Process: 117/2015-T

Date: October 26, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Process 117/2015-T addressed whether construction land (terreno para construção) qualifies as 'real estate with residential allocation' under Item 28.1 of the General Stamp Tax Table (TGIS) for the 2013 tax year. The claimant, a Portuguese company, challenged a €12,171 Stamp Tax assessment on undeveloped land in Lisbon valued above €1,000,000. The company argued that construction land cannot be classified as having residential allocation since it lacks any built structures capable of residential use, and property allocation must be determined by current actual characteristics, not future potential use. The Tax Authority contended that construction land should be considered real estate with residential allocation, arguing that the IMI Code classifies such land as urban real estate and that the legislator deliberately used the broader term 'residential allocation' rather than 'properties intended for housing.' The Authority also maintained that valuation methodology under the IMI Code applies allocation coefficients to construction land. However, the arbitral tribunal noted significant Supreme Administrative Court precedent, particularly judgment 1870/13 from April 2014, establishing that 'real estate with residential allocation' does not encompass construction land of any type. The court emphasized that this concept was imprecisely defined by the legislator in Law 55-A/2012 and had a short legislative life before being modified. The tribunal's analysis focused on the principle that property classification must reflect actual current use rather than hypothetical future development. Following Supreme Court jurisprudence, the CAAD ruling would determine that undeveloped construction land lacks the essential characteristic of residential allocation required under Item 28.1 TGIS, as residential use presupposes the existence of habitable constructed property, not mere development potential.

Full Decision

ARBITRATION DECISION

CAAD: Tax Arbitration

Case No. 117/2015-T

Subject: Item 28.1 of the General Stamp Tax Table; land for construction

Claimants: A… – …, SA.

Respondent: AT - Tax and Customs Authority

I - REPORT

A… – …, SA, with Tax Identification Number …, with registered office at Rua …, …, …, Lisbon, filed on 20-02-2015, pursuant to Article 10 of the Legal Framework for Tax Arbitration (RJAT), a request for arbitral pronouncement, against the AT - Tax and Customs Authority, seeking to:

  • Annulment of the Stamp Tax (IS) assessment, for the year 2013, on the property classified as "land for construction" registered in the matrix of the parish of ... - Lisbon under article …, located at Rua …, …, … Lisbon;

The request for constitution of an Arbitral Tribunal was submitted to CAAD - Administrative Arbitration Centre (hereinafter referred to as "CAAD") on 20-2-2015 and accepted on 23.2.2013, with the Tax Authority being notified of the filing of the aforementioned request on 2.3.2015.

The Arbitral Tribunal was constituted on 30.04.2015 and this fact was communicated to the parties on the same date.

On 14.05.2015 the Tax Administration was notified to, if it so wished, file a response to the petition of the Claimant and remit to the Tribunal a copy of the administrative file relating to the request for pronouncement.

The Tax Administration filed a response to the Claimant's request on 17-06-2015, with the Claimant being notified of this fact on the same date.

By agreement of the Parties, the Tribunal decided, on 9-9-2015, to waive the hearing provided for in Article 18 of the RJAT. Both parties waived the right to submit arguments.

In its initial petition, the Claimant alleges, in essence, the following:

  • The contested assessment is based on item 28.1 of the General Stamp Tax Table, which, on the date of the taxable event, provided for the subjection to tax, at the rate of 1%, of property of real estate with residential allocation.

  • Land for construction is not real estate with residential allocation;

  • The qualification of a property or its allocation depend on the normal use that can be given to it in light of its current and actual characteristics;

  • In land for construction, the normal use cannot be residential, since there is no constructed property capable of permitting such use;

In its Response, the Respondent AT - Tax and Customs Authority contests the merit of the challenge, arguing, in summary:

  • The property on which the contested assessment falls has the legal nature of real estate with residential allocation;

  • Since there is no definition in Stamp Tax of what is meant by "urban real estate," "land for construction," and "residential allocation," it is necessary to resort subsidiarily to the IMI Code to obtain a definition that permits ascertainment of potential subjection to IS, in accordance with Article 67, No. 2 of the Stamp Tax Code.

  • Article 6, No. 1 of the IMI Code includes in the category of urban real estate lands for construction, which are defined (No. 1 of the same provision) as lands situated within or outside an urban agglomeration, for which a license or authorization has been granted, prior notification admitted, or favorable prior information issued for a subdivision or construction operation, and also those that have been so declared in the acquisition title, except for lands in which the competent entities prohibit any of those operations …".

  • The notion of "allocation of urban real estate" is found in the section relating to the valuation of real estate, since the purpose of real estate valuation "is to incorporate value into it," constituting a determining factor of distinction (coefficient) for purposes of valuation.

  • The legislator opted to determine the application of the methodology for valuation of real estate in general to the valuation of lands for construction, and consequently the allocation coefficient provided for in Article 41 of the IMI Code is applicable to them.

  • Thus, for purposes of determination of the tax valuation value of lands for construction, the application of the allocation coefficient is clear, and from such assertion it follows that the consideration for purposes of item 28 of the GTST cannot be ignored.

  • The legislator does not refer to "properties intended for housing," having opted for the expression "properties with residential allocation," a different and broader expression, whose meaning should be found in the need to integrate other realities beyond those identified in Article 6, No. 1, lit. a) of the IMI Code.

II – QUESTIONS TO BE DECIDED

The only question to be decided is whether land for construction should be considered "real estate with residential allocation," for purposes of the application of item 28.1 of the General Stamp Tax Table, as written on 31.12.2013, the date on which the taxable event should be verified.

III – GROUNDS

A - FACTUAL GROUNDS

The established facts considered relevant are as follows:

  • The taxpayer entity was notified of the Stamp Tax assessment through a document numbered 2014 …, dated 17.03.2014;

  • The assessment refers to the property with matrix article U-… of the parish of ..., Lisbon;

  • The amount of tax assessed is 12,171 euros.

B - LEGAL GROUNDS

Pursuant to No. 1 of Article 1 of the Stamp Tax Code (CIS), this tax applies "to all acts, contracts, documents, titles, papers and other legal facts or situations provided for in the General Table." Therefore, the incidence of Stamp Tax (IS) is determined by the combination of the cited provision with the various items or headings of the General Stamp Tax Table (GTST), which specify the acts, contracts, documents, papers and other legal facts or situations on which the tax applies.

Item 28 of the GTST, in the wording in force until 31 December 2013, defined as the taxable event the "ownership, usufruct or right of surface of urban real estate whose tax valuation value shown in the matrix, in accordance with the Municipal Tax on Real Estate Code (IMI Code), is equal to or greater than 1,000,000 Euros and determined that the tax shall apply to the tax valuation value used for IMI purposes.

The tax did not apply to any urban real estate with the valuation value referred to, but only to two categories of urban real estate, provided for in items 28.1 and 28.2. As to the first – the only one relevant to the case at bar – it was determined that urban real estate with residential allocation was subject to the tax.

Thus, among other situations, IS would apply to (ownership, usufruct or right of surface over) properties that, cumulatively, were urban, had residential allocation, and whose tax valuation value shown in the matrix in accordance with the IMI Code was equal to or greater than 1,000,000 Euros.

The question of whether land for construction, such as that on which the Stamp Tax assessment here contested fell, comes within the provision of the rule of incidence contained in item 28.1 of the GTST (in the wording it had until 31 December 2013) has been considered on several occasions by the Supreme Administrative Court.

In all decisions, the Court considered the concept of "real estate with residential allocation," contained in item 28.1 of the GTST, does not encompass lands for construction, of any type.

In judgment of 9 April 2014, (case no. 1870/13), the Supreme Administrative Court pronounced on the question in the following terms:

"The concept of 'real estate (urban) with residential allocation' was not defined by the legislator. Neither in Law No. 55-A/2012, which introduced it, nor in the IMI Code, to which No. 2 of Article 67 of the Stamp Tax Code (also introduced by that Law) refers subsidiarily. And it is a concept that, probably due to its imprecision – a fact all the more serious inasmuch as it is in function of it that the scope of objective incidence of the new taxation is determined – had a short life, insofar as it was abandoned upon the entry into force of the State Budget Law for 2014 (Law No. 83-C/2013, of 31 December), which gave new wording to that item No. 28 of the General Table, and which now determines its objective scope of incidence through the use of concepts that are legally defined in Article 6 of the IMI Code.

This amendment – to which the legislator did not attribute an interpretative character, nor do we believe it did – merely makes it unequivocal for the future that lands for construction whose construction, authorized or envisaged, is for housing fall within the scope of item 28.1 of the General Stamp Tax Table (provided that their respective tax valuation value is equal to or greater than 1 million euros), clarifying nothing, however, regarding prior situations (assessments for 2012 and 2013), such as the one at issue in the present case.

Now, as to these, it does not appear that the interpretation of the appellant can be accepted, insofar as it does not clearly result either from the letter or from the spirit of the law that its intention was, ab initio, to encompass in its objective scope lands for construction for which the construction of residential buildings had been authorized or envisaged, as now unequivocally results from item 28.1 of the General Stamp Tax Table.

From the letter of the law nothing unequivocal follows, indeed, since it itself, in using a concept it did not define and which also was not defined in the statute to which it referred subsidiarily, lent itself, unnecessarily, to equivocations, in a matter – of tax incidence – in which certainty and legal security should also be paramount concerns of the legislator.

And from its 'spirit,' ascertainable in the statement of reasons of the legislative proposal that is the origin of Law No. 55-A/2012 (Legislative Proposal No. 96/XII – 2nd, Parliamentary Diary of the Republic, series A, No. 3, 21/09/2012, p. 44, available at www.parlamento.pt) nothing more follows than the concern of garnering new fiscal revenues, from sources of wealth "more spared" in the past to the ravages of the Tax Authority than labor income, in particular income from capital, securities gains and property, reasons which bring no relevant contribution to the clarification of the concept of 'real estate (urban) with residential allocation,' insofar as they take it as established, without any concern to clarify it. Such clarification appears to have arisen – as reported in the Arbitral Decision delivered on 12 December 2013, in case No. 144/2013-T, available in the CAAD database – upon the presentation and discussion in the Parliament of that legislative proposal, in the words of the State Secretary for Tax Affairs, who is said to have explicitly stated, as gathered from the Parliamentary Diary (DAR I Series No. 9/XII – 2, of 11 October, p. 32) that: 'The Government proposes the creation of a special rate on high-value residential urban properties. This is the first time Portugal has created special taxation on high-value properties intended for housing. This rate shall be 0.5% to 0.8% in 2012 and 1% in 2013, and shall apply to homes with a value equal to or greater than 1 million euros" (our emphasis), from which it follows that the reality intended to be taxed is, in fact, and notwithstanding the terminological imprecision of the law, 'residential (urban) real estate,' in common language 'houses,' and not other realities.

The fact that it may be considered that in determining the tax valuation value of urban real estate classified as land for construction one must take into account the allocation that the construction authorized or envisaged for it will have for purposes of determining the respective value of the ground area (cf. Nos. 1 and 2 of Article 45 of the IMI Code), does not determine that lands for construction may be classified as 'real estate with residential allocation,' insofar as 'residential allocation' always appears in the IMI Code referred to 'buildings' or 'constructions,' existing, authorized or envisaged, insofar as only these can be inhabited, which does not occur in the case of lands for construction, which do not, in themselves, have conditions for such, and are not capable of being used for housing except if and when on them is erected the construction authorized and envisaged for them (but in that case they will no longer be 'lands for construction' but another species of urban real estate – 'residential,' 'commercial, industrial or for services' or 'other' – Article 6 of the IMI Code).

It would be strange, indeed, if the determination of the scope of the rule of incidence of item No. 28 of the General Stamp Tax Table were to be found, in the end, in the rules for determination of the tax valuation value of the IMI Code, and that the terminological imprecision of the legislator in drafting that rule were, in fact, elucidated and finally clarified by way of an indirect and equivocal reference to the allocation coefficient established by the legislator for constructed properties (Article 41 of the IMI Code).

Thus, in light of the fact that land for construction – whatever the type and purpose of the building that will be, or may be, erected on it – does not satisfy, on its own, any condition for being licensed as such or for the normal destination thereof to be defined as housing, and the rule of incidence of stamp tax referring to urban real estate with 'residential allocation,' without any specific concept being established for that purpose, one cannot extract therefrom that the same contains a future potentiality, inherent to a distinct property that may possibly be built on the land."

Following this case law, it must be concluded that the land for construction on whose ownership the IS assessed to the Claimant fell does not come within the provision of item 28.1 of the GTST, in the wording in force on 31 December 2013.

Consequently, the assessment contested by the Claimant is illegal insofar as it violates the rule of incidence contained in item 28.1 of the GTST, constituting an error regarding the legal assumptions, which renders it voidable under Article 163, No. 1 of the Code of Administrative Procedure.

IV – DECISION

Based on the grounds of fact and law set forth and pursuant to Article 2 of the RJAT, the Tribunal decides:

  • To declare the illegality, due to error regarding the legal assumptions, of the Stamp Tax assessment contested, documented through documents issued by the AT – Tax and Customs Authority numbered 2014 …, 2014 … and 2014 …, in which a tax liability of 12,171 Euros is fixed;

Value of the case: The value of the case is fixed at 12,171 euros (twelve thousand, one hundred and seventy-one euros).

Costs: Pursuant to Article 22, No. 4, of the RJAT, the amount of costs is fixed at 918 Euros, 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, Administrative Arbitration Centre, 26 October 2015.

The Arbitrator

(Nina Aguiar)

Frequently Asked Questions

Automatically Created

Is a construction land plot subject to Stamp Tax under Clause 28.1 of the General Stamp Tax Table?
No, construction land (terreno para construção) is not subject to Stamp Tax under Clause 28.1 of the General Stamp Tax Table. The Supreme Administrative Court has consistently ruled that the concept of 'real estate with residential allocation' under Item 28.1 TGIS does not encompass lands for construction. This interpretation is based on the principle that property allocation must be determined by current actual characteristics, and undeveloped land lacks constructed property capable of residential use, regardless of its future development potential or valuation classification under the IMI Code.
Does a 'terreno para construção' qualify as a property with residential designation for Stamp Tax purposes?
No, a 'terreno para construção' (construction land) does not qualify as property with residential designation for Stamp Tax purposes under Item 28.1 TGIS. Although the Tax Authority argued that the IMI Code's classification of construction land as urban real estate and the application of allocation coefficients for valuation purposes should extend to Stamp Tax, the arbitral tribunal recognized that residential allocation requires actual current use capability. Construction land, being undeveloped, cannot provide residential use until buildings are constructed, and therefore falls outside the scope of 'real estate with residential allocation' as defined in the legislation applicable until December 31, 2013.
What was the CAAD ruling in Process 117/2015-T regarding Stamp Tax on construction land?
The CAAD ruling in Process 117/2015-T followed established Supreme Administrative Court precedent holding that construction land is not subject to Stamp Tax under Item 28.1 of the General Stamp Tax Table. The tribunal recognized that multiple Supreme Court decisions, including case 1870/13 from April 2014, determined that 'real estate with residential allocation' does not include lands for construction. The arbitral decision emphasized that this concept was imprecisely defined by the legislator and that property allocation must reflect actual characteristics rather than hypothetical future use, leading to the annulment of the €12,171 Stamp Tax assessment on the claimant's undeveloped Lisbon property.
How does the Tax Authority interpret 'residential property' for Stamp Tax on undeveloped land?
The Tax Authority interprets 'residential property' for Stamp Tax on undeveloped land by applying IMI Code definitions subsidiarily under Article 67(2) of the Stamp Tax Code. The Authority argues that since Article 6 of the IMI Code classifies construction land as urban real estate, and valuation methodology applies residential allocation coefficients to such land, construction land should be considered as having residential allocation for Stamp Tax purposes. The Authority emphasizes that the legislator used the broader term 'properties with residential allocation' rather than 'properties intended for housing,' suggesting an intention to encompass lands for construction with residential development potential, not just completed residential buildings.
Can taxpayers challenge Stamp Tax assessments on construction land through tax arbitration at CAAD?
Yes, taxpayers can successfully challenge Stamp Tax assessments on construction land through tax arbitration at CAAD. Process 117/2015-T demonstrates that CAAD provides an effective forum for contesting such assessments, with the arbitral tribunal applying Supreme Administrative Court jurisprudence that consistently excludes construction land from Item 28.1 TGIS taxation. The arbitration process under the RJAT (Legal Framework for Tax Arbitration) allows taxpayers to seek annulment of assessments based on legal interpretation of tax incidence rules, with CAAD tribunals bound to follow higher court precedent establishing that undeveloped land lacks the residential allocation characteristic required for Stamp Tax liability.