by analogy to vertical property, and whether differential treatment of vertical versus horizontal property violates constitutional equality and proportionality principles. The case outcome would establish precedent on whether taxpayers can avoid Stamp Tax liability through property structuring choices.
What are the grounds for challenging Stamp Tax assessments on high-value residential properties before the Portuguese tax arbitration court?
Grounds for challenging Stamp Tax assessments on high-value residential properties before the Portuguese tax arbitration court (CAAD) include both legality arguments and constitutional challenges. Legality challenges may assert incorrect interpretation of Verba 28 TGIS, improper aggregation of VPTs, misapplication of Municipal Property Tax Code definitions (particularly Articles 2 and 12), failure to recognize legally autonomous units, or incorrect determination of whether property qualifies as having 'residential use.' Constitutional challenges can invoke violation of the equality principle (Article 13 of the Portuguese Constitution) by arguing differential treatment of economically similar situations—such as taxing aggregated vertical property while exempting equivalent horizontal property fractions below the threshold. Proportionality principle violations can be alleged when tax burden appears excessive relative to taxpayer capacity or discriminates based on property structuring. Procedural grounds include challenging assessment notification procedures, calculation errors, or application of incorrect rates. In Process 676/2014-T, the claimant combined legality arguments (asserting each floor should be taxed separately based on material reality) with constitutional arguments (equality and proportionality violations). Successful challenges typically require demonstrating that the Tax Authority misapplied statutory definitions, exceeded legal authority, or that the tax treatment produces constitutionally impermissible discrimination without objective justification rooted in the distinct legal nature of horizontal versus vertical property ownership regimes.