Process: 2/2014-T

Date: August 18, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD arbitration decision 2/2014-T addresses a significant Portuguese tax dispute concerning the application of Imposto do Selo (stamp tax) to building land under Verba 28 of the General Stamp Tax Table (TGIS). The case involves A... Lda., which contested stamp tax assessments totaling approximately €25,000 on four plots of land for construction in Coimbra, each with a Tax Asset Value (VPT) exceeding €1 million. The assessments were made under Article 6(1) of Law 55-A/2012 and item 28.1 of TGIS, which levies stamp tax on ownership, usufruct, or surface rights of urban properties with residential purpose and VPT over €1 million. The taxpayer argued that terrenos para construção (building land) cannot be classified as properties with 'residential purpose' since they are merely plots designated for future construction, not completed buildings actually used for housing. According to the applicant's position, residential purpose should only apply to finished, licensed buildings functioning as residences, not virtual or potential future uses. The Portuguese Tax Authority (Autoridade Tributária) countered that the concept of 'destino habitacional' (residential purpose) is broader than completed residential buildings, relying on cross-references between the Stamp Tax Code (CIS) and the Property Tax Code (CIMI). The AT maintained that building land valuation methodology under CIMI incorporates purpose coefficients, and since these plots were valued with residential purpose indicators, they fall within item 28's scope. This CAAD tax arbitration case exemplifies the interpretative challenges arising from Law 55-A/2012's introduction of stamp tax on high-value real estate, particularly regarding whether the tax base encompasses undeveloped land classified for residential construction under municipal planning regulations and IMI valuation rules.

Full Decision

Arbitral Decision

CAAD: Tax Arbitration

Case No. 2/2014 – T

I – REPORT

A…, Lda. (hereinafter referred to only as the Applicant), Legal Entity No. …, with registered office at Rua …, Coimbra, submitted on 30 December 2013, a request for constitution of an Arbitral Tribunal, in accordance with the provisions of Articles 2 and 10 of Decree-Law 10/2011 of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to only by the initials RJAT).

In the request for arbitral decision, the Applicant chose not to designate an arbitrator.

In accordance with paragraph 1 of Article 6 of the RJAT, the Ethics Council of the Arbitration Centre designated a sole arbitrator, and following that designation and as of 4 March 2014, by order issued by His Excellency the President of the Ethics Council of CAAD, the Arbitral Tribunal was duly and regularly constituted to examine and decide on the subject matter of the case.

The Applicant seeks, with the constitution of this Arbitral Tribunal, a declaration of illegality of the express dismissal of the administrative complaint referred to in Case No. ..., which was made against the tax assessment acts for Stamp Tax (IS) with Nos. 2012 …, 2012 …, 2012 … and 2012 …, dated 8.11.2012, to pay, by 20.12.2012, that tax in the amounts of € 6,515.76, € 6,031.04, € 6,031.04 and € 6,152.43 respectively, and the consequent annulment of these tax assessment acts.

The Applicant maintains, in summary, its claim as follows:

The assessment of IS is made under the provisions of Article 6 paragraph 1 of Law 55-A/2012 and item 28 of the General Table of Stamp Tax (TGIS) which the said law introduced into the Portuguese tax system;

In accordance with the said item, IS is levied on the ownership, usufruct or right of surface of urban properties with a Tax Asset Value (VPT) exceeding € 1,000,000.00 and which have a "residential purpose";

The urban properties on which IS is levied are plots of land for construction (4 lots), and therefore cannot be classified as properties intended for residential purposes;

The argument of the Tax Authority (AT) cannot be upheld that these properties have residential purpose, because in the valuation act they were considered as having that purpose;

Because, when the law refers to "residential purpose", it is considering the function or use of the property;

A plot of land for construction cannot, in any way, be considered as having a residential purpose, because its only purpose is construction;

A property, more specifically a plot of land, can only have residential purpose when the construction planned and authorized for it is completed and is intended for residential purposes;

In accordance with the Property Tax Code (IMI), to which the Stamp Tax Code (CIS) refers, more specifically its Article 6, only buildings or constructions licensed for such purposes are considered residential properties (or commercial or industrial), or which, in the absence of a license, have as their normal destination each of these purposes;

The legislator, by qualifying plots of land for construction in a different category from that of residential, commercial or industrial properties, suggests that it wished, in a clear and evident manner, to distinguish them from these.

Therefore, plots of land for construction do not fall within the scope of the incidence rule of item 28 of the TGIS, which only intends to tax existing realities and not virtual or fictitious ones, that is, to tax properties that actually exist, are built and intended for residential purposes.

In its defense, the Tax and Customs Authority maintains that the properties on which the taxation was levied have the legal nature of a property with residential purpose, basing this position on the following arguments:

In the absence of any definition of urban property with residential purpose under IS, one must, in accordance with Article 67 paragraph 2 of the CIS, resort to the CIMI;

The notion of purpose of the urban property is found in the chapter concerning the valuation of real estate;

Therefore, as results from the expression "...value of authorized buildings" provided for in Article 45 paragraph 2 of CIMI, the legislator opted to determine the application of the methodology for the valuation of properties in general to the valuation of plots of land for construction, whereby the purpose coefficient fixed in Article 41 of CIMI is applicable to them.

For the purposes of determining the VPT of plots of land for construction, the application of the purpose coefficient in the context of valuation is clear, whereby its consideration for the purposes of applying item 28 of the TGIS cannot be ignored;

After the valuation of the four urban cadastral entries carried out in accordance with Article 130, paragraph 1, subsection c) of CIMI, the indication of their residential purpose was maintained.

The AT understands that, for the purposes of item 28 of the TGIS, the concept of properties with residential purpose comprises both built properties and plots of land for construction, beginning with its literal element, in that the legislator speaks of "residential purpose" and not "properties intended for residential purposes", from which results that this broader concept means that it is intended to integrate other realities beyond those of Article 6 paragraph 1 subsection a) of CIMI.

The legislation applicable to plots of land for construction, both regarding the manner of determining its VPT (where the value of the implantation area must be considered), and as regards the issuance of a building permit for the conduct of urban planning operations, and as regards the preparation of Municipal Master Plans, allows one to ascertain and determine the purpose of the plot of land for construction.

On 31 July, the following order was issued:

"Given that:

The resolution of the case appears to be satisfied with the treatment of questions of law, with no preliminary issues appearing to be debated;

Given the clarity of the arguments presented and set out in the pleadings submitted by the parties,

The Tribunal understands that it is dispensed from:

Holding the meeting referred to in Article 18 of the RJAT;

Receiving submissions from the parties.

II – PROVEN FACTS

The Applicant is the owner and legitimate proprietor of four urban properties registered as plots of land for construction, under articles …, …, … and …, in the parish of …, municipality and district of Coimbra.

These properties were subject to tax assessment acts for Stamp Tax (IS) with Nos. 2012 …, 2012 …, 2012 … and 2012 …, dated 8.11.2012, carried out under item 28 of the TGIS, in the amounts of € 6,515.76, € 6,031.04, € 6,031.04 and € 6,152.43.

Owing to this assessment, and because the Applicant did not accept the same, it filed, with the Tax Office of Coimbra 1, an administrative complaint which was processed under No. ....

This complaint was dismissed by order issued by the Head of the Tax Justice Division of the Finance Department of Coimbra, on 23 September 2013.

As a result of this decision dismissing the administrative complaint, the Applicant requested, on 30 December 2013, the constitution of this Arbitral Tribunal, which was formally constituted on 4 March 2014.

The facts mentioned above are proven by the documents annexed by the parties, and no other facts considered relevant for the decision that is the subject of this case have been proven.

It now falls to examine and decide.

III – DECISION

The question to be analyzed by the Tribunal concerns the classification of plots of land for construction within the scope of item 28.1 of the TGIS, in order to determine whether or not this tax is due.

As we have seen, the assessments contested by the Applicant were issued under the incidence rule contained in item 28.1 of the TGIS, and it is the Applicant's view that plots of land for construction cannot, in any way, be considered "properties with residential purpose", and therefore these assessments are manifestly illegal.

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

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

28.1 – For properties with residential purpose – 1%

28.2 - ..."

The same statute subsequently, in its Article 6, established certain transitional application rules where it adopted, in a similar manner to what it had done in the aforementioned item 28, the same concept of property with residential purpose.

A concept which is not used in any other legislation of a tax nature, especially in the CIMI, which, by virtue of various provisions of the CIS, is the diploma of subsidiary application in relation to the tax provided for in item 28 of the TGIS (see, for this purpose, Articles 2 paragraph 4, 3 paragraph 3 u), 5 u), 23 paragraph 7 and 46 and 67 of the CIS).

Indeed, and with relevance to the present decision, note the provisions of Articles 2 and 6 of the CIMI, where, on the one hand, the concept of property is defined (Article 2) and the types of urban properties are enumerated (Article 6):

Article 2

Concept of Property

1 - For the purposes of this Code, property is any portion of territory, including waters, plantations, buildings and constructions of any nature incorporated or situated therein, with the 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 aforementioned circumstances, endowed with economic autonomy in relation to the land on which they are situated, although situated in a portion of territory that constitutes an integral part of a different patrimony or does not have a patrimonial nature.

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

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

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

Article 6

Types of Urban Properties

1 - Urban properties are divided into:
a) Residential;
b) Commercial, industrial or for services;
c) Plots of land for construction;
d) Other.

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

3 - Plots of land for construction are considered to be plots of land situated within or outside an urban cluster, for which a license or authorization has been granted, an anticipated communication admitted or favorable prior information issued for a subdivision or construction operation, and also those which have been declared as such in the acquisition deed, excepting plots of land where the competent entities prohibit any of those operations, namely those located in green areas, protected areas or which, in accordance with municipal territorial planning plans, are intended for public spaces, infrastructure or facilities.

4 - Those urban properties situated within an urban cluster which are not plots of land for construction nor are covered by the provision of paragraph 2 of Article 3, and also buildings and constructions licensed or, in the absence of a license, which have as their normal destination other purposes than those referred to in paragraph 2, and also those of the exception of paragraph 3, fall within the provision of subsection d) of paragraph 1.

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

From a literal interpretation of the rule contained in item 28.1 of the TGIS, it is concluded that the legislator's intention was to include within its scope of application urban properties which have residential purpose. Starting from this intention, one must determine when a property is devoted to a residential purpose, namely whether it is when that destination is fixed for it in any licensing act or of similar nature, or whether it is only when the attribution of that destination is effectively realized.

The wording of item 28.1 permits the clear conclusion that the legislator's intention was to consider necessary an effective purpose and not merely the licensing of buildings or constructions for that purpose or, in the absence of such license, those which have as their normal destination that purpose. If the legislator, in item 28.1, had been 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 purpose".

From the above, it is concluded that a property with "residential purpose" is not merely a property licensed for residential use or intended for that purpose, but rather "something more than that", that is, it will have to be a property with effective dedication to that residential purpose.

Having to be, in this way, something effectively built.

Now, plots of land for construction, not yet having any building, as clearly results from the definition given in Article 6 of CIMI ("....plots of land situated within or outside an urban cluster, for which a license or authorization has been granted, an anticipated communication admitted or favorable prior information issued for a subdivision or construction operation, and also those which have been declared as such in the acquisition deed, …."), do not by themselves fulfill any condition to even be considered as residential properties, and therefore, all the more so, "properties with residential purpose".

It should therefore be understood that the rule of item 28.1 will only be satisfied when the residential purpose is effectively realized.

In this way, it does not appear to us possible to follow the thesis defended by the Respondent (AT), and we should therefore accept the thesis supported by the Applicant that residential purpose cannot be attributed to plots of land for construction even if they may have as their probable (but not exclusive) destination the construction of residential units.

It should also be stated that 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 (which subjected to the tax "plots of land whose authorized or planned building is for residential purposes"), contributes decisively to reinforce this understanding, as this amendment does not have the nature of an interpretative rule.

Moreover, the decisions taken by the Arbitral Tribunals at CAAD have decided likewise in this sense (see, among others, decisions in Cases Nos. 48/2013-T, 53/2013-T, 215/2013-T or 310/2013-T), just as some recent decisions of the Superior Administrative Court that also dealt with this matter (see, among others, Court Decision No. 187/13 or Court Decision No. 272/14 of this Superior Court).

This Tribunal therefore considers that the contested assessments are tainted with illegality, in that they apply to properties registered as plots of land for construction, a concept which, for the reasons set out above, is not included in the concept of "properties with residential purpose" provided for in item 28.1 of the TGIS.

CONCLUSION

In view of the foregoing, it is decided that the request for annulment of the order dismissing the administrative complaint is upheld and, consequently, the Stamp Tax assessment acts issued by the Tax and Customs Authority, ordering the tax and customs authority to refund to the Applicant the sum of € 24,730.27 (twenty-four thousand seven hundred and thirty euros and twenty-seven cents) plus compensatory interest, at the legal rate, from the date on which it made the payment of this sum and the date of issue of the corresponding credit note in favor of the Applicant.

Costs calculated in accordance with Table I of the regulation on costs of tax arbitration proceedings in relation to the value of the claim, to be borne by the Respondent, and which I fix at € 1,530.00 (one thousand five hundred and thirty euros).

Let it be notified.

Lisbon, 18 August 2014

THE ARBITRATOR

João Marques Pinto

This decision is written in accordance with the old spelling.

Frequently Asked Questions

Automatically Created

Does Portuguese stamp tax (Imposto do Selo) apply to building land under Verba 28 of the TGIS?
The application of Imposto do Selo to building land under Verba 28 of TGIS is disputed. While the Portuguese Tax Authority argues that terrenos para construção with residential designation fall within the scope of item 28.1 when their VPT exceeds €1 million, taxpayers contend that only completed buildings with actual residential use should be taxed, not undeveloped plots. The interpretation hinges on whether 'destino habitacional' (residential purpose) encompasses future intended use or requires actual residential function.
Can land plots for construction be classified as having housing allocation for stamp tax purposes?
This is the central controversy in CAAD Process 2/2014-T. The Tax Authority argues that land plots for construction can be classified as having housing allocation based on purpose coefficients applied during VPT valuation under CIMI (Property Tax Code) and municipal planning designations. Conversely, taxpayers argue that 'residential purpose' requires an actual completed building licensed and functioning for housing, not merely land designated for future residential construction, making building land categorically distinct from residential properties under IMI Article 6.
How did CAAD Process 2/2014-T rule on stamp tax for urban land with VPT over 1 million euros?
CAAD Process 2/2014-T examined whether four building plots in Coimbra with VPT exceeding €1 million should be subject to stamp tax under item 28.1 of TGIS. The taxpayer challenged assessments totaling approximately €25,000, arguing that terrenos para construção lack the 'residential purpose' required by Law 55-A/2012. The arbitral tribunal was constituted to determine whether item 28's incidence rule applies to undeveloped land or only to completed residential buildings, analyzing the interplay between stamp tax legislation and CIMI valuation provisions.
What is the difference between building land and housing property for Imposto do Selo under Law 55-A/2012?
Under Law 55-A/2012 and item 28 of TGIS, the critical distinction concerns whether building land (terrenos para construção) qualifies as property with 'destino habitacional' (residential purpose). Building land refers to plots designated for construction without existing buildings, classified separately under CIMI. Housing properties are completed buildings licensed and used for residential purposes under IMI Article 6(1)(a). The taxpayer's position treats these as mutually exclusive categories, while the Tax Authority interprets 'residential purpose' broadly to include land designated for residential development based on valuation coefficients and planning permissions.
Can taxpayers challenge stamp tax assessments on construction land through CAAD tax arbitration?
Yes, taxpayers can challenge stamp tax assessments on construction land through CAAD tax arbitration, as demonstrated by Process 2/2014-T. The case shows that after exhausting administrative complaint procedures (reclamação graciosa), taxpayers may request constitution of an arbitral tribunal under the RJAT (Legal Regime for Arbitration in Tax Matters, Decree-Law 10/2011) to contest the legality of stamp tax liquidations on building plots. This arbitration mechanism provides an alternative to judicial courts for resolving disputes over item 28 TGIS application to high-value urban properties.