Process: 197/2014-T

Date: September 15, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Arbitration Process 197/2014-T addresses a critical question in Portuguese Stamp Duty law: whether Imposto do Selo under Item 28.1 of the General Stamp Duty Table (TGIS) applies to building land (terreno para construção) without residential licensing. The claimant challenged a tax assessment of €20,248.99 levied on urban property consisting solely of construction land in Vila do Conde. The dispute centers on interpreting 'property with residential use' under Law 55-A/2012, which introduced Stamp Duty at 1% on properties with Tax Patrimony Value exceeding €1,000,000. The claimant argued the land lacks residential allocation because it holds no construction license for housing purposes and cannot be classified as property with current residential use. The Tax Authority contended the property possesses the legal nature of residential property, justifying the assessment. The tribunal examined whether building land qualifies as 'property with residential use' under item 28.1 TGIS, noting this concept lacks definition in tax legislation including the Municipal Property Tax Code (CIMI). Critical legal requirements emerge: Stamp Duty applies to ownership, usufruct or superficies rights of properties with residential use having stated TPV ≥ €1,000,000. The claimant asserted the assessment constitutes an error regarding legal assumptions (erro sobre os pressupostos de direito) because unlicensed construction land cannot be deemed residential property. This decision has significant implications for property owners holding building plots valued above the threshold, determining whether future residential destination suffices or actual current residential use/licensing is required. The case also addresses compensatory interest rights and compensation for improper security provision. The tribunal's interpretation impacts how Portuguese tax authorities apply Stamp Duty to undeveloped urban land, clarifying whether the tax targets actual residential properties or extends to land with potential residential development.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Case No. 197/2014 – T

Subject: Stamp Duty – Item 28 of the General Stamp Duty Table – Land for construction

  1. REPORT

1.1. "A", taxpayer no. …, with address at Avenue …, no. …, …-… Vila do Conde, hereby requests, under the terms of article 10 of Decree-Law no. 10/2011, of 20 January ("RJAT"), the constitution of an Arbitral Tribunal.

The Claimant requests a ruling for the purpose of declaring illegal, with all legal consequences, the tax assessment act for Stamp Duty issued by the Tax and Customs Authority, in the amount of € 20,248.99 ("Contested tax assessment", which is contained in documents 2 and 4 attached to the request for arbitral ruling).

The Claimant further requests the condemnation of the Tax and Customs Authority to refund the amounts already paid or that may be paid (including default interest and execution costs), increased by compensatory interest, as well as compensation for improper provision of security.

The Claimant contends, in summary, that:

a) The contested tax assessment is illegal because the land cannot, as of the date of assessment, be considered a property with residential use;

b) The land is not licensed, nor did it have, as of the date of the Stamp Duty assessment act, a license with normal destination for residential purposes;

c) Being not a property with current residential use, Stamp Duty cannot apply to that property under item 28.1 of the General Stamp Duty Table ("TGIS");

d) The tax assessment act in question is defective due to violation of item 28.1 of the TGIS, due to error regarding the legal requirements.

1.2. The Tax and Customs Authority responded, raising no preliminary issues and defending, as to the merits of the Claimant's claim, that the request should not succeed.

The position of the Tax and Customs Authority is based on defending that the property in question has the legal nature of a property with residential use, whereby the assessment act that is the subject of the present request for arbitral ruling should be maintained as it embodies a correct interpretation of item 28 of the TGIS, added by Law no. 55-A/2012, of 29 October.

1.3. After hearing the Parties, it was decided not to hold the meeting provided for in article 18 of the RJAT, and it was also agreed that there would be no need for the parties to submit written arguments.

  1. CASE MANAGEMENT

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

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

No procedural defects were identified.

  1. ISSUES TO BE DECIDED

The following legal issues are to be decided in the present proceedings:

i) whether land for construction can be qualified as "property with residential use" and, if so, can be framed within the scope of application of item 28.1 of the TGIS, added by article 4 of Law no. 55-A/2012, of 29 October;

ii) the Claimant's right to be compensated for improper provision of security;

iii) recognition of the right to interest on the amount of tax paid.

  1. REASONING

4.1. Factual Findings

4.1.1. Facts Found to be Proven

a) The Claimant is the owner of an urban property consisting of land for construction, registered in article … of the urban property register of the parish of …, municipality of Vila do Conde (document no. 1, attached to the request for arbitral ruling, the contents of which are reproduced herein);

b) On a date not determined, the Claimant was notified of the tax assessment act for Stamp Duty relating to the year 2012 (documents relating to the 1st, 2nd and 3rd installment nos. 2013 …, 2013 … and 2013 …), in the total amount of € 20,248.99, issued on 22 March 2013, made under item 28.1 of the TGIS (document no. 2, attached to the request for arbitral ruling, the contents of which are reproduced herein).

4.1.2. Facts Found Not to be Proven

There are no facts relevant to the decision that are found not to be proven.

4.1.3. Grounds for the Proven Factual Findings

The proven facts are based on the documents indicated in section 4.1.1 above, whose authenticity and correspondence with reality were not questioned.

4.2. Law

4.2.1. As regards the merits of the case, the issue that is the subject of the present proceedings is whether there is application of Stamp Duty under item 28.1 of the TGIS, added by article 4 of Law no. 55-A/2012, of 29 October, to the ownership, usufruct or right of superficies of land for construction.

Article 1, no. 1 of the Stamp Duty Code provides that "Stamp Duty applies to all acts, contracts, documents, deeds, papers and other facts or legal situations provided for in the General Table, including gratuitous transfers of property."

Item 28.1 of the TGIS 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 patrimony value stated in the register, under the Municipal Property Tax Code (CIMI), is equal to or greater than (euro) 1,000,000 - on the tax patrimony value used for IMI purposes:

28.1 Per property with residential use: 1%"[1]

From the rules transcribed above, it follows that Stamp Duty applies:

a) To ownership, usufruct or right of superficies;

b) Of property with residential use; and

c) With Tax Patrimony Value ("TPV") stated in the register, under the Municipal Property Tax Code, equal to or greater than € 1,000,000.

The issue at hand is whether the concept of "property with residential use" comprises land for construction.

The said concept does not have a basis in tax legislation, namely in the Municipal Property Tax Code ("IMI"), which constitutes subsidiary legislation for purposes of tax assessment (cf. articles 23, no. 7, 46 and 67 of the Stamp Duty Code).

However, that tax code defines various concepts of properties. In this regard, it is important to consider the relevant legal provisions on this matter, which are transcribed below:

"Article 2

Concept of Property

1 - For the purposes of this Code, property is any parcel of land, including water, plantations, buildings and constructions of any nature incorporated or built on it, 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 water, plantations, buildings or constructions, in the circumstances mentioned above, endowed with economic autonomy in relation to the land where they are situated, although situated in a parcel of land that constitutes an integral part of different patrimony or does not have a patrimonial nature.

2 - Buildings or constructions, even if movable by nature, are considered to have a character of permanence when devoted to non-transitory purposes.

3 - The character of permanence is presumed when buildings or constructions have been situated in the same place for a period exceeding one year.

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

Article 3

Rural Properties

1 - Rural properties are lands situated outside an urban agglomeration that are not to be classified as land for construction, under the terms of no. 3 of article 6, provided that:

a) They are devoted or, in the absence of concrete use, have as normal destination a use that generates agricultural income, such as is considered for the purposes of personal income tax (IRS);

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

2 - Rural properties also include lands situated within an urban agglomeration, provided that, by virtue of legally approved provision, they cannot be used to generate any income or can only be used to generate agricultural income and are, in fact, being used in this way.

3 - Rural properties also include:

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

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

4 - For the purposes of this Code, urban agglomerations are considered to be, in addition to those within legally fixed perimeters, clusters with a minimum of 10 dwellings served by roads of public use, with their perimeter delimited by points situated 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 provisions 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 principal part.

2 - If neither part can be classified as principal, the property is considered mixed.

Article 6

Types 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 normal destination each of these purposes.

3 - Land for construction is understood to be lands situated within or outside an urban agglomeration for which a license or authorization has been granted, preliminary communication has been admitted or favorable preliminary information has been issued for a subdivision or construction operation, and also those that have been declared as such in the acquisition deed, excluding lands in 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 plans, are devoted to public spaces, infrastructures or facilities.

4 - Under the provision of subparagraph d) of no. 1 are included lands situated within an urban agglomeration that are not land for construction and are not covered by the provision of no. 2 of article 3, as well as buildings and constructions licensed or, in the absence of a license, that have as normal destination other purposes than those referred to in no. 2 and also those of the exception in no. 3."

What the provisions above do not say and what it is incumbent upon this Arbitral Tribunal to consider and decide is what is meant by "property with residential use", as provided for in item 28.1 of the TGIS, and its respective scope regarding the reality of land for construction. That is, it is necessary to interpret the said concept.

In matters concerning the 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 rules 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 rules use terms specific to other branches of law, they must be interpreted in the same sense as they have there, unless otherwise directly follows from the law.

3 - If doubt persists regarding the meaning of the applicable scope rules, the economic substance of the tax facts must be considered.

4 - Gaps resulting from tax rules covered by the legislative reserve of the Assembly of the Republic are not subject 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 should not be limited to the letter of the law, but should reconstruct the legislative intent from the texts, 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 legislative intent that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed.

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

As already mentioned, tax legislation, namely the IMI Code, does not include a definition of the concept of "property with residential use".

Since there is no exact terminological correspondence between the concept of "property with residential use" and any other used in other statutes, it is necessary to interpret the rule, but keeping in mind that the literal element cannot be ignored, since, in light of article 11 of the GTL, the interpreter must observe the general rules and principles of interpretation and application of laws provided for in article 9 of the Civil Code, which requires reconstructing, from the texts, the legislative intent, and it should be presumed that "the legislator adopted the most appropriate solutions and was able to express its intent in appropriate terms."[2]

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

The expression provided for in the said provision of the IMI Code has some similarity with the concept in item 28.1 of the TGIS, however, it is not entirely coincident. On the other hand, on the assumption that "the legislator adopted the most appropriate solutions and was able to express its intent in appropriate terms", if the legislator distinguished and used different terminology it was because it wished to do so.

Therefore, the lack of exact coincidence between the two expressions – in this case, the expression in item 28.1 of the TGIS and that provided for 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 wish to use the same concept.

The concept provided for in item 28.1 of the TGIS goes further, it presupposes a "use" or "allocation", which can be defined as a "destination, application to a determined purpose"[3].

For its part, the IMI Code uses, in several articles, the expression "use" or "allocation" but always with the intention that it be effective. See, by way of example, articles 3 and 27 of this tax code.

The legislator's intention was clearly to encompass in the aforementioned item 28.1 of the TGIS properties that are already devoted to residential purposes.

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

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

Without prejudice to the foregoing, it is also necessary to assess whether the said concept of "property with residential use" includes properties (e.g., land for construction) that, not yet being devoted to residential purposes, already have a pre-determined destination (namely, in the subdivision license) or only when the effective assignment of that destination is realized (through building or construction that allows such use).

From the combined analysis of item 28.1 of the TGIS and subparagraph a) of no. 1 and no. 2 of article 6 of the IMI Code, it is concluded that the best interpretation is that "property with residential use" presupposes an effective use, not including land for construction that, although not yet devoted to residential purposes, already has a pre-determined destination, namely, in the subdivision license.

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

If the legislator intended that the concept of "property with residential use" would include properties licensed for residential purposes or, even without a license, that had residential use as their normal destination, it would have used the terminology contained in no. 2 of 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 use" is aimed at a different reality, requiring an effective residential use.

In this same sense, there is extensive jurisprudence from the Supreme Administrative Court ("SAC") and, likewise, tax arbitration jurisprudence. We refer, namely, without exhaustive concerns, to the SAC judgments in cases 01870/13, 0272/14 and 055/14, as well as to arbitral decisions in cases 42/2013-T, 53/2013-T and 144/2013-T.

In light of the foregoing, inasmuch as the property subject to the contested tax assessment does not have an effective residential use, it is decided in favor of the validity of the breach of law, due to error regarding legal requirements, raised by the Claimant, and the Stamp Duty assessment act in question should be annulled.

4.2.2. Compensation for Improper Security

The Claimant further requests compensation for the costs to be incurred by providing security for the suspension of the tax enforcement proceedings.

Article 171 of the Tax Procedure and Process Code ("TPPC") provides that "compensation in case of a bank guarantee or equivalent improperly provided shall be requested in the proceedings in which the legality of the enforceable debt is disputed" and that "compensation must be requested in the claim, challenge or appeal or, if its grounds are subsequent, within 30 days of its occurrence."

Thus, it is unambiguous that the judicial challenge process covers the possibility of condemnation for payment of improper security and is, in principle, the appropriate procedural means to formulate such a request, which is justified by obvious reasons of procedural economy, since the right to compensation for improper security depends on what is decided regarding the legality or illegality of the assessment act.

The request for constitution of the arbitral tribunal has as a corollary that it is in the arbitral proceedings that the "legality of the enforceable debt" will be discussed, and therefore, as results from the express provision of that no. 1 of the said article 171 of the TPPC, it is also the arbitral proceedings that is appropriate to consider the request for compensation for improper security.

Moreover, the accumulation of requests relating to the same tax assessment is implicitly assumed in article 3 of the RJAT, when it speaks of "accumulation of requests even if relating to different acts", which makes it clear that the accumulation of requests is also possible with respect to the same tax assessment and requests for compensation for compensatory interest and condemnation for improper security are capable of being covered by that formula, and therefore an interpretation in this sense has, at least, the minimum verbal correspondence required by no. 2 of article 9 of the Civil Code.

Article 53 of the General Tax Law ("GTL") provides that:

"1. The debtor who, in order to suspend enforcement, provides a bank guarantee or equivalent shall be compensated in whole or in part for the damage resulting from providing it, if it has been maintained for a period exceeding three years in proportion to success in administrative appeal, challenge or opposition to enforcement that have as their object the guaranteed debt.

  1. The period referred to in the preceding number does not apply when it is found, in an administrative complaint or judicial challenge, that there was error attributable to the authorities in the assessment of the tax.

  2. The compensation referred to in number 1 has as its maximum limit the amount resulting from the application to the guaranteed value of the compensatory interest rate provided for in this law and may be requested in the claim process or judicial challenge itself, or autonomously.

  3. Compensation for improper provision of security shall be paid by deduction from the tax revenue of the year in which payment was made."

In the case at hand, the error underlying the Stamp Duty assessment act is attributable to the Tax and Customs Authority, since the Claimant in no way contributed to the commission of that error.

Since there are no elements that allow determining the amount of compensation, the condemnation must be made with reference to what comes to be assessed in execution of the present arbitral decision (article 609 of the Civil Procedure Code of 2013, and article 565 of the Civil Code).

4.2.3. The third issue to be decided concerns recognition of the right to compensatory interest.

Under article 43 of the GTL, compensatory interest is due when in a process of administrative complaint or judicial challenge it is determined that there was error attributable to the Tax and Customs Authority resulting in improper payment of the tax obligation.

Being the arbitral process an alternative process to the judicial challenge process, the tribunal holds that in light of the illegality of the contested tax assessment acts, there is entitlement to reimbursement of the tax paid and to payment of compensatory interest under no. 1 of article 43 of the GTL and article 61 of the TPPC.

  1. OPERATIVE PART

In light of the foregoing, it is concluded that the Claimant is correct, and accordingly, it is decided:

i) to uphold the claim for declaration of illegality and annulment of the Stamp Duty assessment act, with all legal consequences, in particular that the amounts paid be refunded to the Claimant in accordance with law;

ii) to uphold the claim for compensation for improper security and to condemn the Tax and Customs Authority to pay to the Claimant the compensation to be assessed in execution of the present arbitral decision;

iii) to recognize the Claimant's right to compensatory interest, condemning the Tax and Customs Authority to payment of compensatory interest, in accordance with no. 1 of article 43 of the General Tax Law ("GTL") and article 61 of the TPPC.

Value of the case: fixed at € 20,248.99 (twenty thousand, two hundred and forty-eight euros and ninety-nine cents), in accordance with the provisions of article 3, no. 2 of the Regulation on Costs in Tax Arbitration Proceedings ("RCPAT"), article 97-A, no. 1 of the Tax Procedure and Process Code and article 305 and following of the Civil Procedure Code.

Costs: fixed at € 1,224.00 (one thousand two hundred and twenty-four euros) the amount of the costs, in accordance with Table I attached to the RCPAT, to be borne by the Respondent.

Notify.

Lisbon, 15 September 2014.

The Arbitrator,

Lina Ramalho

Document prepared by computer, pursuant to no. 5 of article 131 of the Civil Procedure Code, applicable by reference to subparagraph e) of no. 1 of article 29 of Decree-Law no. 10/2011, of 20/01.

This decision is written in accordance with the former spelling conventions.

[1] Wording as of the date of the facts. The said provision was amended by Law no. 83-C/2013 of 31 December, with effect from 1 January 2014, and currently has the following wording:

"Ownership, usufruct or right of superficies of urban properties whose tax patrimony value stated in the register, under the Municipal Property Tax Code (CIMI), is equal to or greater than (euro) 1,000,000 - on the tax patrimony value used for IMI purposes:

28.1-Per residential property or per land for construction whose building, authorized or planned, is for residential purposes, in accordance with the provisions of the IMI Code: 1%

28.2-Per property, when the taxpayers that are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, listed in an order approved by the Minister of Finance: 7.5%".

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

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

Frequently Asked Questions

Automatically Created

Is Stamp Tax (Imposto do Selo) under Verba 28 of TGIS applicable to building land (terreno para construção) without a housing license?
Stamp Tax under Verba 28 of TGIS generally does not apply to building land (terreno para construção) without a housing license. Item 28.1 TGIS, introduced by Law 55-A/2012, requires the property to have 'residential use' (afectação habitacional). Building land that lacks construction licensing for residential purposes cannot be classified as property with current residential use. The concept of 'property with residential use' requires actual allocation to housing, not merely potential future residential development. Therefore, unlicensed construction land falls outside the scope of item 28.1 TGIS, making any Stamp Tax assessment on such property illegal due to misapplication of the legal framework.
What are the legal requirements for a property to be classified as having housing allocation (afectação habitacional) under Portuguese tax law?
Under Portuguese tax law, a property must meet specific criteria to be classified as having housing allocation (afectação habitacional) under Verba 28 TGIS. The legal requirements include: (1) the property must have ownership, usufruct, or right of superficies; (2) it must be urban property with actual residential use, not merely potential future use; (3) the Tax Patrimony Value (Valor Patrimonial Tributário) stated in the register under CIMI must equal or exceed €1,000,000. Critically, the property must have current residential destination, typically evidenced by construction licensing for housing purposes. The concept is not defined in the Municipal Property Tax Code (CIMI) or Stamp Duty Code, requiring interpretation based on actual use rather than classification as urban land suitable for future construction.
Can the Tax Authority (Autoridade Tributária) levy Stamp Tax on land that is not licensed for residential purposes?
The Tax Authority (Autoridade Tributária) cannot legally levy Stamp Tax on land that is not licensed for residential purposes under item 28.1 TGIS. The taxation requires property with 'residential use' (afectação habitacional), which presupposes actual residential allocation, not potential future development. Construction land (terreno para construção) without housing licenses lacks the necessary residential character. Assessing Stamp Duty on such unlicensed land constitutes illegal tax liquidation (liquidação ilegal) due to violation of item 28.1 TGIS requirements. Taxpayers can challenge such assessments through CAAD arbitration, arguing the property does not meet the legal definition of property with residential use, thereby falling outside the scope of the tax provision.
What constitutes an error in legal assumptions (erro sobre os pressupostos de direito) in a Stamp Tax assessment on building land?
An error in legal assumptions (erro sobre os pressupostos de direito) in Stamp Tax assessment on building land occurs when the Tax Authority incorrectly classifies construction land as 'property with residential use' under item 28.1 TGIS. This error involves misapplying the legal framework by assuming unlicensed building land qualifies for Stamp Duty taxation reserved for properties with actual residential allocation. The legal requirements mandate current residential use or licensing, not mere potential for future residential development. When authorities assess Stamp Duty on terreno para construção lacking residential licenses, they commit an error regarding the legal presuppositions of the tax norm, treating property classification (urban land suitable for construction) as equivalent to residential use allocation, which are distinct legal concepts under Portuguese tax law.
How does CAAD arbitration (Processo 197/2014-T) address the illegality of Stamp Tax liquidation on non-residential building plots?
CAAD arbitration Process 197/2014-T addresses the illegality of Stamp Tax liquidation on non-residential building plots by examining whether 'property with residential use' encompasses terreno para construção. The tribunal analyzes the legal requirements of item 28.1 TGIS, noting the concept lacks statutory definition in CIMI or Stamp Duty Code. The decision framework considers that Stamp Duty applies only to ownership, usufruct, or superficies rights of properties with actual residential use having TPV ≥ €1,000,000. The claimant successfully argues that construction land without residential licensing cannot be deemed property with current residential use, making the €20,248.99 assessment illegal. The arbitration provides remedy through declaring the tax assessment illegal with all legal consequences, ordering refund of amounts paid plus compensatory interest and compensation for improper security provision.