Process: 82/2017-T

Date: July 17, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 82/2017-T) addresses a critical question in Portuguese Stamp Tax law: how Item 28.1 of the General Table of Stamp Tax (TGIS) applies to vertical property buildings. The taxpayer, A., S.A., challenged stamp tax assessments totaling €11,903.58 on an urban property in Lisbon composed of 18 independent divisions across 6 floors, not constituted under horizontal property regime (propriedade horizontal). While each residential unit had a taxable property value (VPT) below €1,000,000, their combined VPT reached €1,190,357.12. The central legal dispute concerns whether the €1,000,000 threshold in Item 28.1 TGIS should be assessed per independent unit or on the aggregate value of all residential parts. The taxpayer argued that for vertical property with divisions capable of independent use, each unit should be evaluated separately under Article 7(2)(b) CIMI, meaning no stamp tax was due since no individual unit exceeded the threshold. The Tax Authority countered that vertical property constitutes a single taxable unit, requiring aggregation of all residential VPTs to determine stamp tax liability. The AT relied on binding information (case 2013-IVE) establishing that full ownership buildings with independent divisions remain a single 'property' for tax purposes. The case proceeded through the gracious complaint procedure before reaching CAAD arbitration, demonstrating the available remedies for challenging stamp tax assessments on complex property structures. This decision has significant implications for owners of vertical properties with multiple residential units, particularly regarding the proper interpretation of VPT thresholds under the special stamp tax regime introduced for high-value residential properties.

Full Decision

ARBITRAL DECISION

I. Report

1. A…, S.A., with Tax Identification Number…, with registered office in …, …, …, …-… Lisbon, applied for the constitution of an arbitral tribunal in tax matters with a view to declaring illegal an express decision denying a gracious appeal and, consequently, the acts of stamp tax assessments, in the total amount of €11,903.58, relating to an urban property, not constituted under horizontal property regime, registered in the respective property register of the parish of …, municipality of Lisbon, under article…. The said assessments, carried out on the basis of the norm of article 1 of the Stamp Tax Code (CIS), in conjunction with Item No. 28.1 of the respective General Table, relate to the year 2015.

2. As the grounds for the petition, the Petitioner alleges, in summary, that the taxation provided for in the cited norms has as its object urban properties with residential use, whose taxable property value used for purposes of IMI is equal to or greater than €1,000,000. In the case of properties not constituted under horizontal property regime but composed of parts or divisions capable of independent use, the property value used for purposes of IMI, and consequently, relevant for purposes of the incidence of stamp tax, is, in accordance with the abovementioned norm, the value determined with reference to each one of those parts or divisions.

3. For its part, the Respondent – Tax and Customs Authority (AT) – in response to the allegations, argues for the dismissal of the petition and, consequently, for the maintenance of the disputed assessment acts, on the grounds that it is a single urban property, with the value relevant for purposes of stamp tax incidence being the result of the sum of the taxable property values attributed to the various parts that compose it.

4. The petition for constitution of the arbitral tribunal, presented on 23-01-2017, was accepted by the President of the CAAD and automatically notified to the Respondent on 31 of the same month.

5. Pursuant to the provisions of paragraph a) of no. 2 of article 6 and of paragraph b) of no. 1 of article 11 of Decree-Law No. 10/2011, of 20/01, as amended by article 228 of Law No. 66-B/2012, of 31/12, the Ethics Board designated the undersigned as arbitrator of the single arbitral tribunal, who communicated acceptance of the appointment within the applicable period and notified the parties of this appointment on 15-03-2017.

6. Being duly notified of this appointment, the parties did not express their intention to challenge the appointment of the arbitrator, pursuant to the combined provisions of article 11, no. 1, paragraphs a) and b) of the RJAT and articles 6 and 7 of the Code of Ethics.

7. Thus, in conformity with the provisions of paragraph c) of no. 1 of article 11 of the RJAT, as amended by article 228 of Law No. 66-B/2012, of 31/12, the single arbitral tribunal was constituted on 30-03-2017.

8. Duly constituted, the arbitral tribunal is materially competent, given the provisions of articles 2, no. 1, paragraph a), of the RJAT.

9. The parties have legal personality and capacity and have standing (articles 4 and 10, no. 2, of the RJAT, and article 1 of Ordinance No. 112-A/2011, of 22/03).

10. Given the knowledge arising from the procedural documents filed by the parties, which is deemed sufficient for the decision, the Tribunal decided to waive the meeting referred to in article 18 of the RJAT.

11. The case has no defects of nullity and no other issues have been raised that would prevent the consideration of the merits of the case, the conditions being met for a final decision to be rendered.

II. Factual Matters

12. With relevance to the assessment of the issue raised, the following factual elements are highlighted:

12.1. The Petitioner is the owner of the urban property located at …, No. …, extending to Rua …, No. …, parish of …, municipality of Lisbon, registered in the respective property register under article….

12.2. The property in question, in full ownership with floors or divisions capable of independent use, is composed of 6 floors, having in total 18 floors or divisions with independent use, allocated to commerce or industry and to residential use (cfr. Doc. 1).

12.3. To each of the independent divisions was attributed a taxable property value separately determined in accordance with the norm of paragraph b) of no. 2 of article 7 of the Municipal Property Tax Code (CIMI).

12.4. None of the parts or floors with residential use has a taxable property value exceeding €1,000,000.00, resulting from their sum a total taxable property value of €1,190,357.12 (cfr. Doc. 1).

12.5. Considering the sum of the taxable property values of the floors with independent use allocated to residential use, the AT carried out assessments of stamp tax, provided for in Item 28.1 of the respective General Table, with reference to the year 2015 and to each one of the units capable of independent use.

12.6. The said assessments, dated 05-04-2016, in the total amount of €11,903.58, were notified to the Petitioner, and simultaneously, payment notices were sent to her for payment, in the course of April 2016, of the first installments, in the total amount of €4,402.50 (cfr. Docs. 2 to 18).

12.7. On 06-05-2016, the Petitioner filed a gracious appeal of the said assessment acts, requesting their annulment on grounds of illegality due to the fact that the prerequisites for the incidence of the tax in question were not met, since, as the property is composed of floors or divisions capable of independent use, none of them has a taxable property value equal to or greater than €1,000,000.00 (cfr. Doc. 19).

12.8. On 03-10-2016, the Petitioner was notified to exercise her right to be heard, in view of the draft denying the gracious appeal she had filed (cfr. Doc. 20).

12.9. On 21-10-2016 a decision denying the appeal was rendered, on the grounds that "...in accordance with the binding information provided in case 2013…-IVE No. … with the concurring decision of the Substitute of the Director-General of the Tax and Customs Authority of 11-02-2013...it is verified that '...if the building is constituted in full ownership with parts or divisions capable of independent use (so-called full ownership), it integrates the legal tax concept of "property," that is, a single unit, and the taxable property value is determined by the sum of the parts with residential use, and, if this is equal to or greater than €1,000,000, there is subjection to stamp tax of item 28 of the General Table annexed to the CIS.

In this way, since the property is not constituted under horizontal property regime, it falls within the scope of the incidence norm provided for in article 1 of the Stamp Tax Code and in item 28 of the General Table of Stamp Tax." Therefore "the assessed tax is levied in accordance with legal norms."

12.10. On 25-10-2016, the Petitioner was notified of the decision denying the gracious appeal (Doc. 21).

13. There are no other facts relevant to the merits of the decision that have not been proven.

III. Legal Matters

14. As already previously mentioned, the Petitioner in its petition for arbitral pronouncement sustains, in essence, that the norm of Item 28.1 of the General Table of Stamp Tax is not applicable to properties in full ownership composed of parts or divisions capable of independent use, whenever the taxable property value attributed to each one intended for residential use does not exceed €1,000,000.00.

15. In response to the allegations of the Petitioner, the Respondent (AT) argued, in summary, that Item 28 of the General Table of Stamp Tax applies to urban properties with residential use and that the taxable property value on which the application of this legal norm depends is, as expressly results from the law, the property value of each property and not of its distinct parts, even if capable of independent use. Thus concluding that the tax act in question, having not violated any legal norm, should be maintained.

16. From the positions expressed by the Petitioner and the Respondent, summarized above, it follows that a matter of strictly legal assessment is at issue, making production of evidence beyond the documentary elements attached to the case unnecessary.

17. In fact, the question to be decided centers only on whether, within the scope of the incidence of stamp tax referred to in Item 28 of the General Table of Stamp Tax (TGIS), are contained, or not, urban residential properties that, although not constituted under horizontal property regime, are composed of floors or divisions capable of independent use, whenever the taxable property value attributed to each one of those distinct parts does not exceed the value of €1,000,000.00.

18. In other words, it is a matter of knowing whether the quantitative element relevant provided in the said norm should be considered in terms of the taxable property value attributed to each one of the parts, as the Petitioner contends, or whether this element is what results from the sum of the taxable property values attributed to them, as the Respondent argues.

19. It is important, thus, first and foremost, to conduct an analysis, albeit brief, of the prerequisites of the incidence of stamp tax on urban properties with residential use, resorting to the relevant tax norms for the definition of their respective legal concepts.

On tax incidence.

20. Through Law No. 55-A/2012, of 29/10, Item 28 was added to the General Table of Stamp Tax, subjecting to this tax urban properties whose taxable property value appearing in the register, pursuant to the Municipal Property Tax Code (CIMI), is equal to or greater than €1,000,000.00.

21. The taxable base is constituted by the taxable property value considered for purposes of IMI, with that tax being annually assessed by the AT with respect to each urban property (CIS, article 23, no. 7), at the rate of:
- 1%, per urban property with residential use;
- 7.5%, per property, when the taxpayers, not being natural persons, are residents in a country, territory or region subject to a clearly more favorable tax regime, appearing on the list approved by ordinance of the Minister of Finance.

22. The taxpayers and debtors of the tax are the owners, usufructuaries or surface rights holders of the properties on 31 December of the year to which the tax relates, as provided for in article 8 of the CIMI, by express reference in articles 3, no. 3, paragraph u), and 2, no. 4, of the Stamp Tax Code.

23. As regards 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 CIMI are applicable, by express reference of articles 5, no. 1, paragraph u), 4, no. 6, 23, no. 7, 44, no. 5, 46, no. 5 and 49, no. 3, of the CIS. In general, by reference of article 67, no. 2, of the same Code, the provisions of the CIMI are applicable as supplementary to matters not specially regulated.

24. The species of the property in question not being disputed, classified as urban and with residential use, in accordance with the criteria established in articles 2, 4 and 6 of the IMI Code, the issue at hand is only to determine the exact meaning of "taxable property value considered for purposes of IMI" contained in the incidence norm of stamp tax.

25. It is thus necessary to resort to the rules of the IMI Code relating to the treatment given, in the context of this tax, to parts of urban properties capable of independent use, particularly as regards the determination of their respective taxable property value and the rules applicable to the assessment and payment of the said tax.

26. In accordance with no. 3 of article 12 of the cited Code, which establishes the concept of property register, "each floor or part of a property capable of independent use is considered separately in the property register entry, which specifies its respective taxable property value."

27. The autonomy in the register of the functionally and economically independent parts of a property in full ownership is connected to reasons of fiscal and extrafiscal nature. On the fiscal level, this autonomy is related to the very determination of taxable property value, which constitutes the taxable base of IMI, given that the formula for determining this value, provided for in article 38 of the same Code, includes indexes that vary depending on the use assigned to each one of those parts. On the extrafiscal level, this autonomy continues to find justification in the relevance attributed to the taxable property value of properties and their autonomous parts in urban rental legislation.[i]

28. However, in the economy of IMI, the autonomy of parts of urban property capable of independent use is not limited to their separation in the property register entry and specification of their respective taxable property value. This autonomy extends to the very assessment of the tax.

29. In fact, article 119, no. 1, of the mentioned Code provides that the tax collection document shall contain the specification of the properties, their parts capable of independent use and their respective taxable property value. For compliance with this provision, the assessment of IMI, in the strict sense of application of the rate to the taxable base, does not take as reference the sum of the taxable property values attributed to the autonomous parts of the same property, but the value attributed to each one of them individually considered.

30. In the same sense of the individualization, for tax purposes, of the autonomous parts of urban properties, the norm of no. 1 of article 15-O of Decree-Law No. 287/2003, of 12/11, added by Law No. 60-A/2011, of 30/11 is also relevant.

31. In accordance with the provisions of the said norm, the safeguard clause relating to the increase in IMI taxation resulting from the general assessment of urban properties is applicable per property or part of urban property that is the object of the said assessment.

32. It thus results from the relevant norms of the CIMI, by reference applicable to stamp tax referred to in Item 28 of the respective Table, that the autonomous parts of urban properties assume full autonomy, in terms of assessment and description in the property register and assessment of the tax.

33. In referring to the taxable property value considered for purposes of IMI, the incidence and quantification norm of stamp tax referred to in Item 28 of the respective Table can only appeal to the reality described above, that is, to the taxable property value considered in the context of IMI with respect to each part of an urban property capable of independent use.

34. As, moreover, is reflected in the assessments that are questioned in the present petition for arbitral pronouncement: the AT, after, without legal support, operating the sum of the taxable property values of the various autonomous parts of the property to extract therefrom the quantitative premise of stamp tax incidence, operates the assessment with reference to each one of those parts even though, individually, none of them reaches that value.

35. It is noted that the question raised in this case is, in all respects, identical to those that have been raised and decided in numerous arbitral decisions[ii], as well as in rulings of the Supreme Administrative Court[iii], whose conclusion, in the sense of the illegality of the AT's decision to subject to taxation the residential parts of a property in full ownership based on the property's overall taxable property value and not on what is actually attributed to each of the parts separately, is entirely endorsed.

IV. Decision

On these grounds, and with the reasons set forth, the Arbitral Tribunal decides to find the petition for arbitral pronouncement well-founded, declaring illegal the decision on the appeal and determining the annulment of the questioned assessments with the consequent legal effects.

Process Value: The process value is fixed at €11,903.58, pursuant to article 97-A, no. 1, paragraph a) of the CPPT, applicable by reference of article 29, no. 1, paragraphs a) and b), of the RJAT and article 3, no. 2, of the Costs Regulation in Tax Arbitration Cases.

Costs: Under article 22, no. 4, of the RJAT, and in accordance with Table I annexed to the Costs Regulation in Tax Arbitration Cases, I fix the amount of costs at €918.00, to be borne by the Respondent (AT).

Lisbon, 17 July 2017

The Arbitrator,

Álvaro Caneira

[i] See Silvério Mateus and Leonel Corvelo de Freitas, "Real Estate Tax and Stamp Tax Commented and Annotated," Engifisco, Lisbon 2005, pages 159 and 160.

[ii] Among many others, referring only to the most recent: CAAD, Cases 544/2015-T, 552/2015-T, 554/2015-T, 560/2015-T, 562/2015-T, 573/2015-T, 576/2015-T, 581/2015-T, 589/2015-T, 597/2015-T, 606/2015-T, 632/2015-T, 643/2015-T, 644/2015-T, 651/2015-T, 659/2015-T, 681/2015-T, 718/2015-T, 755/2015-T, 768/2015-T, 777/2015-T, 10-2016-T, 20/2016-T, 293/2016-T, 294/2016-T, 298/2016-T, 303/2016-T, 314/2016-T, 330/2016-T, 343/2016-T, 361/2016-T, 383/2016-T, 385/2016-T, 390/2016-T, 397/2016-T, 428/2016-T, 431/2016-T, 453/2016-T, 463/2016-T, 464/2016-T, 471/2016-T, 485/2016-T, 489/2016-T, 495/2016-T, 507/2016-T, 513/2016-T, 529/2016-T, 546/2016-T, 555/2016-T, 778/2016-T

[iii] See STA, Cases 047/15, 01352/15, 01354/15, 01504/15, 01534/15, 0166/16, 0498/16, 0560/16, 01097/16, 0711/16, 1447/16, 0593/16

Frequently Asked Questions

Automatically Created

How is Stamp Tax (Imposto do Selo) applied to vertical property buildings under Verba 28.1 of the TGIS?
Stamp Tax under Item 28.1 TGIS applies to urban properties with residential use where the taxable property value (VPT) equals or exceeds €1,000,000. For vertical property buildings (full ownership with independent divisions not under horizontal property regime), the Tax Authority's position is that the building constitutes a single taxable unit. Therefore, stamp tax applies when the sum of VPTs of all residential parts reaches the €1,000,000 threshold, even if individual units fall below this amount. The tax is assessed annually on each independent residential unit proportionally.
Must the €1,000,000 VPT threshold be assessed per independent unit or on the total building value for non-horizontal property?
According to the Tax Authority's interpretation supported by binding information (case 2013-IVE), for properties NOT constituted under horizontal property regime but with independent divisions, the €1,000,000 threshold is assessed on the total building value by aggregating all residential VPTs. This contrasts with the taxpayer's position that each independent unit should be evaluated separately under Article 7(2)(b) CIMI. The dispute centers on whether vertical property with independent divisions constitutes a single 'property' or multiple units for stamp tax purposes. The AT maintains that full ownership buildings remain a single taxable unit regardless of internal divisions.
Can a taxpayer challenge Stamp Tax assessments on vertical property through CAAD arbitration?
Yes, taxpayers can challenge Stamp Tax assessments on vertical property through CAAD (Centro de Arbitragem Administrativa) arbitration. The procedure requires first filing a gracious complaint (reclamação graciosa) with the Tax Authority. If denied, the taxpayer may request arbitration within the legal deadline. In this case, the petition was filed on 23-01-2017 following denial of the gracious appeal on 03-10-2016. The CAAD has material competence under Article 2(1)(a) RJAT to decide disputes concerning the legality of stamp tax assessments, including questions of tax incidence and valuation under Item 28.1 TGIS.
What is the difference between horizontal and vertical property for Stamp Tax purposes under Portuguese law?
Horizontal property (propriedade horizontal) involves autonomous fractions legally registered as independent properties, each with separate ownership, registration, and tax treatment. Each fraction has its own VPT and is taxed individually. Vertical property (propriedade vertical) or full ownership (propriedade total) with independent divisions refers to a single property with multiple floors or divisions capable of independent use but not legally constituted as separate units. For Stamp Tax under Item 28.1 TGIS, this distinction is crucial: horizontal property fractions are assessed individually, while vertical property is treated as a single unit with aggregated VPT of residential parts determining tax liability.
How does the gracious complaint (reclamação graciosa) procedure work before filing a CAAD arbitration request?
The gracious complaint (reclamação graciosa) is a mandatory pre-arbitration administrative remedy. The taxpayer must file the complaint with the Tax Authority within the legal deadline after notification of the tax assessment. The AT examines the complaint and issues a decision (which may be express denial or tacit by silence). Before issuing a denial decision, the AT must notify the taxpayer to exercise the right to be heard (direito de audição prévia), as occurred on 03-10-2016 in this case. After receiving the denial decision (21-10-2016), the taxpayer may then request CAAD arbitration, which was filed on 23-01-2017, respecting the statutory deadline for challenging the administrative decision.