Process: 188/2014-T

Date: July 30, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitration case (CAAD 188/2014-T) involved ten real estate companies challenging Stamp Tax assessments totaling €352,733.47 levied under Item 28.1 of the General Stamp Tax Table (TGIS) for the 2012 tax year. The contested assessments were issued on building land (terrenos para construção) with tax patrimonial values (VPT) equal to or exceeding €1,000,000. The claimants filed gracious appeals which were dismissed, prompting arbitration proceedings under Decree-Law 10/2011. The central legal issue was whether Item 28.1 TGIS, which taxes ownership of 'properties with residential use' valued at €1,000,000 or more, applies to undeveloped building land. The claimants argued that: (1) building land does not constitute 'property with residential use' as required by Item 28.1; (2) some plots had no construction licenses or were designated for non-residential or mixed-use development, making the residential use requirement clearly unsatisfied; (3) regarding co-owned property, individual co-owners did not hold rights exceeding the €1,000,000 threshold individually; and (4) the assessments violated constitutional principles of equality and proportionality. The claimants sought annulment of both the dismissal decisions and the underlying tax assessments, plus reimbursement of €117,577.89 already paid with compensatory interest. The case demonstrates important interpretive questions about the scope of Verba 28.1 TGIS, particularly whether the 'residential use' requirement applies to undeveloped land based on potential future use versus actual current use, and how valuation thresholds apply in co-ownership scenarios. The arbitral tribunal was properly constituted under RJAT procedures to resolve these disputes.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Case No. 188/2014 – T

Subject Matter: IS – Item 28.1 TGIS

I. REPORT

  1. A - REAL ESTATE COMPANY, S.A., tax identification number … ; B - REAL ESTATE COMPANY, S.A., tax identification number …; C - REAL ESTATE COMPANY, S.A., tax identification number … ; D - REAL ESTATE COMPANY, S.A., tax identification number … ; E - REAL ESTATE COMPANY, S.A., tax identification number …; F - REAL ESTATE COMPANY, S.A., tax identification number … ; G - REAL ESTATE COMPANY, S.A., tax identification number … ; H - REAL ESTATE COMPANY, S.A., tax identification number… ; I - REAL ESTATE COMPANY, S.A., tax identification number… ; and J - REAL ESTATE COMPANY, S.A., tax identification number…, all with registered address at …. , (hereinafter jointly designated "Claimants"), requested on 26 February 2014, the constitution of an arbitral tribunal, in accordance with the provisions of articles 2, no. 1, paragraph a), and 10, nos. 1 and 2, of Decree-Law no. 10/2011 of 20 January (hereinafter, Legal Regime of Tax Arbitration or RJAT) and articles 1 and 2 of Ordinance no. 112-A/2011 of 22 March, with a view to:

a) the declaration of illegality of the express decisions of dismissal (cf. documents attached as nos. 1 to 6 of the initial application) - "Contested Decisions", of gracious appeal requests nos. …, :..., …, …, … and … whereby they contested the assessments of Stamp Duty ("IS"), in the total amount of €352,733.47, - "Contested Assessments" and which gave rise to these gracious appeal proceedings;

b) the annulment of the Contested Assessments – (cf. assessments attached as docs. nos. 7 to 18 of the initial application); and

c) the condemnation of the Tax and Customs Authority ("AT") to reimburse the sum unduly paid with respect to the Contested Assessments (€ 117,577.89), plus the due indemnity interest.

  1. The Contested Assessments concern the taxation, in accordance with item 28.1 of the General Table of Stamp Duty ("TGIS"), of ownership of "properties with residential use" with a tax patrimonial value ("VPT") equal to or greater than € 1,000,000, having as reference the year 2012.

  2. They were issued to the Claimants with respect exclusively to land for construction of which they are, in some cases co-owners, in others sole owners – (as results from the respective property registries attached as docs. nos. 19 to 26 to the initial application), being their payment divided into three instalments.

  3. Considering them illegal, the Claimants filed, on 28-08-2013, gracious appeals of these assessments (cf. docs. nos. 27 to 32 attached to the initial application), thereby requesting their annulment.

  4. The gracious appeals filed by the Claimants gave rise to the appeal proceedings above identified in the heading, in accordance with which was issued, for each one of them, an express decision of dismissal (cf. docs. nos. 1 to 6 attached).

  5. The 90-day period, provided for in article 10, no. 1, paragraph a) of Decree-Law 10/2011, for submitting a request for constitution of an Arbitral Tribunal, counted from the notification of the dismissal of the gracious appeals, was complied with.

  6. In the application, the Claimants opted not to designate an arbitrator.

  7. In accordance with no. 2 of article 6 of the RJAT, the Deontological Council of the Arbitration Centre appointed the collective of arbitrators now signing, notifying the parties.

  8. The tribunal is regularly constituted to examine and decide on the subject matter of the case.

  9. The grounds supporting the request for arbitral determination of the Claimants are, in summary, and as to the facts, the following:

10.1 The contested assessments concern exclusively land for construction.

10.2 Effectively, both the land registered in the urban property matrix of the parish Union of Parishes of … and …, under article … (former article … of the parish of …) with a tax patrimonial value of € 1,051,956.79 and held in co-ownership by the Claimants A, B, C, D and E, and the land to which correspond the registration numbers …, …, …, …, …, … and …, all of the parish of …, are registered, in the respective property matrices, as land for construction.

10.3 With regard to the land … of the parish of … and of … no license, authorization, prior communication or favourable prior information was issued for subdivision or construction, the said land has, in accordance with the Municipal Master Plan, a maximum constructive capacity of 1,858.50m² and the said constructive capacity does not refer to any type of use.

10.4 As for the land with registration numbers …, …, …, …, …, … and …, all of the parish of …, none of them is intended for the construction of properties exclusively devoted to residential use, whereas articles …, …, … and … are intended for services and articles …, … and … for residential use and commerce (and not exclusively for residential use).

  1. As to the law, the Claimants support their application on the following grounds:

11.1. As a preliminary matter, the Claimants consider that the regime provided for in article 3, no. 1 of the RJAT applies in full, and that the joinder of the Claimants and the cumulation of claims should be admitted, because it must be considered that i) the success of the application presented by the Claimants depends essentially on the examination of the same factual circumstance, namely, the examination of the non-residential use of the properties whose assessments are now contested; ii) all properties subject to the Contested Assessments have the same nature - land for construction; iii) the evidence presented for examination of the factual matter is in all respects similar; and that iv) the legal questions raised by the Claimants in this arbitral application are the same.

11.2. The Claimants consider that the contested assessments are illegal, in the following terms:

i) it is illegal the understanding in accordance with which land for construction falls within the concept of "property with residential use", then provided for in item 28.1 of the TGIS. Furthermore, in the case of land for construction whose planned or authorized construction is not even intended for residential use, on the one hand, or is not exclusively intended for residential use, on the other hand, such illegality is all too evident; and

ii) the Contested Decisions and Assessments violate the principle of equality and proportionality, constitutionally enshrined.

11.3. In more detail and as to the illegality of the assessments, the Claimants sustain that the incidence requirements established in item 28.1 of the General Table of Stamp Duty (TGIS) – the taxpayer being the holder of a real right over the property, the property having a VPT equal to or greater than € 1,000,000.00 and the property having residential use – are cumulative, and the absence of any of the said requirements is sufficient for the rate provided for in the cited item 28.1 not to be applicable.

11.4 With regard to the first of the indicated requirements, the Claimants acknowledge that the same is verified in the situations under analysis.

11.5 The same cannot be said as to the second requirement – VPT equal to or greater than € 1,000,000.00 - especially with regard to the property located in the parish of … , which, as seen, is held in co-ownership regime by the Claimants … , …, … , … and … , and none of the co-owners holds the ownership of a property with VPT equal to or greater than € 1,000,000.00, for what they hold is a right of co-ownership in a property with a VPT greater than € 1,000,000.00, with each one's right corresponding to a value much lower than this (the right of … , company holding the highest share in the co-ownership, corresponds only to € 376,600.53).

11.6 In view of the foregoing, the Claimants consider that the dismissal order attached as doc. no. 1 and the assessments attached as docs. nos. 7 to 11 of the initial application (and which relate to this property located in … ), are illegal and should be annulled on this ground because, as the requirements provided for in item 28.1 of the TGIS above stated are cumulative, the requirement relating to ownership of a property with a VPT equal to or greater than € 1,000,000 is not met as to these assessments.

11.7 As to the third of the mentioned requirements, the Claimants consider that none of the land subject to the contested assessments meets such requirement, basing such understanding on the following:

a) The IS Code and the TGIS itself do not define what is considered a property with residential use, so, in accordance with art. 49, no. 3 of the IS Code, one should resort to the IMI Code (CIMI).

b) Although the CIMI does not have a concrete definition of what should be understood by property with residential use, from its article 6 it results absolutely clear that:

i) The concept of "property with residential use" corresponds to a built property that is licensed for residential use or, if not licensed for that purpose, to which corresponds a normal use of residential purposes; and that

ii) the concept of "property with residential use" can never encompass land for construction (regardless of the use of buildings to be constructed on it), insofar as they are not built properties and cannot be or be devoted, as such and in their current state, to residential use (neither in accordance with the use license - which will only be issued after the construction of the property -, nor in accordance with its normal use - since it is not possible to reside on land for construction).

11.8 Proceeding from this evidence, the Claimants conclude that, "… as item 28.1 of the IS Code, in the wording in force on 31 December 2012, was intended to tax exclusively properties with residential use, and as land for construction cannot be integrated into the said concept, in accordance with the rules provided for in the IMI Code, applicable by referral of article 49, no. 3 of the IS Code, the Contested Decisions and the Contested Assessments should be considered illegal, for violation of the provisions of item 28.1 of the TGIS, interpreted in conformity with the provision of article 6 of the IMI Code."

11.9 Furthermore, the Claimants consider that, as also considers the best jurisprudence and doctrine, the coefficient of use cannot be applied to land for construction, it is obvious and indisputable that land for construction can never be considered, in accordance with the CIMI, as a property with residential use.

11.10 The legislator, by amending, through Law no. 83-C/2013 of 31 December, the wording of item 28.1, expressly recognized that the previous wording could not, in any way, encompass land for construction, and the understanding of the AT that this amendment has merely interpretive nature, retroactively applying its effects, as such, to the date of the introduction of item 28.1 in the TGIS, cannot be accepted.

11.12. On the contrary, the Claimants consider that this new wording is not the interpretation of a previous wording, but rather a true expansion of its incidence base, with an innovative character and governing only for the future.

11.13 Furthermore, in the context of other taxes, the concept of properties with residential use also includes only built properties that are licensed or intended for residential use, excluding from this concept land for construction. This is the case, for example, of the provision of article 17 of the IMT Code.

11.14 Also under the terms of urban planning legislation, a property with residential use can only refer to a built property whose works are completed and for which an authorization certificate has been issued granting authorization for use of the property for the residential purpose, as results from the provisions of articles 4, no. 5 and 77, no. 5 of the RJUE and article 8 of the RGEU.

11.15 Beyond the illegality of the assessments, the Claimants also consider that the same violate, grossly, the principles of Tax Equality and constitutionally enshrined Proportionality.

11.16 It violates the principle of equality because it conduces, clearly and evidently to situations of discrimination among citizens, without there being any material justification for this, and furthermore this taxation does not aim to compensate for any inequalities of a social, economic or cultural nature that could materially justify such inequality.

11.17 The Claimants consider that any purpose that sought to justify the inequality of the taxation at issue on the ground that real estate property was acquired (i) as full ownership to the detriment of co-ownership, (ii) in full ownership, to the detriment of the regime of horizontal property or yet (iii) relating to properties intended for residential use to the detriment of properties intended for other purposes, could never, in light of the CRP, justify such inequality, to the extent that none of the said grounds would naturally be admissible for that purpose.

11.18 The Claimants conclude that item 28.1 of the TGIS violates the principle of equality, not only because it taxes only properties devoted to residential use (resulting from this an evident and unjustified advantage for others), but even within that category of properties it treats situations with the same expression of economic strength differently. Without that, in any case, being based on relevant constitutional values.

11.19 Beyond the principle of equality, the Claimants sustain that the norm in question also violates the principle of proportionality, which also merits constitutional protection in some provisions of the CRP, especially within the scope of fundamental rights, such as articles 18 and 19.

11.20 This violation results from the fact that taxation under IS, instead of distributing among taxpayers the financial effort which it claims is imputable to them, does nothing but burden exclusively taxpayers who are owners of properties with residential use with a value exceeding € 1,000,000.00.

11.21 Furthermore, the difference in the rates to apply in the years 2012 (from 1.5% to 1.8%) and 2013 (1%), reveals, immediately, their disproportionality, without such disproportionality being properly justified.

  1. In its defence, the AT sustains that the properties on which the contested assessments fall have the legal nature of properties with residential use, so the assessment acts should be maintained. The AT sustains its position with the following arguments:

12.1 In the CIMI, the notion of use of urban property is found in the part relating to the evaluation of properties, which in the understanding of the AT is justified and understood because the evaluation of the property (purpose) incorporates value to the property, constituting a determining fact of distinction.

12.2 The legislator chose to determine the application of the evaluation methodology of properties in general to the evaluation of land for construction, so the coefficient of use provided for in article 41 of the CIMI is applicable to them (cf., for this purpose, Judgment no. 04950/11 of 14.02.2012).

12.3 Thus, for purposes of determining the VPT of land for construction, the application of the coefficient of use in the context of evaluation is clear, so its consideration for purposes of applying item 28 of the TGIS cannot be ignored.

12.4 Item 28 of the TGIS, in referring to the expression "properties with residential use", appeals to a classification that overlaps the species provided for in article 6, no. 1 of the CIMI.

12.5 Thus, the AT considers that the concept of "properties with residential use" for purposes of item 28 of the TGIS includes both built properties and land for construction, noting that the legislator uses the expression "residential use" and not the expression "properties intended for residential use".

12.6 The AT considers that in accordance with urban planning legislation, it is possible to ascertain and determine the use of the land for construction long before the actual building of the property.

12.7 As to the violation of the constitutional principles of equality and proportionality, the AT understands that item 28 of the TGIS does not, in any way, call into question these principles.

12.8 To the extent that it is a general and abstract norm that is applicable, indistinctly, to all cases in which the respective presupposites are met, both in fact and in law.

12.9 All the more so because the AT considers that the different aptitude of a property supports the difference in treatment, and it was the legislator's choice, for economic and political reasons, to exclude from the incidence of IS properties intended for purposes other than residential.

12.10 So the measure implemented seeks to achieve maximum efficacy as to the objective to be attained, with minimal harm to other interests considered relevant.

12.11 The violation of the said principles does not occur because this measure is applicable, indistinctly, to all holders of properties with residential use that have a VPT exceeding € 1,000,000.00.

  1. On 6 June 2014, the AT filed a request with the Arbitral Tribunal, requesting that the holding of the meeting referred to in article 18 of the RJAT be dispensed with, since no exception had been raised that prevented knowledge of the merits of the contested matter, and also because no production of additional evidence had been requested by the Claimants.

  2. Following this request, the President of the Collective Tribunal issued the following order: "The request now presented by the AT is attached to the file, in light of which the Tribunal dispenses with the meeting referred to in article 18 of the RJAT, and notifies the parties that it will present a final decision in the case by 31.07.2014."

II. LEGAL BASIS

II.1 FACTUAL MATTER

  1. The Claimants are the owners and legitimate proprietors of the properties on which the Stamp Duty (IS) assessments fell, as follows:

(1) The land to which corresponds the registration number … of the Union of Parishes of … and … is held in co-ownership by Claimant A, who holds a share corresponding to 1425/10000, B, who holds a share corresponding to 2206/10000, C, who holds a share corresponding to 2016/10000, D, who holds a share corresponding to 3580/10000 and E, who holds a share corresponding to 773/10000;

(2) The land to which corresponds the registration number … , located in the parish of …, is the property of Claimant F.

(3) The land to which corresponds the registration number … , located in the parish of … , is the property of Claimant G.

(4) The land to which corresponds the registration number … , located in the parish of … , is the property of Claimant H.

(5) The land to which corresponds the registration number …, located in the parish of …, is the property of Claimant I.

(6) The land to which correspond the registration numbers …, … and …, located in the parish …, are the property of Claimant J.

  1. All properties on which the IS assessment fell are classified, in the respective matrices, as land for construction.

  2. The contested Assessments concern the taxation of the properties above identified in accordance with item 28.1 of the TGIS, as they are urban properties with residential use with VPT exceeding € 1,000,000.00.

  3. The Claimants proceeded with the payment of the 1st instalment of each of the assessments, such payment in the total amount of 117,577.89.

  4. The annual value of the assessments was € 352,733.47, which corresponds to the value assigned to the action.

  5. On 28 August, the Claimants filed a gracious appeal of these assessments.

  6. These gracious appeals were subject to dismissal on the following dates:

(1) The gracious appeals to which were assigned the nos. …, …, … and … by order of 21 November 2013;

(2) The gracious appeal to which was assigned no. … by order of 26 November 2013;

(3) The gracious appeal to which was assigned no. … by order of 16 December 2013.

  1. On 26 February 2014, the Claimants filed the request for constitution of the Arbitral Tribunal, in accordance with the provisions of articles 2, no. 1, paragraph a), and 10, nos. 1 and 2, of Decree-Law no. 10/2011 of 20 January (hereinafter, Legal Regime of Tax Arbitration or RJAT) and articles 1 and 2 of Ordinance no. 112-A/2011 of 22 March, with a view to the declaration of illegality of the IS assessment acts and the subsequent acts of dismissal of the gracious appeals.

  2. The Arbitral Tribunal was constituted on 5 May 2014.

The decision on the factual matter was based on the documents attached to the file and on the non-opposition of the Tax and Customs Authority as to the facts invoked by the Claimants.

There are no unproven facts with relevance to the decision of the case.

II.2 MATTER FOR EXAMINATION

The first and indeed also the main matter concerns the classification of land for construction within the scope of incidence of item 28.1 of the TGIS.

The assessments contested by the Claimants were issued under the incidence norm contained in item 28.1 of the TGIS, with the wording it had at the time to which the facts refer, more specifically, in the year 2012.

As we have seen, the Claimants understand that, as the properties subject to taxation are land for construction, the assessment is manifestly illegal, because such properties cannot, in any way, be considered "properties with residential use".

Law 55-A/2012 of 29 October introduced several amendments to the Stamp Duty Code and added item 28 to the TGIS, giving it the following wording:

"28 – Ownership, usufruct or right of superficies of urban properties whose tax patrimonial value contained in the matrix, in accordance with the IMI Code, 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%

28.2 - ……….."

The said Law 55-A/2012 thereafter, in its article 6, established some transitory application rules, using in the same way as in the cited item 28, the same concept of property with residential use.

This concept is not used by the legislator in any other tax legislation, particularly in the CIMI, which, in several norms of the IS Code is indicated as subordinate application legislation in relation to the tax provided for in item 28 of the TGIS (see, for this purpose, articles 2, no. 4, 3, no. 3 u), 5 u), 23, no. 7 and 46 and 67 of the IS Code).

Effectively, in the CIMI, more specifically in its articles 2 to 6, are enumerated and defined the species of properties as follows:

Article 2

Concept of Property

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

2 - Buildings or constructions, although mobile by nature, are deemed to have a character of permanence when devoted to non-transitory purposes.

3 - A character of permanence is presumed when buildings or constructions have been based in the same location for a period exceeding one year.

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

Article 3

Rural Properties

1 - Rural properties are land located 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 devoted or, in the absence of concrete use, have as their normal purpose a use that generates agricultural income, as are considered for purposes of the personal income tax (IRS);

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

2 - Also rural properties are land located within an urban agglomeration, provided that, by virtue of a legally approved provision, they cannot have a use that generates any income or can only have a use that generates agricultural income and are actually having this use.

  1. Also rural properties are:

a) Buildings and constructions directly devoted to the production of agropastoral income, when located on the land referred to in the preceding numbers;

b) Waters and plantations in the situations referred to in no. 1 of article 2.

4 - For purposes of this Code, are considered urban agglomerations, apart from those located within legally fixed perimeters, settlements with a minimum of 10 dwellings served by public use roads, their perimeter being delimited by points distanced 50 m from the axis of the roads, in the transverse direction, 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, according to the main part.

2 - If neither of the parts can be classified as main, the property is deemed to be 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 or, in the absence of license, which have as their normal purpose each of these uses.

3 - Land for construction are considered lands located within or outside an urban agglomeration for which a license or authorization has been granted, prior communication admitted or favourable prior information issued for subdivision or construction operation, and also those that have thus been declared in the acquisition deed, except for lands where the competent entities prohibit any of those operations, particularly those located in green areas, protected areas or which, in accordance with municipal land use plans, are devoted to spaces, public infrastructures or equipment.

4 - Fall within the provision of paragraph d) of no. 1 lands located 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 license, which have as their normal purpose other purposes than those referred to in no. 2 and also those of the exception of no. 3.

It is therefore easy to ascertain that, as has already been mentioned above, the concept of "property with residential use" is not used by the legislator in the CIMI.

A literal interpretation of the norm contained in item 28.1 of the TGIS leads to the conclusion that the legislator's intention was to include within its scope of application urban properties that have residential use. Proceeding from this intention, it should be determined when a property is devoted to a residential purpose, particularly whether it is when this purpose is assigned to it in any licensing act or of similar nature, or whether it is only when the assignment of this purpose is actually realized.

From the wording given to item 28.1, it seems clear that the legislator's intention was to consider necessary an actual use and not merely buildings or constructions licensed for that purpose or, in the absence of such license, those that have such a purpose as their normal destination. If the legislator, in item 28.1 were satisfied with these facts, would have used the expression "residential properties" contained in article 6 of the CIMI and not the expression "properties with residential use".

From this it results that property with "residential use" cannot be merely a property licensed for residential use or intended for that purpose, having to be "something more than that", that is, it will have to be a property with effective use for that residential purpose.

Having to be, in that manner, something actually built.

Now, land for construction, not having yet any building, as clearly results from the definition given in article 6 of the CIMI ("....land located within or outside an urban agglomeration for which a license or authorization has been granted, prior communication admitted or favourable prior information issued for subdivision or construction operation, and also those that have thus been declared in the acquisition deed, ...."), does not meet, by itself, any condition to be even considered as residential properties, therefore, by all the more reason, "properties with residential use".

It should thus be understood that the norm of item 28.1 will only be fulfilled when residential use is actually realized.

In this way, it does not seem possible to us to follow the thesis defended by the Defendant (AT), and it is therefore appropriate to accept the thesis supported by the Claimants that residential use cannot be attributed to land for construction even if they may have as a likely purpose (but not exclusive) the construction of residential buildings.

The recent amendment introduced by the legislator, with the State Budget Law for 2014 (article 193 of Law no. 83-C/2013) in the wording of item 28.1 of the TGIS (subject to the tax "land whose authorized or planned construction is for residential use"), reinforces, unequivocally, this understanding, since the said amendment does not appear to have, in any way, the nature of an interpretive norm.

Moreover, the decisions taken by Arbitral Tribunals at CAAD have also decided, in this sense (see, among others, decisions of Cases nos. 48/2013-T, 53/2013-T, 215/2013-T or 310/2013-T), as well as recent decisions of the STA that dealt with this matter (see, among others, Judgment no. 187/13 or Judgment no. 272/14).

In conclusion, this Tribunal considers that the contested assessments are tainted with illegality, insofar as they fall on land for construction, a concept which, for the reasons that have been set forth, is not included in the concept of "properties with residential use" established in item 28.1 of the TGIS.

II.3 MATTERS OF PREJUDICED KNOWLEDGE

In view of the Tribunal's decision declaring the illegality of the contested assessments, the subject matter of this case, the examination of the remaining defects questioned by the Claimants is prejudiced, namely that these assessments violated the constitutional principles of equality and proportionality.

III. DECISION

In view of the foregoing, it is decided to uphold the request for annulment of the Contested Assessments – (cf. assessments attached as docs. nos. 7 to 18 of the initial application), for violation of law, and the acts of dismissal of the gracious appeals filed by the Claimants relating to these assessments.

IV. VALUE OF THE CASE

In accordance with the provisions of article 315, no. 2, of the CPC and 97-A, no. 1, paragraph a), of the CPPT and 3, no. 2, of the Costs Regulation in Tax Arbitration Proceedings, the value of the case is assigned as € 352,733.47.

V. COSTS

In accordance with Table I attached to the Costs Regulation in Tax Arbitration Proceedings, the amount of costs is € 7,120.00.

Notify the parties.

Lisbon, 30 July 2014

(Jorge Lino Ribeiro Alves de Sousa)

(Jaime Esteves)

(João Marques Pinto)

Frequently Asked Questions

Automatically Created

Does Verba 28.1 of the Portuguese Stamp Tax Table apply to building land (terrenos para construção) with a tax value over €1,000,000?
According to the claimants' arguments in this case, Verba 28.1 of the TGIS should not apply to building land (terrenos para construção), even when valued over €1,000,000. They contend that Item 28.1 requires three cumulative conditions: holding a real right over the property, VPT of €1,000,000 or more, and the property having 'residential use.' The claimants argue that undeveloped building land lacks the 'residential use' characteristic, particularly when no construction licenses have been issued or when authorized construction is for non-residential or mixed-use purposes. Their position is that 'residential use' refers to actual current use, not potential future use, making the tax inapplicable to vacant land for construction.
Can real estate companies challenge Stamp Tax (Imposto do Selo) assessments through CAAD tax arbitration?
Yes, real estate companies can challenge Stamp Tax assessments through CAAD (Centro de Arbitragem Administrativa) tax arbitration. This case demonstrates the procedure: after Stamp Tax assessments are issued, taxpayers must first file a gracious complaint (reclamação graciosa) with the Tax Authority. If the gracious appeal is dismissed, taxpayers have 90 days from notification of the dismissal to request constitution of an arbitral tribunal under Articles 2(1)(a) and 10 of Decree-Law 10/2011 (RJAT). The arbitration request must comply with the Legal Regime of Tax Arbitration and Ordinance 112-A/2011. Companies can opt not to designate an arbitrator, in which case the CAAD Deontological Council appoints the arbitral panel.
What is the procedure for filing a gracious complaint (reclamação graciosa) against Stamp Tax liquidations in Portugal?
The procedure for filing a gracious complaint against Stamp Tax liquidations involves: (1) receiving the tax assessment notice; (2) filing a reclamação graciosa with the Tax and Customs Authority (AT) within the legal deadline; (3) the AT reviewing the complaint and issuing a decision (either accepting or dismissing it); (4) if dismissed, the taxpayer receives an express decision of dismissal. In this case, the claimants filed gracious appeals on August 28, 2013, challenging IS assessments issued for the 2012 tax year. Each gracious appeal was assigned a case number and resulted in individual dismissal decisions. Payment of contested amounts may be made in installments while the administrative review is pending.
Are co-owners of building plots jointly liable for Stamp Tax under Verba 28.1 TGIS on properties valued at €1,000,000 or more?
The claimants in this case specifically challenged the joint liability interpretation for co-owners. They argued that when property is held in co-ownership, individual co-owners do not hold 'ownership of a property' with VPT of €1,000,000 or more—rather, each holds a fractional co-ownership right valued below that threshold. For example, regarding property in co-ownership by five claimants with total VPT of €1,051,956.79, the largest co-owner's share was only €376,600.53. The claimants contended that Verba 28.1 TGIS should apply based on each co-owner's individual share value, not the total property value, making the assessments illegal when individual shares fall below €1,000,000.
Can taxpayers claim a refund with compensatory interest (juros indemnizatórios) after an unlawful Stamp Tax assessment is annulled?
Yes, Portuguese taxpayers can claim reimbursement with compensatory interest (juros indemnizatórios) after an unlawful tax assessment is annulled. In this arbitration, the claimants explicitly requested: (a) declaration of illegality of the dismissal decisions; (b) annulment of the contested Stamp Tax assessments; and (c) condemnation of the Tax Authority to reimburse €117,577.89 unduly paid, plus due compensatory interest. Compensatory interest is a legal remedy designed to compensate taxpayers for the financial loss caused by paying taxes later determined to be unlawfully assessed, calculated from the payment date until reimbursement according to applicable interest rate regulations.