Process: 12/2014-T

Date: September 5, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Process 12/2014-T addressed whether building land (terrenos para construção) is subject to Stamp Tax under item 28.1 of the General Stamp Tax Schedule (TGIS). The taxpayer owned construction land in Lisbon valued at €1,374,370 with no buildings erected. The Tax Authority issued Stamp Tax assessments totaling €20,615.55, arguing that land for construction constitutes urban property under CIMI Article 6(1) and that the residential use coefficient applies to all urban properties. The taxpayer contested, arguing that construction land cannot be considered property 'with residential use' under item 28.1 TGIS as it lacks actual residential utilization. The arbitration tribunal ruled in favor of the taxpayer, distinguishing between 'property with residential use' (prédio com afetação habitacional) and 'residential properties' (prédios habitacionais) under CIMI. The tribunal concluded that 'use' requires actual utilization, not merely licensing or intended purpose. Construction land, having no buildings and no actual residential use, did not fall within item 28.1's scope. This interpretation was reinforced by the 2014 State Budget Law, which explicitly amended item 28.1 to include land for construction from January 1, 2014, confirming such properties were excluded under the previous wording. The tribunal annulled the contested assessments and ordered refund of amounts paid plus compensatory interest. This ruling established that until December 31, 2013, Stamp Tax under item 28.1 TGIS applied only to properties with actual residential use, excluding undeveloped construction land.

Full Decision

ARBITRATION AWARD

Applicant: A...

Respondent: Tax Authority and Customs Authority

The Arbitrator Dr. Maria Antónia Torres, appointed by the Ethics Council of the Administrative Arbitration Center ("CAAD") to constitute the Single Arbitration Tribunal, established on 7 March 2014, hereby decides as follows:

1. STATEMENT OF FACTS

1.1 The A..., taxpayer number ..., hereinafter "Applicant", represented by B..., S.A., legal entity number ..., with registered office at Avenue ..., Lisbon, requested the constitution of an arbitration tribunal, pursuant to Article 2, paragraph 1, subsection a), and Article 10, both of Decree-Law No. 10/2011, of 20 January (hereinafter "RJAT"[1]).

1.2 The request for arbitration addresses the illegality and consequent annulment of the Corporate Income Tax ("IS") assessment acts issued under number ..., notified in December 2012, in the amount of €6,871.85 and number ..., notified in April 2013, in the amount of €13,743.70, and of the decision dismissing the Administrative Complaint filed against those same acts, as well as the condemnation of the Respondent to refund the amounts unduly paid, plus compensatory interest.

1.3 To support its request, the Applicant argues that the real property to which the Stamp Tax assessments refer is land for construction and, for that reason, cannot be considered as a property "with residential use" for purposes of applying item 28.1 of the General Stamp Tax Schedule.

The Tax Authority and Customs Authority argues that the request for declaration of illegality and consequent annulment of the disputed assessments should be judged unfounded, given that Article 6, paragraph 1 of the Municipal Property Tax Code ("CIMI") includes land for construction in the category of urban properties, and furthermore argues that item 28 of the GSTS refers to the "use" of properties, invoking the coefficient of use, a concept that applies indiscriminately to all urban properties.

1.4 The parties also agreed to dispense with the meeting of the arbitration tribunal provided for in Article 18 of the RJAT.

2. SANITATION

The Tribunal was regularly constituted and is competent ratione materiae, in accordance with Article 2 of the RJAT.

The parties have legal standing and capacity, demonstrate legitimacy, and are properly represented (cf. Articles 4 and 10, paragraph 2 of the RJAT and Article 1 of Ordinance No. 112-A/2011, of 22 March).

No procedural defects were identified in the proceedings.

3. QUESTIONS TO BE DECIDED

The question to be decided in the present proceedings is whether the property which was the subject of the stamp tax assessments referred to above, being land for construction, has or does not have residential use and, consequently, whether or not item 28.1 of the General Stamp Tax Schedule (GSTS) is applicable to it, as drafted on the date to which the assessments pertain.

4. FACTS ESTABLISHED

Facts with relevance for the appraisal and decision on the merits are established as follows:

4.1 The Applicant is the owner of the urban property registered in the urban property matrix under article ... (currently article ...), of the parish of ..., Municipality of Lisbon;

4.2 The property is land for construction and has a taxable property value of €1,374,370 (as per the property record), with no buildings on the land as of that date;

4.3 The Applicant was notified of the IS assessments issued under number ..., notified on 5 December 2012, in the amount of €6,871.85 and number ..., notified in April 2013, in the amount of €13,743.70, concerning the aforementioned property;

4.4 The Applicant made full payment of both IS assessments, in the total amount of €20,615.55;

4.5 The Applicant filed an Administrative Complaint against the aforementioned IS assessment acts on 19 April 2013, seeking their annulment;

4.6 The Administrative Complaint was dismissed by decision of 18 September 2013, which was notified to the Applicant on the same date and contained the reasons for dismissal of the Administrative Complaint;

4.7 All as evidenced by documents attached with the arbitration request and in the response presented by the Respondent;

4.8 On 7 March 2014 the Applicant filed a request for constitution of the Arbitration Tribunal – cf. electronic request in the CAAD system.

5. FACTS NOT ESTABLISHED

There are no facts with relevance for the decision on the merits that have not been established, the factual framework being agreed upon by both parties.

6. REASONING ON THE FACTUAL FINDINGS

The Tribunal's conviction was based on the critical analysis of the documents indicated concerning each point of the factual framework, with the dispute relating solely to questions of law.

7. ON THE LAW

Law No. 55-A/2012, of 29 October, added item 28 to the General Stamp Tax Schedule (GSTS), with the following wording:

28 – Ownership, usufruct or surface right of urban properties whose taxable property value appearing in the registry, under the terms of the Municipal Property Tax Code (CIMI), is equal to or greater than €1,000,000 – on the taxable property value used for Municipal Property Tax purposes:

28.1 – For property with residential use – 1% (...);

In the transitional provisions contained in Article 6 of that Law No. 55-A/2012, the following rules were established:

c) The taxable property value to be used in the assessment of the tax corresponds to that resulting from the rules provided in the Municipal Property Tax Code by reference to the year 2011; (...)

f) The applicable rates are as follows:

i) Properties with residential use assessed under the terms of the Municipal Property Tax Code: 0.5%;

ii) Properties with residential use not yet assessed under the terms of the Municipal Property Tax Code: 0.8%;

Item 28.1 GSTS and sub-clauses i) and ii) of clause f) of paragraph 1 of Article 6 of Law No. 55-A/2012 contain, therefore, a concept that is not used in any other tax legislation, which is that of "property with residential use".

The concept closest to the literal meaning of this expression used is that of "residential properties", which paragraph 2 of Article 6 of the CIMI defines as encompassing "buildings or structures" licensed for residential purposes or, in the absence of a license, that have as their normal destination residential purposes.

However, the non-coincidence of the terms of the expression used in item No. 28.1 of the GSTS ("property with residential use") with that extracted from paragraph 2 of Article 6 of the CIMI ("residential properties"), suggests that it was not intended to use the same concept.

Furthermore, in the same article, a clear distinction is made between urban residential properties and land for construction.

Following closely other CAAD awards rendered on the same matter, we understand that the word "use", in this context of the utilization of a property, must mean "the act of designating something for a particular use". Thus, "property with residential use" cannot be a property merely licensed for residential purposes or intended for such purposes (that is, it will not be sufficient that it be a "residential property"), and must be a property that already has actual residential use.

Thus, "it is to be concluded that the interpretive elements available, including the 'circumstances in which the law was enacted and the specific conditions of the time in which it is applied', clearly point to the fact that it was not intended to encompass within the scope of item No. 28.1 situations of properties that are not yet devoted to residential use, namely land for construction held by companies".

Furthermore, with the State Budget Law for 2014, item 28.1 GSTS was expressly amended so as to include, from 01.01.2014, land for construction, which reinforces our conviction that such properties were not encompassed by the wording in force until 31.12.2013.

8. DECISION

Now, the Applicant's property is land for construction held by a fund, and we are not dealing with a property with current residential use, nor is there any building on the said land. There is thus no residential use to which the property is devoted as of that date.

For this reason, we understand that the assessments whose declaration of illegality is requested are affected by a defect of violation of that item No. 28.1 GSTS, by error as to the legal prerequisites, which justifies the declaration of their illegality and consequent annulment (Article 135 of the Code of Administrative Procedure).

In view of the foregoing, it is determined:

  1. The declaration of illegality and annulment of the IS assessment acts subject to the present request, all with the legal consequences, including the revocation of the decision dismissing the Administrative Complaint;

  2. The refund of the amount of tax paid by the Applicant in the total amount of €20,615.55; and

  3. The payment of compensatory interest by the Respondent, calculated on the amount of €20,615.55, at the legal rate, until full payment.

Regarding compensatory interest, as already decided in the Arbitration Award rendered in proceedings No. 14/2012-T, of 29 June 2012, the pronouncements condemning payment that in judicial review proceedings are admitted to state tax courts fall within the competence of tax arbitration tribunals, and the recognition of the right to compensatory interest in arbitration proceedings is equally admissible.

As a consequence of the substantive illegality of the IS assessments subject to the present action, the Applicant paid tax that was not due, making both the respective refund, under the terms of Articles 24, paragraph 1, subsection b) of the RJAT and 100 of the General Tax Law, as well as the payment of compensatory interest necessary, as the respective constitutive conditions are met, in accordance with the provisions of Articles 43 of the General Tax Law and 61 of the Tax Court Procedure Code, calculated on the amount paid in excess and counted from the dates of the payments made until complete reimbursement.

The case value is fixed at €20,615.55 in accordance with the provisions of Articles 3, paragraph 2 of the Regulation on Costs in Tax Arbitration Proceedings ("RCPAT"), 97-A, paragraph 1, subsection a) of the Tax Court Procedure Code and 306, paragraph 2 of the Code of Civil Procedure.

The amount of costs is fixed at €1,224.00 to be borne by the Tax Authority and Customs Authority, in accordance with the provisions of Articles 12, paragraph 2 of the RJAT and 4, paragraph 4 of the RCPAT.

Notify accordingly.

Lisbon, 5 September 2014

Text prepared by computer, under the terms of Article 131, paragraph 5 of the Code of Civil Procedure (CPC), applicable by reference from Article 29, paragraph 1, subsection e) of the RJAT, with blank pages.

The wording of this arbitration award is governed by the old spelling.

The Arbitrator,

Maria Antónia Torres

[1] Acronym for Judicial Regime for Tax Arbitration.

Frequently Asked Questions

Automatically Created

Are building land plots (terrenos para construção) subject to Stamp Tax under Verba 28.1 of the TGIS in Portugal?
Building land plots (terrenos para construção) were NOT subject to Stamp Tax under Verba 28.1 of the TGIS until December 31, 2013. CAAD Process 12/2014-T established that the original wording of item 28.1, which taxed 'properties with residential use' valued at €1 million or more, excluded construction land without actual residential utilization. Only from January 1, 2014, following an explicit legislative amendment in the 2014 State Budget Law, was construction land expressly included within the scope of item 28.1 TGIS. This subsequent amendment confirmed that the legislature recognized construction land was not previously covered.
What is the legal distinction between housing-designated properties and construction land for Stamp Tax purposes?
The legal distinction lies in the concept of actual use versus intended purpose. Under CAAD Process 12/2014-T, 'property with residential use' (prédio com afetação habitacional) under item 28.1 TGIS requires actual residential utilization, not merely licensing or designation for residential purposes. This differs from 'residential properties' (prédios habitacionais) defined in CIMI Article 6(2), which encompasses buildings licensed or normally destined for residential purposes. Construction land, having no buildings and no actual use, cannot satisfy the 'residential use' requirement. The tribunal emphasized that 'use' means the act of designating something for actual utilization, requiring more than potential or future residential purpose.
Can the Portuguese Tax Authority apply the housing allocation coefficient (coeficiente de afectação) to classify building land as residential property?
No, the Portuguese Tax Authority cannot apply the housing allocation coefficient (coeficiente de afetação) to classify building land as residential property. CAAD Process 12/2014-T rejected the Tax Authority's argument that the residential use coefficient applies indiscriminately to all urban properties. The tribunal held that merely classifying land for construction as urban property under CIMI Article 6(1) does not automatically subject it to the residential use provisions of item 28.1 TGIS. The coefficient relates to actual utilization of built properties, not undeveloped land. Construction land lacks the necessary element of actual residential use required for item 28.1 application, regardless of administrative classifications or coefficients used for other tax purposes.
How did CAAD Process 12/2014-T rule on the Stamp Tax liquidation for construction land valued above €1 million?
CAAD Process 12/2014-T ruled in favor of the taxpayer, annulling the Stamp Tax assessments totaling €20,615.55 that had been levied on construction land valued at €1,374,370. The tribunal held that land for construction without actual residential use did not fall within the scope of Verba 28.1 TGIS, which applied only to 'properties with residential use.' The arbitrator concluded that the Tax Authority incorrectly applied item 28.1 to undeveloped construction land during the assessment periods (2012-2013). The tribunal ordered the annulment of the contested liquidations, the refund of amounts unduly paid by the taxpayer, and the payment of compensatory interest. This decision established important precedent that construction land was excluded from Stamp Tax under item 28.1 until the explicit legislative amendment effective January 1, 2014.
What remedies are available to taxpayers who paid Stamp Tax on building land under an incorrect application of Verba 28 TGIS?
Taxpayers who paid Stamp Tax on building land under incorrect application of Verba 28 TGIS have several remedies available. First, they may file an administrative complaint (reclamação graciosa) within the legal deadline, seeking annulment of the assessment and refund of amounts paid. If the administrative complaint is dismissed or denied, taxpayers may pursue arbitration through CAAD (Centro de Arbitragem Administrativa) under the RJAT framework, as successfully demonstrated in Process 12/2014-T. Alternatively, taxpayers may file judicial appeals in administrative and tax courts. Successful challenges result in annulment of the illegal assessments, refund of unduly paid taxes, and payment of compensatory interest calculated from the payment date until actual refund. Given CAAD's established jurisprudence following Process 12/2014-T, taxpayers with similar situations involving construction land assessed before January 1, 2014 have strong grounds for recovery.