Process: 167/2017-T

Date: July 6, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

In Process 167/2017-T, the CAAD arbitral tribunal examined a Stamp Duty assessment of €12,171.00 for fiscal year 2014 levied under item 28.1 of the TGIS on urban property classified as building land (terrenos para construção) in Lisbon with a patrimonial value exceeding €1,000,000. The taxpayer contended that item 28.1, introduced by Law 83-C/2013, applies only to properties immediately intended for housing, not to uninhabitable building land without exclusive residential authorization. The taxpayer raised constitutional challenges under Articles 13 and 204 of the Portuguese Constitution, alleging violation of tax equality and ability-to-pay principles, and argued the assessment created unlawful double taxation. The Tax Authority defended the assessment, arguing the property possessed 'residential allocation' based on a 2011 Lisbon City Council favorable construction opinion, that item 28.1 legitimately targets all urban properties with residential allocation valued at €1,000,000 or more, and that the Constitutional Court had previously rejected similar constitutional challenges. The Authority also raised procedural exceptions regarding the tribunal's competence to assess constitutionality and alleged venire contra factum proprium based on the taxpayer's failure to challenge residential classification in prior CAAD proceedings concerning the same property. The tribunal addressed preliminary procedural questions regarding its material competence before examining the merits of the Stamp Duty liquidation.

Full Decision

ARBITRAL DECISION

1. REPORT

1.1 A…, S.A., holder of tax identification number …, with registered office at Rua …, no. …, …, in Lisbon, came on 10 March 2017, in accordance with the provisions of subparagraph a) of no. 1 of article 2, no. 2 of article 5, no. 1 of article 6, and articles 10 and following of the Legal Regime of Tax Arbitration (hereinafter, RJAT), in conjunction with subparagraph a) of article 99 and subparagraph d) no. 1 of article 102, both of the Code of Tax Procedure and Process (hereinafter CPPT), to request the constitution of the arbitral tribunal.

1.2 Respondent in the proceedings is the TAX AUTHORITY AND CUSTOMS AUTHORITY.

1.3 The Ethics Council of the Administrative Arbitration Center (CAAD) designated the undersigned to form the Singular Arbitral Tribunal, having notified the parties thereof, and the Tribunal was constituted on 23 May 2017.

1.4 The request for arbitral decision has as its immediate object the decision of dismissal that fell upon the claim presented by it and as its mediate object the matter petitioned therein, namely, the annulment, on grounds of illegality, of the act of assessment of Stamp Duty of 31.12.2014, in the amount of € 12,171.00, for the fiscal year 2014, on the basis of item 28.1 of the TGIS, relating to urban property, land for construction, registered in the urban property matrix of the parish of … (extinct) of the municipality of Lisbon, under article …º, currently, under article …º of the parish of … of that municipality, assessment and property which are better identified in the Claimant's request and in the documents attached thereto, to which reference is made here.

The Claimant manifests its disagreement with the tax assessment act in question, considering fundamentally that the property on which the tax is levied is not a property for housing, but rather land for construction, incapable of being inhabited, and in relation to which there is no provision or authorization for the construction of only properties – or autonomous fractions of property – intended for housing, and therefore does not fall within the provision of item no. 28.1 of the TGIS in the wording introduced by article 194 of Law 83-C/2013, of 31.12.

It contends, accordingly, that items no. 28 and 28.1 of the TGIS, in their original wording, had and must be interpreted in the sense of applying only to properties immediately intended for housing and, likewise, that the amendment introduced by article 194 of Law 83-C/2013, of 31.12, is unconstitutional, because it violates the principle of tax equality and contributory capacity that emanate from article 13 and article 204 of the CRP [Portuguese Constitution]. It also considers that its application generates a situation of double taxation.

Wherefore it concludes that the application of the norm should be refused and that the assessment act in question is illegal, petitioning its respective annulment and the reimbursement of the amounts paid, increased by indemnificatory interest at the legal rate, from the date of payment of each installment until effective and complete reimbursement.

1.5 THE TAX AUTHORITY AND CUSTOMS AUTHORITY responded, defending itself by exception and by impugnation, and came to attach the administrative file.

By exception, it alleged the incompetence of the Arbitral Tribunal to assess the unconstitutionality invoked by the Claimant.

By impugnation, it contended for the maintenance in the legal order of the impugned act on the grounds that the property in question has the legal nature of property with residential allocation, and therefore the assessment act that is the object of the present request for arbitral decision should be maintained as it constitutes a correct interpretation of Item 28 of the General Table, added by Law 55-A/2012, of 29/12.

It alleges, in summary, that item 28 of the TGIS is levied on the ownership, usufruct or right of surface of urban properties with residential allocation, whose tax patrimonial value contained in the matrix, in accordance with the CIMI, is equal to or greater than € 1,000,000.00, that is, it is levied on the value of the immovable property, being a general and abstract rule, applicable indiscriminately to all cases in which the factual and legal assumptions are met.

It further invokes the exceptional context and evident difficulties that the Country, especially its public accounts, faced when item 28.1 of the TGIS emerged, which required extraordinary measures for collection and additional fiscal revenue, reasons for which the measure implemented seeks to find maximum effectiveness as to the objective to be achieved, with the minimum of injury to other interests considered relevant.

As regards the alleged unconstitutionality of the norm, Respondent recalls that it was already the subject of a negative judgment by the Constitutional Court.

It further alleges that the Lisbon City Council, on 15-11-2011, issued a favorable opinion, in response to the issuance of prior information on the viability of construction of the land in question here requested by the Claimant (at the time with the designation of B…, S.A.).

It finally alleges that in a prior proceeding, which took place in this CAAD, relating to the same property, the Claimant did not call into question the residential allocation of the property, and therefore doing so now would be an abuse of right, in the form of venire contra factum proprium.

It concludes by contending for the legality of the assessment and the dismissal of the request for arbitral decision.

1.6 The Tribunal issued, on 21 June 2016, an order to the effect that it appeared to it to be unnecessary to hold the arbitral tribunal meeting provided for in article 18 of the RJAT, and inviting the parties to produce and present their arguments (with which the Claimant could, if it wished, respond to the matter of exception).

1.7 The Claimant presented its arguments on 03.07.2017, alleging, in summary, as to the invoked exception of incompetence of the Tribunal, that, contrary to what the Tax Authority alleges, it does not intend for any act of property registration to be reviewed, and furthermore, maintaining its position.

1.8 The Respondent came to present arguments on 5 July 2017, maintaining its position.

2. PROCEDURAL MATTERS

The Tribunal was regularly constituted.

The parties have legal personality and capacity, show themselves to be legitimate and are regularly represented.

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

However, Respondent alleges the incompetence of the Tribunal, which if verified would lead to the absolution of the instance.

This is a procedural issue of priority knowledge, in accordance with no. 1 of article 608 of the Code of Civil Procedure, applied subsidiarily to tax arbitration proceedings, ex vi of the provision contained in article 29, no. 1, subparagraph e), of the RJAT.

Let us examine it, therefore.

Respondent considers that outside the material competence of the Arbitral Tribunal is the review and/or analysis of acts of property registration, and in that sense, invokes the referred dilatory exception.

Succinctly, it alleges that: "In the first place – the nature of a property (which is what the Claimant mediately or immediately intends to have questioned here) is not susceptible of being discussed in arbitral proceedings, for that there are appropriate procedures contained in the tax legal norms, furthermore, and as already mentioned above, the nature of the property is fixed documentally in the proceedings. In the second (2) and final place – the facts on which the Claimant now intends to question, without having done so timely and in the appropriate forum, letting all the deadlines it had at its disposal pass, are sedimented in the legal order."

Now, the Claimant does not intend to question whether we are faced with a "land for construction," as it is registered in the matrix.

The Claimant also does not intend to question the tax patrimonial value contained in the matrix. The Claimant does not intend to proceed with a "review and/or analysis of acts of property registration."

The Claimant refuses, rather, that one is faced with property whose construction, authorized or provided for, is for housing.

It is, therefore, manifest that the Arbitral Tribunal has competence based on subparagraph a) of number 1 of article 2 of the Legal Regime of Arbitration in Tax Matters (hereinafter RJAT) – to pronounce itself on the existence of property whose construction, authorized or provided for, is for housing, or, in other words, the subsumption of facts to the norms of provision. This understanding is well-established in various decisions of the CAAD.

Wherefore, without necessity of other considerations, the invoked exception of incompetence of the Arbitral Tribunal is found to be without merit.

3. MATTERS OF FACT

With relevance for the decision on the merits, the Tribunal considers the following factuality to be proved:

- The Claimant is the owner of an urban property, land for construction, registered in the urban property matrix of the parish of …, which came from article …º of the parish of … (extinct), of the municipality of Lisbon, under article …º;

- The property is described in the matrix as "land for construction";

- In the valuation of the property, the "coefficient type of location: housing" was applied;

- The property had, at the date of assessment, a tax patrimonial value of €1,217,100.00 €;

- During the year 2015, the Claimant was notified of the Stamp Duty assessed under Item 28.1 of the TGIS, in the amount of € 12,171.00 (twelve thousand one hundred and seventy-one euros), with the assessment date also indicated as 20.03.2015;

- On 30.03.2016 the Claimant presented a Gracious Complaint against the said assessment with the Finance Service of Lisbon …;

- On 09.12.2016, the Claimant was notified of the dismissal of the Gracious Complaint;

- On 15.11.2001 [should be 2011 based on context] prior information was issued tending to be favorable following a request regarding the feasibility of construction of a unit of assisted residences on the said immovable property;

Facts Not Proved

With relevance for the assessment of the merits of the case, it was not proved that on the immovable property in question there had been authorized, designed or provided for any construction, namely, intended for housing, a fact whose proof was incumbent upon the Respondent, as it constitutes a fact essential to the integration into the rule of real incidence of the tax and is, therefore, constitutive of the right to assess it.

No other facts with relevance for the assessment of the merits of the case were alleged by the parties that were not proved.

Reasoning of the Decision on Matters of Fact

The conviction regarding matters of fact was based on the allegations of the Claimant and the Respondent not contradicted by the opposing party, or, when contradicted, sustained on the analysis that the Tribunal made of the documentary evidence attached by both the Claimant and the Respondent.

4. MATTERS OF LAW - ISSUES TO BE DECIDED

In the view of the Tribunal, the following are the issues on which it falls to it to decide:

A) For the purpose of applying the aforesaid item, whether the property in question, land for construction, without authorized or planned construction, is covered by the rule of incidence;

B) Whether item 28.1 of the TGIS, in the wording introduced by Law no. 83-C/2013, of 13 December, is unconstitutional by violation of the constitutional principles of tax equality and contributory capacity, and if so, should the respective application be refused, which will remove legal support from the assessment act that, being illegal, will have to be annulled.

It falls to decide:

A) Whether the property is covered by the rule of incidence:

The subjection to Stamp Duty of properties with residential allocation resulted from the addition of Item no. 28 to the TGIS, effected by article 4 of Law 55-A/2012, of 29 October, which typified the following tax facts:

"28 – Ownership, usufruct or right of surface of urban properties whose tax patrimonial value contained in the matrix, in accordance with the Code of Municipal Property Tax (CIMI), is equal to or greater than € 1,000,000.00 – on the tax patrimonial value used for purposes of IMI:

28.1 – For property with residential allocation – 1%

28.2 – For property, when the taxpayers that are not natural persons are residents 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%".

The Law also added to the Stamp Duty Code no. 7 of article 23, relating to the assessment of Stamp Duty: "in the case of tax due by the situations provided for in item no. 28 of the General Table, the tax is assessed annually, in relation to each urban property, by the central services of the Tax Authority and Customs Authority, applying, with the necessary adaptations, the rules contained in the CIMI", and article 67, no. 2 which provides that "to matters not regulated in this Code relating to item 28 of the General Table, the CIMI is applied, subsidiarily".

Law no. 83-C/2013, of 31 December came to alter the wording of the norm, which became as follows: "28.1 For residential property or for land for construction whose construction, authorized or provided for, is for housing, in accordance with the provisions of the Code of IMI".

In articles 2 to 6 of the Code of IMI the species of properties are enumerated as follows:

"Article 2 - Concept of property

1 – For purposes of this Code, property is any fraction of territory, including waters, plantings, buildings and constructions of any nature incorporated or resting therein, with character of permanence, provided that it is part of the patrimony of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantings, buildings or constructions, in the circumstances above, endowed with economic autonomy in relation to the land where they are located, although situated in a fraction of territory that constitutes an integral part of a different patrimony or does not have patrimonial nature.

2 – Buildings or constructions, although movable by nature, are regarded as having character of permanence when affected to non-transitory purposes.

3 – The character of permanence is presumed when buildings or constructions are resting in the same location for a period exceeding one year.

4 – For purposes of this tax, each autonomous fraction, in the regime of horizontal property, is regarded as constituting a property."

"Article 3 - Rural properties

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

a) they are affected or, in the absence of concrete allocation, have as their normal destination a use generating agricultural income, such as are considered for purposes of tax on the income of natural persons (IRS);

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

2 – Also rural properties are lands situated within an urban agglomeration, provided that, by force of legally approved provision, they cannot have use generating any income or can only have use generating agricultural income and are in fact having this allocation.

3 – Also still rural properties are:

a) Buildings and constructions directly affected to the production of agricultural income, when located 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 agglomerations are considered, besides those situated within legally fixed perimeters, nuclei with a minimum of 10 dwellings served by roads of public use, its perimeter being delimited by points distanced 50 m from the axis of the roads, in the transversal sense, and 20 m from the last building, in the direction of the roads.

"Article 4 - Urban properties

Urban properties are all those that should not be classified as rural, without prejudice to the provision 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 none of the parts can be classified as principal, the property is regarded as 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) Others.

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 destination each of these purposes.

3 – Lands for construction are lands situated within or outside an urban agglomeration for which a license or authorization has been granted, prior notification admitted or favorable prior information issued for subdivision or construction operations, and also those which have been declared as such in the acquisition title, excepting lands on which the competent authorities prohibit any of those operations, namely those located in green areas, protected areas or that, in accordance with municipal land use planning plans, are affected to spaces, infrastructure or public facilities.

4 – Fall within the provision of subparagraph d) of no. 1 lands situated within an urban agglomeration 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 destination other purposes than those referred to in no. 2 and also those of the exception of no. 3."

It is within this legal framework that it is important to assess the legal qualification of the property on which the tax in question was levied.

There can be no doubt that the property is "land for construction". This is a qualification that was not called into question by either of the parties and which results from the tenor of the respective property records and from the comparison of the cited articles 2, 4 and 6 of the CIMI applicable by express reference of the rule of incidence applied.

That rule is item 28.1 of the TGIS which, we recall, provides as follows: "28.1 For residential property or for land for construction whose construction, authorized or provided for, is for housing, in accordance with the provisions of the Code of IMI".

It is necessary, therefore, for the fulfillment of the rule of incidence, that the property be residential or, if not, be land for construction and that construction intended for housing has been authorized or is planned.

Being that it should always be said that, in that case, the wording adopted by the legislator was unfortunate and does not make clear whether construction would have to be exclusively for housing and, if not, whether it is intended that the basis of the tax corresponds to the tax patrimonial value of the property, or only to the part intended for housing (the respective determination not appearing viable to us). The Tribunal does not ignore the context in which the norm was produced, but even in a context of urgency the legislator is not dispensed from observing Constitutional precepts, namely, the principle of legality in the sense of clearly typifying the tax facts that are subject to tax.

No. 2 of article 5 of the CIMI comes to clarify what it understands by "residential" properties for purposes of subparagraph a) of no. 1, classifying as such constructions licensed for housing or that in the absence of a license, have this normal use, not referring to land for construction, but to buildings already constructed which will be residential when that is the use licensed by the building authority or when, in the absence of a license, that is their normal use. The criterion of "normal use" in the absence of a license cannot be extrapolated with the objective of guessing at constructions that may come to be made on land for construction, species of property provided for in subparagraph d) of no. 1 of the same article, as the Respondent appears to intend.

Certainly, in the valuation of the land the Tax Authority used the location coefficient type of housing, being that the taxpayer could, in fact, have reacted against the application of this coefficient, it not having been demonstrated that he did so.

This is not, however, the criterion adopted by the legislator either in the CIMI or in the Stamp Duty Code. The legislator of the rule of incidence in question here did not attribute to the use of that coefficient any relevance in the qualification of the property, only in its respective valuation. Let it be said en passant, still without consequences to the decision of the case, that it appears to us there is error on the part of the Tax Authority in the use of such coefficient.

Item 28.1 of the TGIS appears to us – in that part, at least – perfectly clear: subject to tax are, in addition to residential properties (those of subparagraph a) of number 1 and no. 2 of article 5 of the CIMI), land for construction (i.e., the species of property provided for in subparagraph d) of no. 1 of the same article of the CIMI), provided that construction intended for housing has been authorized or is planned (only remaining to define whether it is total or partial and, in the latter case, what is the value considered for purposes of subjection to taxation).

Now, it was not demonstrated that the land for construction in discussion had authorization, project or planning for construction intended for housing, in such a way as to be subject to Stamp Duty in accordance with Item no. 28.1 of the TGIS.

Proof which, contrary to what Respondent alleges, was incumbent upon it and not upon the Claimant, and should furthermore, as it is constitutive of the right to assess, have been contained in the reasoning of the assessment act, which, without such reasoning, is, in our view, vitiated, a vice on which we shall not pronounce ourselves as it was not raised by the Respondent.

It seems to us, therefore, evident that the property, land for construction in relation to which it was not proved to have authorization or planning for construction intended for housing, meets the rule of incidence of the tax that served as the basis for the assessment.

The request for prior information filed by the Claimant is nothing more than – a request for prior information. A request, furthermore, which dates from 2011, which seems to us long expired, and, in any case, note, globally unfavorable to the Respondent's claim, that construction is planned for housing.

Finally, there is in the rule of incidence no reference to the figure of the request for prior approval that would permit drawing the consequences that the Tax Authority wishes to draw.

It should always be said, finally, that, contrary to what Respondent alleges, in the proceeding that previously took place in this CAAD (without prejudice to, naturally, not being res judicata nor serving as principle of proof, in our view, as to what is now in question), the Claimant affirmed categorically that "Land for construction is not a property with residential allocation", therefore that argument also falls away.

Wherefore, without necessity of further considerations and on this basis, the assessment act is considered voidable, as illegal, because item 28.1 of the TGIS is not applicable to the property on which it was levied.

The knowledge of the other vices pointed out by the Claimant is hereby rendered unnecessary, namely, of the invoked unconstitutionality of the norm.

5. DECISION

In these terms and with the reasoning set out above, it is decided:

The Claimant's request is wholly upheld, and in consequence, the assessment act in question is hereby annulled, and the Respondent, by effect of the annulment, must return to the Claimant the amounts that the latter has paid on this account, increased by their respective indemnificatory interest, in accordance with article 43, no. 1, of the LGT [General Tax Law], from the date of payment until effective and complete reimbursement.

* * *

The case value is set at 12,171.00€ (twelve thousand one hundred and seventy-one euros) in accordance with the provisions of articles 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), 97-A, no. 1, subparagraph a) of the CPPT and 306 of the CPC [Code of Civil Procedure].

The amount of costs is set at 918.00€ (nine hundred and eighteen euros) under article 22, no. 4 of the RJAT and Table I attached to the RCPAT, to be borne by the Respondent, in accordance with the provisions of articles 12, no. 2 of the RJAT and 4, no. 4 of the RCPAT and 527 of the CPC.

Let notification be made.

Lisbon, 6 July 2017,

The Arbitrator,

(Eva Dias Costa)

Text prepared on computer, in accordance with article 131, no. 5 of the Code of Civil Procedure, made applicable by reference of article 29, no. 1, subparagraph e) of the RJAT.

Frequently Asked Questions

Automatically Created

Does Verba 28.1 of the TGIS apply Stamp Tax to building land (terrenos para construção) not exclusively designated for housing?
Item 28.1 of the TGIS, as amended by Law 83-C/2013, levies Stamp Duty on ownership, usufruct, or surface rights of urban properties with 'residential allocation' (afetação habitacional) having patrimonial values of €1,000,000 or more. The central dispute is whether building land (terrenos para construção) constitutes property with residential allocation. The Tax Authority argues that land approved for residential construction possesses residential allocation based on municipal planning authorizations, even if not yet constructed or immediately habitable. Taxpayers contend the provision should apply only to completed residential properties actually capable of being inhabited, not vacant building plots.
Can a taxpayer challenge a Stamp Tax assessment on building land through CAAD arbitration under the RJAT?
Yes, taxpayers can challenge Stamp Duty assessments through CAAD arbitration under Article 2(1)(a) of the RJAT in conjunction with Articles 99(a) and 102(1)(d) of the CPPT. However, CAAD tribunals have limited competence regarding constitutional review. While arbitral tribunals can refuse to apply norms they consider unconstitutional in concrete cases (diffuse constitutional review), they cannot declare norms unconstitutional with erga omnes effect. The Tax Authority may raise preliminary exceptions challenging the tribunal's competence on specific constitutional matters, particularly when the Constitutional Court has previously ruled on similar provisions.
Is the application of Verba 28.1 TGIS to building land unconstitutional under Articles 13 and 204 of the Portuguese Constitution?
Taxpayers have challenged item 28.1 TGIS under Articles 13 (equality principle) and 204 (ability-to-pay principle) of the Portuguese Constitution, arguing it creates arbitrary distinctions and taxes property ownership rather than actual economic capacity. The Tax Authority responds that the Constitutional Court has previously rejected such challenges, recognizing the provision's legitimacy within the exceptional fiscal context of Law 83-C/2013, which implemented extraordinary revenue measures during Portugal's financial crisis. The measure applies uniformly to all properties meeting the legal criteria (residential allocation and patrimonial value threshold), pursuing fiscal objectives with proportionate means.
What constitutes double taxation when Stamp Tax is levied on building land already subject to other property taxes?
Double taxation occurs when the same tax authority levies multiple taxes on the same taxable event or asset. In this context, building land already subject to IMI (Imposto Municipal sobre Imóveis - Municipal Property Tax) based on patrimonial value faces additional Stamp Duty under item 28.1 TGIS, also calculated on patrimonial value. Taxpayers argue this constitutes impermissible double taxation on property ownership. However, the Tax Authority and courts generally recognize that different taxes may legitimately apply to the same asset when they have distinct legal bases, objectives, and taxable events, provided constitutional principles are respected.
What is the legal basis for annulling a Stamp Tax liquidation and claiming compensatory interest (juros indemnizatórios) in CAAD proceedings?
Under Articles 99(a) and 102(1)(d) of the CPPT and the RJAT, taxpayers can request annulment of illegal tax assessments through CAAD arbitration. If the tribunal finds the assessment unlawful, it will annul the liquidation act and order reimbursement of amounts paid. Compensatory interest (juros indemnizatórios) accrues under Article 43 of the LGT (Lei Geral Tributária) at the legal rate from the date of each payment until complete reimbursement, compensating taxpayers for the State's retention of unlawfully collected amounts. This differs from late-payment interest (juros de mora) and reflects the principle that taxpayers should not bear financial prejudice from illegal tax collection.