Process: 112/2016-T

Date: September 11, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

In Process 112/2016-T, the CAAD arbitral tribunal examined whether Stamp Tax under item 28.1 of the General Stamp Tax Table (TGIS) applies to construction land with mixed-use authorization. The claimant owned land in Guimarães valued at €1,278,100, for which a 2007 building permit authorized construction for collective housing, commerce, and services. The Tax Authority assessed Stamp Tax of €12,781 in 2015, after the permit had expired. The claimant argued that item 28.1 specifically requires construction to be designated for housing exclusively, not mixed-use developments. The tribunal's analysis focused on the legislative intent behind the 2013 amendment to item 28.1, which explicitly limits taxation to 'land for construction whose construction, authorized or planned, is for housing.' The decision emphasizes that the legislator deliberately chose to tax only land intended for residential buildings, distinguishing it from land authorized for commerce, services, or mixed purposes. This interpretation is crucial because it determines whether construction land valued over €1,000,000 can be subject to the 1% annual Stamp Tax. The case also addressed procedural issues regarding the burden of proof on the Tax Authority to demonstrate that land meets the specific housing requirement, particularly when building permits have expired and the land reverts to vacant status without active residential construction authorization.

Full Decision

ARBITRAL DECISION

I. REPORT

A…, S.A., Tax Identification Number …, with registered address at Av. …, No. …, …-… Lisbon (hereinafter referred to only as the Claimant), filed, on 26-02-2016, a request for constitution of a singular arbitral tribunal, pursuant to Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as LFATM), in conjunction with paragraph a) of Article 99 of the Code of Administrative Court Procedure, wherein the Tax and Customs Authority (hereinafter referred to only as the Respondent) is the respondent.

The Claimant requests a declaration of illegality of the assessment decision for Stamp Tax of item 28.1 of the General Schedule of Stamp Tax ("GSST") for the year 2014, with reference to the land for construction registered in the urban real estate registry of the parish of …, municipality of Guimarães, under article …, with consequent reimbursement of the tax paid plus compensatory interest.

The request for constitution of the arbitral tribunal was accepted by the Honorable President of CAAD on 29-02-2016 and notified to the Tax and Customs Authority on the same date.

Pursuant to paragraph a) of Section 2 of Article 6 and paragraph b) of Section 1 of Article 11 of the LFATM, the Deontological Council appointed as arbitrator of the singular arbitral tribunal the undersigned, who communicated acceptance of the appointment within the applicable period.

On 27-04-2016 the Parties were duly notified of this appointment, and neither manifested willingness to challenge the arbitrator's appointment, in accordance with the combined provisions of Article 11, Section 1, paragraphs a) and b) of the LFATM and Articles 6 and 7 of the Deontological Code.

In accordance with the provisions of paragraph c) of Section 1 of Article 11 of the LFATM, the singular arbitral tribunal was constituted on 12-05-2016.

Notified to present its position, the Respondent filed a pleading in which it sustains the legality of the contested assessment decision, thus arguing for the dismissal of the claim submitted by the Claimant.

By order of 27-06-2016, the meeting provided for in Article 18 of the LFATM was dispensed with, and the parties were granted a period for presentation of successive written submissions.

+++

The Claimant requests a declaration of illegality of the assessment for Stamp Tax of item 28.1 of the General Schedule of Stamp Tax ("GSST") for the year 2014, with reference to the land registered in the urban real estate registry of the parish of …, municipality of Guimarães, under article ….

The Claimant supports its claim by alleging that the rule in question has its scope of application limited to land for construction (i) whose construction, authorized or planned, is for housing and (ii) whose tax value of the property is higher than €1,000,000. It thus becomes imperative to demonstrate that the factual reality to be taxed corresponds to land for construction whose construction, authorized or planned, is for housing and not to some other reality, such as constructions, authorized or planned, for services, commerce and/or other purposes. From the building permit issued in 2007, it follows that the constructions authorized for the land in question could be destined for collective housing, commerce and services, with the concrete construction depending on the Claimant's will at the time of construction. It is therefore manifest that at that time it could not be considered that a building with exclusively residential use would be erected on that land. Furthermore, at the date of the tax assessment, the building license issued in 2007 had already expired, so the Tax Authority merely proceeded to tax a mere plot of land for construction without demonstrating that the building to be erected on it would be for housing and that, to that extent, the legal requirements for taxation in the manner carried out would be met. To that extent, since it cannot be concluded and demonstrated that the land on which the tax was assessed had construction, authorized or planned, intended for housing, the legal prerequisites for taxation are not met and thus the contested assessment is illegal. Subsidiarily, the Claimant invokes the material unconstitutionality of item 28.1 of the GSST for violation of the principles of tax equality and taxpaying capacity.

In the reply filed, the Respondent contests the Claimant's allegations, defending the legality of the contested assessment and the constitutional compliance of item 28.1 of the GSST which, therefore, merits no criticism. The Respondent thus concludes by total dismissal of the request for arbitral pronouncement submitted by the Claimant.

II. SANATION

The Arbitral Tribunal was regularly constituted and is competent.

The parties have legal personality and capacity and are legitimized (Articles 4 and 10, Section 2, of the same statute and Article 1 of Ordinance No. 112-A/2011, of 22 March).

The proceedings do not suffer from any defects and no obstacle arises to the substantive examination of the case.

III. FACTUAL MATTERS

A. Proven Facts

The following facts are deemed proven:

  1. The Claimant is the owner of land in the parish of …, municipality of Guimarães, registered in the urban real estate registry of that parish under article …, with a tax value of the property of €1,278,100.

  2. For the property in question, a Building License No. …/07 was issued in May 2007 which authorized the construction of a building intended for collective housing, commerce and services.

  3. The license was valid until 25-05-2010.

  4. On 21-03-2015 the Tax Authority proceeded to the assessment of Stamp Tax of item 28.1 of the GSST with reference to the aforementioned property, in the total amount of €12,781.00.

  5. The assessed tax was paid by the Claimant on 30-05-2015, 30-07-2015 and 15-12-2015.

B. Unproven Facts

No other facts with relevance to the arbitral decision were proven.

C. Grounds for the Factual Matters

The factual matters deemed as proven are based on the documentary evidence presented and not contested.

IV. LEGAL MATTERS

A. On the Assessment of Stamp Tax

The request for arbitral pronouncement concerns the interpretation of item 28.1 of the GSST, in the wording of item 28 of the GSST introduced by Law No. 83-C/2013, of 31 December, and its concrete application to the land of which the Claimant is the owner in …, municipality of Guimarães.

The aforementioned rule delimits its scope of application in the following terms:

"28. Ownership, usufruct or right of superficies of urban properties whose tax value of the property contained in the registry, pursuant to the Code of the Municipal Tax on Real Property (CMTRP), is equal to or greater than (euro) 1,000,000 - on the tax value of the property used for purposes of MTRP:

28.1 Per residential property or per land for construction whose construction, authorized or planned, is for housing, pursuant to the provisions of the Code of MTRP: 1%

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

The legislative amendment introduced by Law No. 83-C/2013, of 31 December, was the legislator's response to the extensive case law of the Supreme Administrative Court and of this Arbitration Center which had consistently considered that the original version of that rule would not include the figure of "land for construction". The scope of the objective application of the tax was thus broadened, now also subjecting to taxation land for construction for which construction for housing has been authorized or is planned. It should be noted that the legislator expressly and unequivocally chose to tax only land intended for the construction of residential buildings and not for any other types of buildings or constructions. Thus, land for construction whose planned or authorized constructions are intended for commercial, industrial or service purposes are expressly excluded from taxation.

However, as the Claimant refers, it was not demonstrated and proven that, on the date of the occurrence of the taxable fact – 31-12-2014 -, there would be a valid authorization or plan that the constructions to be erected on that land would be intended for housing.

The building permit that may have justified the registration of the property in the registry as "land for construction" had already expired and thus cannot – as the Respondent would wish – provide proof that the construction to be carried out on the land in question was intended, on that date, for housing. At one time, the land would have had such purpose, but it was not demonstrated that that would be its destination on 31-12-2014, the date of the occurrence of the taxable fact.

As referred to in the arbitral award rendered in case no. 578/2015-T[1], the content of which we endorse, "In summary, it is clear, in the case being dealt with, that the incidence of the tax on land for construction cannot materialize with the mere registration of the same, as such, in the registry, but rather, and in a decisive manner, by the verification of the actual potential for construction on the aforementioned land (which should be ascertained in casu and revealed by the existence of the documents described above). That is to say, in other words, that the incidence of the tax, for purposes of the provisions of item 28.1, only materializes with the verification of 'actual allocation', to use the apt expression of JOSÉ MANUEL FERNANDES PIRES".

Thus, there is a lack of verification of an essential prerequisite for purposes of taxation, and this prerequisite cannot be presumed solely from the content of the registration of the property in the registry.

Additionally, it should also be noted that, according to the building license presented by the Claimant and already expired, the building whose construction was, at one time, authorized by the municipality of Guimarães was intended for collective housing, commerce and services. From this document it follows unequivocally that the building to be constructed would not have exclusive allocation to housing, but rather a mixed potential allocation.

It is, therefore, a situation not contemplated, having as reference both the literal element and the reason for the norm of tax incidence, which would impose greater care and control at the moment of determination of the incidence. In light of the principle of legality, of material truth, of justice and of impartiality that guide the conduct of the Tax Authority, it would be incumbent on this Authority to demonstrate and prove (i) whether, in the case at hand, there would be any authorization or plan for construction in force, (ii) whether that construction was intended exclusively for housing and (iii) in case the authorized allocation is mixed, what the apportionment of the tax value of the property of the land would be as a function of the various allocations. None of this was done by the Tax Authority.

In light of the foregoing, the Claimant is correct in that the tax for the year 2014 was assessed with reference to the identified land despite the fact that, on the date of the occurrence of the taxable fact, there was no authorization or plan in force that the construction to be carried out on it would be intended for housing and the measure or proportion of that allocation in relation to the total tax value of the property in the event of a building of mixed allocation. Thus, an essential prerequisite for taxation is lacking, which implies the invalidity of the contested decision.

The request for arbitral pronouncement submitted by the Claimant therefore merits allowance, with this Tribunal concluding that the assessment decision for Stamp Tax of item 28.1 of the GSST, with reference to the year 2014, is illegal and should be annulled, with all the legal consequences thereof.

In concluding for the annulment of the contested assessment on this ground, the examination of the alleged material unconstitutionality of item 28.1 of the GSST becomes moot, as it is unnecessary.

B. On the Right to Compensatory Interest

Along with the reimbursement of the overpaid tax, the Claimant also requests the payment of compensatory interest under Article 43 of the General Tax Code. The Respondent contests this, alleging that the legal prerequisites for such payment are not met, in particular attributable error by the services.

The request is legally admissible under Section 5 of Article 24 of the LFATM, in conjunction with Article 100 of the General Tax Code.

Pursuant to Section 1 of Article 43 of the General Tax Code "Compensatory interest is due when it is determined, in a gracious complaint or judicial challenge, that there was error attributable to the services from which results payment of the tax debt in an amount higher than that legally due".

In the concrete case, the Claimant's request for payment of compensatory interest is unequivocally justified since the contested tax assessment is shown to be affected by illegality and thus should be annulled. In addition to the reimbursement, the Claimant has, thus, the right to the payment of compensatory interest, at the legal rate in force, on the sum of €12,781.00, calculated from the date of payment until the date of processing of the respective credit note, which includes – cf. Article 43 of the General Tax Code and Section 4 of Article 61 of the Code of Administrative Court Procedure.

V. DECISION

In accordance with the foregoing, this Arbitral Tribunal decides to declare illegal the contested Stamp Tax assessment in the amount of €12,781.00 which should be annulled, condemning the Respondent to reimburse the Claimant the amounts unduly paid, plus compensatory interest until the date of processing of the respective credit note.

Value of the Case: In accordance with the provisions of Article 306, Section 2, of the Code of Civil Procedure and Article 97-A, Section 1, paragraph a), of the Code of Administrative Court Procedure and Article 3, Section 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at €12,781.00, corresponding to the value of the contested assessment.

Costs: Pursuant to Section 4 of Article 22 of the LFATM, the amount of costs is fixed at €918.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Respondent.

Let this arbitral decision be registered and notified to the parties.

Lisbon, 11-09-2016

The Singular Arbitrator

(Maria Forte Vaz)

[1] Available for consultation on the website www.caad.org.pt.

Frequently Asked Questions

Automatically Created

Does Verba 28.1 of the General Stamp Tax Table apply to all construction land or only land designated for housing?
Verba 28.1 of the General Stamp Tax Table applies exclusively to construction land where the authorized or planned construction is specifically for housing purposes. The legislative amendment introduced by Law No. 83-C/2013 deliberately limited the scope to residential construction, not all construction land. Land authorized for commerce, services, or mixed-use developments does not fall within the scope of item 28.1, even if residential use is one component of a multi-purpose project. The Tax Authority must demonstrate that the construction authorized or planned is specifically for housing to justify the assessment.
Can a construction land plot valued over €1,000,000 be exempt from Stamp Tax if it is not intended for residential use?
Yes, construction land valued over €1,000,000 can be exempt from Stamp Tax under item 28.1 if it is not intended exclusively for residential use. The legal provision specifically targets 'land for construction whose construction, authorized or planned, is for housing.' If the building permit authorizes mixed-use development (housing combined with commerce or services) or non-residential construction, the land does not meet the legal requirements for taxation under this provision. Additionally, if a building permit has expired and the land is vacant without active residential construction authorization, the Tax Authority cannot assess Stamp Tax under item 28.1 without demonstrating that future construction will be for housing.
What are the legal grounds to challenge a Stamp Tax (Imposto do Selo) assessment on construction land before CAAD?
Legal grounds to challenge a Stamp Tax assessment on construction land before CAAD include: (1) demonstrating that the land does not meet the specific legal requirement that construction be authorized or planned exclusively for housing; (2) proving that building permits have expired, leaving the land without active residential construction authorization; (3) arguing that the Tax Authority failed to meet its burden of proof in establishing that the legal prerequisites for taxation exist; (4) claiming material unconstitutionality of item 28.1 for violation of tax equality and taxpaying capacity principles. The challenge must be filed through a request for constitution of an arbitral tribunal under the Legal Framework for Arbitration in Tax Matters (RJAT).
How does CAAD determine whether construction land falls within the scope of Verba 28.1 of the TGIS?
CAAD determines whether construction land falls within the scope of Verba 28.1 by examining documentary evidence, particularly building permits and licenses, to verify whether the authorized or planned construction is specifically for housing. The tribunal analyzes the validity and current status of construction authorizations, distinguishing between permits for exclusively residential use and those authorizing mixed-use or non-residential developments. When building permits have expired, CAAD requires the Tax Authority to demonstrate with concrete evidence that the land is still designated for housing construction. The burden of proof rests on the Tax Authority to establish that all legal requirements are met, including that the construction authorized or planned is for housing purposes as required by item 28.1.
Is the taxpayer entitled to a refund with compensatory interest if the Stamp Tax on construction land is deemed unlawful?
Yes, the taxpayer is entitled to a full refund of the Stamp Tax paid plus compensatory interest if the assessment is deemed unlawful. When CAAD declares the illegality of a Stamp Tax assessment on construction land, the decision typically orders reimbursement of all amounts paid, supplemented by compensatory interest calculated from the payment date until the refund is processed. This compensatory interest compensates the taxpayer for the financial loss resulting from the unlawful deprivation of funds. The refund includes both the principal tax amount and legally mandated interest, ensuring the taxpayer is made whole for the period during which the Tax Authority improperly retained funds that should not have been collected.