Process: 135/2015-T

Date: September 10, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

In Process 135/2015-T, the CAAD addressed whether Stamp Tax under Clause 28.1 of the General Stamp Duty Table (TGIS) applies to building land (terrenos para construção) valued over €1,000,000. The claimant owned property registered as building land with a tax patrimonial value of €1,801,795.06 and was assessed stamp duty of €18,017.95 (1%) for 2013. The taxpayer challenged the assessment, arguing that building land does not constitute 'property with residential use' under Verba 28.1 and that the taxation violated constitutional principles of equality and contributory capacity. The claimant contended it was unjustifiable to tax only residential properties exceeding €1 million while exempting industrial or commercial properties of similar value. The Tax Authority defended the assessment, arguing that 'residential use' encompasses both built properties and building land, emphasizing the legislative choice of 'residential use' rather than 'intended for residential purposes.' The Authority maintained that the potential construction right immediately increases property value and enables determination of residential use before actual construction. Regarding constitutional challenges, the Tax Authority argued Verba 28.1 is a general and abstract rule applied indiscriminately where legal requirements are met, with different property types justifying differential treatment based on legitimate political and economic policy choices. The stamp duty targets wealth embodied in high-value residential property as a suitable measure achieving maximum effectiveness with minimum detriment to other interests. The arbitral procedure followed standard CAAD protocols: filing on 26/02/2015, tribunal constitution on 30/04/2015, Tax Authority response, and waiver of oral hearing by mutual agreement. The case demonstrates key interpretative issues regarding real estate taxation thresholds, the scope of stamp duty on undeveloped land, and constitutional limits on wealth-based property taxation in Portugal.

Full Decision

ARBITRAL DECISION

REPORT

A…, S.A., a legal entity no. …, filed on 26/02/2015 a request for arbitral pronouncement, in which it seeks a declaration of illegality of the stamp duty assessment act for the year 2013.

The Honorable President of the Deontological Council of the Administrative Arbitration Centre (CAAD) appointed on 15/04/2015 Francisco Nicolau Domingos as arbitrator.

On 30/04/2015 the arbitral tribunal was constituted.

In compliance with the provision of art. 17, no. 1 of Decree-Law no. 10/2011, of 20 January (RJAT), the Tax Administration (AT) was notified on 05/05/2015 to, if it so wished, file a response and request the production of additional evidence.

On 05/06/2015 the Respondent filed its response and in a separate motion requested, in the absence of any objection that would prevent consideration of the merits, a waiver of the hearing referred to in art. 18 of the RJAT.

The Claimant on 09/06/2015 filed a motion in which it expressed its agreement with what is identified in section 1.5 hereof.

The tribunal, on 07/08/2015, decided to waive the holding of the hearing referred to in art. 18, no. 1 of the RJAT, on the basis of the principle of autonomy of the arbitral tribunal in the conduct of the proceedings and in the determination of the rules to be observed with a view to obtaining, within a reasonable time, a substantive pronouncement on the claims formulated, cfr. art. 16, letter c) of the RJAT, determined that the parties, if they so wished, file written submissions, and scheduled the date for delivery of the final decision for 10/09/2015.

Neither party filed final written submissions.

CURATIVE PROCEEDINGS

The proceedings do not suffer from any procedural defects, no issues have been raised that would prevent consideration of the merits of the case, the arbitral tribunal is duly constituted and is substantively competent to know and decide the request, and consequently the conditions are met for a final decision to be rendered.

  1. SUBJECT MATTER OF THE DISPUTE

The Claimant contends that the factual situation does not meet the tax norm of incidence. Or, stated differently, that item 28.1 of the General Table of Stamp Duty (TGIS) is not applicable to its property, which is registered in the property registry as "building land."

Furthermore, it adds that the assessment in question violates the constitutional principles of tax equality and contributory capacity, since, in its opinion, it is inexplicable why there is taxation only of immovable property intended for residential purposes, excluding those with a value exceeding €1,000,000 not so intended.

In its line of argument it further adds that: i) item 28.1 of the TGIS excludes from its scope immovable property of the same taxpayer dedicated to residential purposes that individually have a tax patrimonial value below €1,000,000, but which together exceed €1,000,000; ii) There is no justification, in light of the principle of equality and contributory capacity, to tax a taxpayer that owns a property with a tax patrimonial value equal to or exceeding €1,000,000 with residential use and not to tax, in another manner, a taxpayer that owns a property with a tax patrimonial value equal to or exceeding €500,000 with industrial use; iii) that the principle of contributory capacity (through the application of the principle of equivalence), an important criterion for the distribution of public taxes in service of tax equality, cannot have practical application to the present case, since item 28.1 of the TGIS does not present a commutative structure, and iv) the difference in treatment cannot be justified by saying that the provision in question pursues other reasonable grounds, that is, other legal principles and/or constitutionally protected legal interests that justify the inequality found.

The Claimant concludes by arguing that the act in question is illegal because it applies a rule that is not valid in light of a superior hierarchical rule, and therefore seeks a declaration of illegality of the act in question, restitution of the amount that was paid, and recognition of the right to indemnity interest.

The Respondent, for its part, argues that the concept of "property with residential use," for purposes of the provision in item 28 of the TGIS, comprises both built properties and building land, drawing attention to the literal wording of the rule. That is, in its view, it is relevant that the legislator did not opt for "properties intended for residential purposes," but for "residential use."

It further argues that the mere establishment of a potential right of construction immediately increases the value of the property in question and long before actual construction of the property, it is possible to ascertain and determine the residential use of the building land.

It concludes by stating that there is no breach of any constitutional principle, since item 28.1 of the TGIS is a general and abstract rule, applicable indiscriminately to all cases where the factual and legal requirements are met. That is, the different nature of properties (residential/services/commercial) supports different treatment, having been a choice of the legislator, for political and economic reasons, to exclude from the scope of stamp duty properties intended for purposes other than residential. In this regard, it also argues that taxation under stamp duty complies with suitability criteria, being applied indiscriminately to all holders of residential properties with a value exceeding €1,000,000, applying to the wealth embodied and demonstrated in the value of properties, whereby the measure implemented seeks maximum effectiveness as to the objective to be achieved, with minimum detriment to other interests deemed relevant.

  1. FACTS

4.1. FACTS DEEMED PROVEN

4.1.1. The Claimant is the owner of the property registered in the urban property registry of the parish of …, …, under entry no. ….

4.1.2. On 31/12/2013, the urban property was registered in the property registry as "building land," with a tax patrimonial value of €1,801,795.06.

4.1.3. The Claimant was notified of a stamp duty assessment for the year 2013, in the amount of €18,017.95, payable in 3 installments.

4.1.4. The voluntary payment period for the 3rd installment ended on 30/11/2014.

4.1.5. The Claimant, on 26/02/2015, filed the present request for arbitral pronouncement.

4.1.6. The Claimant made voluntary payment of €18,017.95 as follows:

a) €6,005.99 (1st installment), on 17/04/2014;

b) €6,005.98 (2nd installment), on 31/07/2014;

c) €6,005.98 (3rd installment), on 28/11/2014.

4.2. FACTS NOT DEEMED PROVEN

There are no facts relevant to the decision that have not been established as proven.

4.3. REASONING ON THE FACTS DEEMED PROVEN

The facts deemed proven are based on documents used for each of the facts alleged and whose authenticity was not questioned. Similarly, facts not contested and relevant to the decision to be rendered were also established.

  1. THE LAW

The first issue to be addressed by the tribunal is to delimit the scope of application of item no. 28.1 of the TGIS in its wording on the date of the taxable event. That is, it must be ascertained whether building land falls within the scope of the tax provision, as the Respondent argues, or whether, on the contrary, it is excluded from it.

To accomplish this task, it is necessary first to identify the provision whose interpretation the parties dispute.

Thus, item no. 28 of the TGIS provides that the following are subject to taxation: "Ownership, usufruct or right of superficies of urban immovable property whose tax patrimonial value as recorded in the registry, in accordance with the Code of Municipal Property Tax (CIMI), is equal to or greater than €1,000,000 – on the tax patrimonial value used for purposes of IMI:

28.1 - For property with residential use – 1%..."[1]

Therefore, it is first necessary to clarify the concept of "urban property with residential use" to which the provision under interpretation refers. Since it is not possible to resolve the question by reference to the Stamp Duty Code (CIS), it is by virtue of the provision of art. 67, no. 2 of the same statute necessary to apply the rules of the CIMI regarding the concept and categories of urban immovable property.

Consequently, art. 4 of the CIMI provides on the concept of urban property: "...all those that should not be classified as rural...". And art. 6, no. 1 of such statute continues: "Urban properties are divided into: a) Residential; b) Commercial, industrial or for services; c) Building land; d) Other." No. 2 provides that: "Residential, commercial, industrial or for services are the buildings or constructions licensed for such purpose or, in the absence of a license, which have as their normal purpose each of these ends."

Thus, for a property to be subsumed into each of the enumerated categories, the nature of the use is relevant, that is, the purpose for which it is intended.

Now, the stamp duty provision under analysis applies to properties that are already dedicated to residential purposes, that is, those to which such purpose has been given[2]. But it is legitimate to pose the following question: what about those properties (building land) with such purpose, or those in which the purpose is unknown, do they fall within the category of "properties with residential use"?

The answer to such question cannot but be in the negative. Indeed, the literal wording of the provision under analysis permits excluding from its scope of application those building land that have not realized any type of use, insofar as they are not yet applied or dedicated to residential purposes. In other words, it is not possible to subsume them as "properties with residential use," since they do not yet have any use or other purpose, except for construction of unknown type[3].

Even so, one may ask: do building land that are not yet applied to residential purposes but already have a determined right, such as a subdivision license, fall within the scope of application of item no. 28.1 of the TGIS? We believe not. Indeed, art. 6, no. 2 of the CIMI, subsidiarily applicable, points toward the necessity of an actual use.

In fact, the legislator did not use the expression "residential properties," but rather "properties with (emphasis added) residential use," that is, the property must already have effective use for that purpose.

This interpretative meaning becomes clear with reference to a summary of the words of the Honorable Secretary of State for Tax Affairs, at the time of presentation and discussion in Parliament of the legislative proposal[4], insofar as he argued that it: i) aimed to create a special rate on urban residential properties of higher value; ii) created special taxation on high-value properties intended for residential purposes, and iii) the rate would apply to properties with a value equal to or exceeding 1 million euros. Or, stated differently, the category to which the legislator refers with the expression "properties with residential use" are "houses."

The same interpretative meaning is maintained, even if it is considered that in the determination of the tax patrimonial value of urban properties classified as building land, account should be taken of the use that the construction authorized or provided for such land will have, with a view to ascertaining the value of the built-up area. This does not mean that building land should be classified as "properties with residential use," since this purpose refers, within the economy of the CIMI, to properties and constructions that may be inhabited[5].

Applying this interpretative meaning to the present proceedings, it must be stated that the building land that is the subject of the present case does not fall within the category of "properties with residential use" and, as such, the stamp duty assessment for 2013 must be declared illegal.

Even so, this interpretation might be thought to be undermined by the entry into force of Law no. 83-C/2013, of 31 December (State Budget Law for 2014), in the segment in which it rewrote item 28.1 of the TGIS, which now refers to the categories described in art. 6 of the CIMI, that is, "residential property" and "building land." However, we do not believe so, because, as the counselor ISABEL MARQUES DA SILVA argues[6]: "...the legislator did not intend to give interpretative effect (…), only makes it unequivocal for the future that building land whose construction, authorized or provided for, is for residential purposes are covered within the scope of item 28.1 of the General Table of Stamp Duty...". That is, nothing is clarified with regard to acts performed under the previous wording, and a different legislative choice is demonstrated with the reference to categories of urban property, i) residential and ii) building land. Consequently, such legislative amendment in no way modifies the decision expressed in the preceding paragraph.

For all these reasons, if the Claimant's property was registered in the property registry as building land on the date of the taxable event for the year 2013, the provision of incidence in question cannot be applied to the present case, under penalty of illegality. For which reason, the stamp duty assessment for 2013 must be annulled, with all legal consequences.

On the other hand, art. 43, no. 1 of the General Tax Law provides that: "Indemnity interest is owed, when it is determined, in administrative appeal or judicial review, that there was an error attributable to the tax authorities as a result of which the tax debt was paid in an amount exceeding the legally owed amount." In other words, there are three requirements for the right to such interest: i) existence of an error in a tax assessment act attributable to the tax authorities; ii) determination of such error in an administrative appeal or judicial review proceeding, and iii) payment of a tax debt in an amount exceeding the legally owed amount.

Thus, it is possible to pose the following question: is it permissible to determine payment of indemnity interest in a tax arbitration proceeding? The answer to the question is affirmative. Indeed, art. 24, no. 5 of the RJAT provides that: "Payment of interest, irrespective of its nature, is owed in accordance with the terms provided in the General Tax Law and in the Code of Tax Procedure and Process."

Having decided the issue, the illegality of the assessments is attributable to the Respondent, in light of the lack of normative support at the time of their performance. Consequently, the request for indemnity interest is granted, calculated at the rate determined in accordance with art. 43, no. 4 of the General Tax Law, from the date on which the overpayment was made until full reimbursement.

Finally, since the tribunal granted the Claimant's request for a declaration of illegality of the stamp duty assessment act for 2013, consideration of the remaining defects alleged is precluded, cfr. art. 124 of the Code of Tax Procedure and Process, applicable by virtue of the provision of art. 29, no. 1 of the RJAT.

  1. DECISION

On these grounds and with the reasoning described above, the tribunal finds the request well-founded, resulting in the annulment of the act that is the subject of the arbitral pronouncement, with all legal consequences, including restitution of the amount paid as stamp duty for 2013 and indemnity interest until full reimbursement.

  1. VALUE OF THE CASE

The value of the case is fixed at €18,017.95 in accordance with art. 97-A of the Code of Tax Procedure and Process, applicable by virtue of art. 29, no. 1, letter a) of the RJAT and art. 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

  1. COSTS

Costs to be borne entirely by the Respondent, in the amount of €1,224, cfr. art. 22, no. 4 of the RJAT and Schedule I annexed to the RCPAT.

Let notification be given.

Lisbon, 10 September 2015

The Arbitrator,

(Francisco Nicolau Domingos)

[1] In the wording in effect on the date of the taxable event.

[2] See in this sense, in particular, the decision of the Supreme Administrative Court, rendered in appeal 048/14, of 09/04/2014, for which the counselor ISABEL MARQUES DA SILVA was the reporting judge; the decision of the Supreme Administrative Court, rendered in appeal 046/14, of 14/05/2014, for which the counselor ASCENSÃO LOPES was the reporting judge, and the arbitral decision rendered in proceeding 53/2013-T, of 02/10/2013, for which the counselor JORGE LOPES DE SOUSA served as arbitrator-president.

[3] See decision rendered in proceeding 53/2013-T, of 02/10/2013, for which the counselor JORGE LOPES DE SOUSA served as arbitrator-president.

[4] Official Gazette of Parliament, Series I, no. 9/XII – 2, of 11 October, page 32.

[5] Decision of the Supreme Administrative Court, rendered in appeal 048/14, of 09/04/2014, for which the counselor ISABEL MARQUES DA SILVA was the reporting judge.

[6] In the decision of the Supreme Administrative Court no. 048/14, of 09/04/2014 reported by her.

Frequently Asked Questions

Automatically Created

Does Stamp Tax (Imposto do Selo) under Clause 28.1 of the TGIS apply to building land (terrenos para construção)?
The applicability of Stamp Tax under Clause 28.1 of the TGIS to building land (terrenos para construção) was disputed in Process 135/2015-T. The taxpayer argued that building land registered as 'terrenos para construção' does not constitute 'property with residential use' and therefore falls outside the scope of Verba 28.1. However, the Tax Authority maintained that the concept of 'residential use' encompasses both completed buildings and building land, emphasizing that the legislator deliberately chose the term 'residential use' rather than 'intended for residential purposes.' The Authority argued that the potential right to construct immediately increases property value and allows determination of residential use before actual construction occurs. The interpretative dispute centers on whether unbuilt land can have 'residential use' or whether taxation requires an existing residential structure.
What are the constitutional grounds for challenging Stamp Tax on high-value properties in Portugal?
The constitutional grounds for challenging Stamp Tax on high-value properties under Verba 28.1 include violations of the principles of tax equality (igualdade tributária) and contributory capacity (capacidade contributiva). Taxpayers may argue that taxing only residential properties valued at or above €1,000,000 while exempting non-residential properties (industrial, commercial, services) of equal or greater value constitutes unjustified discrimination. Additional constitutional arguments include: (1) horizontal inequality where multiple properties below €1 million individually but exceeding €1 million collectively escape taxation; (2) lack of proportionality between tax burden and actual economic capacity; (3) violation of the equivalence principle since stamp duty lacks a commutative structure linking tax to specific public services; and (4) absence of reasonable justification for differential treatment that cannot be explained by legitimate policy objectives or constitutionally protected interests. However, tax authorities typically defend such provisions as valid legislative choices based on political and economic policy considerations within the legislature's discretion.
How does the €1,000,000 property tax value threshold affect Stamp Tax liability under Verba 28.1?
The €1,000,000 tax patrimonial value threshold is the triggering requirement for Stamp Tax liability under Verba 28.1 of the TGIS. Properties with tax patrimonial values (valor patrimonial tributário) equal to or exceeding €1,000,000 as recorded in the property registry according to the Municipal Property Tax Code (CIMI) become subject to annual stamp duty at 1% of the VPT for residential use properties. Properties below this threshold are exempt regardless of other characteristics. The threshold applies to individual properties, not aggregate holdings, creating potential inequality where taxpayers owning multiple properties each valued under €1 million escape taxation despite total wealth exceeding €1 million. In Process 135/2015-T, the property's VPT of €1,801,795.06 clearly exceeded the threshold, triggering the €18,017.95 assessment (1% rate). The threshold represents a policy decision to target taxation at high-value properties reflecting significant wealth concentration, though critics argue the arbitrary cutoff creates distortions and fails to capture true contributory capacity across diverse property portfolios.
What is the CAAD arbitral procedure for contesting Stamp Tax assessments in Portugal?
The CAAD (Centro de Arbitragem Administrativa) arbitral procedure for contesting Stamp Tax assessments follows the regime established in Decree-Law 10/2011 (RJAT). Taxpayers must file a request for arbitral pronouncement within the statutory deadline after the voluntary payment period expires. In Process 135/2015-T, the request was filed on 26/02/2015 after the third installment payment period ended 30/11/2014. The CAAD President appoints an arbitrator, and the tribunal is formally constituted. Under Article 17(1) RJAT, the Tax Authority is notified to file a response and request additional evidence if desired (typically 30 days). The tribunal may waive the oral hearing under Article 18 RJAT if both parties agree and the tribunal deems it appropriate based on procedural autonomy principles. Parties may submit written arguments in lieu of hearings. The tribunal must issue its decision within the timeframe established at the outset. The procedure provides an alternative to judicial tax courts, offering specialized, expedited resolution of tax disputes with binding arbitral decisions on assessment legality, restitution of amounts paid, and indemnity interest where applicable.
Does the equal taxation principle require Stamp Tax to apply to non-residential properties valued over €1 million?
The equal taxation principle does not necessarily require Stamp Tax to apply to non-residential properties valued over €1 million under current Portuguese tax law and constitutional jurisprudence. In Process 135/2015-T, the Tax Authority argued that Verba 28.1 of the TGIS represents a legitimate legislative choice to tax residential properties differently from commercial, industrial, or service properties based on rational policy grounds. The principle of equality (Article 13 of the Portuguese Constitution) permits differential treatment when based on reasonable, objective criteria related to legitimate public policy objectives. The legislature may distinguish between residential and non-residential property taxation based on considerations such as: (1) different economic functions and social importance of housing versus commercial assets; (2) political decisions regarding wealth distribution and housing policy; (3) administrative feasibility and compliance considerations; and (4) broader tax system coherence where different property types face different overall tax burdens. While taxpayers may challenge such distinctions as arbitrary or lacking proportionality, courts generally defer to legislative discretion in tax policy design absent clear constitutional violations. The contributory capacity principle requires taxation to reflect economic capacity but does not mandate identical treatment of qualitatively different assets or economic activities.