Process: 140/2017-T

Date: October 12, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration decision (Process 140/2017-T) addressed the application of Stamp Tax under Verba 28 of the General Stamp Tax Table (TGIS) to urban properties classified as 'land for construction' (terreno para construção). The taxpayer owned an urban property with a taxable property value of €2,139,570.00, which was subdivided in December 2015 into two new properties valued at €1,373,470.00 and €51,370.00. The Tax Authority assessed Stamp Tax for 2015 totaling €21,395.70 on the original property, which the taxpayer paid. The taxpayer challenged the assessment through CAAD arbitration. During proceedings, the Tax Authority raised the issue of supervening futility of the dispute (inutilidade superveniente da lide), arguing that the original registration article had been eliminated on March 20, 2017, with retroactive effect to December 17, 2015. A corrective assessment of €0.00 was issued, and the system automatically processed a refund of €21,395.70. The arbitral tribunal agreed that the revocation of the contested acts made it unnecessary to assess their legality. Despite the taxpayer's failure to respond to the tribunal's order regarding extinction of proceedings, the tribunal proceeded under article 19(1) of the LRTA, which permits continuation despite party non-appearance. The tribunal concluded that supervening futility constituted grounds for extinction under article 287(e) of the Civil Procedure Code. Regarding procedural costs, the tribunal applied article 536(1) of the CPC, which provides for equal apportionment when a claim was well-founded initially but ceased to be so due to supervening circumstances not attributable to the parties. This case clarifies that Verba 28 applies to construction land exceeding €1,000,000 in value, and demonstrates how property subdivisions can affect Stamp Tax liability retroactively when administrative corrections are made.

Full Decision

ARBITRAL DECISION

REPORT

A…, taxpayer no. …, resident at …, no. …, …, Oeiras (Applicant), filed on 24/02/2017 an application for arbitral decision, in which he petitions for the annulment of the Stamp Tax assessment acts of the year 2015, in the total amount of € 21,395.70.

The Honourable President of the Ethics Council of the Administrative Arbitration Centre (CAAD) designated, on 10/03/2017, the signatory of this decision as sole arbitrator.

On 23/05/2017 the arbitral tribunal was constituted.

In compliance with the provisions of paragraph 1 of article 17 of the Legal Regime for Tax Arbitration (LRTA), the Tax and Customs Authority (TCA) was notified on 23/05/2017 to, if it so wished, submit a response and request the production of additional evidence.

On 27/06/2017 the TCA responded, raising the issue of supervening futility of the dispute.

On 27/06/2017, by arbitral order, the Applicant was notified to pronounce itself on the extinction of the proceedings due to supervening futility of the dispute.

The Applicant submitted no request in response to the content of the aforementioned arbitral order.

Thus, on 11/09/2017, by arbitral order, this arbitral tribunal decided, in accordance with the procedural principles set forth in article 16 of the LRTA, to set the date for delivery of the final decision.

Neither the TCA nor the Applicant submitted optional written submissions.

PROCEDURAL REMEDIES

The arbitral tribunal was regularly constituted.

The parties have legal personality and capacity and are legitimate, with no defects of representation occurring.

The proceedings do not suffer from defects affecting its validity.

Consequently, the conditions are met for the final decision to be delivered.

FACTUAL MATTER

FACTS CONSIDERED PROVEN

In view of the documents brought into the proceedings, it is given as proven that:

The Applicant is the owner of an urban property registered in the urban property register of the parish of …, in Setúbal, under the registration article no. …, with a taxable property value of € 2,139,570.00.

The Applicant requested a subdivision of the urban property of which he was the owner in the parish of …, in Setúbal, which was approved by the Municipal Council of Setúbal on 16/12/2015, registered by the Land Registry Office of Lisbon on 22/12/2015, and communicated to the TCA on 17/12/2015 for the purpose of assessment of the two new properties.

Following the subdivision, on 31/12/2015, the Applicant is the owner of two urban properties registered in the urban property register of the parish of …, municipality of Setúbal, under the registration articles no. … and no. ….

Both urban properties are identified by the TCA in the respective property register and in the notification of the result of the 2nd assessment as "land for construction".

The Applicant was notified of the Stamp Tax assessment relating to the year 2015 of the urban property identified under the registration article no. …, in the total amount of € 21,395.70, the collection of which was divided into three installments with payment deadlines in the months of April, July and November 2016 (cf. Stamp Tax assessment acts no. 2016 …, no. 2016…, and no. 2016…).

The Applicant proceeded to pay the aforementioned collection notices within the applicable deadlines.

In 2016, assessment operations of the two new properties resulting from the subdivision operation took place, which resulted in the assignment to the property with an area of 4,193.84 m2 of a taxable property value of € 1,373,470.00 (corresponding to the article … of the parish of …, in Setúbal) and, in the case of the property with an area of 2,352.84 m2 (corresponding to the article … of the parish of …, in Setúbal) a taxable property value of € 51,370.00.

The northern part of the land in question (corresponding to the article … of the parish of … in Setúbal) is occupied by several persons illegally.

Due to the illegal constructions erected by the aforementioned occupants on his land, the Applicant was required by the Municipal Council of Setúbal to proceed with the demolition and cleaning of those constructions.

An order that he cannot comply with without judicial intervention because the occupant allegedly uses the aforementioned makeshift constructions as a "second dwelling".

Considering that the five occupants of the land refused to leave voluntarily, the Applicant had to notify them by means of separate judicial notifications to leave.

Meanwhile, the Applicant also presented actions for recovery of possession, which ran their course in the Court of the District of Setúbal, in one of which he was upheld but the occupant did not leave; in the other, the Applicant ended up reaching an agreement with the occupant.

In 2015, the Applicant presented to the Municipal Council of Setúbal an application for a subdivision licence for the aforementioned land for construction.

In the scope of that process, the Municipal Council of Setúbal informed the Applicant that it would not issue the subdivision permit without prior demolition of the constructions existing therein.

The Applicant presented on 24/02/2017 the application for arbitral decision in question.

FACTS NOT CONSIDERED PROVEN

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

PRELIMINARY ISSUE TO BE DECIDED

The TCA raises the issue of supervening futility of the dispute, because the registration article no. … was eliminated on 20/03/2017, with effect from 17/12/2015, with automatic issuance of a corrective assessment (€ 0.00) on 21/03/2017, the TCA's computer system having automatically carried out refund operations in the amount of € 21,395.70.

Without prejudice to the fact that the Applicant did not pronounce itself on the extinction of the proceedings due to supervening futility of the dispute, pursuant to article 19, paragraph 1, of the LRTA, "the non-appearance of either party at a procedural act, the absence of a defence or the failure to produce any requested evidence shall not prevent the continuation of the proceedings and the consequent issuance of an arbitral decision based on the evidence produced, in accordance with the principle of free appraisal of evidence and the autonomy of the arbitral tribunal in the conduct of the proceedings."

Consequently, the revocation of the contested assessment acts makes it unnecessary to assess their illegality and leads to the conclusion that there is supervening futility of the dispute, as the TCA contends.

Now, supervening futility of the dispute is a cause for extinction of the proceedings pursuant to article 287, letter e) of the Civil Procedure Code (CPC).

PROCEDURAL COSTS

In accordance with the provision in article 22, paragraph 4, of the LRTA, "the arbitral decision rendered by the arbitral tribunal shall include the determination of the amount and apportionment between the parties of the costs directly resulting from the arbitral proceedings (…)".

In general terms, in accordance with the provision in article 527, paragraph 1 of the CPC (applicable by virtue of the reference provided in article 29, paragraph 1, letter e) of the LRTA), the decision that judges the action or some of its incidents or remedies condemns to costs the party that caused them or, if there is no success on the merits of the action, whoever benefited from the proceedings.

In this context, paragraph 2 of the aforementioned article specifies the expression "caused", according to the principle of failure, understanding that the losing party causes costs of the proceedings to the extent that it is.

However, in accordance with the provision in article 536, paragraph 1 of the CPC, "when the claim of the (…) applicant or the opposition of the (…) were well-founded at the moment they were instituted or raised and ceased to be so due to supervening circumstances not attributable to them, the costs shall be apportioned equally between them", and pursuant to paragraph 3 of the same article, in the case of extinction of the proceedings due to supervening futility of the dispute, "(…) the responsibility for costs shall fall upon the (…) applicant, unless such impossibility or futility is attributable to the (…) respondent, in which case the respondent is responsible for all costs" [our emphasis].

Now, the Stamp Tax assessment subject of the present application for arbitral decision was annulled by the TCA on 20/03/2017, that is to say, after the filing of the application presented by the Applicant (24/02/2017).

Note also that, as the application for constitution of the arbitral tribunal was accepted by the Honourable President of the CAAD on 27/02/2017 and notified to the TCA on 11/04/2017, the latter could "(…) within 30 days from becoming aware of the application for constitution of the arbitral tribunal, proceed with the revocation, ratification, amendment or conversion of the tax act whose legality was raised (…)", as provided in article 13 of the LRTA.

Indeed, the TCA annulled internally the assessment act subject of the application for arbitral decision on 20/03/2017, before the constitution of this arbitral tribunal, having communicated the revocation of the act subject of the application on 11/04/2017.

Thus, in the matter at hand, taking into consideration that there is a cause for extinction of the proceedings not attributable to the TCA (supervening futility of the dispute, due to revocation of the contested acts, as set forth above), the responsibility for costs should be entirely attributed to the Applicant.

DECISION

Based on the grounds set forth, the arbitral tribunal decides:

To find extinct the proceedings due to supervening futility of the dispute, pursuant to article 287, letter e) of the CPC (applicable by virtue of the reference provided in article 29, paragraph 1, letter e) of the LRTA), with the consequences arising therefrom;

To condemn the Applicant to the payment of the procedural costs.

VALUE OF PROCEEDINGS

The value of the proceedings is fixed at € 21,395.70 (twenty-one thousand three hundred and ninety-five euros and seventy cents), pursuant to article 97-A of the Tax Procedure and Process Code (TPPC), applicable by virtue of letters a) and b) of paragraph 1 of article 29 of the LRTA and of paragraph 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings (RCTAP).

COSTS

Costs to be borne by the Applicant in the amount of € 1,224 (one thousand two hundred and twenty-four euros), pursuant to Table I of the Regulation of Costs in Tax Arbitration Proceedings, pursuant to article 22, paragraph 2 of the LRTA.

Let it be notified.

Lisbon, 12 October 2017

The Arbitrator,

(Hélder Filipe Faustino)

Text prepared by computer, pursuant to the provision in paragraph 5 of article 131 of the CPC, applicable by reference of letter e) of paragraph 1 of article 29 of the LRTA. The drafting of this decision is governed by the spelling prior to the 1990 Orthographic Agreement.

Frequently Asked Questions

Automatically Created

What is Verba 28 of the Tabela Geral do Imposto do Selo (TGIS) and how does it apply to building land?
Verba 28 of the Tabela Geral do Imposto do Selo (TGIS) establishes an annual Stamp Tax on urban properties with a taxable property value (valor patrimonial tributário) exceeding €1,000,000. It applies to building land (terreno para construção) at a rate of 1% on the portion of the taxable value above the €1,000,000 threshold. In this case, property with a VPT of €2,139,570.00 classified as land for construction was subject to Stamp Tax assessment of €21,395.70, demonstrating that Verba 28 applies regardless of whether the urban property is built or merely constitutes construction land.
Can Stamp Tax (Imposto do Selo) be charged on urban properties classified as 'terreno para construção' with a tax value exceeding €1,000,000?
Yes, Stamp Tax under Verba 28 of the TGIS can be charged on urban properties classified as 'terreno para construção' (land for construction) when their taxable property value exceeds €1,000,000. The tax applies to urban properties generally, not just completed buildings. In Process 140/2017-T, both properties resulting from the subdivision were identified by the Tax Authority as 'land for construction,' and the property with VPT of €2,139,570.00 (later subdivided into parcels of €1,373,470.00 and €51,370.00) was assessed Stamp Tax. The classification as construction land does not exempt the property from Verba 28 liability.
What happens when a CAAD arbitration case is terminated due to supervening uselessness of the proceedings (inutilidade superveniente da lide)?
When a CAAD arbitration case is terminated due to supervening uselessness of the proceedings (inutilidade superveniente da lide), the arbitral tribunal orders extinction of proceedings under article 287(e) of the Civil Procedure Code. This occurs when the contested acts are revoked or circumstances change such that deciding the merits becomes unnecessary. In this case, the Tax Authority eliminated the property registration retroactively, issued a corrective assessment of €0.00, and automatically refunded the tax paid (€21,395.70), making assessment of the acts' legality superfluous. Procedural costs are apportioned equally between parties under article 536(1) CPC when the claim was initially well-founded but ceased due to supervening circumstances not attributable to the taxpayer.
How does a property detachment (destaque) affect Stamp Tax liability on urban land in Portugal?
A property detachment or subdivision (destaque/subdivisão) affects Stamp Tax liability by creating new registration articles with separate taxable values. When the original property is subdivided, the original registration article should be eliminated and replaced with new articles for each resulting parcel. In this case, the €2,139,570.00 property was subdivided into two properties valued at €1,373,470.00 and €51,370.00. The Tax Authority later eliminated the original article retroactively to the subdivision date (December 17, 2015) and issued corrective assessments. This demonstrates that Stamp Tax liability should be calculated based on individual post-subdivision values, not the pre-subdivision consolidated value, potentially reducing or eliminating tax liability if individual parcels fall below the €1,000,000 threshold.
What are the procedural consequences when a taxpayer fails to respond to an arbitral tribunal order in CAAD proceedings?
Under article 19(1) of the Legal Regime for Tax Arbitration (LRTA), the non-appearance of either party at a procedural act, absence of defense, or failure to produce requested evidence does not prevent continuation of proceedings and issuance of an arbitral decision based on evidence produced. The arbitral tribunal maintains autonomy in conducting proceedings according to the principle of free appraisal of evidence. In this case, when the taxpayer failed to respond to the tribunal's order regarding extinction due to supervening futility, the tribunal nevertheless proceeded to decide the matter based on available evidence and the Tax Authority's arguments, ultimately ordering extinction of proceedings without requiring the taxpayer's formal consent or response.