Process: 200/2016-T

Date: September 9, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitral decision concerns the legality of Stamp Tax (Imposto de Selo) assessments under item 28.1 of the General Stamp Tax Table (TGIS), introduced by Law 55-A/2012 of October 29. The taxpayer, a Portuguese company, challenged three Stamp Tax collection documents totaling €32,606.55 for 2012, levied on three high-value urban properties in Silves municipality valued between €1.2 million and €3.3 million. The central legal issue is whether item 28.1 TGIS applies to construction land plots (lotes de terreno destinados a construção) that lack building licenses, use authorizations, or actual residential occupation. The taxpayer argued that the properties are undeveloped construction land, appraised based on hypothetical future residential buildings, but without any municipal licenses or actual residential use. According to the taxpayer, 'residential use' under item 28.1 requires functional residential occupation, not mere potentiality. Additionally, the taxpayer raised procedural violations, claiming lack of notification of the assessment acts themselves and denial of the right to a hearing (direito de audição) before assessment. The taxpayer also alleged double taxation with IMI (Municipal Property Tax) and unconstitutionality under the principle of tax equality, arguing that targeting only residential properties discriminates against this category. The Tax Authority defended the assessments, arguing that the collection documents constituted valid notification under the mass assessment procedure of Law 55-A/2012 and article 119 of the IMI Code. The case was brought before the CAAD (Administrative Arbitration Center) under the RJAT framework (Decree-Law 10/2011), with the Singular Arbitral Tribunal constituted in June 2016. The tribunal dispensed with the oral hearing and scheduled the decision for September 2016. This case raises fundamental questions about the scope of item 28.1 TGIS, particularly whether it extends to undeveloped land with residential construction potential versus actual residential use.

Full Decision

ARBITRAL DECISION

I – REPORT

1.1. A…–, S.A., with tax identification number … and with registered office at Rua …, …-… … (hereinafter referred to as "Applicant"), petitions in these proceedings for a declaration of illegality of the acts of Stamp Tax assessment contained in the collection documents no. 2012 …, 2012 … and 2012…, referring to the year 2012 and issued by the Tax Authority (AT) pursuant to item 28.1 of the General Stamp Tax Table (TGIS) introduced by Law no. 55-A/2012, of 29/10, in the total amount of €32,606.55, having submitted, on 1/4/2016, a request for the constitution of an arbitral tribunal and for an arbitral decision, pursuant to the provisions of article 10, no. 1, lit. a), of Decree-Law no. 10/2011, of 20/1 (Legal Framework for Arbitration in Tax Matters, hereinafter referred to as "RJAT"), in which the Respondent is the Tax and Customs Authority ("AT").

1.2. On 14/6/2016, the present Singular Arbitral Tribunal was constituted.

1.3. On 15/6/2016, the AT was cited, as respondent party, to submit a response, pursuant to art. 17, no. 1, of the RJAT. The AT submitted its response on 14/7/2016, arguing, in summary, for the complete rejection of the Applicant's claim.

1.4. By order of 2/9/2016, the Tribunal considered, pursuant to article 16, lit. c), of the RJAT, that the meeting provided for in article 18 of the RJAT was dispensable, and that the proceedings were ready for decision. Accordingly, the Tribunal set the delivery of the arbitral decision for 9/9/2016.

1.5. The Arbitral Tribunal has been duly constituted, is materially competent, the proceedings are free from defects that would invalidate it, and the Parties have legal standing and capacity, being legitimate.

II – PLEADINGS OF THE PARTIES

2.1. The Applicant alleges, in its initial petition, that: a) "the Applicant was notified of the above-identified collection documents relating to Stamp Tax – item 28 of the TGIS, relating to the year 2012. However, the Applicant was not notified of the stamp tax assessments"; b) "the Applicant was not notified by the AT either of the assessments, with their respective grounds of fact and law, or, previously, to be heard on the same, in the exercise of the right of hearing"; c) "the tax acts whose legality is contested are the assessment acts no.…, … and …, not notified to the Applicant, and underlying the collection notes attached as documents one to three"; d) "the Stamp Tax assessments, issued pursuant to item 28.1 of the General Stamp Tax Table, [fall] upon the right of property of urban real estate with the registration numbers …, municipality of Silves, with the property values of €1,195,324.50, €1,991,159.63 and €3,334,825.88"; e) the "assessments [were deemed] illegal for the following reasons[:] firstly because the urban real estate with the registration numbers…, … and…, located in …, parish of …, municipality of Silves, are plots of land intended for construction. Land for construction whose appraisal was carried out based on the assumption that the building(s) to be erected would be intended for residential purposes"; f) "that is, at the time when the construction land was appraised, account was taken of the total area of the land, the percentage of maximum building coverage area permitted by the municipal planning scheme for the zone and based on the assumption that a building entirely intended for residential purposes would be constructed thereon"; g) "as for the real estate [in question] U…, … and…, there is no building license, authorization or constructive feasibility or approved use authorization for the said plots by the competent municipal authority. In addition, the residential use has no support or basis in a municipal use license"; h) "on the above-identified land plots no construction was initiated or completed, no building work was requested and/or licensed and, consequently, no use license was issued. And having not issued the use license, one cannot speak of any intended or designated use for residential purposes with respect to the above-identified construction land plots"; i) "in summary, the construction land is not real estate intended for residential use, since residential use presupposes a functional approach, and construction land is not, in itself, a habitable property"; j) "even after the legal amendment occurring in item 28.1 of the TGIS, with Law no. 83-C/2013, of December 31, there is no fact or legal situation that is covered by this rule. Indeed, the new wording of the said rule does not have an interpretative character and came into effect on January 1, 2014, that is, producing effects for the future. Thus, since the year to which the tax relates is 2012, the wording prior to Law no. 83-C/2013 should be applied"; l) "in the previous wording of the rule in question, the objective scope of the tax was on urban real estate with residential use, without the Stamp Tax Code defining what was meant by 'urban real estate with residential use'"; m) "even by reference to the IMI Code (pursuant to no. 2 of art. 67 of the Stamp Tax Code), we do not find the definition of what constitutes 'urban real estate with residential use'. On the other hand, the term residential use presupposes actual use and not merely a possibility, potentiality or expectation that the property might have"; n) "to be covered by the objective scope of the tax, the urban real estate only falls under the urban real estate provided for in subparagraph a) of no. 1 of art. 6 of the IMI Code, and not to construction land"; o) "at the date of the tax event, item 28.1 of the TGIS could not be applied"; p) "the assessments sub judice are also illegal because they tax the same fact or legal situation already taxed under the IMI. That is to say that the objective and subjective scope is identical to that of the IMI"; q) "the stamp tax assessments [are] illegal, due to violation of the principle of prohibition of double taxation"; r) "the unconstitutionality of the taxation is also raised, as it is directed only at properties for residential purposes, violating the principle of tax equality"; s) "the justifying argument for the necessity of taxation of luxury properties is fallacious and discriminatory, as it covers only properties intended for residential use, regardless of whether it is own and permanent residence or rental housing and, in that measure, a source of property income, taxed under IRS/IRC. This situation violates elementary principles of justice, non-discrimination and the constitutional requirement of equality in taxation [...]. [The] violation of the principle of equality of taxpayers and violation of non-discrimination in the tax treatment of identical situations that determine unconstitutionality and, consequently, determine the inapplicability of Law no. 55-A/2012 to the specific case".

2.2. The Applicant concludes that, in light of the above, the present Tribunal should declare the "illegality of the acts of Stamp Tax assessment – Item 28.1 of the TGIS, relating to the year 2012, falling upon the right of property of urban real estate with the registration numbers…, … and … of the parish of …, municipality of Silves."

2.3. For its part, the AT alleges, in its response, that: a) "[as to the alleged lack of notification:] the stamp tax assessments, item 28, issued pursuant to the transitional regime of art. 6 of Law 55-A/2012, of October 29, like the ones now under consideration, gave rise to a mass procedure for issuing collection documents. Thus, the notification sent to the Applicant is nothing more than the respective collection document, made pursuant to art. 6 of Law no. 55-A/2012 of October 29, no. 1 of art. 119 of the IMI Code, through the mechanism provided for in no. 4 of art. 38 of the General Code of Tax Procedure (CPPT). On this matter, the Supreme Administrative Court ruled in Decision no. 01089/09, of 20-10-2010, where it is stated: '(…) the assessment of CA and IMI, made within the normal period, does not require notification to the taxpayer, the sending of the collection document mentioned in articles 22 and 23 of the CCA and in articles 119 and 120 of the IMI Code being sufficient to make the debt enforceable. That notification of the assessment act is only required when it is a matter of an assessment 'outside the normal period' or when it is an 'additional assessment'.' Therefore, the alleged lack of notification of stamp tax assessments, invoked by the Applicant, does not succeed"; b) "[as to the alleged lack of reasoning:] the duty of reasoning deserves constitutional recognition, guaranteeing to the administered the right to express and accessible reasoning of all acts that affect rights or legally protected interests, pursuant to the provision in no. 3 of article 268 of the Constitution of the Portuguese Republic. [...] the reasoning of tax acts aims to allow knowledge of the reasons that determined the body to act as it did, so as to allow the taxpayer to consciously choose between accepting the legality of the act or contesting it. [...]. For its part, pursuant to the provision in no. 1 of article 77 of the General Tax Law (LGT), 'The decision of the procedure shall be substantiated by means of a succinct exposition of the reasons of fact and of law that motivated it (…)', and, pursuant to no. 2 of the same article, 'The reasoning of tax acts must contain the applicable legal provisions, the qualification and quantification of the tax facts and the operations for determining the tax base and the tax.' [...]. It is considered that the act is duly reasoned whenever its addressee reveals that it has grasped its grounds. [...]. In the specific case, the assessments are duly reasoned, both as to fact and to law, all the more so because the Applicant filed a gracious complaint, hierarchical appeal and request to the arbitral tribunal, in which it reveals that it had no difficulty whatsoever in grasping the reasons that led to the issuance of the assessments"; c) "the assessments in question did not violate any legal or constitutional principle and should therefore be upheld"; d) "since there is no definition in Stamp Tax law of what is meant by 'urban real estate', 'construction land' and 'residential use', it is necessary to resort subsidiarily to the IMI Code to obtain a definition that allows determination of possible subjection to Stamp Tax, in accordance with the provision in article 67, no. 2, of the Stamp Tax Code as amended by Law no. 55-A/2012, of 29/10"; e) "we cannot doubt that we are dealing with 'construction land', more specifically, with plots of land for urban construction, with the building footprint areas and construction areas perfectly defined and identified in the urban property registration books, as described above. For tax purposes, the properties are construction land, in that capacity they were acquired and are thus property-wise classified and, for that reason, are undoubtedly plots of construction land, more precisely urban real estate with residential vocation. [...]. Note that the legislator does not refer to 'properties intended for residential use', having opted for the notion of 'residential use', an expression that is different and broader, whose meaning is to be found in the need to incorporate other realities beyond those identified in article 6, no. 1, subparagraph a), of the IMI Code. [...]. [...] in a very literal interpretation of the law, the meaning the Applicant seeks to give it could be extracted from the text, but as our case law has declared, this is not the best interpretation of the law, and in the hermeneutical task, the literal element, being the starting point and limit for extracting the meaning of the rule, is not the decisive element, nor even the most important one, a role that is reserved for 'the unity of the system', pursuant to no. 2 of article 9 of the Civil Code"; f) "[as to the alleged violation of the principle of equality:] item 28 of the TGIS is a general and abstract rule, applicable without distinction to all cases in which the factual and legal conditions are met. In addition, well-founded reasons, also with constitutional basis, justified the creation of the contested rule, namely respect for the principles of proportionality and ability to pay"; g) "the tax acts in question did not violate any legal principle and should therefore be upheld".

2.4. The AT concludes, from the above, that "the assessments in question remain entirely valid and legal, concluding that the assessments are legal [, therefore] the action should be judged to lack merit, acquitting the Tax Authority of the claim, with the legal consequences thereof."

III – PROVEN FACTS, UNPROVEN FACTS AND RESPECTIVE GROUNDS

3.1. The following facts are considered proven:

i) The stamp tax (IS) assessments in question (see collection documents no. 2012 …, 2012 … and 2012 …), relating to the year 2012, were made pursuant to item 28.1 of the General Stamp Tax Table (TGIS), falling upon the right of property of urban real estate with registration numbers …, municipality of Silves, and with property values of €1,195,324.50, €1,991,159.63 and €3,334,825.88.

ii) The said collection documents were notified to the Applicant.

iii) The said urban real estate, with registration numbers …, … and …, located in …, parish of…, municipality of Silves, consist of plots of land intended for construction (are registered in the property register as "construction land").

iv) The Applicant filed a gracious complaint against the said Stamp Tax assessments, to which gracious complaint process no. …2013… was assigned. The complaint being rejected, the Applicant filed a hierarchical appeal against the same, to which process number …2013… was assigned. On 5/1/2016, the Applicant was notified of the partial rejection of the hierarchical appeal.

v) Aggrieved by the said decision, the Applicant submitted the present request for arbitral pronouncement on 1/4/2016.

3.2. There are no unproven facts relevant to the decision of the case.

3.3. The facts considered pertinent and proven (v. 3.1) are based on the analysis of the positions exposed by the parties and the documentary evidence attached to these proceedings.

IV – ON THE LAW

Given what has been set forth, it is found that the Applicant contests the Stamp Tax assessments in question based on the following grounds:

    1. Unconstitutionality of item 28.1 of the TGIS, with the original wording given to it by Law no. 55-A/2012, of 29/10 (and which is, without doubt, the wording applicable here), if interpreted in the sense that the relevant tax event is based on a mere "possibility, potentiality or expectation" of residential use, due to alleged violation of the constitutional principles of equality and double taxation.
    1. Illegality due to error in factual assumptions (lack of notification) and of law (lack of reasoning).

Let us see, then.

  1. While it is true that the Arbitral Tribunal does not have competence to assess or declare the unconstitutionality of rules, it is equally true that the Applicant raises in these proceedings the "illegality of the acts of assessment" of Stamp Tax in question. To that extent, it is necessary to ascertain, first and foremost, whether the said assessment acts are in conformity with the immediate parameter to which the AT is subordinated: in the case of these proceedings, item 28.1 of the TGIS, according to the wording given by Law no. 55-A/2012, of October 29.

Thus, and in light of the above, the legal analysis contained in Arbitral Decision no. 467/2015-T, of 4/2/2016, will be echoed without further development, in the preparation of which the undersigned participated as a member of the respective collective jury (and considering that there are no reasons to alter the direction of that analysis in the case of these proceedings):

"The Administration is subordinated to the Constitution, like any power or body of the State, but what characterizes it is the immediate subordination to the law, and there cannot be Administration without legal mediation. The principle of legality understood in a broad sense (of the juridicity of administration) constitutes the presupposition and foundation of all administrative activity, and only exceptionally can there be administrative activity directly linked to the Constitution[1].

Accordingly, it is necessary, first and foremost, to ascertain whether the tax assessment acts which are the subject of the present arbitral request are or are not in conformity with the immediate parameter to which the Tax Administration is subordinated, in the case of these proceedings: item 28.1 of the TGIS, according to the wording given by Law no. 83-C/2013, of December 31.

As we have seen, the Applicant alleges, in summary, that the Stamp Tax assessments now in question are illegal due to error in factual assumptions and of law [...].

It is necessary to analyze this.

For the resolution of the above-enumerated questions, it is important to keep in mind, first of all, the evolution and framework of the mentioned item 28 of the TGIS, both before and after the amendment determined by art. 194 of Law no. 83-C/2013, of 31/12 [...].

In that sense, the reference to the Decision of the Supreme Administrative Court (STA) of 9/4/2014 (case no. 1870/13) becomes useful, which, like other STA decisions – e.g.: Decision of 9/4/2014 (case no. 48/14); Decisions of 23/4/2014 (case nos. 270/14, 271/14 and 272/14); Decision of 25/11/2015 (case 1338/15) – makes a detailed historical and chronological analysis of the evolution and framework of item 28 now under analysis:

'The concept of 'real estate (urban) with residential use' 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 Tax Code (equally introduced by that Law) refers on a subsidiary basis. And it is a concept that, probably due to its imprecision – a fact all the more serious as it is from it that the objective scope of the new taxation is carved out –, had a short life, since it was abandoned when the State Budget Law for 2014 (Law no. 83-C/2013, of December 31) came into force, which gave new wording to item no. 28 of the General Table, and which now carves out its objective scope 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 do we think it did –, merely makes it unequivocal for the future that construction land whose building, authorized or envisaged, is for residential purposes is included within the scope of item 28.1 of the General Stamp Tax Table (provided that its respective tax property value is of a value equal to or greater than 1 million euros)'. [...].

Before the legislative amendment that, in an innovative manner, passed to include the said construction land, it was necessary to ascertain, making use of various interpretative elements, whether, in the absence of literal reference, such land could, nonetheless, be included within the objective scope of the said item 28. And, for that reason, the said decision went on, saying:

'[The legislator having provided] no clarification [as] to past situations [i.e., assessments prior to 2014], such as the one at issue in these proceedings, it does not appear that [as to these] the interpretation of the appellant can be adopted, since it does not follow unequivocally either from the letter or from the spirit of the law that the intention thereof has been, ab initio, to include within its objective scope construction land for which the construction of residential buildings has been authorized or envisaged, as follows unequivocally today from item 28.1 of the General Stamp Tax Table.

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

And from its 'spirit', apprehensible in the statement of reasons of the bill that gave rise to Law no. 55-A/2012 (Bill no. 96/XII – 2nd, Journal of the Assembly of the Republic, series A, no. 3, 21/09/2012, p. 44 [...]) nothing more follows than the concern to raise new tax revenues from sources of wealth 'spared' in the past from the tax burden compared to labor income, in particular capital income, capital gains and property, reasons which make no relevant contribution to clarifying the concept of 'real estate (urban) with residential use', as they take it for granted, with no concern to clarify it. Such clarification did, however, emerge – as informed in the Arbitral Decision delivered on December 12, 2013, in case no. 144/2013-T, available in the CAAD database –, when presenting and discussing that bill in the Assembly of the Republic, in the words of the State Secretary for Tax Affairs, who expressly referred, as taken from the Journal of the Assembly of the Republic (DAR I Series no. 9/XII – 2, of October 11, p. 32): 'The Government proposes the creation of a special tax on high-value urban residential properties. It is the first time that in Portugal a special taxation of high-value properties intended for residential use has been created. This tax will be 0.5% to 0.8% in 2012 and 1% in 2013, and will apply to houses valued at 1 million euros or more' (italics ours), from which it is apparent that the reality to be taxed that was in mind is, after all, and notwithstanding the terminological imprecision of the law, 'urban residential real estate', in ordinary language "houses", and not other realities. [...].

It is concluded therefore, in conformity with what was decided in the judgment under appeal, that, since from article 6 of the IMI Code results a clear distinction between urban real estate that are 'residential' and 'construction land', the latter cannot be considered as 'real estate with residential use' for the purposes of the provision in item no. 28.1 of the General Stamp Tax Table, in its original wording, as given to it by Law no. 55-A/2012, of October 29.' [...].

In summary, it follows from this that, with the new wording of item 28.1 of the TGIS, given by article 194 of Law no. 83-C/2013, of 31/12 (applicable to these proceedings, as it is a Stamp Tax for the year 2014), the objective scope of the rule was broadened in an innovative way, by explicitly including construction land for which the construction of residential buildings has been authorized or envisaged." [End of quotation.]

The excerpt now cited is sufficiently illuminating as to the exclusion from the objective scope of item 28.1 of the TGIS, in its original wording (which is shown to be applicable in the present case), of construction land. These cannot, in light of the said wording, be considered "real estate with residential use" for the purposes of the provision in the said rule. It is only with the new wording given by article 194 of Law no. 83-C/2013, of 31/12, that construction land for which the construction of residential buildings has been authorized or envisaged came to be included in the objective scope of item 28.1 of the TGIS.

Note that, even with the new wording (which is not applicable to the case of these proceedings), the lack of realization of an expectation or envisagement of building for residential purposes (which is consensually admitted not to have occurred in the case of these proceedings, although, it is emphasized again, this requirement was not contained in the original wording of item 28.1), the Stamp Tax should not be applied automatically. Indeed, as was also stated in the Arbitral Decision above cited:

"The essential question that, [in the context of the new wording of item 28.1 of the TGIS, given by art. 194 of Law no. 83-C/2013, of 31/12,] arises is whether, using the words of the Applicant, 'without [...] that prediction or expectation of 'building for residential purposes' [...] being realized', one can accept the application of the Stamp Tax here under analysis [...]. To respond to the said question, it appears particularly useful to consider the following:

'As regards construction land, whether or not located within an urban agglomeration, as defined in art. 3/4 of this enactment [IMI Code], must, as such, be considered land for which: - authorization for subdivision operations has been granted; - building permit; - authorization for subdivision operations; - building authorization; - favorable prior notification of subdivision operations or building has been admitted; favorable prior information of subdivision operations or building has been issued, as well as; - those that have been so declared in the title of acquisition, it being necessary to bear in mind that, also for that purpose, only the title of acquisition with the form prescribed by civil law should be relevant, that is, the public deed or the authenticated private document referred to in art. 875 CC.' [vd. ANTÓNIO SANTOS ROCHA / EDUARDO JOSÉ MARTINS BRÁS – Taxation of Assets. IMI-IMT and Stamp Tax (Annotated and Commented). Coimbra, Almedina, 2015, p. 44].

[The] requirements cited above [make explicit] which are the legal and administrative requirements necessary for the consideration of any construction land as land covered by item 28.1 of the TGIS [...].

[Thus, it is necessary,] in terms of evidence, [to attach to] the proceedings [...] documentary support attesting that the acts in question were practiced taking as their object properties with building projects approved for construction (still without or already with the said building licenses and authorizations), or properties located in an area where building for residential purposes is envisaged (with the said prior notifications or favorable prior information regarding the carrying out of subdivision or building operations). Not having made that demonstration, one cannot consider that the land has building, authorized or envisaged, for residential purposes, pursuant to the IMI Code.

It is also important to emphasize that, [even if the properties in question] are registered in the property register as being 'construction land', this does not legitimize the automatic application of item 28.1 of the TGIS, since, as appears obvious, mere property registration does not, by itself, constitute a demonstration that the property has an envisaged building.

Proof of what has just been said is the fact that, as ANTÓNIO SANTOS ROCHA and EDUARDO JOSÉ MARTINS BRÁS also state (op. cit., p. 46), 'real estate located in urbanized areas or included in areas covered by already-approved urbanization plans [...] should only [be] considered as construction land when, by action taken by the respective owner, any of those documents ['granting of licenses, authorizations for building or subdivision, favorable prior notifications or information for the same purpose'] are issued'.

The same authors add (vd. ibidem) – reinforcing the understanding, already expressed here, that, without building or subdivision licenses or authorizations, mere registration of real estate as construction land does not, by itself, legitimize the application of item 28.1 of the TGIS –, in support of their position, the following: 'Real estate already described in the register as construction land, with respect to which the expiry of the subdivision, license or building authorization occurs and in which no building operation has even been initiated, must, through the institute of expiry, recover their former nature'.

In the same sense, see also, JOSÉ MANUEL FERNANDES PIRES, (in Lessons on Property Taxes and Stamp Tax. Coimbra, Almedina, 3rd ed., 2015, pages 110 to 112): 'The right to build is not inherent in the right of property, but is created anew in the property owner's estate only when an administrative act of the competent public entity recognizes and authorizes the owner to build or subdivide. [...] only when that constitutive act is created in the legal sphere of the owner is that the IMI Code establishes that we are dealing with construction land. As that constitutive act is practiced by the public entity at the request of the owner, then the classification of a property as construction land always depends on the will of the owner.'

In summary, it appears clear that, in the case being treated, the application of the tax to construction land cannot be materialized by mere registration thereof as such in the property register, but rather, and decisively, by verification of the actual potentiality of building on the said land (which must be determined in each case and revealed through the existence of the documents above described). That is to say, in other words, that the application of the tax, for the purposes of item 28.1, is only materialized with verification of the 'effective use', to use the apt expression of JOSÉ MANUEL FERNANDES PIRES (op. cit., p. 507).

Without that demonstration of 'actual building potentiality' – which, as has been said, did not occur in the case here under analysis –, the purposes underlying the new wording of the legal text of item 28.1 of the TGIS are not shown to be met, which is why it is concluded that the assessments in question incur the error invoked by the Applicant [...].' [End of quotation.]

In summary: even in light of the new wording of item 28.1 of the TGIS (which is not applicable here), it was necessary to prove 'actual building potentiality' (which was not done – nor was it justified, given the original wording which is applicable to the case of these proceedings); and mere registration of the properties as 'construction land' is not (and even less so before the new wording was) sufficient to justify the application of item 28.1 of the TGIS.

However, since the case of these proceedings must be judged in light of the original wording of item 28.1 of the TGIS, the jurisprudence contained in the cited Decision of the STA of 9/4/2014 (case no. 1870/13) should be followed here, which – as well as several other STA decisions, such as, for example: Decision of 9/4/2014 (case no. 48/14); Decisions of 23/4/2014 (case nos. 270/14, 271/14 and 272/14); Decision of 25/11/2015 (case 1338/15) – rule that construction land "cannot [...] be considered as 'real estate with residential use' for the purposes of the provision in item no. 28.1 of the General Stamp Tax Table, in its original wording, as given to it by Law no. 55-A/2012, of October 29".

And, as also noted by the mentioned decision, already cited above, even if there were an "actual potentiality" in the property, this would not, in light of the previous wording of item 28.1 of the TGIS, be sufficient to consider it as property with "residential use". Read, in this regard, the following excerpt: "referring the provision on the scope of stamp tax to urban real estate with 'residential use', without any specific concept being established for that purpose, the provision cannot be interpreted to contain a future potentiality, inherent to a distinct property that might possibly be built on the land." (Decision of the STA of 9/4/2014, case no. 1870/13).

In light of the above, it is concluded that the Stamp Tax assessment acts now in question violate the provision in item 28.1 of the TGIS, in its original wording.

  1. As the Applicant's understanding regarding the illegality issue referred to is upheld, examination of the remaining allegations of the Applicant is prejudiced, pursuant to the provision in article 124 of the General Code of Tax Procedure (CPPT), by force of art. 29, no. 1, lit. c), of the RJAT, (there being, in light of this decision, no prejudice to the more stable or effective protection of the interests thereof).

V – DECISION

In light of the above, it is decided:

  • To find the present request for arbitral pronouncement to be founded in law and, consequently, to annul the Stamp Tax assessments here in question, determining the return of the amounts unduly charged.

The value of the case is fixed at €32,606.55 (thirty-two thousand six hundred and six euros and fifty-five cents), pursuant to the provisions of articles 32 of the Administrative Court Procedure Code (CPTA) and 97-A of the General Code of Tax Procedure (CPPT), applicable by force of the provision in art. 29, no. 1, lits. a) and b), of the RJAT, and in art. 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

Costs to be borne by the respondent, in the amount of €1,836.00, pursuant to Table I of the RCPAT, and in compliance with the provision in articles 12, no. 2, and 22, no. 4, both of the RJAT, as well as the provision in art. 4, no. 4, of the cited Regulation.

Notify.

Lisbon, September 9, 2016.

The Arbitrator,

(Miguel Patrício)

Text prepared by computer, pursuant to the provision in art. 131, no. 5, of the Code of Civil Procedure (CPC), applicable by reference in art. 29, no. 1, lit. e), of the RJAT.

The writing of the present decision is governed by the orthography prior to the Orthographic Agreement of 1990.

[1] For further development on the binding of the Administration to the law and the Constitution, cfr. GOMES CANOTILHO / VITAL MOREIRA – Constitution of the Portuguese Republic, Annotated. Coimbra, Coimbra Editora, 4th ed., 2014, pp. 798 et seq.

Frequently Asked Questions

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What is the Stamp Tax (Imposto de Selo) under Verba 28.1 of the Portuguese General Stamp Tax Table (TGIS)?
The Stamp Tax under Verba 28.1 of the TGIS is an annual tax on high-value urban properties introduced by Law 55-A/2012 of October 29, 2012. It targets urban real estate with residential use (prédios urbanos com afetação habitacional) above certain property values. The original 2012 version taxed properties based on their patrimonial value as determined for IMI (Municipal Property Tax) purposes. The tax was designed as a wealth tax on luxury residential properties. A key interpretative issue is whether 'residential use' requires actual functional occupation or includes construction land with potential residential development. Law 83-C/2013 of December 31 later amended the provision, but this amendment applies prospectively from January 1, 2014, and does not affect 2012 assessments.
Can the Tax Authority (AT) liquidate Stamp Tax on urban properties without prior notification to the taxpayer?
The Tax Authority's position is that it can liquidate Stamp Tax through a simplified mass assessment procedure without individual notification of assessment acts. Under article 6 of Law 55-A/2012 and article 119 of the IMI Code, combined with article 38(4) of the CPPT (General Tax Procedure Code), the collection document itself serves as notification to the taxpayer. This procedure was used for item 28.1 assessments given the large number of properties affected. However, taxpayers have challenged this practice, arguing that proper notification requires separate communication of the assessment act with grounds of fact and law before issuing collection documents. The Supreme Administrative Court has addressed similar notification issues in IMI cases, though the specific legality depends on whether procedural safeguards are respected.
What are the taxpayer's rights to a hearing (direito de audição) before Stamp Tax assessments on high-value properties?
Taxpayers have the constitutional right to a hearing (direito de audição or audiência prévia) before final tax assessments that adversely affect their rights, pursuant to article 60 of the CPPT and article 267(5) of the Portuguese Constitution. In the context of Stamp Tax assessments under item 28.1 TGIS, taxpayers argue they should be notified of the proposed assessment and given opportunity to present arguments before the assessment becomes final. However, the Tax Authority has used a mass assessment procedure for these taxes, issuing collection documents directly without prior hearing. Taxpayers can challenge this procedural irregularity as grounds for illegality of the assessment acts. The violation of the right to hearing can constitute an invalidating procedural defect, though courts have sometimes distinguished between situations where hearing would have altered the outcome versus purely formal violations.
How does CAAD arbitral proceedings work for challenging Stamp Tax liquidations under Decree-Law 10/2011 (RJAT)?
CAAD (Centro de Arbitragem Administrativa) arbitral proceedings for challenging Stamp Tax liquidations operate under the RJAT framework established by Decree-Law 10/2011 of January 20. Article 10(1)(a) grants arbitral tribunals jurisdiction over the legality of tax acts including assessments. Taxpayers file a request for arbitral tribunal constitution within the applicable deadlines (generally 90 days from notification or deadline for voluntary payment). The CAAD constitutes a Singular or Collective Arbitral Tribunal depending on the amount and complexity. The Tax Authority is cited as respondent and submits a response (article 17 RJAT). The tribunal may hold a hearing under article 18 or dispense with it if the case can be decided on documents. Decisions must be rendered within six months of tribunal constitution (extendable). Arbitral decisions have the same force as court judgments and can be appealed on limited grounds to administrative courts.
Does Verba 28.1 TGIS introduced by Law 55-A/2012 apply to urban land plots (lotes de terreno) in Portugal?
Whether Verba 28.1 TGIS applies to urban land plots (lotes de terreno para construção) is a contested legal question. The taxpayer's position is that construction land without building licenses, use authorizations, or actual residential buildings does not constitute 'urban real estate with residential use' under item 28.1 as it existed in 2012. The argument is that 'residential use' (afetação habitacional) requires functional residential occupation, not mere development potential. Construction land appraised based on hypothetical future residential buildings should not be taxed until actual residential use occurs. The Tax Authority's position appears to be that properties classified and valued for IMI purposes as residential fall within the scope, even if undeveloped. The 2013 amendment to item 28.1 by Law 83-C/2013 clarified the scope but applies only from 2014 forward. This interpretative dispute turns on whether the tax targets property ownership with residential classification or actual residential functional use.