Process: 213/2014-T

Date: December 4, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Process 213/2014-T addresses whether Stamp Duty under Item 28.1 of the General Stamp Duty Table (GSDT) applies to land for construction (terrenos para construção) with a tax property value exceeding €1,000,000. The claimant company challenged three stamp duty assessments totaling €17,016.00 on property registered as 'land for construction' with a TPV of €1,790,934.00, arguing that Item 28.1 only taxes 'properties with residential use' and that Article 6 of the Municipal Property Tax Code (CIMI) clearly distinguishes land for construction as a separate legal category from residential properties. The claimant contended that residential use applies exclusively to developed properties where actual use can be determined, not undeveloped land without building capacity. The Portuguese Tax Authority defended the assessments, arguing that 'properties with residential use' encompasses both developed properties and land for construction. The TA's interpretation relies on Article 67(2) of the Stamp Duty Code, which permits reference to MPTC definitions, and Article 45(2) of MPTC, which applies use coefficients to land for construction valuation. The TA maintains that the legislator intentionally chose 'residential use' rather than 'properties intended for housing' to include broader realities beyond Article 6(a) CIMI categories. The authority argues that potential building rights increase property value and that planning regulations allow determination of intended use before actual construction. The TA also defends Item 28.1 against constitutional challenges, asserting it respects equality and proportionality principles by applying uniformly to all properties meeting statutory requirements. This arbitration highlights the critical interpretive question of whether stamp duty on high-value properties extends to undeveloped construction land or applies solely to built residential properties.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Case No. 213/2014 – T

Matter: Stamp Duty – Land for Construction; Item 28 of the General Stamp Duty Table

I. REPORT

  1. "A", LDA., with Tax Identification Number …, hereinafter identified as the Claimant, requested on 3 March 2014 the establishment of an arbitral tribunal, pursuant to the provisions of Articles 2, No. 1, paragraph a), and 10, Nos. 1 and 2, of Decree-Law No. 10/2011 of 20 January (hereinafter, Legal Framework for Tax Arbitration or LFTA) and of Articles 1 and 2 of Ordinance No. 112-A/2011 of 22 March, with a view to:

a) The declaration of illegality of the Stamp Duty assessments ("SD"), No. 2013 … (in the amount of € 5,672.00 and relating to the 1st instalment), No. 2013 … (in the amount of € 5,672.00 and relating to the 2nd instalment), and No. 2013 … (in the amount of € 5,672.00 and relating to the 3rd instalment) in the total amount of € 17,016.00 and which gave rise to these administrative appeals; and

b) The annulment of those assessments;

  1. The Disputed Assessments concern the taxation, pursuant to Item 28.1 of the General Stamp Duty Table ("GSDT"), of the ownership of "properties with residential use" with a tax property value ("TPV") equal to or greater than € 1,000,000, with reference to the year 2012.

  2. The assessments were issued to the Claimant, with the obligation to pay being, as we have seen, divided into three instalments, and the Claimant has further paid the amount of € 79.81 as arrears interest and costs.

  3. In the application, the Claimant chose not to appoint an arbitrator.

  4. Pursuant to No. 2 of Article 6 of the LFTA, the Deontological Council of the Arbitration Center appointed the undersigned as Sole Arbitrator, notifying the parties thereof.

  5. The tribunal has been duly established since 8 May 2014 to consider and decide on the subject matter of the case, as confirmed by an order issued by the President of the Deontological Council of the CAAD.

  6. The factual and legal grounds supporting the Claimant's request for arbitral award are, in summary, as follows:

7.1 The Claimant is the owner and lawful possessor of the urban property registered in the real property register under article …, of the parish of …, municipality of Tavira and which has a Tax Property Value (TPV) of € 1,790,934.00 (one million seven hundred ninety thousand nine hundred thirty-four euros).

7.2 The property hereby identified is registered in the register as "land for construction" and not as a property with residential use, and moreover, there is not even currently any building capacity envisaged for this land.

7.3 The criterion of residential use should only apply to developed properties, as it depends on the type of use of the same.

7.4 Pursuant to Article 6 of the CIMI, land for construction is a legal category of urban property distinct from residential properties.

7.5 The assessments made by the Tax Authority (TA) can only be an error, as they are not even admissible under the law.

7.6 In truth, taxation must result from the verification, in the concrete case, of all tax requirements that are, as such, provided for and described in the tax law.

7.7 Which does not occur in the case at hand, because the property on which the assessment was made is land for construction.

7.8 If this assessment were legal, it would mean that the TA could demand the payment of amounts regardless of the demonstration and verification of the legally established requirements, thus freely creating taxes, which is not admissible.

7.9 Resulting from this is that the assessment acts subject to contestation constitute the creation of a true tax not permitted by law.

7.10 These acts are therefore null and void and should produce no effect, suffering from a manifest lack of factual and legal justification, whereby they violate Articles 268, No. 3 of the CRP, 124 and 125 of the CPA and 77 of the General Tax Code.

7.11 And should therefore be annulled.

  1. The TA, in its response, considers that the requests formulated by the Claimant should be ruled as unfounded and, consequently, the assessment acts maintained, supporting its position with the following arguments:

8.1. Stamp Duty is levied on all acts, contracts, documents, titles, papers and other facts or legal situations provided for in the general table.

8.2. In the absence of any definition of the concepts of urban property, land for construction and residential use in the context of Stamp Duty, one should, in light of the provisions of Article 67, No. 2 of the Stamp Duty Code, resort to the Municipal Property Tax Code (MPTC) in search of a definition that permits determination of possible subjection to Stamp Duty.

8.3 In the MPTC, the notion of use of urban property is found in the section relating to valuation of immovable property, which in the understanding of the TA is justified and understood because the valuation of the immovable property (purpose) incorporates value into the immovable property, constituting a determining distinguishing fact.

8.4 As results from the expression "… to the value of authorized buildings" (cf. Art. 45, No. 2 of the MPTC), the legislator chose to determine the application of the valuation methodology of properties in general to the valuation of land for construction, whereby the use coefficient provided for in Article 41 of the MPTC applies to them (cf., for this purpose, Court of Appeal Decision No. 04950/11 of 14.02.2012).

8.5 Thus, for purposes of determination of the TPV of land for construction the application of the use coefficient in the context of valuation is clear, whereby its consideration for purposes of applying Item 28 of the GSDT cannot be ignored.

8.6 Item 28 of the GSDT when referring to the expression "properties with residential use", calls for a classification that overlaps the categories provided for in Article 6, No. 1 of the MPTC.

8.7 Thus, the TA considers that the concept of "properties with residential use" for purposes of Item 28 of the GSDT includes both developed properties and land for construction, particularly given the literal wording of the rule.

8.8 The TA considers that the legislator, by not referring to "properties intended for housing", choosing instead the notion "residential use", intended to include in this concept other realities beyond those already identified in Article 6, paragraph a) of the MPTC.

8.9 The mere constitution of a potential building right increases the value of the immovable property in question, hence the rule contained in Article 45 of the MPTC of requiring the separation of the two parts of the land.

8.10 Having regard to certain rules (cf. Article 77 of the RJEU and some rules of Municipal Master Plans) well before the actual construction of the property it is possible to determine the use of a property for construction.

8.11 The TA also understands that the provision of Item 28.1 does not constitute a violation of any constitutional command, as Item 28 of the GSDT does not, in any way, call into question the principles of equality and proportionality.

8.12 Insofar as it is a general and abstract rule that is applicable, indistinctly to all cases in which the respective requirements are met, whether factual or legal.

8.13 The different valuation and taxation of an immovable property in full ownership as opposed to another constituted in horizontal ownership, arises from the legal effects inherent to these two figures, as a property in full ownership constitutes, for all purposes, a single entity, whereas a property in horizontal ownership determines the independence and autonomy of each of the units.

8.14 The TA also considers that the different capability of an immovable property (residential/services/commercial) sustains the difference in treatment, having been the legislator's choice, for economic and political reasons, to exclude from the incidence of Stamp Duty immovable properties intended for purposes other than residential.

8.15 The said rule does not violate the said constitutional principles because this measure is applicable, indistinctly to all holders of properties with residential use that have a TPV exceeding € 1,000,000.00.

8.16 Prior, however, to the challenge of the request made by the Claimant, the TA raised, as a preliminary matter, the question relating to the value of the action, considering, on this specific point, that this value should, pursuant to Article 97-A of the Code of Tax Procedure (applicable by reference to Article 3, No. 2 of the Costs Regulation), correspond only to the value of the actual Stamp Duty assessments, and should not therefore include the amount paid by the Claimant as arrears interest.

  1. On 23 September 2014, the Claimant submitted a request seeking to waive the meeting referred to in Article 18 of the LFTA, considering that this meeting, given the nature of the issues raised, was unnecessary.

  2. Notified by the Tribunal on 24 September 2014 to pronounce on this request of the Claimant, the Respondent did not pronounce itself on the same.

  3. In view of this, the Tribunal understood, by order issued on 3 November 2014, that the said meeting would not take place, and also decided that (i) the parties would not be required to submit arguments and that (ii) the decision would be issued by 24 November 2014.

  4. Subsequently, by order issued on this 24 November, the time limit for issuing the decision was extended until 5 December 2014.

II. REASONING

II.1 FACTUAL MATTERS

  1. The Claimant is the owner and lawful possessor of an urban property registered in the real property register under article …, of the parish of …, municipality of Tavira and which has a Tax Property Value (TPV) of € 1,790,934.00 (one million seven hundred ninety thousand nine hundred thirty-four euros).

  2. The property on which the Stamp Duty assessment was made is classified in the respective register as land for construction.

  3. The Disputed Assessments concern the taxation of the property above identified pursuant to the provisions of Item 28.1 of the GSDT, as they are urban properties with residential use and with a TPV exceeding € 1,000,000.00.

  4. The Claimant proceeded to pay the 3 instalments of the assessed tax.

  5. On 3 March 2014, the Claimant filed the request for establishment of the Arbitral Tribunal, pursuant to the provisions of Articles 2, No. 1, paragraph a), and 10, Nos. 1 and 2, of Decree-Law No. 10/2011 of 20 January (hereinafter, Legal Framework for Tax Arbitration or LFTA) and of Articles 1 and 2 of Ordinance No. 112-A/2011 of 22 March, with a view to the declaration of illegality of the Stamp Duty assessment acts and the annulment of these assessments.

  6. The Arbitral Tribunal was established on 8 May 2014.

The decision on the matters of proved facts was based on the documents attached to the case file and on the non-opposition of the Tax Authority as to the facts invoked by the Claimant.

There are no unproved facts relevant to the decision of the case.

II.2 ISSUES TO BE CONSIDERED

The first issue to be considered relates to that which, as a preliminary matter, was raised by the Respondent concerning the value of the action, namely to know whether this value should include, or not, the amount paid by the Claimant as arrears interest.

With regard to this issue, the Tribunal finds that the Respondent (Tax Authority) is correct, as from the wording of Article 97-A of the Code of Tax Procedure, it is clear from this provision that amounts resulting from payment, outside the deadline, of arrears interest should not be included in the value of the action, already in the context of a tax enforcement proceeding.

The second, and may it be said also the substantive and principal issue, relates to the legal classification of the property identified in No. 1 of Section II.1 above, within the scope of the incidence of Item 28.1 of the GSDT and the consequent legality of the assessment made by the TA and contested by the Claimant.

As already mentioned, the assessment contested by the Claimant was issued under the incidence rule contained in Item 28.1 of the GSDT, with the wording it had at the time to which the facts relate.

The Claimant understands that, being the property subject to taxation classified and registered in the respective register as land for construction, it is manifestly illegal the assessment, because this property cannot, in any way, be considered as having "residential use".

The fundamental question is therefore to determine whether the property in question can have this type of "use".

Law 55-A/2012 of 29 October introduced various amendments to the Stamp Duty Code and added to the GSDT Item 28, to which it gave the following wording:

"28 – Ownership, usufruct or right of superficies of urban properties whose tax property value contained in the register, pursuant to the Municipal Property Tax Code (MPTC), is equal to or greater than € 1,000,000 – on the tax property value used for purposes of MPTC:

28.1 – For property with residential use – 1%

28.2 - ……….."

The said Law subsequently, in its Article 6, provided for some transitional application rules, and in this provision, in the same way as in the cited and transcribed Item 28, used again the same concept of property with residential use.

It should be noted that this concept is not used by the legislator in any other tax legislation, namely in the MPTC, and it should be recalled and emphasized that in various rules of the Stamp Duty Code, this Code is indicated as the diploma of subsidiary application relating to the tax provided for in Item 28 of the GSDT (see, for this purpose, Articles 2, No. 4, 3, No. 3 u), 5 u), 23, No. 7 and 46 and 67, all of the Stamp Duty Code).

Indeed, in the MPTC, more specifically in its Articles 2 to 6, the categories of properties are enumerated and defined as follows:

Article 2

Concept of property

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

2 - Buildings or constructions, although movable in nature, are deemed to have a character of permanence when assigned to non-transitory purposes.

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

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

Article 3

Rural Properties

1 - Rural properties are lands located outside an urban agglomeration that should not be classified as land for construction, pursuant to No. 3 of Article 6, provided that:

a) They are assigned or, in the absence of concrete assignment, have as their normal destination a use generating agricultural income, such as are considered for purposes of the income tax on individuals (IRS);
b) Not having the assignment indicated in the preceding subparagraph, they are not constructed or have only buildings or constructions of an accessory character, without economic autonomy and of reduced value.

2 - Rural properties also include lands located within an urban agglomeration, provided that, by virtue of a legally approved provision, they cannot have any income-generating use or can only have a use generating agricultural income and are actually having this assignment.

3 - Rural properties also include:
a) Buildings and constructions directly assigned to the production of agricultural and livestock income, when located 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 purposes of this Code, urban agglomerations are considered, in addition to those located within legally fixed boundaries, clusters with a minimum of 10 dwellings served by public roads, with their perimeter delimited by points distant 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 main part.

2 - If neither of the parts can be classified as main, the property is deemed to be mixed.

Article 6

Categories 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 purposes or, in the absence of a license, that have as their normal destination each of these purposes.

3 - Land for construction is considered to be lands located within or outside an urban agglomeration, for which a license or authorization has been granted, prior notification admitted or favorable prior information issued for a subdivision or construction operation, and also those that have been declared as such in the acquisition title, except for lands in which the competent entities prohibit any of those operations, namely those located in green areas, protected areas or which, according to municipal territorial planning plans, are assigned to public spaces, infrastructure or facilities.

4 - Lands located within an urban agglomeration that are not land for construction nor are 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 their normal destination purposes other than those referred to in No. 2 and also those of the exception of No. 3 fall within the provision of subparagraph d) of No. 1.

It is easy therefore to note that, as already mentioned above, the concept of "property with residential use" is not used, at any moment, by the legislator in the MPTC.

In this way, a literal interpretation of the rule contained in Item 28.1 of the GSDT permits the conclusion that the legislator's intention was to include, within its scope of application, urban properties that have residential use.

Starting from this intention, one should determine when a property is assigned to a residential purpose, namely whether it is when this destination is fixed for it in some licensing act or in an act of similar nature, or whether it is only when the attribution of this destination is actually carried out.

From the wording given to Item 28.1, it seems clear that the legislator's intention was to consider necessary an effective assignment and not merely when the properties, lands, buildings or constructions were licensed for such – or, in the absence of that license, those that have as their normal destination this purpose.

If the legislator, in Item 28.1 was content with these facts it would have used the expression "residential properties" contained in Article 6 of the MPTC and not the expression "properties with residential use".

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

Now, it seems evident to us that properties classified as land for construction, do not yet, as such, have any type of development with a residential purpose (or even any other purpose), not meeting in this way any condition that could lead them to be considered as residential properties, and therefore, a fortiori, "properties with residential use".

Thus, we consider that the correct understanding is that the rule of Item 28.1 will only be effectively fulfilled when the residential assignment is physically and materially realized.

In this way, it does not seem possible to us to follow the thesis defended by the Respondent (TA), that it is sufficient to have used, in the process of evaluating the properties, the use coefficient "residential", to be dealing with a property with residential use.

Being thus appropriate to accept the thesis supported by the Claimant that residential use cannot be attributed to land for construction.

In conclusion, this Tribunal considers that the contested assessment is defective by illegality, insofar as it concerns a property that is, at the time of the assessment, land for construction, a reality which, for the reasons that have been set forth, cannot be included in the concept of "properties with residential use" enshrined in Item 28.1 of the GSDT.

II.3 QUESTIONS WITHOUT PREJUDICIAL EFFECT

In view of the Tribunal's decision to consider the contested assessment illegal, the subject matter of the present case, consideration of the remaining defects questioned by the Claimant is without prejudicial effect, namely that this assessment violates the constitutional commands that translate into the principles of equality and proportionality.

III. DECISION

In view of the foregoing, it is decided:

(i) On the preliminary issue raised by the Respondent, the value of the action is fixed at € 17,016.00 (seventeen thousand and sixteen euros);

(ii) To judge the request for annulment of the contested assessment as well-founded, by reason of violation of law, with the result that the TA is obliged to return to the Claimant the amounts paid by it plus the corresponding indemnifying interest.

IV. VALUE OF THE CASE

In accordance with the provisions of Article 315, No. 2, of the Code of Civil Procedure and Article 97-A, No. 1, paragraph a), of the Code of Tax Procedure and Article 3, No. 2, of the Costs Regulation in Tax Arbitration Proceedings the case is assigned a value of € 17,016.00 (seventeen thousand and sixteen euros).

V. COSTS

In accordance with Table I attached to the Costs Regulation in Tax Arbitration Proceedings, the amount of costs is fixed at € 1,224.00 (one thousand two hundred twenty-four euros).

Let notification be made.

Lisbon, 4 December 2014

The Sole Arbitrator

(João Marques Pinto)

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

The wording of this decision is governed by the old spelling conventions.

Frequently Asked Questions

Automatically Created

Is Stamp Tax under Verba 28 of the TGIS applicable to construction land (terrenos para construção) with a VPT over €1,000,000?
The applicability of Stamp Tax under Item 28 of the GSDT to construction land with VPT over €1,000,000 is contested in this case. The claimant argues that Item 28.1, which taxes 'properties with residential use,' does not apply to terrenos para construção because they constitute a distinct legal category under Article 6 of CIMI and lack actual residential use. However, the Tax Authority contends that 'residential use' includes land for construction because the MPTC applies use coefficients to such land during valuation (Article 45(2) MPTC), and the concept of 'residential use' was deliberately chosen to encompass realities beyond developed residential properties, including land with potential residential building rights.
How does Article 6 of the CIMI distinguish construction land from residential properties for Stamp Tax purposes?
Article 6 of the CIMI establishes distinct legal categories of urban property, with land for construction (terrenos para construção) classified separately from residential properties. The claimant argues this distinction is determinative for Stamp Tax purposes, as residential use is a characteristic that applies only to developed properties where actual use can be observed and verified. However, the Tax Authority interprets Item 28 of the GSDT as creating a classification that overlaps the Article 6 CIMI categories, arguing that for stamp duty valuation purposes, Article 67(2) of the Stamp Duty Code permits reference to MPTC definitions, where use coefficients apply to land for construction valuation, thereby justifying inclusion of such land within 'properties with residential use' for Item 28 taxation.
Can the Portuguese Tax Authority classify a terreno para construção as a residential property for Imposto do Selo levied under Verba 28.1 of the TGIS?
The Tax Authority asserts it can classify terreno para construção as having residential use for Imposto do Selo under Verba 28.1 of the TGIS. This position is based on the interpretation that 'properties with residential use' is broader than 'properties intended for housing' and includes land for construction where residential building capacity exists. The TA argues that Article 45(2) of MPTC applies valuation methodology incorporating use coefficients to land for construction, and planning regulations (Article 77 RJEU and Municipal Master Plans) permit determination of intended residential use before actual construction. The claimant contests this interpretation, arguing it improperly extends taxation beyond the legal requirements and creates a tax not permitted by law, as terrenos para construção lack actual residential use and should not be subject to Item 28.1.
What is the CAAD arbitration procedure for challenging unlawful Stamp Tax assessments on urban land in Portugal?
The CAAD (Centro de Arbitragem Administrativa) arbitration procedure for challenging unlawful Stamp Tax assessments involves submitting an arbitration request pursuant to Articles 2(1)(a) and 10(1)(2) of Decree-Law 10/2011 (Legal Framework for Tax Arbitration) and Articles 1-2 of Ordinance 112-A/2011. The claimant may choose to appoint an arbitrator or allow the Deontological Council to appoint a sole arbitrator. In this case, filed on 3 March 2014, the tribunal was constituted on 8 May 2014. The claimant must specify the contested assessments, amounts, legal grounds for illegality, and requested relief (declaration of illegality and annulment). The Tax Authority submits a response defending the assessments. The procedure provides an alternative to judicial court appeals for resolving tax disputes efficiently.
What was the outcome of CAAD Process 213/2014-T regarding the illegality of Stamp Tax liquidations on construction land?
The excerpt from Process 213/2014-T provides only the Report section (Section I), which outlines the factual background, the claimant's arguments for illegality and annulment of €17,016.00 in stamp duty assessments on land for construction, and the Tax Authority's defense of the assessments. The actual decision, reasoning, and outcome of the arbitration are not included in this excerpt. Therefore, the specific ruling on whether the stamp duty assessments on the terreno para construção with TPV of €1,790,934.00 were declared illegal and annulled, or whether they were upheld as valid, cannot be determined from the provided text. The complete arbitral decision would contain sections addressing the legal analysis, findings of fact, and the tribunal's final determination.