Process: 124/2014-T

Date: April 10, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Arbitral Process 124/2014-T addressed whether Verba 28.1 of the General Stamp Tax Schedule (Tabela Geral do Imposto do Selo) applies to building land (terrenos para construção) in Portugal. The case involved A, S.A., which owned urban property classified as 'land for construction' with a Tax Patrimonial Value (Valor Patrimonial Tributário) reassessed from €613,258.64 (2011) to €2,329,990.00 (2013). The Tax Authority issued a Stamp Tax assessment of €23,299.90 for 2012. The taxpayer challenged the assessment, arguing that building land without residential use designation falls outside Verba 28.1's scope, which targets properties with residential use designation. The claimant contended that territorial management classifications merely define basic land destination, not actual use, and that applying Stamp Tax to undeveloped land violates constitutional principles of legality, equality, proportionality, and legal certainty. Additionally, the taxpayer alleged the wrong Tax Patrimonial Value was used (2013 value instead of 2011) and incorrect rate application (1% versus 0.5%). The Tax Authority defended that Verba 28.1 encompasses both constructed buildings and building land with residential use designation, as determined through building permits and territorial planning instruments. The Authority argued that building land follows the same valuation methodology as other urban properties, applying allocation coefficients that cannot be ignored for Stamp Tax purposes. The case centered on interpreting whether 'properties with residential use designation' in Verba 28.1 includes terrenos para construção valued above €1,000,000. Key issues included proper Tax Patrimonial Value determination under Law 55-A/2012, correct rate application, and constitutional compliance of Stamp Tax on high-value building land.

Full Decision

ARBITRAL DECISION

Claimant: A, S.A.

Respondent: Tax and Customs Authority

The Arbitrator Francisco de Carvalho Furtado, appointed by the Deontological Council of the Administrative Arbitration Center (ACAC), to form the Arbitral Tribunal constituted on 16 April 2014, decides as follows:

A) Report

  1. On 13 February 2014, A, S.A., taxpayer no. …, hereinafter referred to as the Claimant, filed a request for an arbitral award, pursuant to the provisions of Articles 2, no. 1, paragraph a) and 10 of Decree-Law no. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to as LRATM), and Articles 1 and 2 of Order no. 112-A/2011, of 22 March, in conjunction with paragraph a) of Article 99 and paragraph d) of no. 1 of Article 102 of the Tax Procedure and Process Code (TPPC), applicable pursuant to Article 10, no. 1, paragraph a) of Decree-Law no. 10/2011, of 20 January.

  2. In the aforementioned request for an arbitral award, the Claimant seeks that the Arbitral Tribunal declare the illegality of the Stamp Duty assessment notice issued by the Tax Administration with reference to the year 2012 in the total amount of €23,299.90.

  3. The request for constitution of the arbitral tribunal was accepted on 14 February 2014 by the President of the ACAC and was notified to the Tax and Customs Authority (hereinafter identified as the Respondent) on the same date.

  4. The Claimant did not proceed with the appointment of an arbitrator, whereby, pursuant to the provisions of Article 6, no. 1 of the LRATM, the undersigned was appointed by the President of the Deontological Council of the ACAC to serve on the present Sole Arbitrator Tribunal, the appointment having been accepted in accordance with legal provisions. The Tribunal was constituted, pursuant to the provisions of Article 11 of the LRATM, on 16 April 2014.

  5. On 22 May 2014, the Respondent filed its Response.

  6. On 30 June 2014, and pursuant to the provisions and for the purposes set out in Article 18 of the LRATM, the first meeting of the Arbitral Tribunal was held, with minutes being recorded, which are attached to the case file.

  7. At that meeting, the Claimant's Representative dispensed with the examination of the witness listed, and the Parties were notified that, if they so wished, they could submit arguments within 20 days, which they did.

The Claimant supports its request, in summary, as follows:

a) The Claimant is the owner of the urban property described in the Land Registry Office of ... under no. ..., with an area of 1,386.25 m²;

b) The property is registered in the urban property matrix of the parish of ... under article ..., being classified as "land for construction";

c) In 2011 the property had a Tax Patrimonial Value of €613,258.64;

d) In 2013 the Tax Patrimonial Value of the Property was reassessed to €2,329,990.00;

e) Article 6 of Law no. 55-A/2012 provided that for the assessment of Stamp Duty in the year 2012, the Tax Patrimonial Value with reference to the year 2011 would be taken into account;

f) The property in question does not have a residential use designation, and therefore is not covered by the taxable provision contained in Item 28 of the General Schedule of Stamp Duty;

g) The classification of the property contained in a territorial management instrument is intended merely to define the basic destination of the land, not revealing its current, actual and effective use;

h) The collection of this Tax was not subject to authorization and inclusion in the State Budget Law, violating the provisions of Article 105 of the Portuguese Constitution;

i) The assessment was levied on a Tax Patrimonial Value higher than that which was applicable;

j) In the tax assessment, a rate of 1% was applied, whereas the Law provided for a rate of 0.5%;

k) Item no. 28 of the General Schedule of Stamp Duty violates the constitutional principles of legality, typicality and justice as well as the right to private property and private economic initiative;

l) Item no. 28 of the General Schedule of Stamp Duty violates the constitutional principles of equality and proportionality and of legal confidence and legal certainty;

m) Articles 9, 13, 18, 62, 63 and 266 of the Portuguese Constitution are therefore violated;

n) The assessment notice is illegal for failure to ensure the Claimant's right to participate, having violated Article 60 of the General Tax Law;

o) The assessment notice is illegal for failure to provide reasons, having violated the provisions of Article 268, no. 3 of the Portuguese Constitution, Article 77 of the General Tax Law, Articles 124 and 125 of the Administrative Procedure Code.

In its Response, the Respondent invoked, in summary, the following:

a) Item 28 of the General Schedule of Stamp Duty provides for the tax to be levied on the ownership, usufruct or right of superficies of urban properties whose tax patrimonial value is equal to or greater than €1,000,000.00;

b) The definition of urban property should be found in the Municipal Property Tax Code, as follows from Article 67, no. 2 of the Stamp Duty Code;

c) The concept of use designation of urban property is based on the section relating to property valuation;

d) The legislator, with regard to building land, chose to apply the valuation methodology of properties in general, with the allocation coefficient being applicable to them, which cannot be ignored for the purposes of applying Item no. 28 of the General Schedule of Stamp Duty;

e) For the purposes of applying Item no. 28 of the General Schedule of Stamp Duty, the concept of properties with residential use designation comprises both constructed buildings and land for construction;

f) It is not properties intended for residential use but properties with residential use designation that are at issue;

g) Through building permits for urban development operations and other territorial planning instruments, it is possible to determine, prior to construction, the use designation of building land;

h) Item no. 28 of the General Schedule of Stamp Duty does not violate any constitutional principle;

i) This taxation is levied on wealth embodied and manifested in the tax patrimonial value of properties.

B) Preliminary Ruling

The Tribunal is competent and has been regularly constituted, pursuant to Articles 2, no. 1, paragraph a), 5 and 6, all of the LRATM. The parties have legal capacity and standing, are legitimate and are represented, pursuant to Articles 4 and 10 of the LRATM and Article 1 of Order no. 112-A/2011, of 22 March.

There are no procedural defects or preliminary issues that affect the entire proceeding, therefore it is appropriate to now proceed to examine the merits of the request.

C) Subject Matter of the Arbitral Award

The following questions are submitted to the Tribunal, as described above:

a) Should Item 28 of the General Schedule of Stamp Duty be interpreted as including within its scope properties classified as land for construction and with a Tax Patrimonial Value exceeding €1,000,000.00 (one million euros)?

b) Is the assessment notice illegal due to violation of the provisions of Article 6, no. 1, paragraph d) of Law no. 55-A/2012?

c) Is the assessment notice illegal due to violation of the provisions of Article 6, no. 1, paragraph f) of Law no. 55-A/2012?

d) Is Item 28 of the General Schedule of Stamp Duty in conformity with the constitutional principles of legality, typicality, justice, equality, proportionality, legal confidence and legal certainty?

e) Is Item 28 of the General Schedule of Stamp Duty unconstitutional due to violation of the provisions of Article 105, no. 3 of the Portuguese Constitution?

f) Is the assessment notice illegal due to lack of reasoned statement?

g) Is the assessment notice illegal due to violation of the right to participate provided for in Article 60 of the General Tax Law?

D) Facts

D.1 – Proven Facts

The following facts are considered proven as relevant to the decision, based on documentary evidence attached to the case file:

a) The Claimant is the owner of the urban property described in the Land Registry Office of ... under no. ..., and registered in the urban property matrix of the Parish of ... under article ... (see documents 3 and 4 attached to the initial request);

b) The property referred to in a) is classified as "land for construction" (see document 4 attached to the initial request);

c) The Claimant was notified of the Stamp Duty assessment notice for the year 2012, no. 2013..., resulting in a payment amount of €23,299.00 (see document 1 attached to the initial request);

d) The tax was calculated by applying the rate of 1% to the tax patrimonial value (see document 1 attached to the initial request);

e) The tax patrimonial value on which the tax was calculated was €2,329,990.00 (see document 1 attached to the initial request);

f) The tax patrimonial value used in the calculation of the tax was determined in 2013 (see document 12 attached to the initial request).

As for the proven facts, the Tribunal's conviction was based on the documentary evidence referred to, attached to the case file and in the administrative proceeding appended thereto.

No other facts capable of affecting the merits decision, in light of possible legal solutions, were proven, and which, consequently, are important to record as not proven.

E) On the Law

Having regard to the questions submitted for the Tribunal's consideration, it is important to first analyze that which, in the abstract, is most effective for the protection of the conflicting interests. In this manner, the first analysis should focus on the question relating to the scope of Item 28 of the General Schedule of Stamp Duty with respect to properties classified as "land for construction."

In accordance with the general canons of legal hermeneutics, in particular in view of the provisions of no. 1 of Article 9 of the Civil Code, applicable to the interpretation of tax law pursuant to no. 1 of Article 11 of the General Tax Law, "interpretation should not be confined to the literal text of the law, but should reconstruct from the texts the legislative intent, taking above all into account the unity of the legal system, the circumstances in which the law was drafted and the specific conditions of the time in which it is applied." It is therefore this interpretative exercise that is important now to undertake.

First, in light of the rules of legal exegesis, attention must be paid to the literal element of the relevant provisions and, in particular, Item 28 of the General Schedule of Stamp Duty, introduced by Law no. 55-A/2012, of 29 October, which came into force on 30 October 2012. Thus:

"28 - Ownership, usufruct or right of superficies of urban properties whose tax patrimonial value contained in the property matrix, pursuant to the Municipal Property Tax Code (MPTC), is equal to or greater than €1,000,000 — on the tax patrimonial value used for purposes of the Municipal Property Tax:

28.1 — For property with residential use designation — 1%;

28.2 — For property, where 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 order of the Minister of Finance — 7.5%."

From the analysis of the literal element, it is therefore concluded that the relevant taxable event for the purposes of applying the item of the General Schedule of Stamp Duty under analysis is levied on the rights described, constituted over:

a) urban properties;

b) with residential use designation;

c) whose tax patrimonial value is equal to or greater than €1,000,000.00.

It is also important to note the provisions of Article 23, no. 7 of the Stamp Duty Code which provides that: "In the case of tax due for the situations provided for in Item no. 28 of the General Schedule, the tax is assessed annually, in relation to each urban property, by the central services of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in the MPTC."

Likewise, no. 2 of Article 67 of the Stamp Duty Code provides that "For matters not regulated in this Code relating to Item no. 28 of the General Schedule, the provisions of the MPTC apply, subsidiarily."

It is also important to consider the following transitional provisions provided for in Law no. 55-A/2012, of 29 October:

a) The taxable event occurs on 31 October 2012;

b) The taxpayer is the one referred to in no. 4 of Article 2 of the Stamp Duty Code, as of 31 October 2012;

c) The tax patrimonial value to be used in the tax assessment corresponds to that resulting from the rules provided for in the Municipal Property Tax Code with reference to the year 2011;

d) The tax assessment by the Tax and Customs Authority must be completed by the end of November 2012;

e) The tax must be paid, in a single installment, by the taxpayers by 20 December 2012;

f) The applicable rates are as follows:

i) Properties with residential use designation assessed pursuant to the Municipal Property Tax Code: 0.5%;

ii) Properties with residential use designation not yet assessed pursuant to the Municipal Property Tax Code: 0.8%;

iii) Urban properties where 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 order of the Minister of Finance: 7.5%.

g) The non-payment, in whole or in part, within the specified time, of the amounts assessed as stamp duty constitutes a tax violation, punished in accordance with law.

Finally, it is important to note, as it is relevant to the present decision, Article 6 of the Municipal Property Tax Code which specifies that urban properties are divided into: a) residential; b) commercial, industrial or service; c) land for construction; and d) other.

Now, as case law has repeatedly emphasized, the tax legislator did not define the concept of "property with residential use designation." Indeed, there is no legal provision that specifies the exact contours and limits of this concept.

In fact, on the contrary, in view of the literal language of the aforementioned legal provisions, the Law clearly distinguishes between "residential" urban properties and "land for construction", clarifying that these are distinct legal and tax realities (see Article 6, no. 1 of the Municipal Property Tax Code).

On the other hand, the fact that Article 45 of the Municipal Property Tax Code provides that the calculation of the tax patrimonial value is influenced by the value of the building area, which depends on the value of authorized or envisaged buildings, is also insufficient to confer residential use designation on land for construction.

This is so much the case that the Municipal Property Tax Code always refers to residential use designation with reference to existing buildings or structures, which are the only ones that, by nature, can be used, in practice, for residential purposes.

From the literal language of the Law, it cannot therefore be concluded that the taxable provision contained in Item 28 of the General Schedule of Stamp Duty covers realities qualified as land for construction.

It should be noted that in the face of the interpretative dispute that the aforementioned provision gave rise to, the tax legislator amended the Law by expressly adding a reference to land for construction.

It should be mentioned that this amendment to the letter of the Law is innovative in nature, especially since the legislator did not give it an interpretative nature.

It is therefore concluded that, in the year 2012, land for construction was not covered by the letter of Item 28 of the General Schedule of Stamp Duty.

Notwithstanding the conclusion reached, it is necessary to test it through analysis of the teleological element of the Law (see Articles 9, no. 1 of the Civil Code and 11 of the General Tax Law).

In order to gauge the legislator's intention with this tax innovation, we can resort to the records of the debate that is at the genesis of this legislative initiative.

As results from the discussion of Bill no. 96/XII (Parliamentary Record, I Series, no. 9/XII/2, of 11 October 2012), which is at the origin of Law no. 55-A/2012, of 29 October, the aim is the creation of a special tax on high-value properties intended for residential use.

It was therefore stated that: "This rate will be 0.5% to 0.8% in 2012, and 1% in 2013, and will apply to houses with a value equal to or greater than 1 million euros." (see Parliamentary Record, I Series, no. 9, of 10 October 2012, page 32).

Therefore, from the interpretative exercise carried out, it results that the legislator's intention was, unequivocally, to tax houses, in the words of the State Secretary for Tax Affairs.

The use of the word "house" by the State Secretary immediately refers to the concept of a constructed physical space used for residential purposes by its owner / usufructuary / holder of the right of superficies.

Given this and taking into account the applicable legal provisions, proceeding from literal analysis to its spirit, it is concluded that the taxable provision in force at the time the taxable event occurred did not cover nor was intended to apply to realities qualified as land for construction, therefore the assessment notice whose legality is contested in the present case is, in fact, illegal due to violation of the provisions of Article 1 of the Stamp Duty Code and Item 28 of the General Schedule of Stamp Duty.

This is, moreover, the case law that results from the learned Judgment of the Supreme Administrative Court, delivered on 9 April 2014, in Appeal no. 01870/13, to which we expressly adhere.

Given the conclusion reached with respect to this question, the examination of the other questions contained in the initial request is rendered moot.

Decision

Based on the foregoing, this Arbitral Tribunal decides to find the request entirely justified and, consequently, declare the illegality of the Stamp Duty assessment notice, annulling it, and condemning the Respondent to pay the costs.

The value of the action is fixed at €23,299.90 (twenty-three thousand, two hundred ninety-nine euros and ninety cents), pursuant to Article 97-A, no. 1, paragraph a) of the TPPC, applicable pursuant to Article 29, no. 1, paragraph a) of the LRATM.

The Arbitration Fee is fixed at €1,224.00, pursuant to Table I of the Regulations for Costs in Tax Arbitration Proceedings, to be paid by the Respondent, pursuant to Articles 12, no. 2, 22, no. 4 of the LRATM and Article 4 of the aforementioned Regulations.

Notify the parties.

Lisbon, 10 April 2015

The Arbitrator

Francisco de Carvalho Furtado

Frequently Asked Questions

Automatically Created

Does Verba 28.1 of the Tabela Geral do Imposto do Selo apply to building land (terrenos para construção) in Portugal?
The application of Verba 28.1 to building land (terrenos para construção) was the central dispute in CAAD Process 124/2014-T. The Tax Authority argued that Verba 28.1 applies to building land with residential use designation when the Tax Patrimonial Value exceeds €1,000,000, reasoning that 'properties with residential use designation' includes both constructed buildings and land for construction. The Authority maintained that building permits and territorial planning instruments determine use designation before construction. However, the taxpayer contended that building land without actual residential use falls outside Verba 28.1's scope, arguing that territorial classifications define only basic destination, not current effective use.
Can the Portuguese Tax Authority charge Stamp Tax on urban land classified as terreno para construção with a high patrimonial value?
Yes, the Portuguese Tax Authority can charge Stamp Tax on urban land classified as terreno para construção with high patrimonial value, according to the Tax Authority's interpretation defended in Process 124/2014-T. When building land has a Tax Patrimonial Value equal to or exceeding €1,000,000 and is designated for residential use through territorial planning instruments or building permits, the Authority considers it subject to Verba 28.1. The taxation targets wealth embodied in the property's patrimonial value. However, this interpretation has been challenged by taxpayers who argue that undeveloped land lacks the actual residential use required by Verba 28.1.
What was the CAAD arbitral decision in Process 124/2014-T regarding Stamp Tax on building land?
In CAAD Process 124/2014-T, the arbitral tribunal examined whether Stamp Tax under Verba 28.1 applies to land for construction. The claimant challenged a €23,299.90 assessment on property valued at €2,329,990.00, arguing that building land without residential use designation falls outside Verba 28.1's scope. The taxpayer also alleged incorrect application of the Tax Patrimonial Value (using 2013 value instead of 2011 value as required by Law 55-A/2012) and wrong rate (1% instead of 0.5%). Constitutional violations, lack of reasoning in the assessment notice, and violation of participation rights were also invoked. The complete decision outcome is not provided in the excerpt.
How does the revaluation of the Valor Patrimonial Tributário affect Stamp Tax liability on terrenos para construção?
The revaluation of Valor Patrimonial Tributário significantly impacts Stamp Tax liability on terrenos para construção. In Process 124/2014-T, the property's VPT increased from €613,258.64 (2011) to €2,329,990.00 (2013), triggering Stamp Tax liability under Verba 28.1 which applies to properties valued at €1,000,000 or above. Article 6 of Law 55-A/2012 specified that for 2012 Stamp Tax assessments, the 2011 Tax Patrimonial Value should be used. The claimant argued the Tax Authority illegally applied the higher 2013 value instead of the 2011 value, resulting in improper tax assessment. Revaluations can push properties over the €1,000,000 threshold, creating new tax obligations.
What legal grounds can taxpayers use to challenge Imposto do Selo assessments on building land before CAAD?
Taxpayers can challenge Imposto do Selo assessments on building land before CAAD on multiple legal grounds demonstrated in Process 124/2014-T: (1) Interpretation of Verba 28.1 scope - arguing building land lacks residential use designation required by the provision; (2) Incorrect Tax Patrimonial Value application - invoking Article 6 of Law 55-A/2012 requiring use of prior year values; (3) Wrong rate application - challenging whether 0.5% or 1% applies; (4) Constitutional violations - alleging breach of legality, equality, proportionality, legal certainty, and property rights principles under Articles 9, 13, 18, 62, 63, 105, 266, and 268 of the Portuguese Constitution; (5) Procedural defects - lack of reasoning (Article 77 LGT) and violation of participation rights (Article 60 LGT).