Process: 119/2017-T

Date: July 7, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Process 119/2017-T addressed whether Stamp Duty under Verba 28.1 of the General Stamp Duty Table (TGIS) applies to building land (terrenos para construção) without residential use. The applicant, as head of an estate, challenged the 2013 Stamp Duty assessment on construction land in Almada, arguing that a prior CAAD decision (10/2014-T) annulling the 2012 assessment on the same property created res judicata binding the Tax Authority. The applicant further contended that taxing construction land without habitable residential structures violated the principle of legality and typicity under Article 103 of the Portuguese Constitution, as the land had no actual residential use. During the arbitration proceedings, the Tax Authority voluntarily annulled the contested assessment through an order dated 12-04-2017, based on Secretary of State Order 6/2017-XXI. The Tax Authority acknowledged that before the 2014 State Budget Law amendment, Verba 28.1 did not expressly cover construction land, only becoming applicable to such land when construction was authorized or planned for residential purposes after 2014. Consequently, the arbitral tribunal declared the proceedings closed due to supervening uselessness of the dispute (inutilidade superveniente da lide) under Article 277(e) of the Civil Procedure Code, as the contested act had been annulled and the dispute's object ceased to exist. This decision clarifies the temporal scope of Verba 28.1 TGIS and demonstrates the Tax Authority's evolving interpretation regarding construction land taxation.

Full Decision

Arbitral Decision

1. Report

On 16-02-2017, A..., resident at ..., no. ..., ..., ...-... Amadora, in the capacity of head of the estate of B..., with the tax identification number..., hereinafter referred to as the Applicant, submitted to the Administrative Arbitration Center (CAAD) a request for constitution of an arbitral tribunal with a view to the annulment of the tax act of Stamp Duty assessment, item 28.1 of the General Table of Stamp Duty (TGIS), relating to the year 2013 and to the immovable property registered in the urban real estate matrix under article..., of the union of parishes of ..., ..., ... and ..., municipality of Almada, described as construction land.

The Applicant begins by noting that the incidence of Stamp Duty of item 28.1 of the TGIS over the same property but in relation to the year 2012 was already reviewed and decided by CAAD, within the scope of case no. 10/2014-T, which decided on the annulment of the said assessment. The Applicant alleges that this CAAD decision constitutes res judicata that binds the Tax Authority and would impose the non-assessment of Stamp Duty for the year 2013.

Regarding the incidence of Stamp Duty on the immovable property in question, the Applicant alleges that the classification of the construction land in item 28.1 of the TGIS is erroneous and unjustified, since the land has no residential use.

In fact, the Applicant understands that the Tax Authority incurred an erroneous classification of the land in question as subsumable under the concept of property with residential use, thus verifying an erroneous classification of the taxable fact.

The Applicant further explains that the interpretation followed by the Tax Authority is manifestly unconstitutional.

The provision contained in item 28.1 of the TGIS, in the Applicant's view, would be unconstitutional if interpreted in the sense that stamp duty could be levied on construction land, insofar as there is no construction thereon susceptible to actual residential use. For the Applicant, this would constitute a violation of the principle of legality and typicity of tax incidence norms, constitutionally enshrined in article 103, nos. 2 and 3 of the Constitution of the Portuguese Republic (CRP).

The Applicant concludes by requesting the condemnation of the Tax Authority to reimburse the tax wrongfully paid, plus compensatory interest, pursuant to article 43 of the General Tax Code (LGT).

Suzana Fernandes da Costa was appointed as sole arbitrator on 10-04-2017.

In accordance with the provisions of article 11, no. 1, paragraph c) of the Tax Arbitration Regime (RJAT), the singular arbitral tribunal was constituted on 27-04-2017.

The Tax Authority was notified to present a response within the legal period for that purpose.

By request submitted on 31-05-2017, the Tax Authority communicated the annulment of the assessment act challenged in this proceeding, by the Head of Services of the Services Division of the Real Estate Tax Authority (IMT), pursuant to order of 12-04-2017.

According to the said order, "in light of the understanding resulting from Order no. 6/2017-XXI, of January 13, of the Secretary of State for Tax Affairs, the assessment of Stamp Duty – item 28.1 of the TGIS, year 2013, better identified in point 1 of the attached information, is hereby annulled, with the necessary legal consequences".

And in the request submitted by the Tax Authority, the following can still be read: "only since this amendment (State Budget Law for 2014) did item 28.1 of the TGIS come to expressly cover construction land whose construction, authorized or planned, is for residential purposes, and therefore, it should be considered that the provision of incidence of the version prior to the State Budget Law for 2014 did not include construction land".

In the same request, the Tax Authority requests that the proceedings be declared closed as moot due to supervening futility of the dispute, pursuant to paragraph e) of article 277 of the Code of Civil Procedure (CPC), applicable by virtue of article 29 of the RJAT.

On 05-06-2017, an order was issued ordering the notification of the Applicant to state her position within 10 days on the request submitted by the Tax Authority.

On 08-06-2017, the Applicant appeared in the record to state that she understood that supervening futility of the dispute had been established. The Applicant further requested condemnation of the Tax Authority to pay the costs of the proceedings for having caused the dispute, and the return of the arbitration fee paid.

On 19-06-2017, an order was issued dispensing with the holding of the meeting provided for in article 18 of the RJAT, pursuant to the provisions of articles 16, paragraph c), and 19 of the RJAT, as well as the principles of procedural economy and prohibition of useless acts. The submission of arguments by the parties was also dispensed with, and July 7, 2017 was set for the rendering of the arbitral decision. The Applicant was further warned to, by that date, proceed with the payment of the subsequent arbitration fee.

On 21-06-2017, the Applicant submitted to the record the proof of payment of the subsequent arbitration fee.

The parties have standing and legal capacity and are legitimate (articles 4 and 10, nos. 1 and 2 of the RJAT and article 1 of Order no. 112-A/2011 of March 22).

The present request for arbitral pronouncement was submitted timely, pursuant to article 10, no. 1, paragraph a) of Decree-Law no. 10/2011 of January 20.

The proceedings do not suffer from nullities and no preliminary questions were raised.

2. Matter of Fact

2.1. Proven Facts:

Upon analysis of the documentary evidence produced, the following facts are considered proven and of interest for the decision of the case:

  1. The Applicant A... is the head of the estate left by the death of B..., with tax identification number....

  2. The estate identified above was, in 2013, the owner of the immovable property registered in the urban real estate matrix under article..., of the union of parishes of ..., ..., ... and ..., municipality of Almada, described as construction land, and with a tax property value of 1,011,200.00 €.

  3. The Applicant, in her capacity as head of the estate of B..., was notified of the assessment of Stamp Duty of item 28.1 of the TGIS no. 2014..., relating to the year 2013 and to the immovable property identified above, in the amount of 10,112.00 €, payable in three installments (April, July and November 2014), as per copy attached to the arbitration petition.

  4. The Applicant, in her capacity as head of the estate of B..., filed an administrative challenge to the assessment identified above, which was dismissed by order of 21-11-2014.

  5. And filed a hierarchical appeal, which was also dismissed by order of 08-07-2016, issued by the Services Division of the Real Estate Tax Authority (IMT).

  6. The Applicant proceeded with the payment of the three installments of the stamp duty assessment, as per proof of payment attached with the arbitration petition.

  7. The Head of Services of the Services Division of the Real Estate Tax Authority (IMT), by order of 12-04-2017, annulled the act of assessment of Stamp Duty at issue with the following reasoning: "in light of the understanding resulting from Order no. 6/2017-XXI, of January 13, of the Secretary of State for Tax Affairs, the assessment of Stamp Duty – item 28.1 of the TGIS, year 2013, better identified in point 1 of the attached information, is hereby annulled, with the necessary legal consequences", as per request attached to the record by the Tax Authority on 31-05-2017.

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

2.2. Reasoning of the Proven Matter of Fact:

Regarding the proven facts, the arbitrator's conviction was based on the documentary evidence attached to the record.

3. Matter of Law:

3.1. Object and Scope of This Proceeding

Given the annulment of the contested assessment act, this tribunal must pronounce itself on the request for closure of the proceedings due to supervening futility of the dispute submitted by the Respondent, and on the recognition of the right to compensatory interest submitted by the Applicant.

3.2. The Request for Declaration of Illegality and Annulment of the Controversial Assessment: On the (Un)utility of the Dispute

As was noted above in the report, by the request of 31-05-2017, the Tax Authority communicated in the record, pursuant to the order of the Head of Services of the Services Division of the Real Estate Tax Authority (IMT) of 12-04-2017, the annulment of the assessment act challenged in this proceeding, proposing, consequently, the closure of the proceedings due to supervening futility of the dispute.

By her request of 08-06-2017, the Applicant states that she understands that supervening futility of the dispute has been established, and requests that the closure of the proceedings be decreed on that basis, ordering the condemnation of the Tax Authority to pay the costs of the proceedings, for having caused the dispute, with the consequent return of the arbitration fee paid.

It is therefore necessary for this Tribunal to verify the utility of reviewing the request, formulated by the Applicant in her request for arbitral pronouncement, for declaration of illegality and annulment of the assessment of Stamp Duty challenged in these proceedings.

Supervening futility of the dispute occurs when, by a fact that occurred during the pendency of the case, the solution of the dispute ceases to have interest and utility, which justifies the closure of the proceedings, as provided in article 277, paragraph e) of the CPC.

As mentioned by Lebre de Freitas, João Rendinha, Rui Pinto, Code of Civil Procedure annotated, volume 1, 2nd edition, Coimbra Editora, 2008, p. 555, supervening futility or impossibility of the dispute "occurs when, by a fact that occurred during the pendency of the instance, the plaintiff's claim cannot be maintained, by virtue of the disappearance of the subjects or object of the proceeding, or finds satisfaction outside the framework of the remedy sought. In one case and the other, the solution of the dispute ceases to matter – here, by impossibility of achieving the targeted result; there, because it has already been achieved by other means".

As stated in the CAAD decision of case no. 220/2016-T, "(…) if, by virtue of new facts occurring during the pendency of the proceeding, the aim sought with the claim filed in court has already been achieved by other means, then the decision to be rendered does not involve useful effect, whereby, in that regard, supervening futility of the dispute occurs".

In fact, as appears from the foregoing, the tax act of assessment of Stamp Duty at issue in these proceedings was subject to annulment (as per article 79, no. 1 of the LGT), the Tax Authority having, with the order issued by the Head of Services of the Services Division of the Real Estate Tax Authority on 12-04-2017, proceeded with the administrative annulment of the tax act.

This action by the Tax Authority results in the claim formulated by the Applicant, which was aimed at the declaration of illegality and annulment by this Tribunal of the assessment of Stamp Duty challenged, being prejudiced, insofar as the suppression of that act and its effects from the legal order was achieved by another means after the instance had begun, as is stated in the CAAD decision of case no. 220/2016-T.

As is mentioned in the aforementioned CAAD decision, "the subsequent practice of the express act of revocation of the challenged assessments (cfr. art. 79, no. 1 of the LGT) implies that the instance concerning the review of the legality of those assessments is closed due to supervening futility of the dispute, given that, as their effects have been eliminated by the annulling revocation, the review loses utility, in relation to such assessments, of the defects alleged in order to their invalidity, the impugning claim filed against them ceasing to have an object".

In these terms, supervening futility of the dispute is verified as regards the request for annulment of the tax act that is the object of this proceeding, which entails the closure of the corresponding instance pursuant to the provisions of article 277, paragraph e) of the CPC, applicable by virtue of article 29, no. 1, paragraph e) of the RJAT.

3.3. On Compensatory Interest

The Applicant states that she proceeded with the payment of the assessment in the present proceedings, and requests the reimbursement of the amount paid plus compensatory interest.

Article 43, no. 1 of the LGT provides that "compensatory interest is owed when it is determined, in administrative challenge or judicial impugnation, that there was error attributable to the services resulting in payment of the tax debt in an amount higher than legally due", with no. 4 of article 61 of the Tax Procedure Code (CPPT) providing that "if the decision recognizing the right to compensatory interest is judicial, the payment period is counted from the beginning of the period of its voluntary enforcement".

In the present proceedings, the annulment of the assessment act of Stamp Duty in question originated from the fact that the Tax Authority understood that the provision of incidence in the version prior to the State Budget Law for 2014 (Law no. 83-C/2013 of December 31) did not include construction land. And that, with the amendment to item 28.1 of the TGIS made by the said Law, they began to be covered by the incidence of Stamp Duty, expressly, construction land whose construction, authorized or planned, is for residential purposes.

Thus, it is indisputable that there will be grounds for reimbursement of the tax paid, by virtue of the provisions of no. 1 of article 43 and article 100, both of the LGT, thereby restoring the situation that would have existed if the tax act that is the object of the arbitral decision had not been taken, as concluded by the CAAD decisions of cases no. 152/2016-T and 153/2016-T.

Likewise, it is understood that the illegality of the tax act of assessment of Stamp Duty is attributable to the Tax Authority, which took it in an illegal manner, which cannot but be linked with its subsequent annulment.

Thus, we are faced with a defect of violation of substantive law, which is embodied in an error in the legal assumptions, attributable to the Tax Authority, and the Applicant has the right, in accordance with the provisions of articles 24, no. 1, paragraph b), of the RJAT and 100 of the LGT, to the reimbursement of the amount of Stamp Duty wrongfully paid and to compensatory interest, pursuant to the provisions of articles 43, no. 1, of the LGT and 61 of the CPPT, calculated from the date of payment of the tax, at the rate resulting from no. 4 of article 43 of the LGT, until the date of processing of the respective credit note, in which they will be included, as was decided in the CAAD decision of case no. 152/2016-T.

4. Decision

In view of the foregoing, it is determined:

a) The proceedings are declared closed as to the request for declaration of illegality of the act of assessment of Stamp Duty challenged in the present proceedings due to supervening futility of the dispute, pursuant to article 277, paragraph e) of the CPC, applicable by virtue of article 29, no. 1, paragraph e) of the RJAT;

b) The request for condemnation of the Tax Authority to reimburse the Applicant the amount of the tax paid, plus compensatory interest in accordance with the law, from the date on which such payment was made until the date of full reimbursement thereof, is granted;

c) The Tax and Customs Authority is condemned to pay the costs of the proceedings.

5. Value of the Action:

In accordance with the provisions of article 315, no. 2 of the CPC and 97-A, no. 1, paragraph a) of the CPPT and 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the action is set at 10,112.00 €.

6. Costs:

Pursuant to article 22, no. 4 of the RJAT, and Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is set at 918.00 €, owed by the Tax and Customs Authority, since, in accordance with the provisions in the final part of no. 3 and in no. 4 of article 536 of the CPC, applicable by virtue of article 29, no. 1, paragraph e) of the RJAT, the fact of the revocation of the challenged assessment that determined the supervening futility of the dispute as regards the request for its annulment is attributable to it, and given the merit, moreover, of the request in this request for arbitral pronouncement.

Notify.

Lisbon, July 7, 2017.

Text prepared by computer, pursuant to article 138, no. 5 of the Code of Civil Procedure (CPC), applicable by reference in article 29, no. 1, paragraph e) of the Tax Arbitration Regime, as reviewed by me.

The Arbitrator Judge

Suzana Fernandes da Costa

Frequently Asked Questions

Automatically Created

Does Stamp Tax (Imposto do Selo) under Verba 28.1 of the TGIS apply to building land (terrenos para construção) without residential use?
No. According to CAAD Process 119/2017-T and the Tax Authority's acknowledgment in Order 6/2017-XXI, Stamp Tax under Verba 28.1 of the TGIS did not apply to building land (terrenos para construção) without residential use for years prior to 2014. The Tax Authority recognized that only after the 2014 State Budget Law amendment did Verba 28.1 expressly cover construction land where authorized or planned construction was for residential purposes. Before this legislative change, construction land without habitable residential structures fell outside the scope of Verba 28.1, which required actual residential use of property.
What is supervening uselessness of proceedings (inutilidade superveniente da lide) in Portuguese tax arbitration?
Supervening uselessness of proceedings (inutilidade superveniente da lide) under Article 277(e) of the Portuguese Civil Procedure Code occurs when the object of litigation ceases to exist during pending proceedings, rendering a judicial decision unnecessary or impossible. In Portuguese tax arbitration (CAAD), this typically arises when the Tax Authority voluntarily annuls the contested assessment before the arbitral tribunal issues its decision, as occurred in Process 119/2017-T. When declared, the proceedings are closed without substantive decision on the merits, though parties may seek allocation of procedural costs based on who caused the dispute.
Can a prior CAAD arbitral decision on Stamp Tax create res judicata (caso julgado) binding the Tax Authority for subsequent years?
No. A prior CAAD arbitral decision does not automatically create res judicata binding the Tax Authority for subsequent tax years. While Process 119/2017-T involved similar facts to prior case 10/2014-T (same property, successive years), Portuguese tax law treats each annual tax assessment as an independent administrative act. Res judicata from one year's assessment does not prevent the Tax Authority from issuing assessments for different tax periods, even on identical legal grounds. However, the legal reasoning in prior decisions may have persuasive authority and influence subsequent Tax Authority interpretations, as demonstrated by Order 6/2017-XXI's broader policy shift.
Is the application of Verba 28.1 TGIS to building land without habitable construction unconstitutional under Article 103 of the Portuguese Constitution?
The arbitral tribunal in Process 119/2017-T did not rule on this constitutional question due to supervening uselessness when the Tax Authority annulled the assessment. However, the applicant's argument raised serious concerns: applying Verba 28.1 TGIS to construction land without habitable residential structures could violate Article 103 of the Portuguese Constitution, which enshrines principles of legality and typicity requiring clear definition of taxable events. The Tax Authority's subsequent acknowledgment that pre-2014 law did not cover such land suggests tacit recognition that the interpretation lacked sufficient legal basis, avoiding potential constitutional conflict.
What happens when the Tax Authority voluntarily annuls a tax assessment during pending CAAD arbitration proceedings?
When the Tax Authority voluntarily annuls a contested tax assessment during pending CAAD arbitration proceedings, the arbitral tribunal typically declares supervening uselessness of the dispute (inutilidade superveniente da lide) and closes the proceedings without substantive decision, as occurred in Process 119/2017-T. The taxpayer's claim for annulment becomes moot since the contested act no longer exists. However, the taxpayer retains the right to reimbursement of wrongfully paid taxes plus compensatory interest under Article 43 LGT, and may request allocation of procedural costs against the Tax Authority if it caused the dispute through unlawful assessment.