Process: 713/2014-T

Date: June 5, 2015

Tax Type: Valor do pedido:

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 713/2014-T) addresses a critical question in Portuguese tax law: whether the Tax Authority can aggregate the taxable property values (VPT) of independent residential units in a vertical property to trigger Stamp Tax liability under Item 28.1 of the General Table of Stamp Tax (TGIS). The case involves an estate owner challenging €11,409.69 in Stamp Tax assessments on a property comprising 20 independent residential units. While no individual unit exceeded the €1,000,000 threshold established by Law 55-A/2012, the Tax Authority summed all unit values to reach this taxable amount. The claimant argued this aggregation contradicts legislative intent, as Item 28.1 was designed to tax luxury properties, not middle-class housing in vertical ownership regimes. Constitutional challenges were raised under Articles 13 (equality), 62 (property rights), 103 (tax system), and 104 (taxation principles) of the Portuguese Constitution, alleging violation of contributory capacity principles. The Tax Authority defended its position by arguing that independent use areas within the same property article do not constitute separate urban properties under CIMI regulations, justifying TPV aggregation. The claimant sought full annulment of the assessments, tax reimbursement, and compensatory interest for improper tax collection. This case illustrates the complexity of applying Stamp Tax to vertical property structures and raises important questions about whether fiscal policy should treat separately-valued units as a single taxable entity. The arbitration proceedings followed standard CAAD procedures, with both parties waiving oral hearings. The decision has significant implications for property owners with multiple residential units under vertical ownership regimes, particularly regarding how tax thresholds apply to complex property structures.

Full Decision

ARBITRAL DECISION

Claimant: A… – Head of the Estate of (hereinafter "Claimant")

Respondent: TAX AND CUSTOMS AUTHORITY (hereinafter "TA" and "Respondent")

  1. Report

A… – Head of the Estate of, with tax identification number ..., represented by the estate head – B... – resident at Street ..., Plot ... – ..., ..., in Lisbon, hereinafter designated as Claimant, submitted to the Administrative Arbitration Centre (CAAD) a petition for constitution of an arbitral tribunal seeking annulment of the tax assessment acts concerning item no. 28.1 of the General Table of Stamp Tax (GTST) for the year 2012, in the total amount of € 11,409.69, which is broken down into the following assessment notices: 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013… and 2013….

The Claimant bases the illegality of the assessments and consequent annulment of the tax acts on the following defects:

A) Defect of violation of the provisions of article 1 of the STC, in conjunction with Item 28 of the GTST, in the version and amendments introduced by Law no. 55-A/2012, of 29 October, maintaining the interpretation that the TA makes of it, insofar as it was not the legislator's intention to tax properties in full or vertical ownership by the sum of the TPVs of the fractions or divisions with independent use intended for housing, when each unit in itself has a TPV lower than € 1,000,000;

B) Unconstitutionality, by violation, among others, of the provisions of articles 13, 62, 103 and 104, all of the CRP;

Petitioning for annulment of the tax acts, consequent reimbursement of Stamp Tax paid, as well as payment of compensatory interest.

The Tax and Customs Authority, in turn, argued that there is no illegality whatsoever insofar as the areas of independent use relating to the same property article do not constitute urban property within the meaning of section 4 of article 2 of the REMTI, and therefore the TPVs of all such areas or floors of independent use cannot fail to be summed, concluding for the rejection of the annulment request formulated by the Claimant.

The sole arbitrator was appointed and designated on 05.12.2014.

In accordance with the provisions of article 11, section 1, paragraph c) of the Legal Regime of Tax Arbitration, the sole arbitral tribunal was constituted on 24.12.2014.

Both the Claimant and the Respondent waived the holding of the first arbitral meeting and likewise the formulation of arguments.

  1. Threshold Examination

The sole arbitral tribunal is materially competent, under the terms of the provisions of articles 2, section 1, paragraph a) of the Legal Regime of Tax Arbitration.

The parties have legal personality and capacity and have standing under article 4 and section 2 of article 10 of the Legal Regime of Tax Arbitration (LRTA), and article 1 of Administrative Order no. 112-A/2011, of 22 March.

The proceedings do not suffer from any nullity nor have the parties raised any exceptions that prevent the examination of the merits of the case, the petition is timely, and therefore the conditions are met for the rendering of the arbitral decision.

  1. Factual Matters

3.1. Proven Facts:

Having analysed the documentary evidence produced and the positioning of the parties, the following facts are considered proven and of interest for the decision of the case:

  1. The Claimant is the owner of the urban property registered in the urban real estate register of the parish of ..., under article ..., located in Street ..., no. ..., parish and municipality of ...;

  2. The identified urban property is subject to a regime of full/vertical ownership, with floors or divisions susceptible to independent use, as shown in the property record attached to the case file;

  3. With respect to the urban article above identified and more specifically with respect to each one of the floors or divisions susceptible to independent use, the Respondent TA issued assessment notices for Stamp Tax, relating to item 28.1 of the GTST, referring to 2012 and which are now identified as 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013…, 2013… and 2013….

  4. The article … already identified is composed of 20 floors or divisions of independent use and residential purpose, with the following TPVs:

  • Ground Floor D - € 46,340.00;

  • Ground Floor E - € 57,600.00;

  • 1st Floor D - € 67,790.00;

  • 1st Floor E - € 65,010.00;

  • 1st Floor F - € 62,900.00;

  • 2nd Floor D - € 67,790.00;

  • 2nd Floor E - € 57,540.00;

  • 2nd Floor F - € 51,290.00;

  • 3rd Floor D - € 86,960.00;

  • 3rd Floor E - € 60,290.00;

  • 3rd Floor F – € 51,290.00;

  • 4th Floor D - € 86,960.00;

  • 4th Floor E - € 57,540.00;

  • 4th Floor F – € 54,510.00;

  • 5th Floor D - € 63,280.00;

  • 5th Floor E - € 57,540.00;

  • 5th Floor F - € 51,290.00

  • 6th Floor D - € 66,960.00;

  • 6th Floor E - € 57,540.00;

  • 6th Floor F - € 51,290.00;

The taxable property value of the urban property article … of the parish of ..., municipality of ... reaches or exceeds the amount of € 1,000,000.00 only when the TPVs relating to the floors or divisions susceptible to independent use and with residential purpose that comprise this same property article are summed;

No floor or division susceptible to independent use with residential purpose of article 3398 has a taxable property value equal to or greater than € 1,000,000.00;

The assessment notices indicated in 3. were notified to the Claimant;

The Claimant paid in full the amounts contained in the assessment notices referred to in 3, and with respect to the tax acts sub judice filed an administrative complaint;

On 29.09.2014, the Respondent TA proceeded with registration of notification of the decision rejecting the administrative complaint;

On 16.10.2014 the now Claimant submitted, via electronic platform, the petition for constitution of an arbitral tribunal;

The Claimant made payment of the initial court fee on 14.10.2014;

No other facts of relevance for the decision of the case were proven.

3.2. Substantiation of the Proven Factual Matters:

With respect to the proven facts, the arbitrator's conviction was based on the documentary evidence attached to the case file, as well as on the parties' acceptance of the factual matters brought before this tribunal.

  1. Legal Matters:

4.1. Object and Scope of the Present Proceedings

The petition for arbitral pronouncement has as its object the declaration of illegality of the Stamp Tax assessment acts, under the provisions of item 28.1 of the GTST, referring to the year 2012, embodied in the assessment notices already identified above, in the total amount of € 11,409.69, as well as the examination of the alleged violation of the principle of equality, in the aspect of contributory capacity, contained in article 13 of the Constitution of the Portuguese Republic.

Additionally, the Claimant petitions for reimbursement of the tax paid as allegedly wrongly levied and for payment of compensatory interest.

4.2. On the Alleged Illegality of Stamp Tax Assessments, Item 28.1 of the GTST

In summary, the issue is to examine whether the interpretation made by the Tax and Customs Authority of using, as a legal criterion for purposes of subjection to Item 28.1 of the GTST, the sum of the TPVs of all floors or divisions of independent use with residential purpose relating to the same property article is consonant with the applicable legal framework.

In this regard, it is important to consider that the tax act in question occurred during the validity of the wording provided by Law no. 55-A/2012, of 29 October, and therefore the current wording given to it by article 194 of Law no. 83-C/2013, of 31 December (State Budget for 2014) is not applicable here, since it only came into force on 1 January 2014.

And it is without losing sight of the legislative context of this innovation at the level of taxation under Stamp Tax that the question relating to the valuation of the amplitude of the tax incidence rule contained in article 28.1 of the GTST should also be examined.

Let us therefore see, before anything else, the legal framework of the Stamp Tax assessment in question:

Law no. 55-A/2012, of 29 October, added item 28.1 to the General Table of Stamp Tax (GTST), with the following wording:

"28 – Ownership, usufruct or right of superficies of urban properties whose taxable property value contained in the register, under the terms of the Real Estate Municipal Tax Code (REMTI), is equal to or greater than € 1,000,000 – on the taxable property value used for purposes of REMT:

28.1 – For property with residential purpose – 1% (…);"

For its part, article 67, section 2 of the Stamp Tax Code, added by the aforementioned Law, provides that "for matters not regulated in the present code relating to item 28 of the General Table, the REMTI shall apply subsidiarily."

The tax incidence rule refers to urban properties, whose base concept of property derives from the provisions of article 2 of the REMTI, with the determination of TPV following the terms of article 38 and following of the same code.

Being that, under the terms of that legal provision:

"1 - For purposes of this Code, property is any fraction of land, comprising waters, plantations, buildings and constructions of any nature incorporated or erected therein, with a character of permanence, provided that it is 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 circumstances aforementioned, endowed with economic autonomy in relation to the land on which they are implanted, even though situated in a fraction of land that constitutes an integral part of a different patrimony or does not have a patrimonial nature." (emphasis ours)

The article 6 of the REMTI clarifies that:

"1 - Urban properties are divided into:

a) Residential;

2 - Residential, commercial, industrial or for services are buildings or constructions licensed for such purpose or, in the absence of a license, which have as their normal destination each of these purposes." (emphasis ours)

The legislator's concept regarding properties and the subsequent division into urban ones is, for tax purposes, indubitably a criterion based on economic value and functional autonomy in reason of purpose.

That is, we are dealing with a concept of material or substantive nature and not a concept of legal-formalistic demarcation, as the Respondent TA seems to intend.

Now, in the case at hand, the Respondent TA does not even place in question that the floors or divisions with independent use and with residential purpose relating to the property articles do not have these same characteristics (functional autonomy and economic value) highlighted by the legislator, nor could it do so insofar as it is the TA itself that determined to be correct and had inscribed this same information in the respective property records of the property articles to which the floors or divisions susceptible to independent use pertain.

Adding to this that, precisely because such floors or divisions have such characteristics of autonomy, both in functional and economic value terms, it is understood that the legislator provided for the assignment of taxable property values for each of those floors, areas or divisions susceptible to independent use.

This contradicts the TA's thesis according to which, since floors or divisions susceptible to independent use are not expressly stated in section 4 of article 2 of the REMTI, the legislator intended to exclude such a figure from the concept of property.

Therefore, being indisputable the residential purpose and likewise the functional autonomy and economic value, moreover fiscally translated in the TPV of those same independent areas or divisions, characteristics that are transposed into the respective property records of the property article under the designation of floors or divisions susceptible to independent use, we cannot fail to conclude that in the material and substantive plane those same floors or divisions are encompassed by the notion of property contained in section 1 of article 2 of the REMTI and of urban property contained in paragraph a) of section 1 and section 2 of article 6, both of the REMTI.

The introduction into the tax legal order of the present Item 28.1 of the GTST had as a relevant and determining factor the incidence on urban properties with residential purpose, of high value, also usually designated as luxury dwellings, more accurately, of value equal to or greater than €1,000,000.00, on which Stamp Tax began to be levied.

The legislator thus intended to introduce a principle of taxation on wealth manifested in the ownership, usufruct or right of superficies over any and every urban property with residential purpose, the legislator's criterion having made this stamp tax applicable to urban properties with residential purpose, whose TPV is equal to or greater than €1,000,000.00.

Such conclusion may be drawn from the analysis of the discussion of bill no. 96/XII in the Assembly of the Republic, available for consultation in the Parliamentary Gazette, I series, no. 9/XII/2, of 11 October 2012.

The justification for the measure designated as "special tax on urban residential properties of the highest value" is based on the invocation of the principles of social equity and fiscal justice, calling upon the holders of properties of high value intended for housing to contribute in a more intense manner, with the new special tax being levied on "homes valued at equal to or greater than 1 million euros."

In this way, it seems clear that the legislator understood that homes having certain characteristics assessed quantitatively through TPV should determine a special contribution to ensure fair distribution of the fiscal burden.

But no less evident, it reflects a line of legislative option that intended to specifically burden urban properties with residential purpose of the high segment, luxury or also commonly called luxury homes.

It should be noted that, irrespective of more or less subjective conceptions about the concept of luxury dwellings, high segment, or expressions of equivalent meaning, it is certain that taxable property value has been, since the reform of taxation on patrimony in 2003, measured on the basis of objective elements, such as area, location, level of comfort, among others.

What means to assert that and irrespective of the ideological considerations that may be made on such political option, the legislator had a concrete and defined objective: to subject to taxation under Stamp Tax urban properties with residential purpose of the highest value, which in practice resulted in the fixing of a measurable threshold through TPV: value equal to or greater than € 1,000,000.00.

Adding to this that the legislator ensured through various coefficients (mitigating and aggravating) the objectivity in the determination of that same TPV.

Now, none of the floors or divisions susceptible to independent use in question here and on which the assessments subject to the present petition for arbitral pronouncement fell, individually reach the value of € 1,000,000.00, and each of those independent floors or divisions represents in the tax system a property in itself, reason for which the TA erred as to the assumptions by subjecting to item 28.1 of the GTST by failing to consider that each of those same areas or divisions represents under the terms of the REMT Code and consequently under Stamp Tax, an urban property, reason for which those areas or divisions relating to the same property article could not be subject to summation for calculation of the TPV of that property article.

What the same means to assert that having in view the ratio legis that has been stated, the floors or divisions susceptible to independent use do not meet the assumption relating to taxation in the domain of the tax incidence rule provided in item 28.1 of the GTST, reason for which, also in light of what has been exposed, one cannot fail to conclude for the non-conformity with law of the TA's interpretation of subjecting to Item 28.1 of the GTST the floors or divisions susceptible to independent use, since they do not individually reach the minimum quantitative criterion for such subjection.

Thus, with respect to the assessment notices issued and notified to the Claimant and the assessments underlying them, a judgment of censure must be rendered and, consequently, it must be determined that the tax acts subject to the present case file be annulled.

4.3. Prejudiced Questions: Unconstitutionality Invoked

As this sole arbitral tribunal accepted the understanding of the non-applicability of item 28.1 of the GTST to the present case, the examination of the remaining defects alleged and which may affect the contested assessments is prejudiced as procedurally moot.

Thus the examination of the question of unconstitutionality of the rule introduced in the GTST (item 28/28.1) by Law no. 55-A/2012, of 28 October, is prejudiced.

4.4. On Reimbursement to the Claimant of the Stamp Tax Paid, Plus Payment of Compensatory Interest:

In light of all that has been expended and concluded in point 4.2 regarding the judgment of illegality that fell upon the tax acts subject to the present arbitral pronouncement, it is necessary to restore the tax situation of the Claimant, reason for which the Respondent TA cannot fail to effect the reversal of the amounts paid as Stamp Tax Item 28.1 of the GTST subject to the present case file, and it is important to note and examine the request also formulated by the Claimant to the effect that compensatory interest be paid to her.

Under section 1 of article 43 of the GTL, "Compensatory interest is due when it is determined, in an administrative complaint or judicial challenge, that there has been error attributable to the services resulting in payment of the tax debt in an amount greater than that legally due."

Section 2 of that article of the GTL further provides that "It is also considered that there is error attributable to the services in cases in which, although the assessment is made on the basis of the taxpayer's return, the taxpayer followed, in its completion, the generic guidance of the tax administration, duly published."

Now, in the concrete case at hand, the legitimacy of the aforementioned request for payment of compensatory interest in favor of the Claimant is unequivocally demonstrated, since the assessments sub judice show themselves to be affected by illegality, constituting the issuance of the tax acts an error attributable to the services, and therefore compensatory interest cannot fail to be considered due from the day following payment of the wrongly levied amount until the date of issuance of the respective credit note, in accordance with the provisions of article 43 of the GTL and article 61 of the TPPC.

It is, therefore, the Claimant creditor of the Respondent TA in the amount corresponding to the Stamp Tax wrongly paid, in the amount of € 11,409.69, plus the respective compensatory interest accrued and to accrue to be calculated until the issuance of the respective credit note.

  1. DECISION:

In these terms and with the reasoning set out above, this arbitral tribunal decides:

  1. Judgment for the Claimant on the petition for declaration of illegality of the tax assessment acts in Stamp Tax, to which correspond the assessment notices identified in 3. and referring to the property identified by the urban property article contained in 1., for defect of violation of law as to the rule contained in item 28.1 of the GTST, for error as to the assumptions of law and consequent reimbursement by the Respondent of the amounts paid by the Claimant with respect to the tax acts which by the present decision are annulled;

  2. Judgment for the Claimant on the petition for payment of compensatory interest by the Respondent to the Claimant from the date of wrongly levied payment until the date of issuance of the credit note, in accordance with the provisions of article 43 of the GTL and article 61 of the Tax Procedure and Process Code;

Value of the Cause: € 11,409.69 – articles 97-A of the TPPC, 12 of the LRTA (DL 10/2011), 3-2 of the Regulation of Costs in Tax Arbitration Proceedings (RCTAP).

Costs under Table I of the RCTAP, calculated based on the aforesaid value of the petition, charged to the Respondent - articles 4-1 of the RCTAP and 6-2/a) and 22-4 of the LRTA.

Let this arbitral decision be notified to the parties and, in due course, file the proceedings.

Lisbon, 5 June 2015.

The Sole Arbitrator

(Luís Ricardo Farinha Sequeira)

Text prepared by computer, in accordance with article 138, section 5 of the Civil Procedure Code (CPC), applicable by referral from article 29, section 1, paragraph e) of the Tax Arbitration Legal Regime, with blank verses and reviewed by me.

Frequently Asked Questions

Automatically Created

What is Stamp Tax (Imposto de Selo) under Clause 28.1 of the TGIS on properties valued over €1,000,000?
Stamp Tax under Item 28.1 of the TGIS (Tabela Geral do Imposto do Selo) is an annual tax on urban properties intended for residential use with a taxable property value (VPT) equal to or exceeding €1,000,000. Introduced by Law 55-A/2012 of October 29, this tax applies at progressive rates based on property value thresholds. The tax was designed to target high-value luxury properties as part of fiscal consolidation measures. Item 28.1 levies tax on the ownership or possession of the property right, calculated annually based on the property's official taxable value registered in the tax records. The tax applies regardless of whether the property generates income, making it a wealth tax on high-value real estate holdings.
Can the Portuguese Tax Authority aggregate the VPT of independent units in a vertical property to exceed the €1,000,000 threshold?
The central dispute in Process 713/2014-T concerns whether the Tax Authority can aggregate VPT values of independent units in vertical property ownership. The Tax Authority's position is that areas of independent use relating to the same property article (artigo) do not constitute separate urban properties under Article 2(4) of the CIMI (Real Estate Tax Code). Therefore, they argue all TPVs of floors or divisions with independent use must be summed to determine if the €1,000,000 threshold is met. The claimant contests this interpretation, arguing that Law 55-A/2012 never intended to tax vertical properties by summing individual unit values when each unit individually falls below €1,000,000. This aggregation method effectively transforms modest residential units into taxable luxury properties solely based on their legal registration structure.
Is it constitutional to tax vertical properties by summing individual unit values under Articles 13, 62, 103, and 104 of the Portuguese Constitution?
The claimant challenged the constitutionality of aggregating individual unit values under several constitutional provisions. Article 13 of the Portuguese Constitution (equality principle) was invoked arguing that identical properties are taxed differently based solely on their registration structure—a single property article with multiple units faces taxation while separately registered units do not. Article 62 (property rights) was cited regarding disproportionate interference with property ownership. Articles 103 and 104 concern the tax system's foundational principles, including contributory capacity—the principle that taxation should reflect actual economic capacity. The claimant argued that summing TPVs of modest units violates contributory capacity since individual units represent middle-class housing, not luxury properties. This aggregation method allegedly creates arbitrary distinctions unrelated to true wealth or ability to pay.
How does CAAD arbitration work for challenging Stamp Tax assessments on high-value residential properties in Portugal?
CAAD (Centro de Arbitragem Administrativa) provides an alternative dispute resolution mechanism for tax controversies in Portugal. For Stamp Tax challenges on high-value properties, taxpayers must first file an administrative complaint (reclamação graciosa) with the Tax Authority. If rejected, taxpayers can submit a petition to CAAD requesting arbitral tribunal constitution, as occurred in this case where the petition was filed on October 16, 2014, after the September 29, 2014 rejection. The process requires payment of initial court fees and allows parties to waive oral hearings. A sole arbitrator or arbitral panel examines threshold issues (jurisdiction, standing, timeliness) before proceeding to merits. The tribunal reviews factual evidence, legal arguments, and applicable constitutional and statutory provisions. CAAD decisions are binding and enforceable, offering faster resolution than traditional courts, typically concluding within 6 months.
Are compensatory interest (juros indemnizatórios) available when Stamp Tax liquidations on vertical property are annulled?
Compensatory interest (juros indemnizatórios) are available under Portuguese law when tax authorities collect taxes that are subsequently annulled or deemed unlawful. Article 43 of the General Tax Law (LGT) establishes the taxpayer's right to compensatory interest when they suffer financial loss due to improper tax collection. The interest compensates for the time value of money wrongly held by the State. Calculation begins from the date of undue payment until reimbursement, using the legal interest rate established annually. In this case, the claimant specifically requested compensatory interest alongside tax reimbursement of the €11,409.69 paid. If the arbitral tribunal annuls the Stamp Tax assessments, the Tax Authority must refund the principal amount plus accrued compensatory interest automatically, without requiring separate application. This ensures taxpayers are made whole for improper deprivation of funds.