Process: 235/2015-T

Date: October 26, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration decision (Process 235/2015-T) addresses whether Stamp Tax under item 28.1 of the General Stamp Tax Table (TGIS) applies to building land (terrenos para construção). The claimant, owner of building land in Lisbon with a taxable property value (VPT) of €1,911,470, challenged a Stamp Tax assessment of €19,114.70 (1% rate) for 2013. The taxpayer argued that item 28.1 TGIS should only apply to properties with actual residential use, not undeveloped building land, and that the assessment violated principles of equality, proportionality, and legal certainty. The claimant contended that Article 6 of the Municipal Property Tax Code (CIMI) contains no 'residential use' category, and construction feasibility should not be equated with residential use. The Tax Authority countered that 'properties with residential use' encompasses both constructed properties and building land, citing CIMI Article 45 which applies building assessment methodology to construction land. The Authority argued that 'residential use' is broader than 'properties intended for housing' and that development rights immediately increase property value, justifying taxation. This case highlights the interpretative controversy surrounding item 28.1 TGIS implementation following its introduction by Law 55-A/2012, particularly regarding high-value undeveloped land. The taxpayer previously filed an unsuccessful gracious complaint before pursuing tax arbitration at CAAD, demonstrating available remedies for challenging Stamp Tax assessments on real property.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration
Case No. 235/2015-T
Subject: Stamp Tax – land for construction – item No. 28.1 of the TGIS

Claimant / Applicant: A…, LDA
Respondent: Tax and Customs Authority

I - REPORT

A…, LDA, a legal entity with tax identification number … and with registered office at … …, plot …, …, office …, …, … Lisbon (hereinafter the Applicant) requested, on 6 April 2015, the constitution of an Arbitral Tribunal, under the terms of paragraphs 1 and 2 of article 10 of the Legal Framework for Tax Arbitration (RJAT), provided in Decree-Law No. 10/2011, of 20 January, with a view to annulling the Stamp Tax assessment relating to the year 2013 and embodied in the document from the Tax and Customs Authority (hereinafter ATA or Respondent) No. 2014 …, affecting the land for construction corresponding to article U-…, of the parish ... and municipality of Lisbon.

The Applicant had previously filed a complaint seeking to establish the illegality of the aforementioned assessment.

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

In accordance with paragraph (a) of paragraph 2 of article 6 and paragraph (b) of paragraph 1 of article 11 of the RJAT, the Ethics Council appointed the undersigned as arbitrator, who accepted the appointment within the legally established timeframe.

The Arbitral Tribunal was constituted on 18 June 2015.

The Respondent presented its response on 30 September 2015.

On that same date, the Respondent submitted a request seeking to dispense with the meeting referred to in article 18 of the RJAT, on the grounds that the Applicant had not requested the production of evidence beyond that initially submitted and had not raised any exception capable of preventing the tribunal from ruling on the merits of the case.

After hearing the Applicant, the Respondent's position was granted by the Tribunal, by order of 19 October 2015, as it was not deemed necessary to hold the meeting referred to in article 18 of the RJAT and to dispense with the hearing, as the positions of the parties were fully set out in their respective pleadings.

26 October 2015 was fixed for the final decision.

  1. The Applicant alleges, in summary, that:

10.1 It is the owner of the urban property located in the parish of ..., municipality of Lisbon which is described under article … (hereinafter the Property).

10.2 The Property corresponds to land for construction, whose taxable property value is € 1,911,470.00.

10.3 The Respondent informed it that it had proceeded to assess Stamp Tax on the Property related to item No. 28.1 of the TGIS for the year 2013, at a rate of 1% on the taxable property value (hereinafter TPV), assessment No. 2014 …, in the amount of € 6,371.58, relating to the first instalment.

10.4 The Applicant filed a complaint against the aforementioned assessment notice, which was rejected by the Tax Authority.

10.5 The Applicant alleges that the assessment in question lacks legal basis and that item No. 28.1 of the TGIS violates the principles of equality, proportionality and legal certainty.

10.6 It further argues that the Respondent illegally equated the construction feasibility conferred upon the Property with residential use, thereby violating the provisions of law.

10.7 Paragraph 2 of article 67 of the Stamp Tax Code (hereinafter CIS) provides for the subsidiary application of the provisions of the CIMI to matters not regulated in the CIS that relate to item No. 28 of the TGIS, and paragraph 1 of the same provision provides for the subsidiary application of the LGT, therefore in the application and interpretation of item No. 28 of the TGIS, the concepts contained in the CIMI to which the CIS refers must be respected;

10.8 In the classification of properties contained in article 6 of the CIMI, there is no category of "residential use," and therefore, as this is provided for in item No. 28.1 of the TGIS, it can only apply to urban properties that have actual use for residential purposes, either because they are licensed for that purpose or because that is their normal use;

10.9 As a consequence of the illegality, it requests the reimbursement of the tax paid, as well as compensatory interest.

  1. The Respondent alleges, in summary, that:

11.1 Article 6, paragraph 1 of the CIMI includes land for construction among the types of urban properties;

11.2 The notion of use of the urban property is based on the part relating to the assessment of real estate because it incorporates value to the property, constituting a determining distinguishing factor (coefficient) for assessment purposes;

11.3 As results from the expression "value of authorized buildings," contained in article 45, paragraph 2 of the CIMI, the legislator chose to apply the assessment methodology for properties in general to the assessment of land for construction, and therefore the use coefficient provided in article 41 of the CIMI is applicable to them;

11.4 The concept of "properties with residential use" for the purposes of item No. 28 of the TGIS includes both constructed properties and land for construction, particularly taking into account the literal element of the rule;

11.5 The legislator does not refer to "properties intended for housing," but instead chose the notion of "residential use," a different and broader notion, whose meaning is to be found in the need to integrate other realities beyond those identified in article 6, paragraph 1, (a) of the CIMI;

11.6 The mere creation of a right to potential construction immediately increases the value of the property in question, hence the rule contained in article 45 of the CIMI which requires the separation of the two parts of the land.

C - Established Facts

  1. Based on the facts alleged by the parties and not disputed, as well as on the documentation attached to the case file, the following relevant facts are established:

12.1 The Applicant was, in 2013, the owner of the urban property, registered in the urban property matrix of the parish of ..., municipality of Lisbon, under article ….

12.2 The Property corresponds to land for construction, whose TPV is € 1,911,470.00.

12.3 On the Property, the ATA assessed Stamp Tax related to item No. 28.1 of the TGIS for the year 2013, at a rate of 1% on the respective TPV, which resulted in a total assessment of € 19,114.70, with the amount payable for the first instalment being € 6,371.58.

12.4 The Applicant filed a complaint against that assessment, which was rejected by the Respondent.

12.5 On 24 April 2014, the Applicant proceeded to pay the first instalment in the amount of € 6,371.58.

II – PRELIMINARY ISSUES

The Tribunal is materially competent and is regularly constituted in accordance with articles 2, paragraph 1, (a), 5, paragraph 2, and 6, paragraph 1, all of the RJAT.

The parties have legal personality and capacity, are legitimate parties and are legally represented in accordance with articles 4 and 10, paragraph 2 of the RJAT and article 1 of Ordinance No. 112-A/2011, of 22 March.

The proceedings are not affected by defects that would render them invalid, nor are there any preliminary issues to be decided.

III. REASONING

The issue to be decided in these proceedings is to determine the scope of application of item No. 28.1 of the TGIS, as amended by Law No. 55-A/2012, of 29 October, more specifically, whether land for construction is included therein. Briefly, the issue raised is whether land for construction is a property with residential use for the purposes of applying item No. 28.1 of the TGIS, as added by article 4 of Law No. 55-A/2012, of 29 October.

The Tax Arbitral Tribunal is again called upon to pronounce itself on the question of whether land for construction with TPV equal to or greater than € 1,000,000.00 can fall under the concept of (urban) properties "with residential use," as referred to in the already identified item No. 28.1 of the TGIS.

This issue has already been examined in several cases, both in the context of Tax Arbitration (cf. decisions issued in cases Nos. 42/2013-T, 48/2013-T, 49/2013-T, 51/2013-T, 144/2013-T, 2/2015-T, 54/2015-T and 84/2015-T among others[1]), as well as by successive rulings issued by the Supreme Administrative Court, which pronounced itself repeatedly and uniformly on the issue in question (cf. STA ruling of 22/04/2015, issued in case 347/15, and all the case law cited therein, and STA ruling of 29/04/2015, issued in case 21/15, STA ruling of 8/7/2015 issued in case 573/15 among others[2]), without identifying, to date, arguments that would break with the unanimity achieved by the decisions already issued, thus it is important to reiterate the established case law, which decided that "land for construction" cannot be considered, for the purposes of the incidence of Stamp Tax, provided for in item No. 28.1 of the TGIS, as amended by Law No. 55-A/2012, of 29 October, as (urban) properties with residential use[3].

Item No. 28 of the TGIS, annexed to the CIS, was added by article 4 of Law No. 55-A/2012, of 29 October, in force at the date of the assessment in these proceedings, had the following wording:

"28 - Ownership, usufruct or right of superficies of urban properties whose taxable property value contained in the matrix, in accordance with the Municipal Code of Tax on Real Estate, is equal to or greater than € 1,000,000 - on the taxable property value for IMI purposes:

28.1 - For property with residential use - 1%;

28.2 - For property, where the taxpayers who are not natural persons are resident in a country, territory or region subject to a clearly more favourable tax regime, as contained in the list approved by ordinance of the Ministry of Justice - 7.5%."

The wording of item No. 28.1 was, however, amended by Law No. 83-C/2013, of 31 December, which approved the State Budget for 2014, with item 28.1 now using the concept of residential property, and providing as follows: "28.1 For residential property or for land for construction whose building, authorized or foreseen, is for housing, as provided in the Code of IMI - 1%". However, the legislative amendment made does not apply to these proceedings which are concerned with the year 2013. In fact, as already noted by the STA ruling of 29/04/2015, this amendment does not apply to past situations (assessments from 2012 and 2013), such as the one at issue in these proceedings.

As we have already mentioned, the issue raised in these proceedings is to determine what the scope of application of item No. 28.1 of the TGIS is as amended by Law No. 55-A/2012, of 29 October, that is, to ascertain whether land for construction can fall under the concept of (urban) properties with residential use.

Let us examine this.

The concept of (urban) property with residential use was not defined by the legislator. Neither in Law No. 55-A/2012, which introduced it, nor in the CIS or the CIMI to which paragraph 2 of article 67 of the CIS refers on a subsidiary basis, when unregulated matters relating to item No. 28.1 of the TGIS are at issue, was the concept of property with residential use defined.

From reading the CIMI we find a distinction between urban and rustic properties, with urban properties being defined as all those that should not be classified as rustic – cf. article 4 of the CIMI. Article 6, paragraph 1 of that legislation tells us that urban properties are divided into: residential [paragraph (a)], commercial, industrial or for services [paragraph (b)]; land for construction [(paragraph (c))] and others [(paragraph (d))].

The CIMI defines residential, commercial, industrial or service properties as buildings or constructions licensed for such purposes or, in the absence of a license, that have as their normal purpose each of these ends – cf. article 6, paragraph 2 of the CIMI. Land for construction is land 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 subdivision or construction operations, and also those that have been declared as such in the acquisition deed, excluding land on which the competent authorities prohibit any of those operations, namely, those located in green zones, protected areas or which, in accordance with municipal land use plans, are assigned to public spaces, infrastructure or facilities – cf. article 6, paragraph 3 of the CIMI.

It follows, then, that the CIMI does not offer a specific definition of what constitutes properties with residential use, and the question of what the scope of application of the same might be was raised in the various disputes that arose from the drafting of item No. 28.1 in its original version.

As has been affirmed in the various rulings and arbitral decisions to which we have already referred, the expression residential use can have no other meaning than that of residential "use," that is, urban properties with actual use for residential purposes, either because they are licensed for that purpose or because they have that normal purpose.

Land for construction, not being constructed, does not per se satisfy any condition to be considered as property with residential use, since it does not have a license for use for housing and, on the other hand, it is not, by its very nature, habitable.

Indeed, the residential use referred to in the CIMI always refers to existing, authorized or foreseen "buildings" or "constructions," because only these can be inhabited, which naturally does not happen with land for construction. Or, to put it another way, land for construction is not capable of being used for housing.

The fact that in determining the TPV of urban properties classified as land for construction the use that will be authorized or foreseen for it is taken into account for determining the respective value of the site area (cf. article 45, paragraphs 1 and 2 of the CIMI) does not transform land for construction into properties with residential use.

The expression urban property with residential use that we find in item No. 28.1 of the TGIS, when compared with the types of properties we find in article 6, paragraph 1, excludes from the scope of application thereof urban properties that are not residential, such as those intended for commercial, industrial purposes, land for construction and others, whose categories we can read in paragraphs (b) to (d) of paragraph 1 of article 4 of the CIMI.

Furthermore, as has already been noted in previous decisions on this matter, when the bill No. 96/XII (2nd) was presented and discussed in Parliament, the State Secretary for Tax Affairs expressly stated[4]:

"The Government proposes the creation of a special tax on residential urban properties of high value. This is the first time that a special tax has been created in Portugal on high-value properties intended for housing. This tax will be 0.5% to 0.8% in 2012 and 1% in 2013, and will apply to houses with a value equal to or greater than 1 million euros."

As highlighted by decision No. 144/2013-T of the CAAD, the State Secretary for Tax Affairs presented this bill referring to the expressions "residential urban properties," which are those contained in paragraph (a) of paragraph 1 of article 6 of the CIS and "houses," it being clear that in both cases these concepts do not include land for construction, which are referred to in paragraph (c) of the cited provision[5].

Therefore, land for construction does not fall under the concept of property with residential use, provided for in item No. 28.1 of the TGIS.

In light of the foregoing, it is reiterated, following the decisions already rendered, that land for construction is not covered by the concept of (urban) property with residential use contained in item No. 28.1 of the TGIS as amended by Law No. 55-A/2012, of 29 October, that is, in the version prior to the State Budget law for 2014.

Compensatory Interest

The Applicant requests that the Tax Authority be ordered to reimburse the tax paid incorrectly in the amount of € 6,371.58, as well as the respective compensatory interest.

Article 43, paragraph 1 of the General Tax Law provides that "compensatory interest is due when it is determined, in a complaint or court challenge, that there was an error attributable to the authorities that resulted in the payment of tax debt in an amount greater than legally due."

In turn, article 24, paragraph 1, (b) of the RJAT provides that an "arbitral decision on the merits of a claim against which no appeal or challenge lies binds the tax administration from the end of the period provided for appeal or challenge, and the latter must, in the exact terms of the success of the arbitral decision in favor of the taxpayer and until the end of the period provided for the spontaneous execution of judgments of the tax courts, restore the situation that would have existed if the tax act that is the subject of the arbitral decision had not been carried out."

Given that, in the case sub iudice, the illegality of the contested assessment is verified, due to an error in the legal premises, attributable to the Tax Administration that carried out the contested assessment, due to incorrect application and interpretation of the provisions of item No. 28.1 of the TGIS, the Applicant is entitled to the reimbursement of the tax paid in the amount of € 6,371.58 and to compensatory interest calculated from the date of payment to full payment, at the interest rate resulting from article 43, paragraph 4 of the LGT.

Decision:

For the reasons set out, the arbitral tribunal decides:

To uphold the request for an arbitral ruling and, consequently, declare illegal the Stamp Tax assessment relating to the year 2013, contained in the document No. 2014 …, dated 17 March 2014, with all legal consequences;

To uphold the request to order the Tax and Customs Authority to reimburse the Applicant the amount of tax incorrectly paid, plus compensatory interest from the date on which the payment was made until the date of its full reimbursement;

To order the Respondent to pay the costs of these proceedings.

Case Value:

In accordance with the provisions of article 306, paragraphs 1 and 2 of the Code of Civil Procedure, combined with paragraph (a) of paragraph 1 of article 97-A of the CPPT and paragraph 2 of article 3 of the Regulations on Costs in Tax Arbitration Proceedings, the case is valued at € 19,114.70, which constitutes the total amount of tax resulting from the contested assessment whose assessment was requested.

Indeed, the subject matter of these proceedings, as results from the request contained in the initial petition, is the challenge of the stamp tax relating to the year 2013, whose total assessment is € 19,114.70, therefore it is this amount whose annulment was sought (article 97-A, paragraph 1, (a) of the CPPT).

Costs:

For the purposes of the provisions of paragraph 2 of article 12 and paragraph 4 of article 22 of the RJAT and paragraph 4 of article 4 of the Regulations on Costs in Tax Arbitration Proceedings, the amount of costs is fixed at € 1,224.00, in accordance with Table I attached to the Regulations, to be borne entirely by the Respondent.

Lisbon, 26 October 2015

The Arbitrator,

(Alexandra Gonçalves Marques)

[1] All available in the CAAD database (www.caad.org).

[2] All available at www.dgsi.pt.

[3] We will partially reproduce the text of the decision issued within the CAAD, in case 54/2015-T, decided by a panel with the participation of the undersigned.

[4] Cf. Parliamentary Records (DAR) Series I No. 9/XII-2, of 11 October, p. 32.

[5] Cf. Arbitral decision issued on 12 December 2013, in case 144/2013-T, available at www.caad.org and also STA ruling of 29 April 2015 and 23 April 2014, available at www.dgsi.pt.

Frequently Asked Questions

Automatically Created

Does Stamp Tax under clause 28.1 of TGIS apply to building land (terrenos para construção)?
Whether Stamp Tax under item 28.1 of TGIS applies to building land is a contested issue. The Tax Authority argues that building land qualifies as 'property with residential use' when designated for residential construction, making it subject to the 1% annual Stamp Tax if the taxable property value exceeds €1,000,000. However, taxpayers challenge this interpretation, arguing that 'residential use' should require actual residential occupation or licensing, not merely construction potential. This case exemplifies the ongoing legal debate, with taxpayers contending that the CIMI property classification system does not support taxing undeveloped land as residential property.
How is the taxable patrimonial value (VPT) determined for building land under Stamp Tax?
The taxable patrimonial value (VPT) for building land under Stamp Tax is determined using the assessment methodology established in the CIMI. According to Article 45(2) CIMI, building land valuation incorporates the 'value of authorized buildings,' applying the general property assessment framework to construction land. This includes use coefficients from Article 41 CIMI, which factor potential residential use into the valuation. In this case, the building land's VPT was €1,911,470, calculated by the Tax Authority using these CIMI provisions. Article 67(2) of the Stamp Tax Code mandates subsidiary application of CIMI rules for matters related to item 28 TGIS, creating the legal basis for using CIMI valuation principles in Stamp Tax assessments on land.
Can taxpayers challenge Stamp Tax assessments on building land through tax arbitration at CAAD?
Yes, taxpayers can challenge Stamp Tax assessments on building land through tax arbitration at CAAD (Centro de Arbitragem Administrativa). This case demonstrates the process: the taxpayer first filed a gracious complaint (reclamação graciosa) with the Tax Authority, which was rejected. After exhausting administrative remedies, the taxpayer requested arbitration under Articles 10(1) and 10(2) of the Legal Framework for Tax Arbitration (RJAT) established by Decree-Law 10/2011. CAAD has material jurisdiction over Stamp Tax disputes per Article 2(1)(a) RJAT. The arbitral tribunal was constituted within the legal timeframe, providing an alternative dispute resolution mechanism for challenging the legality of Stamp Tax assessments without resorting to judicial courts.
What is the 1% Stamp Tax rate applied to properties with a VPT exceeding €1,000,000?
Item 28.1 of the TGIS, introduced by Law 55-A/2012 of October 29, establishes a 1% annual Stamp Tax rate on properties with residential use whose taxable property value equals or exceeds €1,000,000. In this case, with a VPT of €1,911,470, the total annual Stamp Tax assessed was €19,114.70 (precisely 1% of the VPT). This tax is payable in installments, with the first installment being €6,371.58. The 1% rate represents a recurrent annual taxation on high-value residential properties, distinct from transaction-based stamp duties. The threshold of €1 million and the 1% rate were policy choices by the legislator in the 2013 State Budget context to generate revenue from valuable real estate holdings.
What are the grounds for filing a gracious complaint (reclamação graciosa) against a Stamp Tax assessment?
Grounds for filing a gracious complaint (reclamação graciosa) against a Stamp Tax assessment include challenging the legal basis of the assessment, arguing violations of constitutional principles (equality, proportionality, legal certainty), and contesting the Tax Authority's interpretation of applicable law. In this case, the taxpayer's complaint argued: (1) the assessment lacked legal foundation because building land is not property 'with residential use' under item 28.1 TGIS; (2) the Tax Authority illegally equated construction feasibility with residential use; (3) item 28.1 violates equality and proportionality principles; and (4) proper interpretation of CIMI concepts referenced in the Stamp Tax Code excludes building land from taxation. Though the complaint was rejected, it established the administrative record necessary to pursue arbitration and seek reimbursement of tax paid plus compensatory interest.