Process: 12/2015-T

Date: June 19, 2015

Tax Type: Valor do pedido:

Source: Original CAAD Decision

Summary

Process 12/2015-T addresses a critical tax dispute concerning the applicability of Stamp Tax (Imposto do Selo) to construction land plots under item 28 of the General Stamp Tax Table (TGIS), as amended by Law 55-A/2012. The case involves A... SA challenging stamp tax assessments totaling €36,391.53 for 2013 on two construction land plots registered in the municipal urban registry. The central legal question is whether undeveloped construction land qualifies as property with 'residential use designation' subject to stamp tax when its patrimonial tax value (VPT) equals or exceeds €1,000,000. The taxpayer argues that construction land represents merely an expectation of future development that may or may not be realized, and even if developed, may not result in residential use. Therefore, taxing such property violates constitutional principles of fiscal equality, legal certainty, and proportionality. The Tax Authority (AT) contends that construction land possesses the legal nature of property with residential use designation because the VPT calculation incorporates the residential use coefficient specified in article 41 of the Municipal Property Tax Code (CIMI). The AT argues the legislator intentionally used the broader term 'residential use designation' rather than 'intended for residential use' to encompass realities beyond completed residential properties. The taxpayer filed an administrative complaint that was dismissed, leading to this arbitration proceeding before CAAD (Administrative Arbitration Center). The case raises fundamental questions about the scope of stamp tax liability, the interpretation of tax legislation affecting real estate held for development, and the constitutional limits on taxation of potential rather than actual economic capacity. The outcome has significant implications for real estate developers and landowners holding construction plots with high patrimonial values throughout Portugal.

Full Decision

I – REPORT

  1. A..., SA, with headquarters at the site of ..., parish of ..., municipality of ..., NIPC[1] ... submitted a request for an arbitral decision, under the provisions of article 2(1)(a), article 3(1), and article 10(1)(a), all of the RJAT[2], requesting the AT[3], with a view to annulling tax acts of stamp tax (imposto do selo) assessments, relating to the year 2013, on the ownership of real property registered in the municipal registry under urban articles .. and ... of the parish of ..., municipality of ..., relating to two plots of land for construction, according to assessment documents 2014 ..., 2014 ..., 2014 ... and 2014 ... in the total amount of € 36,391.53, duly notified, against which the applicant filed a proper administrative complaint which was dismissed, with notification to the applicant on 13/10/2014, and the applicant, not accepting such decision and taxation, as it considered it manifestly unlawful, filed the present request.

  2. Which was filed without exercising the option of designating an arbitrator, and was accepted by His Excellency the President of the CAAD[4] and automatically notified to the AT on 07/01/2015.

  3. Pursuant to the provisions of article 6(2) of the RJAT, by decision of His Excellency the President of the Deontological Council, duly communicated to the parties within the legally applicable periods, on 27/02/2015, Arlindo José Francisco was designated as arbitrator of the tribunal, who communicated acceptance of the assignment within the legally stipulated period.

  4. The tribunal was constituted on 16/03/2015 in accordance with the provisions contained in article 11(1)(c) of the RJAT, as amended by article 228 of Law No. 66-B/2012, of 31 December.

  5. With its request, the applicant seeks the annulment of the tax acts of stamp tax assessments in question with the consequent reimbursement of amounts improperly paid, plus compensatory interest as provided for in article 43(1) of the LGT[5], as they manifestly violate constitutional principles, such as fiscal equality, legal certainty, and proportionality.

  6. It supports its position, in summary, on the doctrine expounded by different authors and on the jurisprudence of the TC[6], concluding that a plot of land for construction can in no way correspond to a future increase in patrimony, to the extent that there is only an expectation that a building may be constructed thereon which may or may not be realized, and even if it is realized, the constructed building may or may not be licensed for residential use.

  7. In its response, the respondent considers that item 28 of the TGIS[7] as amended by Law 55-A/2012 determines the taxation of plots of land for construction, since these have the legal nature of properties with residential use designation, considering that in determining their VPT[8] the residential use coefficient provided for in article 41 of the CIMI[9] is taken into account, citing Decision No. 04950/11 of 14/02/2012 of the TCA[10] of the South.

  8. That the legislator does not speak of properties intended for residential use, but of residential use designation, an expression far broader in scope, aimed at integrating other realities beyond those identified in article 6(1)(a) of the CIMI.

  9. In this perspective, it considers that the assessments in question should be maintained as they embody a correct interpretation and application of the law to the facts, not being violations of the Law, whether of the CRP[11] or the CIS[12], and therefore the applicant's claim should be judged unfounded and the respondent absolved of the request.

  10. It also states that in case the request is upheld, the applicant invokes the right to compensatory interest, for having paid the assessment documents in question. In the perspective of the AT, these would not be due, to the extent that the error supporting the right to compensatory interest is not any defect or illegality but that which is concretized in a defective assessment of relevant facts or in an incorrect application of legal norms.

  11. In the concrete case, the AT applied the law bindingly, as the executive body is constitutionally bound to do, and therefore one cannot speak of error on the part of the services as provided for in article 43 of the LGT.

II - PRELIMINARY MATTERS

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

The parties have legal personality and capacity, show themselves to be proper parties and are regularly represented in accordance with articles 4 and 10(2) of the RJAT and article 1 of Ordinance No. 112-A/2011, of 22 March.

On 21/04/2015 the tribunal issued an order considering unnecessary the meeting referred to in article 18 of the RJAT, granting 10 days for the parties to comment on this understanding.

Within the stipulated period the parties commented on their agreement with this understanding and both declared their intention to submit written arguments, the tribunal granting a period of 10 days for their submission, in accordance with the order of 25/04/2015.

Once the arguments were attached and, the proceedings not being affected by nullities nor having been raised questions that would prevent the examination of the merits of the case, the tribunal considered the conditions met for the delivery of the decision, in accordance with the order of 16/05/2015.

III - REASONING

1 – The questions to be resolved, with relevance for the case, are the following:

a) Whether plots of land for construction, to which the residential use coefficient was applied in determining their VPT and an amount equal to or exceeding € 1,000,000.00 was calculated, fall within the scope of stamp tax (IS[13]) liability provided for in item 28 of the TGIS, added by Law No. 55-A/2012, of 29 October.

b) If not, whether the assessment of IS in question in the present case should be annulled as being vitiated by illegality given that it is based on a norm that would be manifestly unconstitutional and, consequently, the sums improperly paid should be reimbursed plus compensatory interest, as prescribed by article 43 of the LGT.

2 – Facts

The facts considered relevant and proven based on the elements attached to the case file are the following:

a) The applicant was, in the year 2013, the owner of two plots of land for construction registered in the urban registry of the parish of ..., municipality of ... under articles .. and ....

b) It was notified to proceed with payment of the IS in question (€ 36,391.53), in accordance with assessment documents 2014 ..., 2014 ..., 2014 ... and 2014 ....

c) Against such assessments it filed an administrative complaint which was dismissed in accordance with notification of 13 October 2014.

d) The applicant made full payment of said assessment documents on 24 May 2014 and 28 July 2014.

3 – Law

3.1 - Regarding Stamp Tax:

a) The applicant, in its request for arbitral decision, considers, in the first place and in summary, the inapplicability of item 28 of the TGIS, as amended by Law 55-A/2012 of 29 October, as it understands that the norm in question violates the principles of equality, proportionality, and legal certainty.

b) It maintains that plots of land for construction cannot be considered properties with residential use designation, as there is only an expectation of construction that may or may not be realized, and even if it is, the constructed property may not be intended for residential use.

c) Thus the AT cannot require, without incurring obvious unconstitutionality, payment of the IS assessed on the basis of item 28.1 of the TGIS.

d) In turn, the respondent considers that plots of land for construction have the legal nature of properties with "residential use designation" since in determining their VPT the residential use coefficient provided for in article 41 of the CIMI is taken into account, and cites in this sense Decision 04950/11 of 14/02/2012 of the TCA South which considers that the regime for assessment of the tax value of plots of land for construction is established in article 45 of the CIMI, being the same as for constructed buildings, although starting from the building to be constructed, on the basis of the project.

e) It considers that the expression "residential use designation" of item 28 of the TGIS calls for a classification that overlies the species of urban properties provided for in article 6(1) of the CIMI and that the legislator in using it intended to integrate other realities beyond those mentioned in the provisions of the CIMI, concluding that the assessments in question should be maintained and the AT absolved of the request.

f) The positions of the applicant and the respondent having been synthesized, and taking into account the jurisprudence of the arbitral tribunals formed, which have been deciding on the inapplicability of item 28 of the TGIS to plots of land for construction, we shall proceed below to an analysis of the norm of incidence of stamp tax on urban properties with residential use designation.

g) Item 28 of the TGIS, added by Law No. 55-A/2012, subjects to stamp tax urban properties with residential use designation whose VPT, calculated in accordance with the CIMI, is equal to or greater than € 1,000,000.00.

h) The CIS refers to the CIMI for the regulation of the concept of property and of matters not regulated regarding item 28 of the TGIS (see article 1(6) and article 67(2), both of the CIS).

i) If we look at article 6 of the CIMI, it is established therein that urban properties are divided into residential, commercial, industrial or service properties, plots of land for construction, and others.

j) From its paragraph 2 it follows that urban residential properties "are buildings or constructions licensed for such purpose or, lacking a license, that have such destination as their purpose" and its paragraph 3 tells us that plots of land for construction "are those situated within or outside an urban agglomeration, for which a license or authorization for subdivision or construction operations has been granted, and also those that have been so declared in the acquisition instrument...".

k) From these concepts we can already conclude the existence of autonomy between urban properties "residential" and urban properties "plots of land for construction".

l) The legislator of the stamp tax, in establishing the taxation of urban properties "with residential use designation", did not concretize the concept, so we must, by force of the referral, go to the CIMI and this, as already seen, distinguishes them in relation to plots of land for construction.

m) The expression "residential use designation" is in no way evident in plots of land for construction, nor can it, as the respondent pretends, be understood as an expression integrating other realities.

n) We follow the position advocated in case 49/2013 which is transcribed: "The expression 'with residential use designation' conveys, on simple reading, an idea of real and present functionality. From the norm in question it is not possible to extract, by interpretation, that, as is stated in the respondent's response, the legislator's choice of that expression is aimed at integrating 'other realities beyond those identified in article 6, paragraph 1, letter a), of the CIMI.' Such interpretation has no legal support, given the principles contained in articles 9 of the Civil Code and 11 of the General Tax Law. Indeed, if the legislator intended to cover within the scope of the tax other realities that are not those resulting from the classification governed by article 6 of the CIMI, it should have said so expressly. But it does not, rather referring, in bulk, to the concepts and procedures provided for in said Code. On the other hand, the respondent's understanding cannot be accepted either in the sense that the concept of 'residential use designation' derives from the norm of article 45 of the CIMI. This article refers to the rules applicable in determining the tax value of plots of land for construction establishing that this is that which results from the value of the building implantation area added to the land adjacent to the implantation. In fixing the value of that area a percentage varying between 15% and 45% of the value of authorized or projected buildings is considered. According to the respondent, in fixing the value of authorized or projected buildings on the land to be assessed, the coefficients applicable in determining the tax patrimonial value are used, namely the use coefficient provided for in article 1 of that Code. Concluding from this that the consideration of such a coefficient, dependent on the type of use foreseen for the property to be built on the land, will be determinative for purposes of application of Item 28 of the TGIS. This conclusion is supported on the assumption that the expression 'properties with residential use designation' calls for a classification that overlies the species provided for in article 6(1) of the CIMI. It is not possible, however, to follow such conclusion. [...]. In these terms, resulting from article 6 of the CIMI a clear distinction between urban properties 'residential' and 'plots of land for construction', these cannot be considered, for purposes of incidence of stamp tax, as 'properties with residential use designation'."

o) The legislator, in intending to tax plots of land for construction in stamp tax, revisited item 28 of the TGIS, through Law No. 83-C/2013, of 31 December, and introduced them there, which proves that in the formulation of Law No. 55-A/2012, plots of land for construction were excluded from stamp tax taxation by item 28 of the TGIS and now, through Law No. 83-C/2013, they began to be taxed, which seems clear to us that the legislator considers that the expression "residential use designation" did not include plots of land for construction.

p) Nor can it be said that the fact that article 45 of the CIMI provides for the application of a residential use coefficient in determining the VPT of plots of land for construction would be a sufficient condition in itself to allow their inclusion in the norm of incidence of item 28 as added by Law No. 55-A/2012, nor would it alter their nature as plots of land for construction, given that what is in question here is solely to determine the VPT which will be influenced by the type of buildings to be carried out (which, it should be noted, are not always realized).

q) Decision 04950/11 of 14/02/2012 of the TCA South cited by the AT which considers that the regime for assessment of the tax value of plots of land for construction is established in article 45 of the CIMI, being the same as for constructed buildings, although starting from the building to be constructed, based on the project, is a finding that is limited to the determination of VPT and nothing more than that.

r) Now, as already seen, article 6 of the CIMI results in an unmistakable distinction between residential properties and plots of land for construction, which prevents these from being taxed in stamp tax as intended by the respondent.

s) In this sense several arbitral decisions have already been delivered, namely, cases 42, 48, 49, and 75, all of 2013, and by the STA[14].

t) The taxation in question here only occurred by error attributable to the AT services, since item 28 of the TGIS, in the wording of Law 55-A/2012, did not permit the taxation in stamp tax of plots of land for construction, and therefore should be annulled with all legal consequences arising therefrom.

u) Therefore, the tribunal considers it unnecessary to make an assessment of whether item 28.1 of the TGIS would be unconstitutional for violating the principles of equality, proportionality, and legal certainty, since the same is inapplicable to the concrete case, as has been seen.

3.2 – Regarding Reimbursement of Amounts Improperly Paid, Plus Compensatory Interest

a) Being declared the illegality of the debt and the consequent annulment, the AT is obliged to restore the situation that would exist if the annulled act had not been performed, in accordance with the provisions contained in article 100 of the LGT, and must therefore refund the amounts improperly paid plus compensatory interest.

b) In this sense Diogo Leite Campos/Benjamin Silva Rodrigues/Jorge Lopes de Sousa pronounce themselves in annotation to the aforementioned article 100 of the LGT 2nd edition.

c) Regarding compensatory interest, it cannot be said that in the concrete case there was no defective assessment of relevant facts or that there was no incorrect application of legal norms. In truth, the AT applied a norm that was inapplicable to plots of land for construction, and so much so that it was the legislator itself, in intending to tax plots of land for construction in stamp tax, who revisited the norm, as already seen, through Law No. 83-C/2013, of 31 December, and introduced them there.

d) It is therefore evident that there was on the part of the respondent an incorrect application of the norm, leaving no doubt that compensatory interest is due.

e) Thus, verifying the illegality of the stamp tax assessment acts attributable to the AT, given that it performed them without adequate legal support, and, given the proven payment, the applicant has the right to reimbursement of the amounts improperly paid plus compensatory interest in the precise terms of article 43(1) of the LGT and article 61 of the CPPT[15].

IV – DECISION

Based on the foregoing, the tribunal decides as follows:

a) To declare that plots of land for construction are excluded from the stamp tax liability provided for in item 28.1 of the TGIS, as amended by Law 55-A/2012 of 29 October.

b) Consequently, to declare the request for arbitral decision well-founded, as there was error attributable to the AT services, annulling the stamp tax assessment acts in question (€36,391.53) in accordance with assessment documents 2014 ..., 2014 ..., 2014... and 2014 ..., relating to the year 2013, with all legal consequences arising therefrom, since the assessment in question manifestly violates the said norm of incidence.

c) To declare the obligation of the AT to reimburse the applicant for the stamp tax, demonstrably improperly paid, plus compensatory interest, calculated at the legal rate, from the date on which the payments occurred and the date on which the reimbursements occur.

d) To fix the value of the case at € 36,391.53 in accordance with the provisions contained in article 299(1) of the CPC[16], article 97-A of the CPPT, and article 3(2) of the RCPAT[17].

e) To fix the costs, under article 22(4) of the RJAT, in the amount of € 1,836.00 in accordance with the provisions in table I referred to in article 4 of the RCPAT, at the expense of the respondent.

Notify.

Lisbon, 19 June 2015

Text drawn up by computer, in accordance with article 131(5) of the CPC, applicable by referral from article 29(1), letter e) of the RJAT, with blank lines and reviewed by the tribunal.

The Arbitrator

Arlindo José Francisco

[1] Acronym for Collective Person Identification Number
[2] Acronym for Legal Regime of Arbitration in Tax Matters
[3] Acronym for Tax and Customs Authority
[4] Acronym for Administrative Arbitration Center
[5] Acronym for General Tax Law
[6] Acronym for Constitutional Court
[7] Acronym for General Table of Stamp Tax
[8] Acronym for Tax Patrimonial Value
[9] Acronym for Code of Municipal Tax on Real Property
[10] Acronym for Central Administrative Court
[11] Acronym for Constitution of the Portuguese Republic
[12] Acronym for Stamp Tax Code
[13] Acronym for Stamp Tax
[14] Acronym for Supreme Administrative Court
[15] Acronym for Code of Tax Procedure and Process
[16] Acronym for Code of Civil Procedure
[17] Acronym for Regulation of Costs in Tax Arbitration Proceedings

Frequently Asked Questions

Automatically Created

Is Stamp Tax (Imposto do Selo) applicable to construction land under Verba 28 of the TGIS?
The applicability of Stamp Tax under Verba 28 of the TGIS to construction land is disputed. The Tax Authority argues that construction land with a VPT of €1,000,000 or more is subject to stamp tax because it has 'residential use designation' based on the application of residential use coefficients in calculating the patrimonial value. However, taxpayers challenge this interpretation, arguing that undeveloped land represents only an expectation of future construction that may or may not be realized, and cannot be equated with actual properties designated for residential use under the tax legislation.
Does a construction land plot qualify as a property with housing allocation for Stamp Tax purposes?
The Tax Authority considers construction land plots to qualify as property with housing allocation for Stamp Tax purposes when the residential use coefficient from article 41 of CIMI is applied in determining the VPT. The AT interprets 'residential use designation' broadly to include construction land with potential residential development. Conversely, taxpayers argue that construction land lacks the definitive character of residential property since there is merely an expectation—not a certainty—that a building will be constructed, and even if constructed, it may not be licensed for residential use, making the taxation constitutionally questionable.
Can taxpayers challenge Stamp Tax assessments on construction land through CAAD arbitration?
Yes, taxpayers can challenge Stamp Tax assessments on construction land through CAAD (Administrative Arbitration Center) arbitration proceedings. Process 12/2015-T demonstrates this procedural avenue, where the taxpayer filed a request for arbitral decision under articles 2(1)(a), 3(1), and 10(1)(a) of RJAT after the administrative complaint was dismissed. The arbitration tribunal was constituted in accordance with legal procedures, with an arbitrator designated by the President of the Deontological Council. This arbitration mechanism provides an alternative dispute resolution forum for contesting stamp tax assessments on construction land.
What constitutional principles apply to Stamp Tax on construction land in Portugal?
Constitutional principles invoked in challenging Stamp Tax on construction land include fiscal equality (requiring taxation of comparable situations equally), legal certainty (requiring clear and predictable tax rules), and proportionality (requiring taxes to be proportionate to actual economic capacity). Taxpayers argue that taxing construction land as if it were completed residential property violates these constitutional principles because it taxes potential rather than actual patrimony. The fundamental issue is whether taxing an expectation of future development, which may never materialize or may result in non-residential use, exceeds constitutional limits on the taxation power.
How is the VPT coefficient of housing allocation used to determine Stamp Tax liability on construction land?
The VPT (patrimonial tax value) calculation for construction land applies the residential use coefficient specified in article 41 of the Municipal Property Tax Code (CIMI). The Tax Authority relies on this methodological element to argue that construction land has 'residential use designation' for Stamp Tax purposes. When the VPT calculated using this residential coefficient equals or exceeds €1,000,000, the AT considers the property subject to stamp tax under Verba 28.1 of the TGIS. However, this interpretation is contested on grounds that using a coefficient for valuation purposes does not transform speculative land into actual residential property for tax liability purposes.