Process: 138/2013-T

Date: December 20, 2013

Tax Type: Selo

Source: Original CAAD Decision

Summary

Process 138/2013-T addressed whether Verba 28.1 of the Portuguese Stamp Tax General Table (TGIS), introduced by Law 55-A/2012, applies to building land (terrenos para construção) valued over €1,000,000. The taxpayer challenged Stamp Tax assessments totaling €8,885.70, arguing that Verba 28.1 should only apply to actual dwellings that manifest high contributive capacity, not undeveloped land for construction. The taxpayer contended that extending the tax to building land violated constitutional equality principles, as only completed residential properties demonstrate the wealth expression the legislator intended to tax during austerity measures. The Tax and Customs Authority defended the assessments, arguing that the property was registered with residential purpose under cadastral records. The AT invoked Article 67(2) of the Stamp Tax Code, which provides for subsidiary application of the IMI Code provisions. The Authority argued that 'residential purpose' is a broader concept than 'dwelling,' encompassing building land classified with housing destination under IMI valuation methodology. The AT contended that the purpose coefficient applicable to building land valuation under Article 41 of the IMI Code determines whether such land falls within Verba 28.1's scope. This case highlights the interpretative challenges of applying wealth-based stamp taxation to properties at different development stages and the constitutional boundaries of fiscal capacity taxation. The arbitration proceeding was filed under RJAT (Decree-Law 10/2011), demonstrating CAAD's role as an alternative dispute resolution mechanism for challenging Portuguese tax assessments.

Full Decision

ARBITRATION PROCEEDING NO. 138/2013-T

Claimant

A

Respondent

Tax and Customs Authority

1. REPORT

1.1. A, taxpayer no. …, domiciled in …, hereby requests, pursuant to article 10 of Decree-Law no. 10/2011 of 20 January ("RJAT"), the constitution of an Arbitral Tribunal.

The Claimant requests a ruling with a view to declaring the illegality, with all legal consequences, of the tax assessment acts relating to Stamp Tax levied by the Tax and Customs Authority in the amount of € 8,885.70 ("Contested tax acts", which are contained in documents 2 and 4 attached with the request for arbitral ruling).

The Claimant contends, in summary, that:

a) Item 28.1 of the General Table of Stamp Tax ("GTST") is inapplicable to land for construction;

b) The said item was introduced by the legislator in the GTST to strengthen the principle of social equity in austerity and was intended to tax the ownership of immovable property that clearly manifests expressions of wealth;

c) Only those who have a particularly high contributive capacity can bear the costs of acquisition and maintenance associated with dwellings with a tax property value exceeding € 1,000,000;

d) The property which was the subject of the Stamp Tax assessment is not a dwelling, but land for construction;

e) And, notwithstanding its aptitude for having dwellings or buildings with other purposes constructed on it, it is not itself an immovable property capable of being inhabited;

f) The only interpretation of item 28.1 of the GTST in conformity with the Constitution of the Portuguese Republic is the one that applies exclusively to properties immediately intended for housing, since only these reveal the contributive capacity which the legislator intended to reach;

g) Interpreting that item differently, making it extend to land for construction, would render it incompatible with the principle of equality constitutionally enshrined;

h) In levying Stamp Tax on the ownership of land for construction, the Tax and Customs Authority committed an illegality.

1.2. The Tax and Customs Authority responded, raising no preliminary issue and defending, on the merits of the Claimant's claim, that the request made should not be granted.

The position of the Tax and Customs Authority is based on the defense that the property registered in the cadastre under article ..., of the parish of ..., municipality of …, has a residential purpose.

In reaching this conclusion, the Tax and Customs Authority contends that:

a) In the absence of any definition of the concepts of urban property, land for construction and residential purpose in the context of Stamp Tax, it is necessary to resort to the Code of Municipal Property Tax ("IMI Code");

b) Indeed, article 67, no. 2 of the Stamp Tax Code provides that matters not regulated in the present Code, relating to item 28 of the GTST, are subsidiarily subject to the provisions of the IMI Code;

c) The notion of the purpose of urban property is found in the section relating to the valuation of immovable property, which is well understood since the valuation of the property (purpose) incorporates value to the property, constituting a determining distinguishing fact (coefficient) for purposes of valuation;

d) The legislator chose to determine the application of the methodology of valuation of properties in general to the valuation of land for construction, with the purpose coefficient provided for in article 41 of the IMI Code being applicable to them;

e) If, for purposes of determining the tax property value of land for construction, the application of the purpose coefficient is clear, its consideration for purposes of applying item 28 of the GTST cannot be ignored, inasmuch as:

a. In the application of law to concrete cases, it is necessary to determine the exact meaning and scope of the norm, so as to reveal the rule contained in it, an indispensable condition for it to be applied, in accordance with the provisions of article 9 of the Civil Code, applicable ex vi article 11 of the General Tax Law;

b. Article 67, no. 2 of the Stamp Tax Code orders the subsidiary application of the provisions of the IMI Code;

c. The purpose of the property (aptitude or intended use) is a coefficient that contributes to the valuation of the property, in the determination of the tax property value, applicable to land for construction;

d. Item 28 of the GTST itself refers to the expression "properties with residential purpose", appealing to a classification that overlaps the species provided in no. 1 of article 6 of the IMI Code;

f) Item 28 of the GTST comprises both constructed properties and land for construction;

g) The legislator does not refer to "properties intended for housing", having opted for the notion of "residential purpose", an expression different and broader whose meaning must be found in the need to integrate other realities beyond those identified in article 6, no. 1, paragraph a) of the IMI Code;

h) Concluding that the assessments in question embody a correct interpretation and application of the law to the facts, suffering from no defect of violation of law.

1.3. On 18 November 2013, the meeting provided for in article 18 of the RJAT took place, at which it was agreed that there was no need for additional evidence production and the holding of submissions.

2. EXAMINATION OF PROCEDURAL REQUIREMENTS

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

The parties have standing and legal capacity, are shown to be legitimate and are regularly represented (cf. articles 4 and 10, no. 2 of the RJAT and article 1 of Ordinance no. 112-A/2011 of 22 March).

No procedural irregularities were identified.

3. REASONING

3.1. Factual Matters

3.1.1. Facts Established as Proved

a) The Claimant is the owner of a quota corresponding to 50% of the urban property composed of land for construction, registered under article ... of the urban cadastre of the parish of …, municipality of … (document no. 1, attached with the request for arbitral ruling, the content of which is hereby reproduced);

b) In November 2012, the Claimant was notified of the tax assessment act for Stamp Tax no. 2012 …, relating to the year 2012, in the amount of € 2,961.90, made pursuant to no. 1 of article 6 of Law no. 55-A/2012 of 29 October (document no. 2, attached with the request for arbitral ruling, the content of which is hereby reproduced), with a payment deadline of 20 December 2012, and made the respective payment on that date;

c) On 21 March 2013, the Claimant filed an administrative reconsideration of the tax assessment act for Stamp Tax, which was denied (document no. 3, attached with the request for arbitral ruling, the content of which is hereby reproduced);

d) In April 2013, the Claimant was notified of the tax assessment act for Stamp Tax no. 2013 …, relating to the year 2013, in the amount of € 5,923.80, made pursuant to no. 2 of article 6 of Law no. 55-A/2012 of 29 October and item 28.1 of the GTST (document no. 4, attached with the request for arbitral ruling, the content of which is hereby reproduced), with a payment deadline for the first installment in April 2013, and made the respective payment on an unspecified date;

e) On 17 June 2013, the Claimant filed the request for constitution of the Arbitral Tribunal.

3.1.2. Facts Found Not Proved

There are no facts relevant to the decision which are found not proved.

3.1.3. Reasoning of the Factual Matters Proved

The established facts are based on the documents indicated in point 3.1.1 above, whose authenticity and correspondence to reality were not questioned.

3.2. On the Law

3.2.1. With regard to the merits of the case, the question that is the subject of the present proceeding is whether Stamp Tax is incurred in accordance with item 28.1 of the GTST, added by article 4 of Law no. 55-A/2012 of 29 October, on the ownership, usufruct or right of superficies of land for construction.

No. 1 of article 1 of the Stamp Tax Code provides that "Stamp Tax shall be levied on all acts, contracts, documents, titles, papers and other facts or legal situations provided in the General Table, including gratuitous transfers of property."

Item 28.1 of the GTST was introduced by article 4 of Law no. 55-A/2012 of 29 October with the following wording:

"Ownership, usufruct or right of superficies of urban properties whose tax property value shown in the cadastre, in accordance with the Code of Municipal Property Tax (CMPT), is equal to or greater than (euro) 1,000,000 - on the tax property value used for purposes of IMI:

28.1 For property with residential purpose: 1%"

Article 6 of Law no. 55-A/2012 provides for the rules applicable to the assessment of Stamp Tax to the factual situation provided in item 28.1 and specifically:

"Article 6

Transitional Provisions

1 - In 2012, the following rules shall be observed with regard to the assessment of Stamp Tax provided in item no. 28 of the respective General Table:

a) The taxable fact occurs on 31 October 2012;

b) The passive subject of the tax is the one mentioned in no. 4 of article 2 of the Stamp Tax Code on the date referred to in the preceding subparagraph;

c) The tax property value to be used in the assessment of the tax corresponds to that which results from the rules provided in the Code of Municipal Property Tax with reference to the year 2011;

d) The assessment of the tax by the Tax and Customs Authority shall be carried out by the end of November 2012;

e) The tax shall be paid in a single installment by the passive subjects by 20 December 2012;

f) The applicable rates are as follows:

i) Properties with residential purpose valued in accordance with the IMI Code: 0.5%;

ii) Properties with residential purpose not yet valued in accordance with the IMI Code: 0.8%;

iii) Urban properties when the passive subjects that 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 ordinance of the Minister of Finance: 7.5%.

2 - In 2013, the assessment of Stamp Tax provided in item no. 28 of the respective General Table shall be based on the same tax property value used for purposes of municipal property tax assessment to be carried out in that year.

3 - The failure to deliver, in whole or in part, within the time limit indicated, the amounts assessed as Stamp Tax constitutes a tax violation, punishable in accordance with the law."

It results from the aforementioned provisions that Stamp Tax is incurred:

a) On ownership, usufruct or right of superficies;

b) Of property with residential purpose; and

c) With Tax Property Value ("TPV") shown in the cadastre, in accordance with the IMI Code, equal to or greater than € 1,000,000.

The question at issue is whether the concept of "property with residential purpose" includes land for construction.

The said concept is not found in tax legislation, in particular in the IMI Code, which constitutes the subsidiary legislation for purposes of tax assessment (cf. articles 23, no. 7, 46 and 67 of the Stamp Tax Code).

Nevertheless, that tax compendium defines various concepts of properties. In this regard, it is important to note the relevant legal provisions in this matter, which are transcribed below:

"Article 2

Concept of Property

1 - For purposes of this Code, property is any portion of territory, including waters, plantings, buildings and constructions of any nature incorporated in or standing on it, with a permanent character, provided that it forms part of the assets of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantings, buildings or constructions, in the previous circumstances, endowed with economic autonomy in relation to the land on which they are located, although situated in a portion of territory that constitutes an integral part of a different asset or has no patrimonial nature.

2 - Buildings or constructions, although mobile in nature, shall be deemed to have a permanent character when used for non-transitory purposes.

3 - Permanent character is presumed when buildings or constructions have been standing in the same location for a period exceeding one year.

4 - For purposes of this tax, each autonomous fraction, under the horizontal property regime, is deemed to constitute a property.

Article 3

Rural Properties

1 - Rural properties are lands situated outside an urban settlement that may not be classified as land for construction, in accordance with no. 3 of article 6, provided that:

a) They are dedicated or, in the absence of concrete dedication, have as their normal purpose a use generating agricultural income, as are considered for purposes of personal income tax (IRS);

b) Not having the dedication indicated in the preceding subparagraph, they are not constructed or only have buildings or constructions of an accessory character, without economic autonomy and of reduced value.

2 - Also rural properties are lands situated within an urban settlement, provided that, by virtue of a legally approved provision, they cannot have use generating any income or can only have use generating agricultural income and are in fact having this dedication.

3 - Also rural properties are:

a) Buildings and constructions directly dedicated to the production of agricultural income, when situated on the lands referred to in the preceding numbers;

b) Waters and plantings in the situations to which no. 1 of article 2 refers.

4 - For purposes of this Code, urban settlements are considered, in addition to those situated within legally fixed perimeters, the nuclei with a minimum of 10 dwellings served by public roadways, with their perimeter delimited by points distanced 50 m from the axis of the roadways in the transversal direction and 20 m from the last building in the direction of the roadways.

Article 4

Urban Properties

Urban properties are all those that may not be classified as rural, without prejudice to the provisions of the following article.

Article 5

Mixed Properties

1 - Whenever a property has rural and urban parts, it is classified in its entirety in accordance with the principal part.

2 - If neither of the parts may be classified as principal, the property is deemed mixed.

Article 6

Species of Urban Properties

1 - Urban properties are divided into:

a) Residential;

b) Commercial, industrial or for services;

c) Land for construction;

d) Other.

2 - Residential, commercial, industrial or for services are buildings or constructions licensed for such purpose or, in the absence of a license, that have as their normal purpose each of these ends.

3 - Land for construction is considered the lands situated inside or outside an urban settlement for which a license or authorization has been granted, prior notification admitted or favorable prior information issued for a subdivision or construction operation, and also those that have been so declared in the acquisition title, except lands in which the competent entities prohibit any of those operations, namely those located in green zones, protected areas or which, in accordance with municipal land planning plans, are dedicated to spaces, infrastructures or public facilities.

4 - Falling within the provision of subparagraph d) of no. 1 are lands situated within an urban settlement that are not land for construction nor are covered by the provision of no. 2 of article 3, and also buildings and constructions licensed or, in the absence of a license, that have as their normal purpose other ends than those referred to in no. 2 and also those of the exception in no. 3."

What the aforementioned provisions do not say and what it falls to this Arbitral Tribunal to examine and decide is what is understood by "property with residential purpose", as provided in item 28.1 of the GTST, and the respective scope of the reality of land for construction. In other words, it is necessary to interpret the said concept.

In matters of interpretation of tax laws, it is important to consider, first and foremost, article 11 of the General Tax Law:

"Article 11

Interpretation

1 - In determining the meaning of tax norms and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are observed.

2 - Whenever tax norms employ terms specific to other branches of law, the same shall be interpreted in the same sense in which they are used there, unless otherwise follows directly from the law.

3 - If doubt persists regarding the meaning of the applicable incidence norms, the economic substance of the tax facts must be taken into account.

4 - Gaps resulting from tax norms covered by the reservation of law of the Assembly of the Republic are not susceptible to analogical integration."

The general principles of interpretation of laws, mentioned in no. 1 of article 11 above are established in article 9 of the Civil Code, in the following terms:

"Article 9

Interpretation of Law

  1. Interpretation must not be confined to the letter of the law, but must reconstruct from the texts the legislative intent, taking especially 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.

  2. However, the interpreter cannot consider the legislative intent that does not have in the letter of the law a minimum of verbal correspondence, although imperfectly expressed.

  3. In determining the meaning and scope of the law, the interpreter shall presume that the legislator adopted the most correct solutions and was able to express its intent in adequate terms."

As already stated, tax legislation, in particular the IMI Code, does not include a definition of the concept of "property with residential purpose".

Given the absence of an exact terminological correspondence of the concept of "property with residential purpose" with any other used in other enactments, it is necessary to interpret the norm, bearing in mind, however, that the literal element cannot be ignored, since, in light of article 11 of the General Tax Law, the interpreter must observe the general rules and principles of interpretation and application of laws provided in article 9 of the Civil Code, which requires reconstructing from the texts the legislative intent, and it must be presumed that "the legislator adopted the most correct solutions and was able to express its intent in adequate terms."[1]

Article 6, no. 1, subparagraph a) and no. 2 of the IMI Code refers to "residential urban property", which corresponds to buildings or constructions licensed for such purpose or, in the absence of a license, that have as their normal purpose that end.

The expression provided for in the aforementioned provision of the IMI Code presents some similarity to the concept contained in item 28.1 of the GTST, however, it is not entirely coincident. On the other hand, on the assumption that "the legislator adopted the most correct solutions and was able to express its intent in adequate terms", if the legislator distinguished and used different terminology, it is because it intended to do so.

Therefore, the lack of exact coincidence between the two expressions – in this case, the expression contained in item 28.1 of the GTST and that provided in subparagraph a) of no. 1 and no. 2 of article 6 of the IMI Code – leads us to conclude that the legislator did not intend to use the same concept.

The concept provided in item 28.1 of the GTST goes further, it presupposes a "purpose", which may be defined as "destination, application to a determined end"[2].

For its part, the IMI Code uses, in various articles, the expression "purpose" but always with the intention that it be effective. See, by way of example, articles 3 and 27 of this tax compendium.

Now, the legislator's intention was clearly to encompass in the aforementioned item 28.1 of the GTST the properties that are already applied to residential purposes.

In the same sense, the said item should be interpreted to mean that it does not cover properties that do not yet have any type of defined use, since they are not applied to residential purposes.

In sum, the legislator intended only to target those properties that are already "dedicated" to a determined purpose.

Without prejudice to the foregoing, it is still necessary to determine whether the said concept of "property with residential purpose" includes properties (e.g., land for construction) that, while not yet applied to residential purposes, already have a pre-determined purpose (namely, in the subdivision license) or only when the actual assignment of that purpose is made concrete (through the building or construction that permits such use).

From the joint analysis of item 28.1 of the GTST and subparagraph a) of no. 1 and no. 2 of article 6 of the IMI Code, it is concluded that the better interpretation is that "property with residential purpose" presupposes actual dedication, not including land for construction that, although not yet applied to residential purposes, already have a pre-determined purpose, in particular in the subdivision license.

Indeed, and as already mentioned, there is a clear terminological difference between the concepts established in item 28.1 of the GTST and in subparagraph a) of no. 1 and no. 2 of article 6 of the IMI Code.

If the legislator intended the concept of "property with residential purpose" to include properties licensed for housing or, even without a license, that had as their normal purpose housing, it would have used the terminology contained in no. 2 of that article 6 of the IMI Code, which defines these properties as "residential properties", which it clearly did not do.

Consequently, the concept of "property with residential purpose" aims at a different reality, requiring actual residential dedication.

The Respondent's thesis that the purpose coefficient in the valuation context conferred on the property should prevail for purposes of item 28.1 of the GTST does not merit acceptance, since such a fact does not by itself determine the actual dedication of the property to a determined purpose.

In view of the foregoing, insofar as the property on which the contested tax assessment acts are levied does not have actual residential dedication, it is decided in favor of the Claimant with respect to the alleged defect of violation of law due to error in the legal presuppositions, and accordingly the Stamp Tax assessment acts in question shall be annulled.

4. OPERATIVE PART

In view of the foregoing, the Claimant's request is granted and, consequently, the Stamp Tax assessment acts nos. 2012 … and 2013 … are annulled on the grounds of a defect of violation of law due to error in the legal presuppositions, it being determined that the amount paid shall be reimbursed to the Claimant in accordance with law.

Case Value: Fixed at € 8,885.70 (eight thousand, eight hundred and eighty-five euros and seventy cents), in accordance with the provisions of article 3, no. 2 of the Rules on Costs in Tax Arbitration Proceedings ("RCPAT"), in article 97-A, no. 1 of the Code of Tax Procedure and Process and in article 306, no. 2 of the Code of Civil Procedure.

Costs: Fixed at € 918.00 (nine hundred and eighteen euros) the value of costs, in accordance with Table I annexed to the RCPAT, to be borne by the Respondent.

Notify.

Lisbon, 20 December 2013.

The drafting of the present decision is governed by the former spelling.

The Arbiter,

Lina Ramalho

[1] Cf. article 9, no. 3 of the Civil Code.

[2] In Priberam Dictionary of the Portuguese Language, 2008-2013, available at http://www.priberam.pt/dlpo/afectação.

Frequently Asked Questions

Automatically Created

Does Verba 28.1 of the Portuguese Stamp Tax General Table (TGIS) apply to building land (terrenos para construção)?
The central dispute in Process 138/2013-T concerned whether Verba 28.1 of the TGIS applies to building land (terrenos para construção). The taxpayer argued it applies only to actual dwellings capable of habitation that demonstrate wealth expression, while the Tax Authority contended that building land registered with residential purpose under the cadastral system falls within the scope of Verba 28.1. The AT relied on Article 67(2) of the Stamp Tax Code, which makes IMI Code provisions subsidiarily applicable, arguing that the 'residential purpose' classification used in IMI property valuation determines applicability regardless of whether construction has occurred.
What was the taxpayer's constitutional argument against Stamp Tax on building land valued over €1,000,000?
The taxpayer's constitutional argument centered on the principle of equality and the tax's purpose as an austerity measure targeting wealth manifestation. The taxpayer contended that Verba 28.1 was introduced to tax ownership of properties clearly demonstrating high contributive capacity—specifically, dwellings valued over €1,000,000 whose acquisition and maintenance costs only those with particularly high wealth can bear. Extending Stamp Tax to undeveloped building land would violate constitutional equality principles because such land, despite potential for housing construction, does not itself constitute habitable property or manifest the same wealth expression. The only constitutionally conforming interpretation, the taxpayer argued, limits Verba 28.1 to properties immediately intended for housing use.
How did the Tax Authority (AT) justify applying Stamp Tax to building land with housing designation under the IMI Code?
The Tax Authority justified applying Stamp Tax to building land by invoking the subsidiary application of the IMI Code under Article 67(2) of the Stamp Tax Code. The AT argued that the property's cadastral registration showed residential purpose, and that IMI valuation methodology applies a purpose coefficient (Article 41 IMI Code) to building land. The Authority distinguished between 'residential purpose' (afetação habitacional)—a broader valuation classification—and 'properties intended for housing,' arguing the legislator deliberately chose the former expression to encompass both constructed dwellings and building land designated for residential development. Since the purpose coefficient contributes to determining tax property value for building land, the AT contended this classification must be considered when applying Verba 28.1 of the TGIS.
What is the role of CAAD arbitration in challenging Stamp Tax (Imposto do Selo) assessments in Portugal?
The CAAD (Centro de Arbitragem Administrativa) plays a crucial role as an alternative dispute resolution mechanism for challenging Portuguese tax assessments, including Stamp Tax. Under the RJAT (Regime Jurídico da Arbitragem em Matéria Tributária, established by Decree-Law 10/2011), taxpayers can request constitution of an arbitral tribunal to challenge tax assessment acts' legality. In Process 138/2013-T, the taxpayer invoked Article 10 of RJAT after the Tax Authority denied an administrative reconsideration request, seeking a declaration of illegality of Stamp Tax assessments under Verba 28.1. CAAD arbitration provides a faster, specialized forum compared to judicial courts, with the arbitral tribunal having competence to examine both procedural and substantive tax law issues, including constitutional interpretation questions.
Does owning building land with housing construction potential constitute a manifestation of wealth under Portuguese tax law?
Whether owning building land with housing construction potential constitutes a manifestation of wealth under Portuguese tax law was the core substantive issue in this proceeding. The taxpayer argued that undeveloped land for construction does not manifest the contributive capacity Verba 28.1 targets—only completed dwellings valued over €1,000,000 demonstrate the wealth expression justifying this austerity-era tax measure. The Tax Authority took the opposing view, contending that building land registered with residential purpose under the IMI cadastral system represents sufficient wealth manifestation to fall within Verba 28.1's scope. The Authority's position treats the land's aptitude and intended residential use, as reflected in valuation coefficients, as demonstrating economic capacity warranting taxation, regardless of whether construction has occurred.