Process: 241/2013-T

Date: April 24, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD arbitration process 241/2013-T addressed whether construction land (terrenos para construção) is subject to Stamp Tax under Item 28.1 of the Portuguese General Stamp Tax Table (TGIS). The claimant, A... S.A., challenged Stamp Tax assessments totaling €10,848.52 for 2012, arguing that construction land lacks the characteristics of residential property and cannot be deemed to have 'residential affectation' as required by Item 28.1. The company contended that construction land represents merely potential or virtual expectation of future residential use, not actual residential affectation, and that building permits showing 'residential and commercial' purposes prove non-exclusive residential use. Additionally, the claimant raised concerns about double taxation, as the same property is taxed under both IMI (Property Tax) and Stamp Tax. The Tax Authority (AT) defended the assessment, arguing that 'residential affectation' is broader than 'properties intended for residential use' and encompasses construction lands. AT emphasized that the affectation coefficient used in determining taxable asset value for IMI purposes applies equally to construction lands for Stamp Tax assessments under Item 28.1. The respondent further argued that affectation can be ascertained before actual construction occurs, based on the intended purpose of the land. The arbitral tribunal was established on December 27, 2013, under the RJAT framework, with Dr. Olívio Mota Amador as sole arbitrator. The case highlights fundamental disputes regarding the scope of 'residential affectation' in Portuguese tax law and whether construction lands fall within Item 28.1's taxable events, raising important questions about tax classification principles and potential double taxation concerns.

Full Decision

ARBITRAL DECISION

Claimants: A..., S.A.

Respondent: Tax and Customs Authority.

I - REPORT

  1. On 29 October 2013, the company A..., S.A., holder of NIPC …, with registered office at Rua …, in …, requested the establishment of an arbitral tribunal, under the terms of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as "RJAT").

  2. The request for establishment of the arbitral tribunal was accepted by His Excellency the President of CAAD, on 29 October 2013, and was immediately notified to the Tax and Customs Authority (hereinafter referred to as "AT" or the "Respondent").

  3. The Claimant seeks a pronouncement from the Arbitral Tribunal to declare the illegality of the Stamp Tax assessment acts, under Item 28.1 of the General Stamp Tax Table (hereinafter referred to only as "GSTТ"), relating to the year 2012, dated 21 March 2013, underlying the collection documents for the second and third instalments in the total amount of €10,848.52 (ten thousand eight hundred and forty-eight euros and fifty-two cents).

  4. In the request for arbitral pronouncement, the Claimant chose not to designate an arbitrator. Pursuant to Article 6(2)(a) and Article 11(1)(b) of the RJAT, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council of CAAD designated as arbitrator of the singular arbitral tribunal His Excellency Dr. Olívio Mota Amador who, within the applicable time limit, communicated acceptance of the appointment.

  5. The parties were notified, on 11 December 2013, of the designation of the arbitrator, having manifested no intention to challenge the designation of the arbitrator, pursuant to the combined provisions of Article 11(1)(a) and (b) of the RJAT and Articles 6 and 7 of the Deontological Code.

  6. In accordance with Article 11(1)(c) of the RJAT, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the arbitral tribunal was established on 27 December 2013.

  7. On 14 February 2014, the Respondent, duly notified for this purpose, filed its Response.

  8. On 10 March 2014, at 15:00, at the premises of CAAD, the meeting provided for in Article 18 of the RJAT took place, with the attendance of the designated Arbitrator and the representative of the Claimant. The representatives of the Respondent, appointed by order of the Director-General of AT, of 1 March 2014, did not attend the meeting, as appears from the respective minutes, which are hereby deemed fully reproduced for the proper legal purposes.

  9. At the meeting referred to in the preceding point, the representative of the Claimant declared that they waived oral submissions. Due to the failure of the Respondent's representative to appear, the Tribunal ordered the Respondent to be notified to declare, within 5 days, whether it intended to make oral submissions. The Respondent made no declaration.

  10. The request for arbitral pronouncement made by the Claimant, in accordance with the pleading, may be summarized as follows:

10.1. The Claimant begins by arguing that it was notified of several payment documents identified with different numbers, with the absence of indication of the assessment number underlying them. This absence of legal basis constitutes a defect that taints the act with illegality, in accordance with Article 99(c) of the Tax Procedure and Process Code (TPPC).

10.2. The Claimant considers that the assessment act is also tainted by error in respect of legal prerequisites in the following terms: on the construction land there does not yet exist, by its own elementary nature, any property susceptible of being used for residential purposes, commercial purposes, services, etc., there being merely a potential or merely virtual expectation of such occurring. Thus, construction land is not yet a property dedicated to residential use. In reality, when Item 28 of the GSTТ refers to "residential affectation" this presupposes a functional approach, and should be viewed as a property directed toward residential use, not being, therefore, construction land, per se, a residential property.

10.3. If construction lands fall within the definition of urban property, in accordance with that provided in the Property Tax Code (CIMI), the respective affectation may or may not be residential use. Thus, construction land cannot be, and cannot be considered as, a property dedicated to residential use, since it neither constitutes nor has the characteristics of a residential property.

10.4. In the building permit and subdivision permit it states that the purpose of the lots is for "residential and commercial", and one cannot conclude that this construction land will be used exclusively for residential purposes only. Hence it cannot be considered to be in compliance with the Law the attribution of affectation coefficients to construction lands and even less is it accepted that this coefficient used for the assessment of the VPT be used for the delimitation of the objective taxable base for the purposes of the Stamp Tax assessment.

10.5. It follows clearly from this that the AT cannot require, without incurring in flagrant illegality, Stamp Tax, based on Item No. 28 of the GSTТ, from a holder of construction land.

10.6. Construction lands are annually taxed by the Property Tax (IMI), taking into account the taxable asset value attributed to each of the properties. For the same reality (ownership of a property with taxable asset value attributed) two different taxes apply – Stamp Tax and IMI – that is to say the same reality is taxed twice. In this sense the Claimant considers itself to be facing double taxation, raising questions about the principles of justice and proportionality.

  1. The Respondent in its response states, in brief summary, the following:

11.1. For the purposes of determining the taxable asset value of construction lands, the application of the affectation coefficient in the context of assessment is clear and therefore its consideration for the purposes of applying Item 28 of the GSTТ cannot be ignored.

11.2. The affectation of the property (aptitude or purpose) is a coefficient that contributes to the assessment of the property in the determination of taxable asset value, applicable to construction lands. Item 28 GSTТ itself refers to the expression "properties with residential affectation" appealing to a classification that overrides the types provided for in Article 6(1) of the CIMI.

11.3. Although the Claimant now contests the assessment of Stamp Tax, what is truly being analyzed are the rules of valuation made in the context of IMI. If such value was not considered correct the Claimant should have requested a revaluation and, if even then the claim was not granted, it would have filed judicial review in accordance with Article 77 of the CIMI. Having not done so this is not the proper means to contest the valuation rules that determine the assessments now being challenged.

11.4. The Respondent considers that the concept of "properties with residential affectation" for the purposes of Item 28 of the GSTТ includes both built properties and construction lands, immediately given the literal element of the rule. The legislator does not refer to "properties intended for residential use" having opted for the notion of "residential affectation". This expression is different and broader whose meaning must be found in the need to integrate other realities beyond those identified in Article 6(1)(a) of the CIMI. Thus, for the Respondent well before the actual building of the property it is possible to ascertain and determine the affectation of the construction land.

11.5. The Respondent argues that the provision of Item 28 of the GSTТ is a general and abstract rule applicable indistinctly to all cases in which the factual and legal prerequisites are met. The different aptitude of properties supports different treatment valued by the legislator in a manner and with effects differentiated and therefore does not constitute any violation of the principle of equality under Article 13 of the Constitution. On the other hand, the measure implemented seeks to achieve maximum effectiveness as to the objective to be attained and does not violate the principle of proportionality.

11.6. With regard to the assessments impugned, the AT merely limited itself to applying Article 6 of Law No. 55-A/2012, of 29 October and notified the Claimant having fully complied with the legal procedures, there having been no error attributable to the services in the issuance of the assessments in question.

II – PRELIMINARY MATTER

  1. The arbitral tribunal is materially competent and is regularly constituted, in accordance with Articles 2(1)(a), 5(2), and 6(1) of the RJAT.

The parties have legal standing and capacity, are legitimate and are duly represented, in accordance with Articles 4 and 10 of the RJAT and Article 1 of Ordinance No. 112-A/2011 of 22 March.

The proceedings are not affected by any defects that would invalidate them.

In these terms, there is no obstacle to the examination of the merits of the case.

III – FACTS

  1. Proven Facts

13.1. Based on the elements contained in the proceedings, the following facts are considered proved:

A) The Claimant is the legitimate owner of the urban property located at ..., in …, described in the Land Registry of … under number ... and registered in the urban property register of the parish of …, municipality of …, under article U-....

B) In the urban property file the property, identified in the preceding subparagraph, is described as "construction land".

C) The said urban property has no building or structure erected on its land.

D) The Municipal Council of … issued subdivision permit No. ... in which it is authorized, on the land in question, that the purpose of the lot be "residential and commercial use".

E) The property, identified in subparagraph A), was subject to valuation, under the rules of the CIMI, carried out by the AT, on 20 November 2008, with the taxable asset value (VPT) of €1,627,280.00 being determined.

F) In the determination of the VPT, referred to in the preceding subparagraph, a type of location coefficient corresponding to the residential use of the properties to be constructed was considered.

G) Considering the VPT, contained in subparagraph E), and the coefficient referred to in the preceding subparagraph, the AT considered that the prerequisites for the incidence of Stamp Tax provided for in Item 28 of the GSTТ were met, effecting the corresponding assessment.

H) The Claimant was notified of the assessment of Stamp Tax, dated 21 March 2013, relating to the year 2012, with a basis of €16,272.80.

13.2. The facts set out in the preceding paragraph constitute uncontested and documentary evidence in the case.

  1. Unproven Facts

There are no facts relevant to the decision that have not been proved.

IV – LAW

  1. In light of the foregoing in the preceding paragraphs, the issue to be decided in the present proceedings consists in determining whether construction lands are covered by the scope of incidence of Stamp Tax referred to in Item 28.1 of the GSTТ.

  2. The factual matter is established (see, supra paragraph 13) and we shall now determine the applicable law to the underlying facts in accordance with the issue already stated (see, supra paragraph 15).

  3. The arbitral case law, through the Arbitral Decisions rendered in proceedings No. 49/2013-T, 53/2013-T, 42/2013-T, 48/2013-T, 75/2013-T, 144/2013-T and 158/2013-T, has converged on the understanding of finding well-founded the requests for declaration of illegality of Stamp Tax assessments under Item 28 of the GSTТ relating to properties that are not yet dedicated to residential use, in particular construction lands held by companies.

  4. Item 28 was added to the GSTТ by Law No. 55-A/2012, of 29 October and has the following wording:

"28 – Ownership, usufruct or right of superficies of urban properties whose taxable asset value contained in the register, in accordance with the Property Tax Code (CIMI), is equal to or greater than €1,000,000 – on the taxable asset value used for the purpose of IMI:

28.1 – For property with residential affectation – 1%;

28.2 – For property, when the taxpayers that are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax system, listed in a list approved by order of the Minister of Finance – 7.5%"

Article 6 of Law No. 55-A/2012, of 29 October established, in the transitional provisions, the rules relating to the assessment of the tax provided for in that item, as follows:

"1- In 2012, the following rules must be observed by reference to the assessment of stamp tax provided for in item No. 28 of the respective General Table:

a) The taxable event occurs on 31 October 2012;

b) The taxpayer of the tax is the one mentioned in Article 2(4) of the Stamp Tax Code on the date referred to in the preceding subparagraph;

c) The taxable asset value to be used in the assessment of the tax corresponds to that resulting from the rules provided in the Property Tax Code by reference to the year 2011;

d) The assessment of the tax by the Tax and Customs Authority must be carried out by the end of November 2012;

e) The tax must be paid, in a single installment, by the taxpayers by 20 December 2012;

f) The applicable rates are as follows:

i) Properties with residential affectation assessed in accordance with the Property Tax Code: 0.5%;

ii) Properties with residential affectation not yet assessed in accordance with the Property Tax Code: 0.8%;

iii) Urban properties when the taxpayers that are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax system, listed in a list approved by order of the Minister of Finance: 7.5%;

2 – In 2013, the assessment of stamp tax provided for in item No. 28 of the respective General Table must be based on the same taxable asset value used for the purposes of the assessment of property tax to be carried out in that year.

3- The failure to deliver, in whole or in part, within the stated time limit, of the sums assessed as stamp tax constitutes a tax violation, punished in accordance with the law."

  1. Item 28.1 of the GSTТ, introduced by Law No. 55-A/2012, of 29 October, uses a concept "property with residential affectation" which does not appear in the Stamp Tax Code, the CIMI, nor in any tax legislation.

  2. In accordance with Article 11(1) of the General Tax Law in determining the meaning of tax rules and in qualifying the facts to which they apply, the rules and general principles of law are observed. According to Article 9(1) of the Civil Code the interpretation must not confine itself to the letter of the law, but must reconstruct from the texts the legislative thought, having especially in account the unity of the legal system, the circumstances in which it was drafted and the specific conditions of the time in which it is applied.

Law No. 55-A/2012, of 29 October appears in a context of austerity marked by the need to implement rules of fiscal tightening intended to obtain revenue to address problems arising from budget execution.

The said law has no preamble, hence it is not possible to extract the legislator's intention. This law originated from bill No. 96/XII (2nd), which, in its statement of reasons, speaks of the introduction of fiscal measures inserted in a wider set of measures to combat budget deficit.

In the statement of reasons of the said bill, it is said only that "these measures are fundamental to reinforce the principle of social equity in austerity, guaranteeing an effective distribution of the sacrifices necessary to comply with the adjustment program." In that statement of reasons it is further stated that, in addition to the tightening of taxation of capital income and securities gains, a tax is created under stamp tax applying to urban properties of residential affectation whose taxable asset value is equal to or greater than one million euros.

In summary, it is unequivocal that in the spirit of the Bill that gave rise to Law No. 55-A/2012, of 29 October the taxation of construction lands was not included and there is, on the other hand, no evidence to the contrary.

  1. In accordance with Article 6(3) of the CIMI, construction lands are expressly excluded from the concept of rural properties constituting an autonomous type of urban properties. A property is classified as construction land whenever a set of circumstances verify indicating the intention to build thereon.

If the legislator had wished to include in item 28(1) of the GSTТ construction lands it would certainly have said so expressly, as this is a type of urban property also long established in law.

  1. It becomes necessary to clarify when a property is dedicated to residential purposes. Is it sufficient that this purpose be fixed in a licensing act or is it necessary that the actual attribution of this purpose be realized?

In this regard we fully agree with the content of the Arbitral Decision rendered in proceedings No. 53/2013-T when it states:

"(...) the comparison of item 28.1 of the GSTТ with Article 6(2) of the CIMI, which defines the concept of residential properties, points clearly in the sense that an actual affectation is necessary.

In truth, a building or structure licensed for residential use or, even without license, but which has residential use as its normal purpose, is, under Article 6(2) thereof, a residential property.

Therefore, on the assumption that the legislator of Law No. 55-A/2012 knew how to express his thought in adequate terms (as required by Article 9(3) of the Civil Code which presumes this), if he intended to refer to those properties already licensed for residential use or which have residential use as their normal purpose, he would certainly have used the concept of "residential properties", which would express perfectly and clearly his thought, in light of the definition given by that Article 6(2) of the CIMI.

Consequently, it must be presumed that the use of a different expression is intended to refer to a different reality, so that, in proper interpretation, "property with residential affectation" cannot be a property merely licensed or intended for that purpose (that is, it will not suffice that it be a "residential property"), having to be a property that already has actual affectation to that purpose.

That this is the meaning of the expression "affectation", in the same context of property classification that the CIMI makes, is confirmed by Article 3 in which, with regard to rural properties, reference is made to those that "are dedicated to or, in the absence of concrete affectation, have as their normal purpose a use generating agricultural income", which shows that affectation is concrete, actual. In truth, as can be seen from the final part of this text, a property may have as its purpose a certain use and be or not be dedicated to it, which shows that affectation is, at the level of the connection of a property to a certain use, something more intense than mere purpose and which may or may not occur, downstream of this and not upstream." [1]

  1. The Respondent concludes that the consideration of an affectation coefficient in the determination of the VPT will be decisive for the purposes of applying Item 28 of the GSTТ. The reasons presented by the Respondent do not hold, because the application of an affectation coefficient relates to one of the elements to be considered in the valuation of the land, but does not determine any change in the classification of that land for tax purposes.

  2. In accordance with the foregoing in the preceding points the Tribunal considers it unequivocal that construction lands must be considered outside the provision of item 28(1) of the GSTТ.

Given the factuality subject matter of the present arbitral proceedings (see, supra paragraph 13.1.) and in light of the foregoing, it is manifest that the assessments in question are affected by error in respect of legal prerequisites, because the property in relation to which Stamp Tax was assessed under item 28.1 is construction land, without any building or structure and cannot be considered a property with residential affectation.

  1. In accordance with Article 124 of the TPPC, subsidiarily applicable by virtue of Article 29(1) of the RJAT, and due to the declaration of illegality of the tax assessment acts subject matter of the present proceedings, for error in respect of legal prerequisites, the examination of the remaining defects invoked by the Claimant is rendered moot.

V – DECISION

In accordance with the foregoing, this Arbitral Tribunal, on 24 April 2014, finds completely well-founded the Claimant's request for declaration of illegality of the Stamp Tax assessment acts, of 21/03/2013, relating to the year 2012, under item 28 of the GSTТ.

The value of the case is fixed at €10,848.52 (ten thousand eight hundred and forty-eight euros and fifty-two cents), in accordance with Article 315(2) of the Code of Civil Procedure, Article 97-A(1)(a) of the TPPC, applicable by virtue of Articles 29(1)(a) and (b) of the RJAT and Article 3(2) of the Costs Regulation in Tax Arbitration Proceedings.

Costs under Article 22(4) of the RJAT, calculated in accordance with Table I of the Costs Regulation for Tax Arbitration Proceedings (CRТAP) as a function of the value of the claim, to be borne by the Respondent in the amount of €918.00 (nine hundred and eighteen euros).

Let notification be made.

Lisbon, Administrative Arbitration Centre, 24 April 2014

The Arbitrator

Olívio Mota Amador

[1] See Arbitral Decision, Proceedings No. 53/2013-T, pp. 19, printed from the CAAD website at: www.caad.org.pt

Frequently Asked Questions

Automatically Created

What is the Stamp Tax (Imposto do Selo) under Verba 28.1 of the Portuguese General Stamp Tax Table (TGIS)?
O Imposto do Selo ao abrigo da Verba 28.1 da Tabela Geral do Imposto do Selo (TGIS) incide sobre a propriedade, usufruto ou direito de superfície de prédios urbanos cujo valor patrimonial tributário (VPT) seja igual ou superior a €1.000.000. A taxa aplicável é de 1% sobre o VPT anualmente para imóveis com afetação habitacional, sendo esta uma obrigação fiscal autónoma do IMI. A verba 28.1 foi introduzida como medida de política fiscal para tributar patrimónios imobiliários de maior valor, aplicando-se tanto a pessoas singulares como coletivas que detenham a propriedade ou direitos reais sobre estes imóveis em território português.
Can building land (terrenos para construção) be subject to Stamp Tax under Verba 28.1 in Portugal?
A questão de saber se os terrenos para construção podem ser sujeitos a Imposto do Selo ao abrigo da Verba 28.1 tem sido objeto de controvérsia jurídica em Portugal. A Autoridade Tributária defende que o conceito de 'prédios com afetação habitacional' inclui não apenas edifícios construídos, mas também terrenos para construção, desde que o coeficiente de afetação utilizado na determinação do VPT indique finalidade habitacional. Contudo, os contribuintes argumentam que terrenos para construção não possuem, por natureza, as características de imóvel residencial, existindo apenas expectativa virtual de uso futuro. A afetação habitacional pressuporia uma abordagem funcional de imóvel efetivamente dirigido ao uso habitacional, não se enquadrando os terrenos para construção, per se, como propriedade dedicada a uso residencial.
How can taxpayers challenge Stamp Tax assessments on building land through CAAD arbitration?
Os contribuintes podem impugnar liquidações de Imposto do Selo sobre terrenos para construção através do Centro de Arbitragem Administrativa (CAAD) ao abrigo do Regime Jurídico da Arbitragem em Matéria Tributária (RJAT). O processo inicia-se com pedido de constituição do tribunal arbitral nos termos dos artigos 2.º e 10.º do Decreto-Lei n.º 10/2011, de 20 de janeiro. O contribuinte deve apresentar o pedido de pronúncia arbitral identificando os atos de liquidação contestados, os fundamentos de ilegalidade invocados e o valor em causa. Pode optar por designar árbitro ou deixar essa escolha ao Conselho Deontológico do CAAD. Após constituição do tribunal arbitral, a AT é notificada para apresentar resposta, seguindo-se eventual reunião prevista no artigo 18.º do RJAT e fase de alegações antes da decisão final.
What was the outcome of CAAD arbitration process 241/2013-T regarding Stamp Tax on building land?
O processo arbitral 241/2013-T foi instaurado pela sociedade A..., S.A. em 29 de outubro de 2013, contestando liquidações de Imposto do Selo no montante total de €10.848.52 referentes ao ano de 2012, ao abrigo da Verba 28.1 da TGIS sobre terrenos para construção. O tribunal arbitral singular foi constituído em 27 de dezembro de 2013, tendo como árbitro o Dr. Olívio Mota Amador. A AT apresentou resposta em 14 de fevereiro de 2014, defendendo a legalidade das liquidações. Na reunião de 10 de março de 2014, a requerente prescindiu de alegações orais e os representantes da AT não compareceram. O documento fornecido não apresenta a decisão final do tribunal, pelo que o desfecho concreto deste processo arbitral não está disponível no excerto analisado.
What are the legal deadlines and procedures for requesting tax arbitration at CAAD under the RJAT?
Nos termos do RJAT (Decreto-Lei n.º 10/2011, de 20 de janeiro, alterado pela Lei n.º 66-B/2012), o pedido de constituição de tribunal arbitral deve ser apresentado nos prazos legais aplicáveis à impugnação judicial. O Presidente do CAAD aprecia a aceitação do pedido e notifica a AT, que dispõe de prazo para apresentar resposta (tipicamente 30 dias). O Conselho Deontológico designa o árbitro quando o contribuinte não o faz, devendo as partes ser notificadas para eventual recusa nos termos dos artigos 6.º e 7.º do Código Deontológico. O tribunal arbitral considera-se constituído após estas formalidades (artigo 11.º do RJAT). Realiza-se reunião para simplificação de questões e instrução (artigo 18.º do RJAT), podendo haver produção de prova e alegações. A decisão arbitral deve ser proferida no prazo de seis meses a contar da constituição do tribunal, prorrogável por mais três meses.