Process: 105/2013-T

Date: December 30, 2013

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Process 105/2013-T addressed whether construction land (terrenos para construção) is subject to Stamp Tax under Portugal's residential property tax regime. Company A, S.A. challenged a €21,854.12 Stamp Tax assessment for 2012 on construction land valued at €4,370,823.45. The Tax Authority applied the 0.5% rate under Law 55-A/2012, article 6(1)(f), treating the land as 'property with residential use.' The taxpayer argued that construction land cannot constitute residential property under the Municipal Property Tax Code (CIMI), which defines residential properties as completed buildings or constructions licensed for such purpose. The company contended that residential use must be assessed functionally, not virtually, and undeveloped land lacks the physical attributes necessary for residential occupation. The Tax Authority countered that 'properties with residential use' should be interpreted broadly, incorporating construction land intended for residential development. They argued that CIMI's valuation methodology for construction land considers future building use (articles 41 and 45), applying coefficients based on authorized or planned residential buildings (15-45% of projected building value). The Authority maintained that use determination can occur before actual construction under the Legal Framework for Urbanization and Building (RJUE). This case represents a fundamental dispute over whether Stamp Tax on residential properties applies only to completed dwellings or extends to developable land based on intended future use. The outcome significantly impacts real estate developers, landowners, and investors holding construction land, determining whether they face ongoing 0.5% annual Stamp Tax obligations prior to actual building completion. The case exemplifies tensions between literal interpretation of tax legislation and administrative attempts to expand the tax base through purposive construction of statutory terms.

Full Decision

I. REPORT

A, S.A. (hereinafter referred to as "Applicant"), taxpayer number …, with registered office at …, submitted a request for the constitution of a singular arbitral tribunal, pursuant to the provisions of subparagraph a) of paragraph 1 of article 2 and article 10, both of Decree-Law No. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to as RJAT), in which the Tax and Customs Authority (hereinafter referred to as ATA or Respondent) is named as respondent, with a view to:

a) Declaration of the illegality of the Stamp Duty ("IS") assessment act No. 2012 ..., issued by the ATA, relating to the year 2012, in the amount of € 21,854.12 (document attached with the electronic request sent to CAAD) and consequent annulment of the act, following the dismissal order of the administrative complaint filed against the above-identified act;

b) Condemnation of the Respondent to restitution of the tax, unduly paid, plus the due compensatory interest.

For this purpose, it alleges, in summary, that:

  1. The IS assessment, object of the present request for arbitral pronouncement, results from the application of the provisions of art. 6, paragraph 1, subparagraph f) of Law No. 55-A/2012, of 29 October, "when it stipulates that stamp duty is due corresponding to 0.5% on the patrimony value of 'properties with residential use assessed in accordance with the Municipal Property Tax Code', thus based on 'a manifest and gross error'";

  2. Because the property in question is construction land and "was never assessed as property with residential use";

  3. Pursuant to the provisions of paragraph 1 of art. 6 of the Stamp Duty Code (hereinafter referred to only as "CIS") "the concept of property is that defined in the Municipal Property Tax Code", and in accordance with the provisions of paragraph 2 of art. 6 of the latter, residential properties are buildings or constructions licensed for such purpose or, in the absence of a license, that have such purpose as their normal destination;

  4. For a property to be recognized as having a particular use (namely residential), one must be dealing with a constructed and completed urban property and not with mere construction land;

  5. The aforementioned residential use cannot be assessed virtually but in functional terms, whereby construction land is not suitable for use as a dwelling;

  6. In such circumstances, being evident the lack of legal basis for the IS assessment in question, the Applicant requests its annulment, as it is illegal.

Given the Applicant's allegations, what it presumably intends is the declaration of illegality of the above assessment due to violation of law, due to error regarding the legal prerequisites, by considering that the latter are not satisfied.

The Applicant opted not to designate an arbitrator, whereby a singular arbitrator was designated by CAAD, in accordance with the provisions of paragraph 1 of article 6 and subparagraph b) of paragraph 1 of article 11 of the RJAT.

The arbitral tribunal was constituted on 05-07-2013, in conformity with the provisions of subparagraph c) of paragraph 1 of article 11 of the RJAT.

Notified for this purpose, the Respondent submitted its reply, in which it invokes, in summary:

i) Law No. 55-A/2013 amended art. 1 of the CIS, adding to the General Table of Stamp Duty (hereinafter referred to only as "TGIS") item 28, applying, in accordance with the provisions of art. 67, paragraph 2, in the wording conferred by the aforementioned Law, subsidiarily the provisions of the Municipal Property Tax Code (hereinafter referred to only as "CIMI") to matters not regulated in the CIS relating to that item. And "in the absence of any definition of the concepts of urban property, construction land and residential use in the Stamp Duty Code, recourse must be had to the CIMI";

ii) The notion of property use (aptitude or purpose) is a coefficient that contributes to the valuation of the property in the determination of the taxable patrimony value, and the use coefficient equally applies to the assessment of construction land, as provided for in art. 41 and paragraph 2 of art. 45, both of the CIMI, "whereby its consideration for the purposes of application of item 28 of the General Stamp Duty Table cannot be ignored";

iii) Item No. 28 of the TGIS, in referring to the expression "properties with residential use", calls for a qualification that overlies the types provided for in paragraph 1 of art. 6 of the CIMI, and should be understood in a broad manner, "encompassing both constructed residential properties and construction land", and, "whose meaning shall be found in the need to integrate other realities beyond those identified in art. 6, paragraph 1 of the CIMI";

iv) Fiscal law considers as an integrating element for the purposes of valuation of construction land, the value of the built-upon area, which varies between 15% and 45% of the value of the authorized or planned buildings based on the urbanization and construction project, and cannot disregard the provisions of art. 77 of the Legal Framework for Urbanization and Building (RJUE), it being possible to determine the use of construction land before the actual building of the property;

v) Whereby, the "assessment in question constitutes a correct interpretation and application of law to the facts, not suffering from a defect of violation of law".

It concludes by arguing for the lack of merit of the request for arbitral pronouncement, and should be absolved therefrom.

On 22 October 2013, the first (and only) meeting of the Arbitral Tribunal was held at the seat of CAAD, in accordance with the terms and for the purposes provided for in article 18 of the RJAT, with the parties having agreed to dispense with the presentation of final oral arguments, as it is a matter of law.

II. PRELIMINARY RULING

The Arbitral Tribunal was duly constituted and is materially competent, in accordance with the provisions of art. 2, paragraph 1, subparagraph a) of the RJAT.

The parties are endowed with legal personality and capacity and are legitimate (as provided for in arts. 4 and 10, paragraph 2 of the RJAT and art. 1 of Ordinance No. 112-A/2011, of 22 March).

The case does not suffer from nullities and there are no exceptions or preliminary issues that need to be determined or that prevent the determination of the merits of the case.

III. REASONING

a) On the Facts

Based on the elements contained in the case file and relevant for the decision, the following facts are found to be proved:

  1. The Applicant is the owner of the property located at …, registered in the urban property register of the said parish, under article ..., described as construction land.

(cf. Property register attached as document No. 3 with the request for arbitral pronouncement, whose contents are deemed reproduced.)

  1. The said construction land has a taxable patrimony value of € 4,370,823.45.

(cf. Property register attached as document No. 3 with the request for arbitral pronouncement and IS assessment attached to the electronic request sent to CAAD, whose contents are deemed reproduced.)

  1. The Applicant was notified of assessment No. 2012 ..., of 2012-11-07, in the amount of € 21,854.12, based on sub-subparagraph i) of subparagraph f) of paragraph 1 of art. 6 of Law No. 55-A/2012, with the payment deadline of 2012-12-20.

(cf. Document attached with the electronic request sent to CAAD, whose contents are deemed reproduced).

  1. The Applicant made payment of the above amount on 2012-12-20.

(cf. payment stamp affixed to the document attached with the electronic request sent to CAAD, whose contents are deemed reproduced).

  1. On 2012-12-28, the Applicant filed an administrative complaint against the above-identified tax assessment act, which proceeded under number 1… -IS (138/2013), having been notified of its dismissal by Official Notice No. …, dated 2013-03-26.

{cf. document No. 2 attached with the request for arbitral pronouncement, whose contents are deemed reproduced).

  1. On 2013-05-03, the Applicant submitted the request for constitution of the present arbitral tribunal.

(cf. Electronic request sent to CAAD)

  1. On the construction land described above, construction of a property with future residential use is underway.

(cf. Fact alleged in article 7 of the request for arbitral pronouncement)

Given the positions assumed by the parties and given that the question to be decided by this arbitral tribunal is strictly legal (identified below), the proven facts were based on the electronic request sent to CAAD on 3 May 2013, the request for arbitral pronouncement, the reply presented by the Respondent and the documents identified in each of the points of the factual matter, which were not contested.

There are no other facts not proved with relevance for the decision of the case.

b) On the Law

The question to be decided in the present arbitral proceedings consists of determining whether the tax assessment act for IS No. 2012 ... suffers from the defect of violation of law, due to erroneous interpretation and application of item No. 28.1 of the TGIS, added by Law No. 55-A/2012, of 29 October and of sub-subparagraph i) of subparagraph f) of paragraph 1 of art. 6 of the same legal instrument, in the sense of fitting "construction land" within the scope of the incidence of item 28.0 paragraph 1. In case of substantiation of the said defect, whether there shall be grounds for restitution of tax paid, as well as the right to compensatory interest.

On the Defect of Violation of Law

As emerges from the established facts, the ATA came to assess IS to the Applicant, by considering that the construction land with property matrix number U- 00... of the parish of ..., of which it is the owner, falls within sub-subparagraph i) of subparagraph f) of paragraph 1 of art. 6 of the aforementioned Law No. 55-A/2012, by reference to item 28.1 of the TGIS.

The Applicant alleges that the aforesaid land was never assessed as property with residential use, invoking further that in view of the provisions of paragraph 2 of art. 6 of the Municipal Property Tax Code, as well as the classification of urban properties, for the purposes of the latter tax, "for a property to be recognized as having a particular use (namely residential), one must be dealing with a constructed and completed urban property and not with mere construction land", adding that the "aforementioned residential use" cannot be assessed virtually "but in functional terms, it being evident that construction land is not suitable for use as a dwelling".

For its part, the Respondent sustains, in summary, that the "notion of urban property use will find its basis in the section relating to the valuation of properties", arguing further that "for the purposes of determining the taxable patrimony value of construction land it is clear that the use coefficient applies in the valuation, whereby its consideration for the purposes of application of item 28 of the General Stamp Duty Table cannot be ignored (...)"

Let us examine this.

Art. 4 of Law No. 55-A/2012, of 29 October added to the TGIS item No. 28, with the following wording:

"28 - Ownership, usufruct or right of superficies of urban properties whose taxable patrimony value contained in the register, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than € 1,000,000 - on the taxable patrimony value used for IMI purposes:

28.1 - For property with residential use - 1%;

28.2 - For property, when the tax subjects that 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%."

With respect to the year 2012, art. 6 of the above-cited Law further established a transitional regime regarding the assessment of the tax provided for in item No. 28, which translates as follows:

"a) The taxable event occurs on 31 October 2012;

b) The tax subject is the one mentioned in paragraph 4 of article 2 of the Stamp Duty Code on the date referred to in the preceding subparagraph;

c) The taxable patrimony value to be used in the assessment corresponds to that resulting from the rules provided for in the Municipal Property Tax Code by reference to the year 2011;

d) The assessment of the tax by the Tax and Customs Authority must be effected by the end of November 2012;

e) The tax shall be paid, in a single installment, by the tax subjects by 20 December 2012;

f) The applicable rates are the following:

i) Properties with residential use assessed in accordance with the Municipal Property Tax Code: 0.5%;

ii) Properties with residential use not yet assessed in accordance with the Municipal Property Tax Code: 0.8%;

iii) Urban properties when the tax subjects that 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%.

2 - In 2013, the assessment of stamp duty provided for in item No. 28 of the respective General Table must apply to the same taxable patrimony value used for the purposes of assessment of municipal property tax to be effected in that year.

3 - Non-delivery, in whole or in part, within the indicated deadline, of the amounts assessed as stamp duty constitutes a tax infraction, punished in accordance with the law."

With respect to item No. 28 added by the Law in reference, this further established various amendments to the CIS, namely as to its assessment and payment, expressly referring to the rules provided for in the CIMI (cf. art. 23, paragraph 7, art. 44, paragraph 5, art. 46, paragraph 5, art. 49, paragraph 3 of the CIS) with the necessary adaptations, providing for in paragraph 2 of art. 67 of the CIS, in the wording amended by that Law, the following: "To matters not regulated in the present Code relating to item No. 28 of the General Table, the provisions of the CIMI shall apply subsidiarily."

From the aforementioned norms, it is evident from the outset that the concept of "property with residential use" provided for in item No. 28, paragraph 1 and in sub-subparagraphs i and ii) of subparagraph f) of paragraph 1 of art. 6 of the aforementioned Law No. 55-A/2012 is not defined in the CIS, nor in the said Law, whereby it is important to ascertain the norms pertaining in the CIMI, since these are of subsidiary application, as provided for in paragraph 2 of art. 67 of the CIS.

Thus, we find from the outset a concept of property in paragraph 1 of art. 2 of the CIMI (to which concept paragraph 6 of art. 1 of the CIS refers), which is as follows: "(...) property is any fraction of land, encompassing waters, plantations, buildings and structures of any nature therein incorporated or situated, with a character of permanence, provided that it forms part of the patrimony of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or structures, in the circumstances above, endowed with economic autonomy in relation to the land where they are located, although situated in a fraction of land that constitutes an integral part of a diverse patrimony or has no patrimonial nature."

The CIMI provides for three categories of properties: rural, urban and mixed, whose concepts are defined in arts. 3, 4 and 5.

Thus, in accordance with the provisions of art. 3 of the CIMI, the following are defined as rural properties:

"1 - Rural properties are lands situated outside an urban agglomeration that are not to be classified as construction land, in accordance with paragraph 3 of article 6, provided that:

a) They are devoted to or, in the absence of concrete use, have as their normal destination a use generating agricultural income, as these are considered for the purposes of personal income tax (IRS);

b) Not having the use indicated in the preceding subparagraph, they are not constructed or have only buildings or structures of an accessory character, without economic autonomy and of reduced value.

2 - Rural properties are also lands situated within an urban agglomeration, provided that, by virtue of a legally approved provision, they cannot have use generating any income or can only have use generating agricultural income and are actually having this use.

3 - Rural properties are further:

a) Buildings and structures directly devoted to the production of agricultural income, when situated on the lands referred to in the preceding paragraphs;

b) Waters and plantations in the situations referred to in paragraph 1 of article 2.

4 - For the purposes of the present Code, urban agglomerations are considered, in addition to those situated within legally fixed perimeters, the nuclei with a minimum of 10 dwellings served by public thoroughfares, with their perimeter delimited by points distanced 50 m from the axis of the thoroughfares, in the transversal direction, and 20 m from the last building, in the direction of the thoroughfares."

Art. 4 of the CIMI established a residual concept of urban properties since "these shall be all those that should not be classified as rural".

Finally, in accordance with the provisions of paragraph 1 of art. 5 of the CIMI "whenever a property has rural and urban parts it is classified, in its entirety, in accordance with the main part" and should "none of the parts be able to be classified as main, the property is considered mixed"

And, with respect to urban properties, paragraph 1 of art. 6 of the CIMI further established a division into:

(...)

a) Residential;

b) Commercial, industrial or service;

c) Construction land;

d) Other."

Understanding as residential, commercial, industrial or service "buildings or structures licensed for such purposes or, in the absence of a license, that have each of these purposes as their normal destination' in accordance with the provisions of paragraph 2 of the norm in reference.

With respect to construction land it is provided for in paragraph 3 of the same legal provision that these are "lands situated within or outside an urban agglomeration, for which a license or authorization has been granted, admitted prior notice or issued favorable prior information of urbanization or construction operation, and also those thus declared in the title of acquisition, except for lands in which the competent entities prohibit any of those operations, namely those located in green areas, protected areas or which, in accordance with municipal territorial planning plans, are devoted to public spaces, infrastructures or facilities".

Paragraph 4 of art. 6 of the CIMI provides that fall "within the provision of subparagraph d) of paragraph 1 lands situated within an urban agglomeration that are not construction land nor are covered by the provisions of paragraph 2 of article 3 and also buildings and structures licensed or, in the absence of a license, that have as their normal destination purposes other than those referred to in paragraph 2 and also those of the exception of paragraph 3".

It results from the norms cited above that, both in the classification of properties and in the division of urban properties, the legislator makes no reference whatsoever to the concept of "properties with residential use", nor does it do so in other provisions of the CIMI. Indeed, the concept in question here is not used either in any other tax instrument nor in other branches of law.

Whereby, in the interpretation of the concept here under discussion, it is necessary to take into account the provisions of art. 9 of the Civil Code, applicable by virtue of the provisions of paragraph 1 of art. 11 of the General Tax Code.

On this question, this Arbitral Tribunal has already pronounced itself in the decision rendered in case No. 53/2013-T (in which the signatory of the present decision was arbitrator, with Mr. Counselor Jorge Lopes de Sousa as rapporteur and is available for consultation at www.caad.org.pt), whose doctrine is hereby adopted, which we shall follow closely:

"(...)

Thus, in the absence of exact terminological correspondence of the concept of «property with residential use» with any other used in other instruments, several interpretative hypotheses may be ventured.

The starting point of the interpretation of that expression «properties with residential use» is, naturally, the text of the law, it being on the basis of this that the «legislative intent» must be reconstructed, as required by paragraph 1 of article 9 of the Civil Code, applicable by virtue of the provision of article 11, paragraph 1, of the General Tax Code.

3.2.5. Concept of «property with residential use» as reporting to residential properties

The concept closest to the literal content of this expression used is manifestly that of «residential properties», defined in paragraph 2 of article 6 of the CIMI as encompassing «buildings or structures» licensed for residential purposes or, in the absence of a license, that have residential purposes as their normal destination.

(...)

However, the non-coincidence of the terms of the expression used in item No. 28.1 of the TGIS with that extracted from paragraph 2 of article 6 of the CIMI points in the sense that it was not intended to use the same concept.

3.2.6. Concept of «property with residential use» as a concept distinct from «residential properties»

The word «use», in this context of property use, has the meaning of «action of destining something to a particular use».

«When, as is the rule, norms (legislative formulas) entail more than one meaning, then the positive function of the text is expressed in giving stronger support to or more strongly suggesting one of the possible meanings. For, among the possible meanings, some will correspond to the more natural and direct meaning of the expressions used, whereas others will only fit within the verbal framework of the norm in a forced, contrived manner. Now, in the absence of other elements that would induce the choice of the less immediate meaning of the text, the interpreter should opt in principle for that meaning that best and most immediately corresponds to the natural meaning of the verbal expressions used, and notably to its technical-legal meaning, in the assumption (not always exact) that the legislator knew how to express his intent with correctness».

The relevance of the text of the law is especially emphasized in the matter of interpretation of norms of incidence of Stamp Duty, which are reduced to an amalgam, under a common denomination, of an incongruous set of taxes of completely distinct natures (on income, on expenditure, on patrimony, on acts, etc.), which does not leave substantial room for application of the principal interpretative criterion, which is the unity of the legal system, which demands its overall coherence.

The recognized lack of coherence of Stamp Duty is particularly exuberant in the case of this item No. 28.1 (...)"

"In truth, although in the «Statement of Reasons» of the Bill No. 96/XII/2, on which Law No. 55-A/2012 was based, reference is made to the commendable concern of the Government to «strengthen the principle of social equity in austerity, ensuring an effective distribution of the sacrifices necessary to comply with the adjustment program» and its commitment «to ensure that the distribution of these sacrifices will be made by all and not only by those who live on the income from their work», it is evident, on the one hand, that these reasons of equity, certainly existing, did not begin to apply in mid-2012, already existing at the beginning of the year, when the State Budget came into force, and on the other hand, that the scope of item No. 28.1, in taxing additionally properties with residential use and not also properties that do not have it, suggests that the concerns of social equity and the proclaimed intention of distribution of sacrifices by all, affects much more some than properly all.

In this context, in the absence of secure interpretative elements that allow detection of legislative coherence in the solution adopted in the said item No. 28.1 or the correctness or incorrectness of the solution adopted (relevant for interpretative purposes in the face of paragraph 3 of article 9 of the Civil Code), the content of the legal text must be the primacial element of interpretation, in accordance with the presumption, imposed by paragraph 3 of article 9, that the legislator knew how to express its intent in appropriate terms.

In the face of those meanings of the words «use» and «to use», which are «to give destination» or «to apply», the formula used in item No. 28.1 of the TGIS manifestly encompasses properties that are already applied to residential purposes, whereby it is important to investigate whether it will also encompass properties that, although not yet applied to residential purposes, are destined to these and those whose destination is unknown.

(...)

That is, construction lands that do not have a defined use cannot be considered properties with residential use, for they do not yet have any use nor other destination than the construction of an unknown type. An interpretation in the sense that item No. 28.1 refers to properties whose use is unknown has no minimum of verbal correspondence in the letter of that norm, whereby a hypothetical legislative intent of that type cannot be considered by the interpreter of the law, in the face of the prohibition contained in paragraph 2 of article 9 of the Civil Code.

But this is not enough to clarify the situation of those construction lands that, not yet being applied to residential purposes, already have a determined destination, namely, in the licensing of subdivision (...)"

Which manifestly constitutes the case in the present proceedings, since on the construction land construction of a property with future residential use is underway (see point 7 of the established facts).

Continuing to adhere to the legal reasoning contained in the aforementioned decision, rendered by this Arbitral Tribunal in case No. 53/2013-T:

"(...)

For this reason, it will be necessary to clarify when it can be understood that a property is used for residential purposes, namely whether it is when that destination is fixed in a licensing act or similar, or only when the actual assignment of that destination is concretized.

Immediately, the comparison of item No. 28.1 of the TGIS with paragraph 2 of article 6 of the CIMI, which defines the concept of residential properties, clearly points in the sense of actual use being necessary.

In truth, a building or structure licensed for residence or, even without a license, but which has residence as its normal destination, is, in the face of paragraph 2 of that article 6, a residential property.

For this reason, on the assumption that the legislator of Law No. 55-A/2012 knew how to express its intent in appropriate terms (as required by article 9, paragraph 3 of the Civil Code which is presumed), if it intended to refer to these properties already licensed for residence or that have residence as their normal destination, it would certainly have used the concept of «residential properties», which would express perfectly and clearly its intent, in the face of the definition given by that paragraph 2 of article 6 of the CIMI.

Consequently, it should be presumed that the use of a different expression is aimed at a different reality, whereby, in good hermeneutics, «property with residential use» cannot be a property merely licensed for residence or destined for that purpose (that is, it will not be sufficient that it be a «residential property»), having to be a property that already has actual use for that purpose.

That this is the meaning of the expression «use», in the same context of property classification that the CIMI makes, is confirmed by article 3 in which, with respect to rural properties, reference is made to those that «are used or, in the absence of concrete use, have as their normal destination use generating agricultural income», which shows that use is concrete, actual. In truth, as is seen from the final part of this text, a property may have a particular use as its destination and be or not be used for it, which shows that use is, at the level of the connection of a property to a particular use, something more intense than mere destination and that may or may not occur, downstream of this and not upstream."

The Respondent argues that property use (aptitude or purpose) is a coefficient that contributes to the valuation of the property in the determination of taxable patrimony value, and the use coefficient equally applies to the assessment of construction land, as provided for in paragraph 2 of art. 45 of the CIMI, "whereby its consideration for the purposes of application of item 28 of the General Stamp Duty Table cannot be ignored".

Arguing further that item No. 28 of the TGIS, in referring to the expression "properties with residential use", calls for a qualification that "overlies the types provided for in paragraph 1 of art. 6 of the CIMI", and should be understood in a broad manner, "encompassing both constructed residential properties and construction land", and, "whose meaning shall be found in the need to integrate other realities beyond those identified in art. 6, paragraph 1 of the CIMI."

The Respondent further invokes that fiscal law considers as an integrating element for the purposes of valuation of construction land, the value of the built-upon area, which varies between 15% and 45% of the value of the authorized or planned buildings based on the urbanization and construction project, and cannot disregard the provisions of art. 77 of the Legal Framework for Urbanization and Building (RJUE), it being possible to determine the use of construction land before the actual building of the property.

We cannot agree with the thesis defended by the Respondent, in the face of the reasoning exposed above.

In effect, paragraph 1 of art. 45 of the CIMI provides that the "taxable patrimony value of construction land is the sum of the value of the built-upon area of the building to be constructed, which is the area situated within the perimeter of the building's attachment to the ground, measured by the exterior part, added to the value of the land adjacent to the built-upon area' adding in its paragraph 2 that the "value of the built-upon area varies between 15% and 45% of the value of the authorized or planned buildings", further providing in paragraph 3 of the same norm that in "fixing the percentage of the value of land of built-upon area the characteristics referred to in paragraph 3 of article 42" are taken into consideration.

The cited art. 45 of the CIMI - under the heading "taxable patrimony value of construction land" - merely establishes the criteria to be considered for the purposes of patrimonial valuation of construction land, without any influence on the typology of properties contained in art. 6 of the CIMI, for that does not cease to be qualified as construction land, for tax purposes, in the face of its valuation.

Even if it is admitted that the "use coefficient" is one of the criteria to be applied in the determination of patrimony value, which does not clearly result from the provisions of art. 45 of the CIMI and is a matter that exceeds the scope of the present request for arbitral pronouncement, but even so, it in no way detracts from what is adduced above regarding the interpretation of the concept of "property with residential use" in the sense that it must be a property that already has actual use for that purpose, it not being sufficient that it be a "residential property".

The same shall be said with respect to the understanding of the Respondent in supporting that item No. 28 of the TGIS, in referring to the expression "properties with residential use", calls for a qualification that "overlies the types provided for in paragraph 1 of art. 6 of the CIMI", and should be understood in a broad manner, "encompassing both constructed residential properties and construction land", and, "whose meaning shall be found in the need to integrate other realities beyond those provided for in art. 6, paragraph 1 of the CIMI", the arguments and reasoning adduced above applying here, that is, the only possible interpretation is that it only encompasses, reiterate, properties that already have actual use for that purpose, that is, with current residential use, it not being sufficient that it be a residential property in the terms of paragraph 1 of the norm in reference, and thus cannot encompass construction land, nor can it overlie the types or integrate other realities beyond those provided for in the aforementioned paragraph 1 of art. 6.

For which reasons we likewise do not agree with the understanding of the Respondent that, for the purposes of valuation of construction land, the law in considering the value of the built-upon area, which varies between 15% and 45% of the value of the authorized or planned buildings based on the urbanization and construction project, it is possible to determine the use of construction land before the actual building of the property. In effect, the value of the built-upon area is merely one coefficient, among others, of valuation of construction land, which does not alter the classification of the latter as another type of urban property. Indeed, as explicated above, the fact of the existence of a building permit or subdivision license merely means that it has only a destination, a future and foreseeable situation but that in no way corresponds to an already existing situation, for only are subsumed in the concept of "property with residential use", for the purposes of incidence of IS provided for in item 28.1 of the TGIS properties in which residential use is already concretized, that is, only when the "actual assignment of that destination is concretized" and not when that destination is fixed in a licensing act.

Being worth one more time here what was supported in the aforementioned decision rendered by this Tribunal in the aforementioned case No. 53/2013-T, when it states:

"Moreover, the text of the law in adopting the formula «property with residential use», rather than «urban properties with residential use», which appears in the aforementioned «Statement of Reasons», points strongly in the sense that it is required that residential use is already concretized, for only then will the property have that use.

(...)

The correctness of this interpretation in the sense that only properties that are actually devoted to residence are inserted within the scope of incidence of item No. 28.1 of the TGIS is also confirmed by the ratio legis perceptible from the restriction of the field of application of the norm to properties with residential use, in the context of the «circumstances in which the law was elaborated and the specific conditions of the time in which it is applied», which article 9, paragraph 1 of the Civil Code also establishes as interpretative elements."

In effect, in the presentation and discussion of the aforementioned Bill No. 96/XII/2 (which can be consulted in the Journal of the Assembly of the Republic DAR, 1st Series No. 9/XII/2012, of 11-10-2012) in the Assembly of the Republic, the State Secretary for Tax Affairs declared at one point the following:

"This is the first time in Portugal that a special tax is created on properties of high value intended for residence. This rate will be 0.5% to 0.8%, in 2012, and 1%, in 2013, and will apply to houses valued at equal to or greater than 1 million euros. With the creation of this additional tax, the tax burden required of these property owners will be significantly increased in 2012 and in 2013".

(emphasis ours)

Whereby, in a teleological interpretation what was intended to be taxed was luxury real estate patrimony, having been left outside the scope of incidence of IS properties with use for services, industry or commerce, that is, as it is said in the aforementioned decision rendered in case No. 53/2013-T, "properties devoted to economic activity, which is understandable in a context in which, as is notorious, the economy finds itself in a recessionary spiral, publicly proclaimed at the highest level, with unemployment rates reaching historically maximum levels, with a torrent of closures of companies derived from economic unsustainability".

Concluding further that "the available interpretative elements, including the «circumstances in which the law was elaborated and the specific conditions of the time in which it is applied», point clearly in the sense that it was not intended to encompass within the scope of incidence of item No. 28.1 the situations of properties that are not yet devoted to residence, namely construction lands held by companies."

As results from the facts proved, on the construction land corresponding to the property with property matrix number U- 00... of the parish of ..., of the municipality of Porto, object of the present proceedings, construction of a property with future residential use is underway.

Given the considerations expended, the aforementioned construction land, although it already has a known destination, does not yet have current residential use, and thus does not constitute a property with effective and concrete use for that purpose.

In the face of the foregoing, the property in question does not fall within sub-subparagraph i) of subparagraph f) of paragraph 1 of art. 6 of the aforementioned Law No. 55-A/2012 and within item 28.1 of the TGIS.

Whereby, the IS assessment act No. 2012 ..., object of arbitral pronouncement, suffers from the defect of violation of law, by violation of the provisions of item 28.1 of the TGIS and of sub-subparagraph i) of subparagraph f) of paragraph 1 of art. 6 of the aforementioned Law No. 55-A/2012, due to error regarding its legal prerequisites, thus declaring the illegality of that assessment act, with the consequent annulment thereof.

IV. ON TAX REFUND AND COMPENSATORY INTEREST

The Applicant further requests restitution of the tax already paid, in the amount of € 21,854.12, plus the due compensatory interest.

Let us examine this.

Subparagraph b) of paragraph 1 of art. 24 of the RJAT provides that the ATA must "restore the situation that would have existed if the tax act object of the arbitral decision had not been carried out, adapting the acts and operations necessary for this purpose", in the exact terms of the substantiation of the arbitral decision in favor of the tax subject and until the end of the deadline provided for voluntary execution of judgments of tax court proceedings, in case no appeal was filed or the arbitral decision on the merits of the claim was impugned.

Moreover, art. 100 - under the heading "effects of a decision favorable to the tax subject" - already determines that "the tax administration is obligated, in case of total or partial substantiation of complaints or administrative appeals, or judicial proceedings in favor of the tax subject, to the immediate and full restoration of the situation that would have existed if the illegality had not been committed, including the payment of compensatory interest, in accordance with the terms and conditions provided for by law".

Whereby, in the face of the provisions of art. 100 of the General Tax Code and of subparagraph b) of paragraph 1 of art. 24 of the RJAT, it is unequivocal that in this case the Applicant has the right to restitution of the tax paid, in the amount of € 21,854.12, following the declaration of illegality of the assessment act, object of pronouncement in the present proceedings.

Let us examine the request for payment of compensatory interest.

Paragraph 5 of the aforementioned art. 24 of the RJAT further provides that "interest is due, regardless of its nature, in the terms provided for by the general tax law and by the Code of Tax Procedure and Process".

It results from the above legal provision that in case of substantiation of arbitral decision in favor of the tax subject there shall be grounds for payment of compensatory interest, in accordance with paragraph 1 and 2 of art. 43 and art. 100 of the General Tax Code.

Paragraph 1 of art. 43 of the General Tax Code establishes that "compensatory interest is due when it is determined, in administrative complaint or judicial impugnation, that there was error imputable to the services from which resulted payment of the tax debt in an amount higher than legally due".

Thus, as Jorge Lopes de Sousa tells us, in Guide to Tax Arbitration, Almedina, March 2013, page 223, the right to compensatory interest depends on the verification of the following requirements:

  • "that there is an error in a tax assessment act;

  • that it be imputable to the services (directly or by way of generic guidance);

  • that the existence of that error be determined in administrative complaint or judicial impugnation proceedings;

  • that from that error resulted the payment of a tax debt in an amount higher than legally due".

In the case at hand, there is no doubt that the IS tax assessment act, object of the present arbitral decision, was due to an error imputable to the services, that is, to an error regarding the legal prerequisites, in the face of the considerations described above, and to which we refer. From that error resulted payment of the tax in the amount of € 21,854.12, on 2012-12-20 (cf. point 7 of the proved facts).

Whereby, all requirements being met, the Applicant shall have the right to payment of compensatory interest, which shall be calculated and recorded in accordance with art. 61 of the Code of Tax Procedure and Process, that is, from the date it made payment - 20 December 2012 - calculated on the basis of the amount paid (€ 21,854.12) until the date of full reimbursement of the amount paid, at the legal rate.

V. DECISION

In these terms and in the reasoning exposed, the present Arbitral Tribunal decides:

a) To find substantiated the request for declaration of illegality of the IS assessment No. 2012 ..., of 2012-11-07, in the amount of € 21,854.12, with the consequent annulment of the same act;

b) To condemn the Tax and Customs Authority to reimburse to the Applicant the sum of € 21,854.12; and

c) To condemn the Tax and Customs Authority to pay to the Applicant compensatory interest, at the legal rate, from the date it made payment, namely from 2012-12-20 until the date of full reimbursement of that sum, calculated on the basis of this same sum (€ 21,854.12).

The value of the case is fixed at € 21,854.12, in accordance with the provisions of subparagraph a) of paragraph 1 of art. 97-A of the Code of Tax Procedure and Process and paragraph 2 of art. 3 of the Regulation of Costs in Tax Arbitration Proceedings.

Costs charged to the Respondent Entity, in the amount of € 1,224.00, in accordance with the provisions of paragraph 2 of article 12 of the RJAT and paragraph 4 of article 4 of the Regulation of Costs in Tax Arbitration Proceedings and the Table attached to the same Regulation.

Let notice be given.

Lisbon, 30 December 2013.

The Arbitrator

Conceição Pinto Rosa

(Text prepared by computer, in accordance with article 131, paragraph 5 of the Code of Civil Procedure, applicable by reference of article 29, paragraph 1, subparagraph e) of the RJAT, with blank lines and revised by the signatory.

In the drafting of this decision the recent orthographic agreement was not adopted.)

Frequently Asked Questions

Automatically Created

Are building land plots (terrenos para construção) subject to Stamp Tax (Imposto do Selo) as residential properties in Portugal?
Under CAAD Process 105/2013-T, building land plots (terrenos para construção) were challenged as being improperly subject to Stamp Tax as residential properties. The taxpayer argued that construction land, described as such in the property registry, cannot be taxed under the 0.5% residential property rate because it lacks the completed structure necessary to qualify as property 'with residential use.' The Tax Authority contended that construction land intended for residential development falls within the scope of taxable residential properties, but the taxpayer maintained this interpretation lacks legal basis under the Stamp Tax Code and CIMI definitions.
What is the legal definition of 'residential allocation' (afetação habitacional) under the Portuguese Municipal Property Tax Code (CIMI)?
Under the Portuguese Municipal Property Tax Code (CIMI), 'residential allocation' (afetação habitacional) is defined in article 6(2) as buildings or constructions that are licensed for residential purposes or, in the absence of a license, have residential use as their normal destination. The key requirement is that the property must be a constructed and completed urban building, not merely land designated for future construction. Residential use must be assessed functionally based on actual capability to serve as a dwelling, not on virtual or potential future use. Construction land (terrenos para construção), while it may be intended for residential development, does not meet this definition until buildings are actually constructed and capable of residential occupation.
Can the Portuguese Tax Authority levy Stamp Tax on land plots based on their potential future residential use?
CAAD Process 105/2013-T examined whether the Portuguese Tax Authority can levy Stamp Tax on construction land based on potential future residential use. The taxpayer argued this constitutes a 'manifest and gross error' because the Stamp Tax legislation requires actual residential use, not hypothetical future use. The Tax Authority defended its assessment by arguing that CIMI's valuation methodology for construction land incorporates use coefficients based on authorized or planned buildings (15-45% of projected building value under CIMI articles 41 and 45), and that determining use before actual construction is permissible under RJUE article 77. The taxpayer maintained that taxation cannot be based on virtual residential capacity but only on functional, actual residential use.
How did CAAD Process 105/2013-T rule on the distinction between building land and completed residential buildings for Stamp Tax purposes?
CAAD Process 105/2013-T centered on whether construction land should be distinguished from completed residential buildings for Stamp Tax purposes. The taxpayer argued that the property, registered as construction land and never assessed as residential property, cannot be subject to the 0.5% Stamp Tax rate applied to 'properties with residential use' under Law 55-A/2012. The company contended that residential properties under CIMI must be constructed buildings capable of residential occupation, and that construction land lacks the physical attributes necessary for such use. The Tax Authority argued for a broader interpretation encompassing both completed residential properties and construction land with residential destination. The case turned on whether 'properties with residential use' requires actual residential capability or includes land with potential residential development.
What remedies are available to taxpayers who paid Stamp Tax on building land incorrectly classified as residential property?
Taxpayers who paid Stamp Tax on building land incorrectly classified as residential property have several remedies under Portuguese tax law. As demonstrated in Process 105/2013-T, taxpayers can file an administrative complaint (reclamação graciosa) challenging the tax assessment, which the applicant filed on December 28, 2012. If the administrative complaint is dismissed, taxpayers can pursue arbitration through CAAD (Centro de Arbitragem Administrativa) under the Legal Framework for Arbitration in Tax Matters (RJAT), requesting declaration of illegality and annulment of the assessment. Successful challenges result in restitution of unduly paid tax plus compensatory interest. The taxpayer in this case paid €21,854.12 under protest and sought both annulment of the assessment and reimbursement with interest through the arbitral process.