Process: 273/2014-T

Date: September 15, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration case (273/2014-T) addresses whether Stamp Duty under item 28.1 of the General Stamp Duty Table (TGIS), introduced by Law 55-A/2012, applies to building land (terrenos para construção). The taxpayer owned 50% of urban property classified as building land with a taxable patrimonial value exceeding €1,000,000. The Tax Authority assessed Stamp Duty of €6,242.29 at a 1% rate, treating the land as 'real property with residential use.' The claimant challenged this assessment, arguing that 'residential use' (afectação habitacional) is a characteristic exclusive to constructed property under the Municipal Property Tax Code (CIMI), determined by actual current use, not future intended use or building viability. The taxpayer contended the Tax Authority illegally conflated 'residential use' with construction viability and the intended purpose of future buildings, violating legality and typicality principles. Alternatively, the claimant argued that even if the tax applied, the correct rate should be 0.5% rather than 1% under article 6 of Law 55-A/2012 for the 2012 tax year. The Tax Authority defended its position, maintaining that building land with residential destination qualifies as 'real property with residential use' under item 28.1 TGIS. This case raises fundamental questions about the interpretation of tax law provisions, the distinction between actual property characteristics versus future intended use, and whether building land can possess the 'residential use' attribute required for Stamp Duty incidence under the special regime for high-value properties.

Full Decision

ENGLISH TRANSLATION

Arbitral Proceedings No. 273/2014-T

Claimant | A...
Respondent | Tax and Customs Authority

1. REPORT

1.1

A..., taxpayer no. ..., with address at Street ..., hereby, pursuant to article 10 of Decree-Law No. 10/2011 of 20 January ("Regulatory Framework for Tax Arbitration" - "RJAT"), requests the constitution of an Arbitral Tribunal.

The Claimant seeks a pronouncement for the declaration of illegality, with all legal consequences, of the tax act for the assessment of Stamp Duty, issued by the Tax and Customs Authority, in the amount of € 6,242.29 ("Contested tax act", which is contained in document 1 attached to the arbitration request).

The Claimant also petitions for the declaration of illegality of the decisions that denied the administrative complaints filed with reference to the contested tax act.

The Claimant further requests the condemnation of the Tax and Customs Authority to refund the amounts already paid and to be paid, plus compensatory interest.

The Claimant understands, in summary, that:

a) Residential use is, in accordance with the Municipal Property Tax Code ("IMI"), a characteristic of constructed real property and depends on the normal use that can be given to it, in light of its current and actual characteristics;

b) The expression "residential use" is not applicable to building land;

c) Such "residential use" cannot be confused or equated with the building viability recognized for building land and the intended use of the building to be constructed thereon, for purposes of applying item 28.1 of the General Stamp Duty Table ("GSDT"), as the Tax and Customs Authority did in the present case;

d) The contested assessment is illegal, due to error in the legal classification of the facts and interpretation of law, violating the principles of legality and typicality, for which reason it should be annulled, the same applying to the decisions rendered on the administrative complaints filed in relation to that Stamp Duty assessment, as second-instance acts that reviewed the legality of that assessment;

e) Alternatively, the assessment in question is equally illegal insofar as it applies the rate of 1%, instead of the rate of 0.5% expressly provided, for the year in question (2012), in article 6 of Law No. 55-A/2012 of 29 October.

1.2

The Tax and Customs Authority responded, raising no preliminary issues and defending, as to the merits of the Claimant's claim, that the request filed should not succeed.

The position of the Tax and Customs Authority is based on defending that the real property in question has the legal nature of real property with residential use, for which reason the assessment act that is the subject of the present arbitration request should be maintained as it embodies the correct interpretation of item 28 of the GSDT, amended by Law No. 55-A/2012 of 29 October.

1.3

After the parties were heard, it was decided not to hold the meeting provided for in article 18 of the RJAT, and it was also agreed that there was no need for the parties to submit written arguments.

2. PRELIMINARY EXAMINATION

The tribunal was duly constituted and is competent ratione materiae, in accordance with article 2 of the RJAT.

The parties have legal personality and capacity, are shown to be legitimate and are duly represented (cf. articles 4 and 10, para. 2 of the RJAT and article 1 of Order No. 112-A/2011 of 22 March).

No procedural defects were identified in the proceedings.

3. QUESTIONS TO BE DECIDED

The following legal questions are at issue in the present proceedings:

i) Whether building land can be qualified as "real property with residential use" and, if so, whether it falls within the scope of application of item 28.1 of the GSDT, amended by article 4 of Law No. 55-A/2012 of 29 October;

ii) The recognition of the right to compensatory interest on the amount of tax paid.

4. REASONS FOR DECISION

4.1 Matters of Fact

4.1.1 Facts Considered Proven

a) The Claimant is the owner of a 50% share of urban real property composed of building land, registered under article ... (currently ...) of the urban property matrix of the parish of ... (currently Union of parishes of ... and ...), municipality of ... (document no. 3, attached to the arbitration request, the contents of which are reproduced);

b) On an undetermined date, the Claimant was notified of the tax act for the assessment of Stamp Duty relating to the year 2012, in the total amount of € 6,242.29, issued on 22 March 2013, issued pursuant to item 28.1 of the General Stamp Duty Table;

c) The Claimant filed administrative complaints requesting the annulment of the Stamp Duty assessment act, which were entirely denied (documents nos. 3 and 4, attached to the arbitration request, the contents of which are reproduced).

4.1.2 Facts Considered Not Proven

There are no facts relevant to the decision that are considered not proven.

4.1.3 Justification of Proven Facts

The proven facts are based on the documents indicated in point 4.1.1 above, whose authenticity and correspondence to reality were not contested.

4.2 On the Law

4.2.1

With regard to the merits of the case, the essential question that is the subject of the present proceedings is whether there is incidence of Stamp Duty pursuant to item 28.1 of the GSDT, amended by article 4 of Law No. 55-A/2012 of 29 October, on the ownership, usufruct or right of superficies of building land.

Article 1, para. 1 of the Stamp Duty Code provides that "Stamp duty applies to all acts, contracts, documents, securities, papers and other facts or legal situations provided for in the General Table, including gratuitous transfers of property."

Item 28.1 of the GSDT was introduced by article 4 of Law No. 55-A/2012 of 29 October, with the following wording:

"Ownership, usufruct or right of superficies of urban real property whose taxable patrimonial value contained in the matrix, pursuant to the Municipal Property Tax Code (MPTC), is equal to or greater than (euro) 1,000,000 - on the taxable patrimonial value used for purposes of Municipal Property Tax:

28.1 Per real property with residential use: 1%"[1]

It follows from the provisions transcribed above that Stamp Duty applies to:

a) Ownership, usufruct or right of superficies;

b) Of real property with residential use; and

c) With Taxable Patrimonial Value ("TPV") contained in the matrix, pursuant to the Municipal Property Tax Code, equal to or greater than € 1,000,000.

The question at issue is whether the concept of "real property with residential use" comprises building land.

The said concept is not found in tax legislation, namely in the Municipal Property Tax Code, which constitutes the subsidiary legislation for purposes of tax assessment (cf. articles 23, para. 7, 46 and 67 of the Stamp Duty Code).

However, that tax compendium defines various concepts of real property. In this regard, it is important to consider the relevant legal provisions on this matter, which are transcribed below:

"Article 2

Concept of Real Property

1 - For purposes of this Code, real property is every portion of territory, including waters, plantations, buildings and constructions of any nature incorporated or situated 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 situated, although located in a portion of territory that constitutes an integral part of a different patrimony or does not have a patrimonial nature.

2 - Buildings or constructions, even if movable by nature, are deemed to have a character of permanence when devoted to non-transitory purposes.

3 - The character of permanence is presumed when buildings or constructions are situated on the same site for a period exceeding one year.

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

Article 3

Rural Real Property

1 - Rural real property is land situated outside an urban agglomeration that should not be classified as building land, pursuant to para. 3 of article 6, provided that:

a) They are devoted to or, in the absence of concrete designation, have as normal use a use generating agricultural income, such as are considered for purposes of income tax on natural persons (IRS);

b) Not having the designation indicated in subparagraph a) above, they are not constructed or have only buildings or constructions of an accessory nature, without economic autonomy and of reduced value.

2 - Rural real property also includes land situated within an urban agglomeration, provided that, by force of a legally approved provision, they cannot have a use generating any income or can only have a use generating agricultural income and are in fact having this use.

3 - Also rural real property:

a) Buildings and constructions directly devoted to the production of agricultural income, when situated on the land referred to in the preceding paragraphs;

b) Waters and plantations in the situations referred to in para. 1 of article 2.

4 - For purposes of this Code, urban agglomerations are considered, in addition to those situated within legally fixed perimeters, nuclei with a minimum of 10 dwellings served by public-use streets, with their perimeter delimited by points distant 50 m from the axis of the streets, in the transverse direction, and 20 m from the last building, in the direction of the streets.

Article 4

Urban Real Property

Urban real property is all that which should not be classified as rural, without prejudice to the provisions of the following article.

Article 5

Mixed Real Property

1 - Whenever real property has rural and urban parts, it is classified, in its entirety, according to the principal part.

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

Article 6

Types of Urban Real Property

1 - Urban real property is divided into:

a) Residential;

b) Commercial, industrial or for services;

c) Building land;

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 normal use each of these purposes.

3 - Building land is understood to be land situated 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 declared as such in the title of acquisition, except for land where the competent entities prohibit any of those operations, namely those located in green areas, protected areas or which, according to municipal land planning plans, are devoted to public spaces, infrastructure or public facilities.

4 - Land situated within an urban agglomeration that is not building land nor covered by the provisions of para. 2 of article 3 falls within the provision of subparagraph d) of para. 1, as well as buildings and constructions licensed or, in the absence of a license, that have as normal use purposes other than those referred to in para. 2 and also those of the exception of para. 3."

What the provisions above do not say and which it falls to this Arbitral Tribunal to consider and decide is what is meant by "real property with residential use," as provided for in item 28.1 of the GSDT, and the extent of its application to the reality of building land. That is, it is necessary to interpret the said concept.

With regard to the interpretation of tax laws, it is important to note, from the outset, article 11 of the General Tax Law:

"Article 11

Interpretation

1 - In determining the meaning of tax provisions and in the classification of facts to which they apply, the general rules and principles of interpretation and application of laws are observed.

2 - Whenever tax provisions use terms specific to other branches of law, they should be interpreted in the same sense that they have there, unless something else follows directly from the law.

3 - If doubt persists as to the meaning of the applicable tax provisions, account should be taken of the economic substance of the tax facts.

4 - Gaps resulting from tax provisions covered by the reservation of law of the Parliament cannot be filled by analogy."

The general principles of interpretation of laws, mentioned in para. 1 of article 11 above are established in article 9 of the Civil Code, in the following terms:

"Article 9

Interpretation of Law

  1. Interpretation should not be confined to the letter of the law, but should reconstruct, from the texts, the legislative intent, taking especially into account the unity of the legal system, the circumstances in which the law was enacted and the specific conditions of the time in which it is applied.

  2. However, the interpreter cannot consider the legislative intent that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed.

  3. In determining the meaning and scope of the law, the interpreter shall presume that the legislator adopted the most correct solutions and knew how to express its intent in adequate terms."

As already mentioned, tax legislation, namely the Municipal Property Tax Code, does not include a definition of the concept of "real property with residential use."

In the absence of an exact terminological correspondence of the concept of "real property with residential use" with any other used in other statutes, it is necessary to interpret the provision, while bearing in mind that the literal element cannot be ignored, since, in light of article 11 of the General Tax Law, the interpreter must observe the general rules and principles of interpretation and application of laws provided for in article 9 of the Civil Code, which mandates reconstructing, from the texts, the legislative intent, and it should be presumed that "the legislator adopted the most correct solutions and knew how to express its intent in adequate terms."[2]

Article 6, para. 1, subparagraph a) and para. 2 of the Municipal Property Tax Code refers to "urban residential real property," which corresponds to buildings or constructions licensed for such purposes or, in the absence of a license, that have as normal use that purpose.

The expression provided for in the said provision of the Municipal Property Tax Code presents some similarity with the concept contained in item 28.1 of the GSDT, however, it is not entirely coincident. On the other hand, assuming that "the legislator adopted the most correct solutions and knew how to express its intent in adequate terms," if the legislator distinguished and used different terminology it is because it intended to do so.

Therefore, the lack of exact coincidence between the two expressions – in this case, the expression contained in item 28.1 of the GSDT and that provided for in subparagraph a) of para. 1 and para. 2 of article 6 of the Municipal Property Tax Code – leads us to conclude that the legislator did not intend to use the same concept.

The concept provided for in item 28.1 of the GSDT goes further, it presupposes a "designation" or "use," which can be defined as a "destination, application to a determined purpose"[3].

For its part, the Municipal Property Tax Code uses, in various articles, the expression "designation" or "use" but always with the intention that it be effective. See, by way of example, articles 3 and 27 of this tax compendium.

Now, the legislator's intention was clearly to encompass in the aforesaid item 28.1 of the GSDT real property that is already applied to residential purposes.

In the same sense, the said item should be interpreted to mean that it does not cover real property that does not yet have any type of use defined, since they are not applied to residential purposes.

In summary, the legislator intended only to target those real property that is already "devoted" to a determined purpose.

Notwithstanding the foregoing, it is still important to assess whether the said concept of "real property with residential use" comprises real property (e.g., building land) that, not yet being applied to residential purposes, already has a pre-determined destination (namely, in the subdivision license) or only when the actual assignment of that destination is materialized (through the building or construction that permits such use).

From the combined analysis of item 28.1 of the GSDT and subparagraph a) of para. 1 and para. 2 of article 6 of the Municipal Property Tax Code it is concluded that the better interpretation is that "real property with residential use" presupposes an actual designation, and does not cover building land that, although not yet applied to residential purposes, already has a pre-determined destination, namely in the subdivision license.

Indeed, and as already mentioned, there is a clear terminological difference between the concepts established in item 28.1 of the GSDT and in subparagraph a) of para. 1 and para. 2 of article 6 of the Municipal Property Tax Code.

If the legislator intended that the concept of "real property with residential use" would comprise real property licensed for residential purposes or, even without a license, that had as normal use residential purposes, it would have used the terminology contained in para. 2 of that article 6 of the Municipal Property Tax Code, which defines these properties as "residential properties," which it clearly did not do.

Therefore, the concept of "real property with residential use" is aimed at a distinct reality, requiring an actual residential designation.

In this same sense there is extensive case law of the Supreme Administrative Court ("SAC") and, as well, tax arbitration case law. We refer, in particular, without concern for exhaustiveness, to the decisions of the SAC in the context of proceedings 01870/13, 0272/14 and 055/14, as well as to the arbitration decisions in proceedings 42/2013-T, 53/2013-T and 144/2013-T.

In light of the above, insofar as the real property subject to the contested tax act does not have an actual residential use designation, we decide in favor of the finding of the vice of violation of law, due to error in the legal prerequisites, raised by the Claimant, and the Stamp Duty assessment act in question and, as well, the decisions denying administrative complaints that ruled on the merits of the assessment act, should be annulled.

With regard to the remaining vices of the act alleged by the Claimant, knowledge of such questions is precluded by the declaration of illegality of the Stamp Duty assessment due to a substantive vice that prevents its renewal.

4.2.2

The second question to be decided concerns the recognition of the right to compensatory interest.

In accordance with the provisions of article 43 of the General Tax Law ("GTL"), compensatory interest is due when in a process of administrative complaint or judicial challenge it is determined that there was error attributable to the Tax and Customs Authority from which results an unduly paid tax obligation.

Being the arbitration process an alternative process to the judicial challenge process, the tribunal understands that in view of the illegality of the contested tax acts, there is a right to the reimbursement of the tax paid and to the payment of compensatory interest pursuant to para. 1 of article 43 of the GTL and article 61 of the Tax Procedure and Process Code ("TPPC").

5. OPERATIVE PART

In light of the foregoing, it is concluded that the Claimant's position is well-founded, consequently, it is decided:

i) To find the claim for declaration of illegality and annulment of the tax act for Stamp Duty assessment and the orders denying administrative complaints well-founded, with all legal consequences, namely that the amounts paid shall be refunded to the Claimant pursuant to legal terms;

ii) To recognize the Claimant's right to compensatory interest, condemning the Tax and Customs Authority to payment of compensatory interest, pursuant to para. 1 of article 43 of the GTL and article 61 of the TPPC.

Value of the Proceedings: Fixed at € 6,242.29 (six thousand, two hundred and forty-two euros and twenty-nine cents), in accordance with the provisions of article 3, para. 2 of the Regulation of Costs in Tax Arbitration Proceedings ("RCPAT"), in article 97-A, para. 1 of the Tax Procedure and Process Code and in articles 305 et seq. of the Civil Procedure Code.

Costs: Fixed at € 612.00 (six hundred and twelve euros) the value of the costs, pursuant to Table I attached to the RCPAT, at the charge of the Respondent.

Notify.

Lisbon, 15 September 2014.

The Arbitrator,

Lina Ramalho

(The text of the present decision was prepared by computer, pursuant to article 131, para. 5 of the Civil Procedure Code (formerly article 138, para. 5), applicable by reference from article 29, para. 1, subparagraph e) of Decree-Law No. 10/2011 of 20 January (RJAT), with its wording governed by the spelling prior to the 1990 Orthographic Agreement.)

[1] Wording at the time of the facts. The said item was amended by Law No. 83-C/2013 of 31 December, effective 1 January 2014, currently having the following wording:

"Ownership, usufruct or right of superficies of urban real property whose taxable patrimonial value contained in the matrix, pursuant to the Municipal Property Tax Code (MPTC), is equal to or greater than (euro) 1,000,000 - on the taxable patrimonial value used for purposes of Municipal Property Tax:

28.1-Per residential property or per building land whose building, authorized or provided for, is for residential use, pursuant to the provisions of the Municipal Property Tax Code: 1%

28.2-Per real property, when the taxable persons who are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by order of the Minister of Finance: 7.5%".

[2] Cf. article 9, para. 3 of the Civil Code.

[3] In Priberam Dictionary of the Portuguese Language, 2008-2013, available at http://www.priberam.pt/dlpo/afectação.

Frequently Asked Questions

Automatically Created

Does Stamp Tax under Verba 28.1 TGIS apply to building land (terrenos para construção) in Portugal?
No, Stamp Tax under item 28.1 TGIS does not apply to building land (terrenos para construção) in Portugal. The concept of 'real property with residential use' requires actual constructed property with current residential characteristics, as defined under the Municipal Property Tax Code (CIMI). Building land, by its nature, lacks actual residential use and cannot be subject to this Stamp Duty provision, which was introduced by Law 55-A/2012 for high-value residential properties. The tax applies only to ownership, usufruct, or surface rights over constructed urban property with a taxable patrimonial value of €1,000,000 or more that is actually designated for residential purposes.
Can building land be classified as having housing allocation (afectação habitacional) for Stamp Tax purposes?
No, building land cannot be classified as having housing allocation (afectação habitacional) for Stamp Tax purposes under item 28.1 TGIS. Housing allocation is a characteristic that depends on the normal use that can be given to constructed property based on its actual and current physical characteristics, not on future building viability or intended use after construction. The Tax Authority's attempt to equate construction viability or the intended residential purpose of future buildings with actual 'residential use' constitutes an illegal extension of the tax provision. The distinction is critical: building land has construction potential, not residential use, which only applies to completed buildings actually used or usable for residential purposes.
What is the correct Stamp Tax rate under Lei 55-A/2012 for properties valued above the TGIS threshold?
Under Law 55-A/2012, the Stamp Tax rate for properties valued above the TGIS threshold depends on the tax year and property type. For 2012, article 6 of Law 55-A/2012 established a transitional rate of 0.5% for real property with residential use having a taxable patrimonial value equal to or greater than €1,000,000. From 2013 onwards, item 28.1 of the General Stamp Duty Table applies the standard rate of 1% for residential properties meeting the value threshold. This temporal distinction is important for taxpayers who were assessed in 2012, as application of the 1% rate instead of the 0.5% transitional rate would constitute an illegal assessment subject to annulment.
How can taxpayers challenge an illegal Stamp Tax assessment through CAAD arbitration in Portugal?
Taxpayers can challenge an illegal Stamp Tax assessment through CAAD (Centro de Arbitragem Administrativa) arbitration by filing a request under Decree-Law 10/2011 (RJAT - Tax Arbitration Legal Framework) within the legal deadline. The arbitration request must identify the contested tax act, state the grounds for illegality (such as error in legal classification, violation of legality or typicality principles), and request specific relief including declaration of illegality, refund of amounts paid, and compensatory interest. After filing, the Tax Authority responds, and an arbitral tribunal is constituted to decide the case. CAAD arbitration provides a faster, specialized alternative to judicial courts for resolving tax disputes, with decisions having the same enforceability as court judgments.
What is the difference between housing allocation and construction viability for Imposto de Selo incidence?
The critical difference between housing allocation (afectação habitacional) and construction viability (viabilidade de construção) for Imposto de Selo incidence is that housing allocation refers to the actual current use of constructed property, while construction viability refers to the potential future use of building land. Housing allocation is determined by the physical characteristics and normal use of existing buildings under the Municipal Property Tax Code (CIMI), making it an attribute of completed real property. Construction viability, by contrast, relates to urban planning permissions and the intended purpose of buildings yet to be constructed on building land. For item 28.1 TGIS purposes, only actual housing allocation of constructed property triggers Stamp Duty—the mere fact that land has authorization for residential construction does not constitute 'residential use' under tax law, as this would improperly extend the taxable event beyond the legislator's intent.