Process: 697/2016-T

Date: April 6, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Process 697/2016-T addresses a critical Stamp Tax (Imposto do Selo) dispute concerning the application of Verba 28.1 TGIS to properties held under total ownership (propriedade total) with multiple independent residential units. The claimant owned an urban property in Lisbon comprising 13 independent residential floors with a combined patrimonial tax value (VPT) of €1,477,100. While no individual unit exceeded €1,000,000, the Tax Authority aggregated all unit values to impose Stamp Tax totaling €15,864.47 for 2012. The taxpayer challenged this assessment through administrative objection, hierarchical appeal, and ultimately arbitration at CAAD, arguing that Verba 28.1 TGIS should apply only to properties where individual units meet the €1M threshold. The claimant contended that summing values of independent-use divisions violates the legislative intent, which references tax value as recorded in the property register for each autonomous unit under CIMI. Additionally, the claimant raised constitutional objections based on equality principles (Articles 13 and 104(3) CRP), arguing differential treatment compared to horizontal property regimes where each fraction is taxed separately. The Tax Authority countered that the relevant tax value is the global amount for the entire property under total ownership, not individual parts, distinguishing this from horizontal property where autonomous fractions exist. This case exemplifies the interpretative challenges surrounding Stamp Tax incidence on high-value properties and the boundary between total and horizontal ownership regimes for tax purposes, with significant implications for real estate taxation and constitutional tax equality principles.

Full Decision

ARBITRAL DECISION

I. REPORT

A..., holder of the single registration and identification number of a collective person..., with headquarters at Avenue..., ..., ..., Lisbon, hereinafter referred to as the Claimant, represented here by its managing company B..., S.A., holder of the single registration and identification number..., filed a request for constitution of an arbitration tribunal in tax matters and a request for arbitral pronouncement, pursuant to the provisions of articles 2, no. 1, subparagraph a) and 10, no. 1 and 2, both of Decree-Law no. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, abbreviated as RJAT), petitioning:

(i) the declaration of illegality of the decision dismissing the hierarchical appeal issued by the Tax and Customs Authority;

(ii) the declaration of illegality and consequent annulment of the tax acts liquidating Stamp Duty (IS), relating to the year 2012, in the total amount of € 15,864.47;

(iii) the ex officio termination of the enforcement proceedings initiated with reference to the stamp duty liquidations in question.

Subsidiarily, the Claimant further petitions the non-application, to the present case, of entry 28 of the General Table of Stamp Duty, by violation of the constitutional principle of equality.

To substantiate its request, it alleges, in summary:

a) it is the owner of the urban property registered in the urban property register under article..., of the parish of..., municipality of Lisbon;

b) the property in question is constituted under a full ownership regime, being composed of 13 floors or divisions capable of independent use, all designated for residential use;

c) each of the floors or divisions capable of independent use has its own tax value, assessed in accordance with the Code of Municipal Tax on Immovable Property (CIMI), lower than € 1,000,000.00;

d) the Tax Authority considered the Claimant to be a passive subject of Stamp Duty, Entry 28.1 of the General Table of Stamp Duty (TGIS), by being the owner of a property with a total tax value of € 1,477,100.00, resulting from the sum of the values of the various divisions designated for residential use held in the property mentioned in a) above;

e) the criterion for taxation under Stamp Duty should take into account the tax value shown in the register of each floor individually considered;

f) for the purposes of subjection or not to Stamp Duty, the Tax Authority cannot consider as the reference value the total value of the property constituted under full ownership, proceeding to sum the values of the divisions with independent use;

g) pursuant to the CIMI, only the actual use conferred on the urban property is relevant, being irrelevant the manner in which it is constituted – whether under horizontal or vertical ownership;

h) the legislator expressly established that Stamp Duty shall apply only to properties whose tax value is equal to or exceeding 1 million euros, which is not the case for any of the divisions with independent use held by the Claimant in the property referred to in a) above;

i) any other interpretation of the norm contained in entry 28.1 of the TGIS violates the constitutional principles of equality, fiscal equality and contributory capacity, provided for in articles 13 and 104, no. 3 of the Constitution of the Portuguese Republic.

The Claimant attached 41 documents and did not call any witness.

In the request for arbitral pronouncement, the Claimant chose not to appoint an arbitrator, so, pursuant to the provisions of article 6, no. 1 of the RJAT, the undersigned was appointed as arbitrator by the Deontological Council of the Administrative Arbitration Centre, the appointment having been accepted as legally provided.

The sole arbitration tribunal was constituted on 6 February 2017.

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

a) the tax value on which the incidence of Stamp Duty of entry 28.1 of the TGIS depends must be the global tax value of the property and not that of each of its independent parts;

b) the tax value of all floors, with independent use and residential designation that constitute the property was determined separately, in accordance with article 7, no. 2, subparagraph b) of the CIMI;

c) it results from the legal norms, specifically, from articles 2, no. 4 of the CIS and 3, no. 3, subparagraph u) of the CIMI, that the tax fact underlying stamp duty of entry 28.1 consists of the ownership, usufruct or right of superficies of urban properties whose tax value recorded in the register is equal to or exceeding € 1,000,000.00;

d) the tax value relevant for the purposes of incidence of stamp duty is the total tax value of the urban property and not the tax value of each of the parts that compose it, even if capable of independent use;

e) at the date of the tax fact of stamp duty, the urban property was not constituted under a horizontal ownership regime, but under a vertical ownership regime;

f) the tax value on which the incidence of stamp duty of entry 28.1 of the TGIS depends is the global tax value of the property and not that of each of its independent parts.

The Respondent attached no documents and called no witnesses.

Given the position assumed by the parties, the holding of the meeting referred to in article 18 of the RJAT was waived, as well as the presentation of oral or written arguments.

II. CURIAL FINDINGS:

The Arbitration Tribunal was regularly constituted and is materially competent.

There are no nullities that would invalidate the proceedings.

The parties have legal personality and capacity, are legitimate and are regularly represented.

III. QUESTION TO BE DECIDED:

In the present proceedings, the sole question to be decided is reduced to determining which is the tax value relevant for the purposes of incidence of Stamp Duty in cases of properties constituted under a full ownership regime, composed of several divisions with independent use, all with residential designation: the tax value of each of the divisions of the property or the global tax value of the property, corresponding to the sum of all tax values of the divisions that compose it.

IV. FACTS:

a. Proven Facts:

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

a) A urban property registered in the property register under article..., of the parish of..., municipality of Lisbon is registered in the name of the Claimant;

b) The property referred to in a) above is a property under a full ownership regime, being composed of thirteen (13) floors or divisions capable of independent use;

c) All divisions of the property referred to in a) above are designated for residential use;

d) The property was evaluated in the year 2014, for purposes of IMI, being assigned the total tax value of € 1,477,100.00;

e) None of the floors or divisions capable of independent use has a tax value equal to or exceeding € 1,000,000.00;

f) With reference to the year 2012 and to the property referred to in a) above, the Respondent liquidated Stamp Duty for each of the floors or divisions capable of independent use designated for residential use, in the total amount of € 15,864.47;

g) Notified of the liquidation effected, the Claimant filed an administrative objection;

h) By decision dated 18/09/2013, the administrative objection was dismissed;

i) On 04/10/2013, the Claimant submitted a hierarchical appeal, which was dismissed by decision of 26/08/2016.

b. Unproven Facts:

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

c. Substantiation of the Facts:

The conviction regarding the facts established as proven was based on the documentary evidence submitted by the Claimant, indicated regarding each of the points, whose authenticity and adherence to reality was not questioned by the Respondent.

With respect to the facts not proven, this was due to the total absence of proof in that regard.

V. LAW:

Having established the proven facts, it remains to determine, by reference to those, what the applicable law is.

Analyzed the arguments set forth by the parties, it is easily observed that the crux of the matter to be examined in the present proceedings lies in determining which is the tax value relevant for the purposes of incidence of Stamp Duty in cases of properties constituted under a full ownership regime.

In this regard, the Claimant invokes that, notwithstanding the property in question in the present proceedings is not constituted under a horizontal ownership regime, it should be, for purposes of subjection or not to Stamp Duty, treated as such, given the fact that all floors or divisions constitute true autonomous fractions, by constituting floors or divisions capable of independent use.

In turn, the Respondent argues that, the property not being constituted under a horizontal ownership regime, cannot it be the subject of such treatment, corresponding the tax value of the property to the sum of the values of its parts, as provided in article 7, no. 2, subparagraph b) of the CIMI, and being on this value, if applicable, calculated the Stamp Duty.

For the appreciation of the matter in question in the present proceedings, it is important, first of all, to cite Law 55-A/2012, of 29 October, which added to the General Table of Stamp Duty, annexed to the Code of Stamp Duty, approved by Law no. 150/99, of 11 September, entry no. 28, with the following wording:

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

28.1 — For property with residential designation — 1%;

28.2 — For property, when the passive subjects 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%."

In turn, the CIMI defines the concept of property, defines the various types of properties and identifies the species of urban properties.

Thus,

Pursuant to article 2 of the CIMI, "property is any fraction of territory, encompassing waters, plantations, buildings and constructions of any nature incorporated therein or based thereon, with a character of permanence, provided that it forms part of the assets of a natural or legal person and, in normal circumstances, has economic value".

No. 4 of the aforementioned article 2 expressly prescribes that each autonomous fraction, under the horizontal ownership regime, is considered as constituting a property.

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

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

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

Recall that, in accordance with the provisions of no. 1 of article 11 of the General Tax Law, tax norms are interpreted in accordance with the principles of legal hermeneutics commonly accepted, especially those established, among us, in article 9 of the Civil Code.

Literal interpretation presents itself as the first stage of interpretive activity. As FERRARA states, "the text of the law forms the substrate from which the interpreter must depart and on which it must rest"[1]. Now, since the law is expressed in words, the verbal significance they contain should be extracted from it, according to their natural connection and grammatical rules. However, if the words employed by the Legislator are equivocal or indeterminate, it will be necessary to resort to logical interpretation, which attends to the spirit of the provision being interpreted.

Logical interpretation, as it has been pacifically understood by doctrine[2], rests on the rational element, the systematic element and the historical element; weighing them and deducing from them the value of the legal norm in question. By rational element should be understood the raison d'être of the legal norm, i.e., the purpose for which the legislator established it. The discovery of the ratio legis presents itself, thus, as a factor of undoubted importance for the determination of the meaning of the norm.

However, a given norm does not exist in isolation, but rather coexists with other norms and legal principles in a systematic and complex manner. Thus, it becomes natural that the meaning of a specific norm be made clear from the confrontation of this with others. As BAPTISTA MACHADO states, "this element comprises the consideration of other provisions that form the complex normative system of the institute in which the norm being interpreted is integrated, that is, which regulate the same matter (context of the law), as well as the consideration of legal provisions that regulate parallel normative problems or related institutes (parallel places). It also comprises the systematic place that belongs to the norm being interpreted in the global legal order, as well as its consonance with the spirit or intrinsic unity of the entire legal order."[3].

As for the historical element, in turn, it must be reported and include materials connected with the history of the norm, such as "the evolutionary history of the institute, the figure or the legal regime in question (...); the so-called sources of the law, that is the legal or doctrinal texts that inspired the legislator in the preparation of the law (...); the preparatory works."[4].

Let us apply what has been said to the case at hand, i.e., to the interpretation of no. 4 of article 2 of the CIMI, also citing the provision of article 1414 of the Civil Code, which provides that "the fractions of which a building is composed, in conditions of constituting independent units, may belong to different owners under a horizontal ownership regime".

Now, knowing that, as a rule, over each building incorporated in the soil falls, in principle, a single right of ownership, belonging to one or more holders, it is easily reached that such a norm [article 1414 of the CC] contains an important derogation to such a principle. Indeed, and as PIRES DE LIMA and ANTUNES VARELA teach[5], what characterizes this institute [horizontal ownership] "is the fact that the fractions of the same building that constitute independent units belong to different owners".

But then, what is to be said about no. 4 of article 2 of the CIMI? It should be said that it aims, congruently, to adapt tax reality to the materiality permitted by article 1414 of the CC, i.e., it aims to permit the taxation of different owners in proportion to their properties; but also, it aims to permit overcoming possible difficulties arising from the impossibility of assimilating each autonomous fraction, under the horizontal ownership regime, to the concept of property as defined in no. 1 of article 2 of the CIMI. And nothing more. The legislator said exactly what it intended to say.

Thus, analyzing the definition of property contained in no. 1 of article 2 of the CIMI, we see no reason not to include here the divisions with independent use of properties constituted under a full ownership regime, as these constitute a fraction of territory that forms an integral part of the assets of a natural or legal person and which has economic value.

Having established the classification of divisions with independent use of properties constituted under a full ownership regime as properties, in accordance with and for the purposes of the CIMI, it seems evident that each of these divisions constitutes property with residential designation, provided it is intended to have such use or provided it is classified as such fiscally.

In the case of the proceedings, each of the divisions with independent use is individually classified, being all of them designated for residential use – cf. subparagraph c) of the proven facts.

Moreover, if the divisions in question in the present proceedings were not individually classified as a property, it would make no sense to prepare 13 liquidation notices of Stamp Duty, one relating to each independent unit.

Indeed, if these divisions were not classified, individually, as properties, then a single liquidation notice should be prepared, relating to the property.

On the other hand, with regard to the spirit of the law, it is important to note that, as has been argued by arbitral jurisprudence[6], the introduction of Entry 28 in the TGIS was intended to tax urban properties of high value.

As already stated, the introduction of entry 28 of the TGIS aimed at taxing wealth, externalized in the ownership, usufruct or right of superficies of "luxury" urban properties, with residential designation.

Moreover, as results from the arbitral jurisprudence cited above, which we follow closely, it should be said that, as results from the discussion of Bill no. 96/XII in Parliament, the justification of the measure designated as a special tax on residential urban properties of the highest value is based on the invocation of the principles of social equity and fiscal justice, calling to contribute in a more intense manner the holders of properties of high value intended for residence, making the new special tax apply to houses of value equal to or exceeding 1 million euros.

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

Indeed, it is not seen how the ownership of certain divisions in a property under a full ownership regime could signify greater wealth and greater contributory capacity than the ownership of the same number of fractions in a property under a horizontal ownership regime.

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

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

In the case of the proceedings, verified the identity between the divisions owned by the Claimant and the fractions of a property constituted under a horizontal ownership regime, no ground could be invoked to justify the non-application of the same regime to both situations.

And, if in the case of the fractions of the property constituted under a horizontal ownership regime there is no doubt that the tax value relevant for the purpose of determination of the application or not of Stamp Duty is the individual value of each of the fractions, it is not seen why such a question should arise in the case of divisions that do not form part of a property constituted under horizontal ownership.

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

Thus, the thesis defended by the Respondent that the fact that the property is not constituted under a horizontal ownership regime prevents the application of its regime cannot be upheld.

In the case of the proceedings, as results from the proven facts, none of the floors or divisions capable of independent use, or rather, none of the properties owned by the Claimant, has a tax value equal to or exceeding one million euros – cf. subparagraph e) of the proven facts -, so that these are not covered by the rule of incidence provided for in entry 28 of the TGIS.

In light of all that has been stated, there is no doubt that the tax value relevant for purposes of incidence of Stamp Duty in cases of properties constituted under a full ownership regime, composed of several divisions with independent use, all with residential designation, is the tax value of each of the divisions of the property and not, as argued by the Respondent, the global tax value of the property, corresponding to the sum of all tax values of the divisions that compose it.

In light of all that has been stated, there being no legal ground for the liquidation acts effected, their annulment is required, with all legal consequences.

The examination of the subsidiary request made is prejudiced in light of the success of the principal request.

VI. OPERATIVE PART:

In light of the foregoing, it is decided to uphold the request for declaration of illegality of the act dismissing the hierarchical appeal, and consequently:

a) Uphold the request for declaration of illegality of the acts of liquidation of Stamp Duty in the total amount of € 15,864.47;

b) Annul the acts of liquidation of Stamp Duty in the total amount of € 15,864.47.

The value of the case is fixed at € 15,864.47, pursuant to subparagraph a) of no. 1 of article 97-A of the Code of Tax Procedure and Process, applicable by virtue of subparagraphs a) and b) of no. 1 of article 29 of the RJAT and no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

The value of the arbitration fee is fixed at € 918.00 pursuant to Table I of the Regulation of Costs of Tax Arbitration Proceedings, as well as the provision of no. 2 of article 12 and no. 4 of article 22, both of the RJAT, and no. 3 of article 4 of the aforementioned Regulation, to be paid by the Respondent, being the losing party.

Register and notify.

Lisbon, 6 April 2017

The Arbitrator,

Alberto Amorim Pereira

Text prepared by computer, pursuant to no. 5 of article 131 of the CPC, applicable by remission of subparagraph e) of no. 1 of article 29 of Decree-Law no. 10/2011, of 20/01.

[1] FERRARA, FRANCESCO, Interpretation and Application of Laws, 1921, Rome; Translation by MANUEL DE ANDRADE, Arménio Amado, Editor, Successor – Coimbra, 2nd Edition, 1963, p. 138 et seq.

[2] See, among others, BAPTISTA MACHADO, JOÃO, "Introduction to Law and Legal Discourse," Almedina, Coimbra, 1994, 7th reprint, p. 181.

[3] BAPTISTA MACHADO, JOÃO, op. cit., p. 183.

[4] BAPTISTA MACHADO, JOÃO, op. cit., p. 184.

[5] PIRES DE LIMA and ANTUNES VARELA, Annotated Civil Code – Volume III (articles 1251 to 1575), 2nd Revised and Updated Edition (Reprint), Coimbra Editor, Limited, 1987, p. 391.

[6] See, among others, decisions issued in the context of proceedings 48/2013-T, 50/2013-T, 132-2013-T, 255/2016-T all available at www.caad.org.pt

Frequently Asked Questions

Automatically Created

Is Stamp Tax (Verba 28.1 TGIS) applicable when individual units in a total ownership property each have a VPT below €1,000,000?
Under the Tax Authority's interpretation in this case, Stamp Tax under Verba 28.1 TGIS is applicable even when individual units each have a VPT below €1,000,000, provided the property is held under total ownership (propriedade total) and the aggregate value of all independent residential units exceeds the €1,000,000 threshold. The claimant contested this approach, arguing that each division with independent use should be evaluated separately, and only units individually exceeding €1M should trigger Stamp Tax liability.
Can the Tax Authority aggregate the patrimonial values of independent housing units to exceed the €1,000,000 Stamp Tax threshold?
The Tax Authority aggregated the patrimonial values of the 13 independent housing units (totaling €1,477,100) to exceed the €1,000,000 Stamp Tax threshold, arguing that under total ownership the global tax value of the property is relevant, not the value of each independent part. The claimant challenged this aggregation method, contending it violates CIMI principles which assign separate tax values to each autonomous division, and that only the tax value shown in the register for each floor individually should determine Stamp Tax liability.
What is the difference between horizontal property and total ownership for Imposto do Selo purposes under Verba 28.1?
For Imposto do Selo purposes under Verba 28.1, the critical difference lies in how property units are taxed. Under horizontal property (propriedade horizontal), each autonomous fraction has separate legal existence and is taxed individually based on its own VPT. Under total ownership (propriedade total or propriedade vertical), the Tax Authority argues the entire property constitutes a single taxable unit despite having divisions with independent use, thus aggregating all division values. This distinction significantly impacts whether the €1,000,000 threshold is applied per unit or to the combined property value.
How does the constitutional equality principle apply to Stamp Tax on properties held in total ownership versus horizontal property regimes?
The claimant invoked the constitutional equality principle (Article 13 CRP) and fiscal equality principle (Article 104(3) CRP), arguing that aggregating values for total ownership properties while treating horizontal property fractions separately creates discriminatory treatment. Properties with identical economic substance (multiple independent residential units) face different tax outcomes based solely on their legal ownership structure. The claimant argued this violates contributory capacity principles, as the relevant economic reality—independent residential units each below €1M—is the same regardless of whether organized as horizontal property or total ownership with independent-use divisions.
What is the CAAD arbitral procedure for challenging Stamp Tax assessments and related tax enforcement proceedings?
The CAAD arbitral procedure for challenging Stamp Tax assessments begins with filing an administrative objection (reclamação graciosa) against the tax liquidation. If dismissed, the taxpayer may file a hierarchical appeal (recurso hierárquico) to the Tax Authority. After exhausting administrative remedies, the taxpayer can request arbitration at CAAD under Articles 2(1)(a) and 10 of the RJAT (Decree-Law 10/2011), seeking declaration of illegality of the administrative decisions, annulment of the tax assessments, and termination of enforcement proceedings. The arbitration tribunal is constituted, the Tax Authority submits its response, and the tribunal decides on the legality of the contested acts.