Process: 2/2015-T

Date: September 16, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD arbitration process 2/2015-T addresses the controversial application of Stamp Duty under item 28.1 of the General Table of Stamp Duty (TGIS) to construction land without actual buildings. The claimant, a company owning land registered as 'land for construction' with a 2005 building permit but no executed construction or building license, challenged the 2013 stamp duty assessment on multiple grounds. The central dispute concerns whether 'residential use designation' under item 28.1 TGIS applies to undeveloped construction land. The claimant argued that without physical construction or a building license, the property cannot have residential designation and falls outside TGIS item 28.1's scope. Additionally, the claimant raised constitutional challenges: alleged double taxation since both IMI and Stamp Duty target the same property, violation of non-retroactivity principles because the 2012 tax legislation applies to properties acquired before its enactment, and breach of equality principles by taxing only residential properties while exempting valuable commercial properties like banks and shopping centers. The Tax Authority countered that the IMI Code's valuation methodology for construction land incorporates residential use designation coefficients, meaning designation is determined by permits and municipal planning documents before actual construction occurs. The Authority argued that building permits and municipal master plans establish use designation long before construction, making the tax legally applicable. Regarding constitutional objections, the Tax Authority maintained that differentiated treatment of residential versus commercial properties constitutes reasonable classification, not arbitrary discrimination prohibited by Article 13 of the Portuguese Constitution. The case exemplifies critical interpretive questions in Portuguese tax law regarding the temporal and material scope of stamp duty on real estate.

Full Decision

Proc. 2/2015-T

Arbitral Decision

Subject Matter: Stamp Duty – Item 28 – Land for Construction

Claimant: A... –, S.A.

Respondent: AT - Tax and Customs Authority

I - REPORT

1. Claim

A... –, S.A, legal entity no. …, with registered office at Rua …, hereinafter referred to as Claimant, filed on 30-12-2014, pursuant to the provisions of paragraph a) of no. 1 of article 2º and article 10º of Decree-Law no. 10/2011, of 20 January, which approves the Legal Framework for Tax Arbitration (RJAT), a request for arbitral decision, in which the AT - Tax and Customs Authority is the Respondent, in order to:

  • Annulment of the stamp duty assessment act documented through collection notes numbers 2014 … and …, carried out pursuant to item 28.1 of the General Table of Stamp Duty (TGIS), relating to the year 2013, and to the property registered in the property tax register under article ... of the parish ...;

The Claimant alleges, in essence, the following:

  • The property which was subject to the tax assessment being challenged consists of a plot of land intended for construction;

  • Although the property has a building permit issued in 2005 by the Municipal Council of Silves, no construction work had been carried out thereon, nor had a building license been issued by the competent authority, as of the date of the taxable event;

  • As there is no building on the property, nor a construction license or license for use, one cannot speak of "residential use designation";

  • Therefore, the property in question was excluded from the scope of application of item 28.1 of the TGIS, in the wording it had on the date of the taxable event;

  • The assessment sub judice is also unlawful because it taxes the same fact already taxed under Property Transfer Tax, since the objective and subjective scope of taxation is the same in both taxes;

  • This is therefore a situation of double taxation, unlawful due to violation of the principle prohibiting double taxation;

  • The assessment in question is also unlawful due to violation of the principle prohibiting retroactivity of tax laws, since the taxation in question (item 28.1 of the General Table of Stamp Duty) was legally established in 2012, but is applied to legal situations created before its entry into force;

  • The assessment in question is also unlawful due to violation of the principle of equality, since it taxes only residential properties, excluding taxation of valuable properties used for services and commercial purposes, such as banks and shopping centers;

2. Response of the Respondent

In response to the request for decision filed by the Claimant, the Respondent AT - Tax and Customs Authority opposed the claim on the basis of the following arguments:

  • The ICS Code does not define what should be understood by urban property, land for construction, or residential use designation, so one must resort to the IMI Code for this purpose, where the notion of urban property use is found in the section relating to property valuation;

  • As results from the expression "(…) value of authorized buildings", contained in article 45, no. 2 of the IMI Code, the legislator opted to determine the application of the methodology for valuation of properties in general to the valuation of land for construction, and consequently the coefficient of use designation provided for in article 41 of the IMI Code is applicable to them. Thus, the use designation of the property (fitness or purpose) is a coefficient that contributes to the valuation of the property in the determination of tax patrimonial value, applicable to land for construction;

  • Item 28 of the TGIS itself refers to the expression "properties with residential use designation", calling for a classification that overlaps with the types provided for in no. 1 of article 6 of the IMI Code. Being an expression different and broader than that used in the IMI Code, its meaning must be found in the need to integrate other realities beyond those identified in article 6, no. 1, paragraph a) of the IMI Code;

  • The concept of "properties with residential use designation", for purposes of item 28 of the TGIS, comprises both built properties and land for construction, from the outset in view of the literal element of the norm;

  • The creation of a right of potential construction immediately increases the value of the property;

  • The fact that the valuation of land for construction takes into account residential use designation, when applicable; the fact that the permit for the carrying out of urbanization operations must contain, among other elements, the number of lots and an indication of the location area, purpose, implantation area, construction area, number of floors, number of units in each of the lots, with specification of units intended for housing at controlled costs; and all of this still associated with the fact that municipal master plans establish the strategy for municipal development, municipal policy for spatial planning and urbanism and other urban policies, makes it possible, long before actual construction on the property, to determine and define the use designation of the land for construction;

  • With regard to the alleged violation of constitutional principles, the Constitution of the Republic "requires that what is necessarily equal be treated equally and what is essentially different be treated differently, not preventing differentiation of treatment, but only arbitrary, unreasonable discrimination, that is, distinctions of treatment that have no justification and sufficient material basis", which is not the case of the norm of item 28 of the TGIS;

  • Thus, the Respondent maintains that the provision of item 28 of the TGIS does not constitute any violation of the principle of equality of article 13 of the Constitution.

3. Subsequent Procedure

With the agreement of both parties, the Court decided to dispense with the holding of the meeting provided for in article 18 of the RJAT, as well as the stage of arguments.

II – PRELIMINARY PROCEEDINGS

The Sole Arbitrator was properly constituted on 16-03-2015, the arbitrator having been designated by the Deontological Council of CAAD, with the respective legal and regulatory formalities complied with (articles 11, no. 1, paragraphs a) and b) of the RJAT and 6 and 7 of the Deontological Code of CAAD), and is competent ratione materiae, in conformity with article 2 of the RJAT.

The parties have legal personality and capacity, are duly parties to the dispute, and are regularly represented.

No procedural irregularities were identified.

III – ISSUES TO BE DECIDED

The following are the issues to be decided by the Court:

  • The applicability of item 28.1 of the TGIS to land for construction, in the wording in force on 31 December 2013;

  • In the event of an affirmative answer to the previous issue, the constitutionality of the norm of incidence contained in item 28.1 of the TGIS, if interpreted to encompass land for construction, in light of the constitutional principles of equality and prohibition of retroactivity of tax laws;

  • In the event of an affirmative answer to the previous issue, the unlawfulness of the assessment due to violation of the alleged principle of prohibition of double taxation.

IV – FACTS ESTABLISHED

The following are the facts established considered relevant:

1st The Claimant was the owner, on the date of the facts that gave rise to the disputed assessment, of a plot of land intended for construction, property registered in the property tax register under article ... of the parish ...);

2nd The property was described in the property tax register as land for construction;

3rd The Claimant was notified of the tax assessment act for Stamp Duty on the said property (Documents 1 to 3 attached to the initial petition) pursuant to item 28.1 of the General Table of Stamp Duty;

4th The Claimant filed, on 6-8-2014, an administrative appeal against the said assessment;

5th The administrative appeal was dismissed by order of 11-12-2014 by the Director of Finance of Coimbra (Document 4 attached to the initial petition).

The facts established were established on the basis of the documentation provided by the Claimant.

V - GROUNDS

(i) Issue of applicability of item 28.1 of the TGIS to land for construction

On this issue, and in the exact terms in which it is raised here, the Supreme Administrative Court has already pronounced itself repeatedly, in the majority in a sense concordant with that argued by the Claimant (see the decisions of that Court rendered on 24/9/2014, procs. nos. 01533/13, 0739/14 and 0825/14; on 10/9/2014, procs. nos. 0503/14, 0707/14 and 0740/14; on 9/7/2014, proc. no. 0676/14; on 2/7/2014, proc. no. 0467/14; on 28/5/2014, procs. nos. 0425/14, 0396/14, 0395/14; on 14/5/2014, procs. nos. 055/14, 01871/13 and 0317/14; on 23/4/2014, procs. nos. 270/14 and 272/14; and on 9/4/2014, procs. nos. 1870/13 and 48/14).

The same issue was also the subject of pronouncement by arbitral courts, namely in proceedings nos. 151/2014-T, 42/2013-T, 48/2014-T, 49/2013-T, 53/2014-T, 75/2013-T, 144/2013-T, 158/2013-T, 180/2013-T, 189/2013-T, among others), and the arbitral case law is also practically unanimous in the sense that the provision of item 28.1 of the TGIS, in the wording in force until 31 December 2013, did not encompass land for construction.

Among the many decisions rendered by the Supreme Administrative Court on this issue, the decision rendered in the proceeding already referred to above is cited, in which it is stated:

"The concept of 'urban property with residential use designation' was not defined by the legislator. Neither in Law no. 55-A/2012, which introduced it, nor in the IMI Code, to which no. 2 of article 67 of the Stamp Duty Code (equally introduced by that Law) refers on a subsidiary basis. And it is a concept which, probably owing to its imprecision – a fact all the more serious given that it is on the basis of it that the scope of the objective incidence of the new taxation is determined – had a short life, since it was abandoned upon the entry into force of the State Budget Law for 2014 (Law no. 83-C/2013, of 31 December), which gave new wording to item 28 of the General Table, and which now determines its scope of objective incidence through the use of concepts that are legally defined in article 6 of the IMI Code.

This amendment - to which the legislator did not attribute an interpretative character, nor does it appear to us that it did – merely makes unequivocal for the future that land for construction the buildings authorized or envisaged for construction on which are to be for housing are encompassed within the scope of item 28.1 of the General Table of Stamp Duty (provided that their respective tax patrimonial value is equal to or greater than 1 million euros), but clarifies nothing, however, with respect to past situations (assessments from 2012 and 2013), such as the one at issue in the present proceedings.

Now, as to these, it does not appear that one can accept the interpretation advanced by the appellant, since it does not result unequivocally either from the letter or from the spirit of the law that the intention of the latter was, ab initio, to encompass within its scope of objective incidence land for construction for which the construction of residential buildings had been authorized or envisaged, as results today unequivocally from item 28.1 of the General Table of Stamp Duty.

From the letter of the law nothing unequivocal follows, moreover, since by using a concept it did not define and which was also not defined in the statute to which it referred on a subsidiary basis it lent itself, unnecessarily, to ambiguities, in a matter – of tax incidence – in which certainty and legal security should also be paramount concerns of the legislator.

And from its "spirit", discernible in the explanatory statement of the bill proposal that is the origin of Law no. 55-A/2012 (…) nothing more follows than the concern to raise new tax revenue, from sources of wealth "more spared" in the past from the ravenous appetite of the Tax Authority than from labor income, in particular income from capital, securities gains and property, reasons which contribute nothing of relevance to the clarification of the concept of "urban properties with residential use designation", since it takes it as established, without any concern to clarify it. Such clarification did, however, appear to arise (…), upon the presentation and discussion in the Parliament of that bill proposal, in the words of the Secretary of State for Tax Affairs, who apparently stated expressly, (…) that: "The Government proposes the creation of a special tax on residential urban properties of higher value. This is the first time that Portugal has created a special taxation on high-value properties intended for housing. This rate will be 0.5% to 0.8% in 2012 and 1% in 2013, and will apply to houses worth equal to or greater than 1 million euros" (…) from which it follows that the reality intended to be taxed is, after all, notwithstanding the imprecision of the terminology of the law, "residential urban properties", in common language "houses", and not other realities.

The fact that it may be considered that in determining the tax patrimonial value of urban properties classified as land for construction one should take into account the use that the building authorized or envisaged for it will have for determination of the respective value of the implantation area (see no. 1 and 2 of article 45 of the IMI Code), does not determine that land for construction can be classified as "properties with residential use designation", since "residential use designation" is always referred in the IMI Code to "buildings" or "constructions", existing, authorized or envisaged, since only these can be inhabited, which is not the case with land for construction, which do not, in themselves, have conditions for such, nor are they capable of being used for housing unless and until a construction authorized and envisaged for them is erected thereon (but in that case they would no longer be "land for construction" but another type of urban property – "residential", "commercial, industrial or for services" or "other" – article 6 of the IMI Code).

It would be strange, moreover, if the determination of the scope of the norm of objective incidence of item 28 of the General Table of Stamp Duty were, after all, in the norms for determination of the tax patrimonial value of the IMI Code, and if the imprecision of the terminology of the legislator in the wording of that rule were, ultimately, elucidated and finally clarified by way of an indirect and equivocal reference to the coefficient of use designation established by the legislator with respect to built properties (article 41 of the IMI Code).

Thus, given that a plot of land for construction – whatever the type and purpose of the building that will or might be erected on it – does not by itself satisfy any condition to be licensed as such or for it to be defined as having housing as its normal destination, and as the norm of incidence of Stamp Duty refers to urban properties with "residential use designation", without any specific concept being established for that purpose, one cannot extract from it that it contains a future potentiality, inherent in a distinct property that might possibly be built on the land.

It is concluded therefore, in accordance with what was decided in the judgment under appeal, that, as results from article 6 of the IMI Code a clear distinction between "residential" urban properties and "land for construction", the latter cannot be considered as "properties with residential use designation" for purposes of item 28.1 of the General Table of Stamp Duty, in its original wording, as it was given by Law no. 55-A/2012, of 29 October.".

Drawing on this case law, which is entirely accepted, it is concluded that the allegation of unlawfulness of the disputed assessment is well-founded, due to error in the prerequisites for application of the norm of item 28.1 of the TGIS.

(ii) Issue of unconstitutionality of the norm of incidence contained in item 28.1 of the TGIS, if interpreted to encompass land for construction, in light of the constitutional principle of equality

Considering the allegation of unlawfulness of the disputed assessments to be well-founded due to error in the legal prerequisites for application of item 28.1 of the TGIS, it becomes superfluous to analyze the issue of unconstitutionality of that same norm when interpreted to encompass land for construction, in light of the constitutional principle of equality.

(iii) Issue of unconstitutionality of the norm of incidence contained in item 28.1 of the TGIS in light of the constitutional principle prohibiting retroactivity of tax laws

Considering the allegation of unlawfulness of the disputed assessments to be well-founded due to error in the legal prerequisites for application of item 28.1 of the TGIS, it becomes equally superfluous to analyze the issue of unconstitutionality of that same norm in light of the constitutional principle prohibiting retroactivity of tax laws.

VI. DECISION

For the grounds set out, the Court decides the annulment of the Stamp Duty assessment act challenged.

Value of the case: The value of the case is set at 11,401.92 euros.

Costs: Pursuant to article 22, no. 4, of the RJAT, the amount of costs is set at 918.00 euros, in accordance with Table I attached to the Regulations on Costs in Tax Arbitration Proceedings, to be borne by the Respondent.

Let this arbitral decision be registered and notified to the parties.

Lisbon, Administrative Arbitration Center, 16 September 2015.

The Arbitrator

(Nina Aguiar)

Frequently Asked Questions

Automatically Created

Does Verba 28.1 of the Tabela Geral do Imposto do Selo apply to construction land without a building or habitation license?
According to the Tax Authority's position in process 2/2015-T, Verba 28.1 TGIS does apply to construction land even without completed buildings or habitation licenses. The Authority argues that residential use designation is determined through the building permit, municipal master plans, and IMI Code valuation coefficients that apply to construction land before actual construction occurs. However, the claimant contested this interpretation, arguing that without physical construction or a building license, the property lacks the 'residential use designation' required by item 28.1. The claimant maintained that mere registration as construction land with an unexecuted building permit is insufficient to trigger stamp duty liability under this provision. The excerpt does not include the tribunal's final decision on this interpretive question.
Can Stamp Tax and IMI be levied simultaneously on the same property without violating the prohibition of double taxation?
The claimant in process 2/2015-T alleged that simultaneous application of Stamp Tax (under Verba 28.1 TGIS) and IMI to the same property constitutes prohibited double taxation, arguing both taxes target identical objective and subjective elements. However, the Tax Authority would likely argue these are distinct taxes with different legal foundations: IMI is an annual property tax on ownership, while Stamp Duty under item 28.1 taxes property ownership as a taxable event. Portuguese tax law generally permits different taxes on the same property provided they have distinct legal bases and purposes. The prohibition against double taxation typically applies when the same tax is levied twice on identical facts, not when different taxes apply to the same property. The tribunal's ruling on this constitutional challenge is not provided in the excerpt.
Is the application of Verba 28.1 TGIS to properties acquired before 2012 a violation of the principle of non-retroactivity of tax laws?
The claimant argued that applying Verba 28.1 TGIS (enacted in 2012) to properties acquired before 2012 violates the constitutional principle of non-retroactivity of tax laws enshrined in Article 103(3) of the Portuguese Constitution. This principle prohibits retroactive application of tax legislation to past completed facts. However, the Tax Authority would likely counter that stamp duty under item 28.1 applies annually to current property ownership as of December 31 each year, making the taxable event occur in 2013 (after the law's enactment), not at the original acquisition date. The distinction between true retroactivity (taxing past completed facts) and immediate application of new laws to ongoing legal situations is critical in Portuguese tax jurisprudence. The tribunal's analysis of this constitutional question is not included in the provided excerpt.
How does CAAD arbitration process 2/2015-T define 'habitation purpose' for undeveloped construction land under Imposto do Selo?
CAAD process 2/2015-T reveals competing interpretations of 'habitation purpose' (afetação habitacional) for undeveloped construction land under Imposto do Selo. The Tax Authority defines it broadly, arguing that residential use designation is established before actual construction through: (1) the coefficient of use designation in IMI Code Article 41 applied to construction land valuation; (2) building permits specifying residential units; and (3) municipal master plans defining land use purposes. This interpretation means construction land acquires residential designation when permits and planning documents establish residential intent, regardless of physical development status. Conversely, the claimant advocates a narrow interpretation requiring actual constructed buildings or at minimum a building license (not merely a building permit) before residential designation exists. Under the claimant's view, undeveloped land cannot have operational 'use' designation. The tribunal's definitive interpretation is not provided in the excerpt.
Does taxing only residential properties under Verba 28 TGIS while excluding commercial properties violate the constitutional principle of equality?
The claimant argued that Verba 28 TGIS violates Article 13 of the Portuguese Constitution (principle of equality) by taxing only residential properties while excluding valuable commercial properties such as banks and shopping centers from stamp duty liability. This creates horizontal inequality among property owners based on property use classification. The Tax Authority countered that the Constitution permits differential treatment of essentially different situations, prohibiting only arbitrary or unreasonable discrimination lacking material justification. The Authority argued that distinguishing residential from commercial property for tax purposes constitutes reasonable classification based on legitimate policy objectives, not prohibited arbitrary discrimination. Portuguese constitutional jurisprudence requires equal treatment of equals and different treatment of different situations, permitting tax classifications with rational basis. The tribunal's constitutional analysis on this equality challenge is not included in the provided excerpt.