Process: 130/2016-T

Date: October 17, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitral decision addresses whether Stamp Tax under Item 28.1 of the General Stamp Tax Table (TGIS) applies to building plots designated for housing construction in Portugal. A company challenged two Stamp Tax assessments from 2012 on urban properties registered as building plots, arguing that such land cannot be considered 'properties with housing allocation' since they are not habitable properties themselves but merely land for construction. The claimant also raised procedural violations, alleging failure to notify assessments with proper grounds and denial of the right to be heard as required under Article 23(7) of the Stamp Tax Code. Additionally, the company argued that taxing properties already subject to Municipal Property Tax (IMI) constitutes prohibited double taxation and violates constitutional equality principles by only targeting housing properties. The Tax Authority defended the assessments, arguing that 'housing allocation' is a broader concept than 'housing properties' and encompasses building plots designated for housing purposes. According to the Authority, the allocation refers to the property's aptitude or intended use, which for construction land means its purpose for housing development. The Authority also contended that no double taxation exists because Stamp Tax targets the special taxpaying ability of holders of high-value properties (exceeding €1 million), while IMI taxes property ownership itself—distinct legal realities. Regarding constitutionality claims, the Tax Authority raised an exception arguing that arbitral tribunals lack jurisdiction to examine constitutional compliance under Article 2(1) of the Legal Regime for Arbitration in Tax Matters. The tribunal rejected this jurisdictional exception on September 13, 2016, allowing the case to proceed on its merits. The decision examined two key issues: whether the assessments were illegal due to errors in legal presuppositions, and whether procedural rights were violated by failing to provide proper notification and opportunity to be heard before assessment.

Full Decision

ARBITRAL DECISION

I – Report

  1. On 04.03.2016, A…, SA, taxpayer number …, with registered address at … street, lot …, …, requested the CAAD to constitute an arbitral tribunal, pursuant to Article 10 of Decree-Law No. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to only as "LRAT"), in which the Tax and Customs Authority is the Respondent, with a view to annulling two Stamp Tax assessments issued on 18.11.2012, relating to the year 2012, concerning urban properties registered in the property register of the parish of … (…), municipality of ..., under articles … and …, in the amounts of € 5,778.19 and € 5,126.41, respectively.

  2. The request to constitute the arbitral tribunal was accepted by the Honourable President of CAAD and notified to the Tax and Customs Authority.

In accordance with the terms and for the purposes of Article 6, paragraph 1 of the LRAT, by decision of the President of the Deontological Council, duly communicated to the parties within applicable legal deadlines, the undersigned was appointed as arbitrator, who communicated to the Deontological Council and to the Administrative Arbitration Centre the acceptance of the engagement within the regularly applicable deadline.

The Arbitral Tribunal was constituted on 30-05-2016.

  1. Verifying the absence of any situation provided for in Article 18, No. 1 of the LRAT, which would have made necessary the arbitral meeting therein provided, its holding was waived, based on the prohibition of performing useless acts.

The holding of submissions was also waived, pursuant to Article 18, No. 2 of the LRAT, "a contrario".

  1. The grounds presented by the Claimant in support of its claim were, in summary, the following:

a. The Claimant was notified of collection documents No. 2012 … and 2012 …, relating to stamp tax, item 28 of the TGIS, for the year 2012.

b. The Claimant was not notified by the AT, either of the assessments, with their respective factual and legal grounds, nor, previously, to comment thereon in the context of the right to be heard, and the assessments should have been notified to the taxpayers, pursuant to Article 23, No. 7 of the TCS, which refers to the CIMI regarding the assessment (namely Articles 113 to 118).

c. The lots of land in question are not land intended for housing, as the allocation presupposes a functional approach and land for construction is not in itself a habitable property, therefore, the stamp tax assessments in question are illegal due to failure to fall within item 28 of the TCS table.

d. The stamp tax created by Law 55-A/2012, inserted in item 28 of the General Stamp Tax Table, taxes the same taxable fact as that taxed under the municipal property tax, which violates the principle of prohibition of double taxation and renders the assessments illegal.

e. The unconstitutionality of the taxation is even raised, as it is directed only at properties for housing purposes, leaving unharmed owners of properties intended for other purposes, thereby violating the principle of tax equality.

  1. The ATA – Tax and Customs Authority, called upon to respond, contested the Claimant's claim, defending itself by way of objection, in summary, with the following grounds:

BY EXCEPTION

The jurisdiction of the arbitral tribunal does not include the examination of the constitutional compliance of legislative acts or their provisions, by virtue of Article 2, No. 1 of the LRAT.

Therefore, the Arbitral Tribunal lacks material jurisdiction to examine the request for declaration of material unconstitutionality of "item 28 of the General Stamp Tax Table, for violation of the principle of taxpaying ability, as a facet of the principle of equality, provided for in Articles 13 and 104, No. 3 of the CRP."

Absolute lack of material jurisdiction constitutes a dilatory exception that prevents the continuation of the proceedings, leading to the dismissal of the instance as to the respective claim, in accordance with the provisions of Articles 576, No. 2, 577, paragraph a) and 278, No. 1, paragraph a) of the CPC, applicable by virtue of Article 29, paragraph e) of the LRAT.

BY WAY OF OBJECTION

It is the understanding of the AT that the properties on which each of the disputed assessments falls have the legal nature of property with housing allocation, therefore the assessment acts which are the subject of this request for arbitral pronouncement should be upheld, as they embody a correct interpretation of Item 28 of the General Table, amended by Law 55-A/2012, of 29/12.

In the absence of any definition of the concepts of urban property, land for construction and housing allocation, in the context of Stamp Tax, one must resort to the CIMI, in search of a definition that allows ascertainment of the possible subjection to Stamp Tax, in accordance with Article 67, No. 2 of the TCS, as amended by Law No. 55-A/2012, of 29/10.

The allocation of the property (aptitude or purpose) is a coefficient that contributes to the evaluation of the property in the determination of the tax property value, applicable to land for construction.

Item 28 of the TGIS itself refers to the expression "properties with housing allocation," appealing to a classification that supersedes the categories provided for in No. 1 of Article 6 of the CIMI.

Note that the legislator does not refer to "properties intended for housing," having opted for the notion of "housing allocation" – a different and broader expression whose meaning must be found in the need to integrate other realities beyond those identified in Article 6, No. 1, paragraph a) of the CIMI.

What is taxed under Stamp Tax is the special taxpaying ability revealed by the holders of these properties, which is constitutionally justified under Article 103, No. 1 of the CRP, in light of the higher interests underlying the existence of a democratic rule of law.

There being no material contradiction in the structuring of the taxes, because they fall upon distinct legal realities.

Therefore, the Claimant's arguments to the effect that there is "a situation of double legal taxation" are lacking in merit.

Being constitutionally justified the legislative option to tax in Stamp Tax the holders of properties with housing allocation of value exceeding € 1,000,000.00, in the terms set forth above, the Claimant's arguments regarding the violation of the principle of fiscal neutrality are also without merit, which would always be justified in light of the higher interests of the tax system, for in a context of economic crisis, those who reveal taxpaying ability above a certain limit cannot be equally protected.

The Claimant's taxation was thus effected without any illegality being committed in the assessments now disputed.

  1. By order of 13.09.2016, it was decided to judge the alleged exception of incompetence of the arbitral tribunal as lacking merit.

  2. It is necessary to resolve the following issues:

a) Illegality of the disputed assessments, due to defect of violation of law by error in the legal presuppositions.

b) Illegality of the disputed assessments, due to violation of the Claimant's right to be heard before the assessment, provided for in Articles 267, No. 5, of the Constitution of the Portuguese Republic and 60 of the General Tax Law.

  1. The tribunal is materially competent and is regularly constituted pursuant to the LRAT. The parties have legal personality and capacity, are legitimate, and are legally represented.

The proceedings do not suffer from vices that would invalidate them.

II – The Relevant Facts

  1. With relevance to the decision of the case, the following facts are considered proven:

  2. The Respondent effected, on 18.11.2012, two Stamp Tax assessments, with the Claimant as the liable party, under item 28 of the TGIS, relating to the year 2012, concerning urban properties registered in the property register of the parish of … (…), municipality of ..., under articles … and …, in the amounts of € 5,778.19 and € 5,126.41, respectively, with collection documents No. 2012 … and 2012 … notified to the Claimant, with payment deadline until 20.12.2012.

  3. The properties identified and on which the assessments fell are land intended for urban construction.

  4. Not conforming to the assessment, on 18.04.2013 the Claimant filed an administrative claim against the said assessments, which were the subject of a dismissal order.

  5. On 12.07.2013, the Claimant filed a hierarchical appeal of the decision that dismissed the administrative claim, which was also dismissed, a decision notified to the Claimant by official letter No. … of 7.12.2015.

With interest for the decision of the case, there are no unproven facts.

  1. The Tribunal's conviction regarding the decision of the facts was based on the documents in the proceedings, it being noted that there is total agreement between the parties regarding the facts, with disagreement being confined to matters of law.

III – The Applicable Law

  1. Since the Claimant has attributed more than one defect to the disputed tax acts, it is necessary to determine the order of examination thereof, which should follow the order of Article 124 of the CPPT, applicable by virtue of Article 29, No. 1, paragraph a) of the LRAT (See Jorge Lopes de Sousa, Commentary on the Legal Regime for Arbitration in Tax Matters, in GUIDE TO TAX ARBITRATION, Coord. Nuno Villa-Lobos and Mónica Brito Vieira, 2013, Almedina, page 202).

The merit of any of the defects invoked by the claimant will lead to the annulment of the tax act. However, the defect of violation of law is the one that will lead to "the most stable or effective protection of the injured interests" insofar as its eventual merit will prevent the renewal of the act, which is not the case with the annulment resulting from the defect of preterition of the prior right to be heard.

Accordingly, the Tribunal will examine first the defect of violation of law.

  1. Item 28 of the General Stamp Tax Table established, in the wording at the date of the taxable facts, that the following was subject to stamp tax: ownership of properties with housing allocation with TPS equal to or exceeding 1,000,000 euros, in the following terms:

"28 – Ownership, usufruct or right of superficies of urban properties whose tax property value contained in the register, pursuant to the Municipal Property Tax Code (CIMI), is equal to or exceeding 1,000,000 euros – on the tax property value used for the purpose of IMI:[1]

28.1 – For property with housing allocation – 1%;

28.2 – For property, when the liable parties who are not natural persons are resident in a country, territory or region subject to a clearly more favourable tax regime, contained in the list approved by order of the Minister of Finance – 7.5%".

  1. It has already been abundantly emphasized in various arbitral decisions[2] (namely in proceedings 42/2013-T, 48/2013-T, 49/2013-T, 51/2013-T, 53/2013-T, 144/2013-T and 202/2014-T) that the concept of "property with housing allocation" (which is not the subject of any specific definition in the Stamp Tax Code) is not used by the CIMI[3], nor in any other legislative instrument.

All of these arbitral decisions, whose doctrine is endorsed, go, in essence, in the direction that such concept requires, for its fulfilment, at least the effective possibility of the existing property being able to be used for housing and, in all of them, it was understood that land for construction, even if intended for the construction of residential buildings, does not fall within the concept of "property with housing allocation," as results from the following passages from the mentioned decisions:

Proceeding 42/2013-T:

"The expression "housing allocation" does not seem to be able to have any other meaning than that of "use" for housing, that is, urban properties that have effective use for housing purposes, whether because they are licensed for such, or because they have that normal destination.

And we cannot confuse a "housing allocation" which implies an actual allocation of an urban property to that end, with the expectation, or potentiality, of an urban property being able to have a "housing allocation."

Proceeding 49/2013-T:

"The expression "with housing allocation" conveys, at first reading, an idea of real and present functionality. From the norm in question, it is not possible to extract, by interpretation, that, as claimed in the respondent's reply, the legislator's option for that expression is intended to integrate "other realities beyond those identified in Article 6, No. 1, paragraph a) of the CIMI." Such interpretation has no legal support, in light of the principles contained in Articles 9 of the Civil Code and 11 of the General Tax Law.

Indeed, if the legislator intended to include in the scope of the tax's incidence other realities than those resulting from the classification governed by Article 6 of the CIMI, it would have said so expressly. But it does not, instead referring, in full, to the concepts and procedures provided for in the said Code."

Proceeding 51/2013-T:

"The point that needs to be decided is this: is there a difference between the expression used by the CIMI "habitable urban property" and the expression used by Article 4 of Law No. 55-A/2012, when referring to "property with housing allocation"?

We believe not, since the same fundamental meaning prevails, even if using somewhat different words, of taxing the ownership of properties with the same purpose, the actuality or the possibility of the use being for human housing purposes, with all the consequences that legislation in general and the CIMI in particular confers upon it."

Proceeding 53/2013-T:

"(…) it should be presumed that the use of a different expression is intended to reflect a distinct reality, therefore, in proper interpretation, "property with housing allocation" cannot be a property merely licensed for housing or intended for that purpose (that is, it will not be sufficient that it be a "habitable property"), but must be a property that already has actual allocation to that purpose."

Proceeding 144/2013-T:

"(…) we believe that in the interpretation of the provision in item 28.1 of the TGIS, it is necessary to adopt the understanding according to which the housing allocation of an urban property suggests that it be given that actual destination, or that it may be directly given that destination."

Proceeding 202/2014-T:

"The expression "with housing allocation" conveys, at first reading, an idea of real and present functionality. From the norm in question, it is not possible to extract, by interpretation, that, as claimed in the Respondent's reply, the legislator's option for that expression is intended to integrate "other realities beyond those identified in Article 6, No. 1, paragraph a) of the CIMI." Such interpretation has no legal support, in light of the principles contained in Articles 9 of the Civil Code and 11 of the General Tax Law."

  1. Also in the judgment of the Supreme Administrative Court, of 09-04-2014, appeal No. 048/14[4], it was considered that:

"The concept of "property (urban) with housing 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 on a subsidiary basis. And it is a concept which, probably due to its imprecision – a fact all the more serious given that it is on the basis of it that the scope of objective incidence of the new tax is cut out – had a short life, 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 cuts out its scope of objective 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 does it seem to us that it did – merely makes it unequivocal for the future that land for construction whose construction, authorized or envisaged, is for housing falls within the scope of item 28.1 of the General Stamp Tax Table (provided that the respective tax property value is equal to or exceeding 1 million euros), but clarifies nothing regarding prior situations (assessments from 2012 and 2013), such as the one at issue in the present proceedings.

Now, as regards these, it does not seem possible to adopt the interpretation of the appellant, as, contrary to what is alleged, it does not result unequivocally either from the letter or from the spirit of the law that its intention has been, ab initio, to include in its scope of objective incidence land for construction for which authorization or envisagement has been made for the construction of residential buildings, as clearly results today from item 28.1 of the General Stamp Tax Table."

(…)

"It is thus concluded, with the respondent and in conformity with what was decided in the sentence under appeal that, given that Article 6 of the IMI Code makes a clear distinction between "habitable" urban properties and "land for construction," these cannot be considered (…) as "properties with housing allocation" for the purposes of the provision in item No. 28.1 of the General Stamp Tax Table, in its original wording, which was given by Law No. 55-A/2012, of 29 October."

  1. This understanding continued to be followed by the Supreme Administrative Court, uniformly, in the other proceedings in which it was called upon to rule. As can be read in the judgment handed down in proceeding 0707/14, of 10.09.2014[5]:

"The matter was already decided by this Section of Tax Contention of the Supreme Administrative Court on 9 April 2014, in proceedings Nos. 1870/13 (Not yet published in the official gazette, available at http://www.dgsi.pt/jsta.nsf/35fbbbf22e1bb1e680256f8e003ea931/f6fd29ac6d6ebaf380257cc30030891a?OpenDocument.) and 48/14 (Not yet published in the official gazette, available at http://www.dgsi.pt/jsta.nsf/35fbbbf22e1bb1e680256f8e003ea931/0e28073928824e5080257cc3003a0cbd?OpenDocument.), and, since then, reiterated uniformly in numerous judgments, it being possible to consider established case law to the effect that land for construction cannot be considered for the purposes of the incidence of Stamp Tax provided for in Item 28.1 (in the wording of Law No. 55-A/2012, of 29 October) as urban properties with housing allocation.

This is case law that we also adopt here, as we fully concur with it and given the provision in No. 3 of Article 8 of the Civil Code (CC) (…)."

  1. Thus, unequivocally common point in all these decisions, which we follow, is the understanding that land for construction, even if intended for residential construction, are not properties with housing allocation. Consequently, we consider that the application of item No. 28.1 of the General Stamp Tax Table, in the wording amended by Law No. 55-A/2012, requires, at least, the actuality of the allocation of the property for housing, the mere potentiality of construction for housing purposes not being sufficient.

In fact, we understand that, regardless of the reasons that may have led Law No. 55-A/2012 to use the expression "property with housing allocation," instead of "habitable property" contained in Article 6, No. 1, paragraph a) of the CIMI, for subsumption to item 28.1 of the TCS, at least the real and current potentiality (relative to the taxable event) of the property in question being able to be used for housing cannot fail to be required.

Land for construction cannot, therefore, be considered a property with "housing allocation," as it consists of a reality not apt for human habitation. To attain that aptitude, the occurrence of a reality external to it is necessary – the construction of a building apt for habitation – and, with such an event, a land for construction ceases to exist and a new reality emerges: the building. And it is this that can have housing allocation.

Thus, land for construction does not fall within the concept of "property with housing allocation," and item 28.1 of the General Stamp Tax Table is not applicable to it.

  1. Having regard to the foregoing, as item 28.1 of the TCS is inapplicable to the properties of the Claimant, the Claimant's request for annulment cannot but succeed, as the tax acts are tainted by the defect of violation of law by error in the legal presuppositions, thus, the examination of the invoked defect of preterition of the prior right to be heard is rendered moot.

IV – Decision

Thus, the arbitral tribunal decides, judging the request for arbitral pronouncement to be well-founded:

a) Declare the non-application of item 28.1 of the General Stamp Tax Table to the properties in question, of which the Claimant is the registered owner in the urban property register.

b) Declare the illegality and the consequent annulment of the tax acts sub judice.

Value of the action: € 10,904.60 (Ten thousand nine hundred and four euros and sixty cents) pursuant to Article 306, 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 Arbitration Proceedings.

Costs by the Respondent, in the amount of € 918.00 (nine hundred and eighteen euros) pursuant to No. 4 of Article 22 of the LRAT.

Notify accordingly.

Lisbon, CAAD, 17.10.2016

The Arbitrator

Marcolino Pisão Pedreiro

[1] This provision was amended upon the entry into force of the State Budget Law for 2014 – Law No. 83-C/2013, of 31 December, broadening the tax base expressly to include land for construction.

[2] Which can be consulted at the website "https://caad.org.pt/tributario/decisoes/"

[3] Article 67, No. 2 of the TCS provides that "To matters not regulated in the present Code regarding item No. 28 of the General Table, the provisions of the CIMI shall apply on a subsidiary basis." In turn, the CIMI uses the concept of habitable urban property, being considered as such buildings/structures licensed for such or those which have as their normal destination each of these purposes, pursuant to Article 6, No. 1, paragraph a) and No. 2. This same article clearly differentiates the concept of land for construction, in its No. 1, paragraph c) and No. 3.

[4] Available at http://www.dgsi.pt/.

[5] Also available at http://www.dgsi.pt/.

Frequently Asked Questions

Automatically Created

Does Stamp Tax (Imposto de Selo) under Verba 28.1 apply to building plots (terrenos para construção) in Portugal?
Yes, according to the Tax Authority's interpretation upheld in this proceeding, Stamp Tax under Item 28.1 applies to building plots designated for housing construction. The Authority argues that 'housing allocation' (afetação habitacional) is broader than 'housing properties' and includes land for construction based on its intended purpose or aptitude for housing development. This interpretation references the Municipal Property Tax Code (CIMI) definition of allocation as a coefficient contributing to property valuation, extending Item 28.1 coverage beyond completed residential properties to include plots with housing designation.
Can a building plot be considered housing-designated property for Stamp Tax purposes under Portuguese tax law?
Yes, a building plot can be considered housing-designated property for Stamp Tax purposes. The Tax Authority distinguishes between 'housing allocation' and 'housing destination,' with allocation referring to the property's aptitude or intended use rather than its current state. Item 28 of the TGIS deliberately uses 'properties with housing allocation' rather than 'properties intended for housing,' creating a broader classification that supersedes standard categories in Article 6(1) of CIMI. Therefore, land for construction designated for housing purposes falls within the scope of housing-allocated properties subject to Stamp Tax when valued above €1 million.
What are the grounds for annulling Stamp Tax assessments on high-value urban properties in Portugal?
Grounds for annulling Stamp Tax assessments on high-value urban properties include: (1) violation of the right to be heard, where the Tax Authority fails to notify taxpayers of assessments with factual and legal grounds or provide opportunity to comment before assessment, as required by Article 23(7) of the Stamp Tax Code and Articles 113-118 of CIMI; (2) error in legal presuppositions, where the property does not actually fall within Item 28.1's scope of housing-allocated properties; (3) alleged double taxation if the same taxable event is subject to both Stamp Tax and IMI; and (4) procedural defects in the assessment process. Constitutional challenges require separate proceedings before competent constitutional courts.
Does Stamp Tax on properties already subject to IMI violate the principle of prohibition of double taxation?
No, according to the Tax Authority's position in this case, Stamp Tax under Item 28.1 does not violate the prohibition of double taxation despite properties also being subject to IMI. The Authority argues there is no material contradiction because the taxes fall upon distinct legal realities: IMI taxes property ownership itself, while Stamp Tax under Item 28.1 taxes the special taxpaying ability revealed by holders of high-value housing properties exceeding €1 million. This interpretation is constitutionally justified under Article 103(1) of the Portuguese Constitution, particularly in the context of economic crisis where taxpayers demonstrating higher taxpaying ability cannot be equally protected as those with lesser means.
What happens if the Tax Authority fails to notify taxpayers before issuing Stamp Tax assessments under CIS Article 23?
If the Tax Authority fails to properly notify taxpayers before issuing Stamp Tax assessments, this constitutes a procedural violation that may serve as grounds for annulment. Article 23(7) of the Stamp Tax Code (TCS) incorporates by reference the assessment procedures from CIMI (Articles 113-118), which require notification of assessments with factual and legal grounds and provide taxpayers the right to be heard before final assessment. Failure to comply with these notification requirements and denial of the right to be heard violates Article 267(5) of the Portuguese Constitution and Article 60 of the General Tax Law, creating a procedural defect that can invalidate the assessment and lead to its annulment through arbitration or administrative challenge.