Process: 282/2014-T

Date: November 19, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration decision addresses whether Stamp Tax under Item 28 of the General Stamp Tax Table (TGIS), introduced by Law 55-A/2012, applies to building land (terrenos para construção) valued over €1,000,000. The taxpayer challenged stamp tax assessments totaling €21,395.70 on undeveloped land for construction, arguing that building land cannot be classified as residential property and therefore falls outside the scope of Item 28 TGIS. The taxpayer contended that Article 6 of the Municipal Property Tax Code (CIMI) explicitly distinguishes building land from residential properties, which are defined as buildings or constructions, and that without a construction license or actual residential use, the tax cannot apply. The Tax Authority defended the assessments, arguing that Article 45(2) CIMI applies the residential allocation coefficient when valuing building land, giving it the legal nature of residential property for tax purposes. The tribunal analyzed whether the mere application of a residential coefficient in property valuation transforms undeveloped land into residential property for stamp tax purposes. Additional issues included the constitutionality of Law 55-A/2012's regime taxing high-value properties and whether CAAD has jurisdiction to award compensation for guarantee costs incurred in administrative proceedings. This case has significant implications for owners of high-value undeveloped land and clarifies the interpretation of residential property classification under Portuguese tax law.

Full Decision

CAAD ARBITRAL DECISION - ENGLISH TRANSLATION

I – REPORT

1 – A, with domicile at ... with Tax Identification Number (NIF) ..., submitted on 24/03/2014 a petition for constitution of the arbitral tribunal, pursuant to the provisions of paragraph a) of article 2 subsection 1, article 3 subsection 1, and paragraph a) of article 10 subsection 1, all of the Legal Regime of Arbitration in Tax Matters (RJAT), with the Tax Authority being requested, for the purpose of reviewing the lawfulness of the tax acts imposing Stamp Tax (IS) relating to land for construction, registered in the urban property register under article ... of the parish of ..., municipality of ..., of which the petitioner is the owner, as per payment notices ..., ... and ... in the total amount of € 21,395.70.

2 – The petition for constitution of the arbitral tribunal was filed without exercising the option to designate an arbitrator, and was accepted by the Honorable President of the Administrative Arbitration Center (CAAD) and automatically notified to the Tax Authority on 26/03/2014.

3 – Under the terms and for the purposes of the provisions in article 6 subsection 2 of RJAT, by decision of the Honorable President of the Deontological Council, duly communicated to the parties within the legally applicable periods, Arlindo José Francisco was appointed as arbitrator, who communicated to the Deontological Council and the Administrative Arbitration Center his acceptance of the charge within the properly established deadline.

4 - The tribunal was constituted on 28/05/2014 in accordance with the provisions contained in paragraph c) of article 11 subsection 1 of RJAT, in the wording introduced by article 228 of Law No. 66-B/2012, of 31 December.

5 – With his petition, the petitioner seeks the declaration of illegality and consequent annulment of the tax acts imposing item 28 of the General Table of Stamp Tax (TGIS) that applied to the patrimonial value of the aforementioned land for construction, as per the payment notices already referenced.

6 - He invokes, for this purpose, in summary, violation of law due to the non-existence of a built property, impossibility of allocating the land for construction to residential use, material unconstitutionality of the legal regime established by Law 55-A/2012, and violation of various constitutional principles.

7 - He also seeks that it be recognized that he has the right to compensation in the amount of € 2,439.60 for costs incurred by him with the provision of guarantee, in order to prevent the continuation of tax enforcement proceedings, with the presentation of gracious means of defense against the tax acts at issue herein as well as with the presentation of the present petition.

8 – The Tax Authority, for its part, considers that lands for construction have the legal nature of property with residential allocation, so that the assessment acts challenged by the arbitral determination herein should be maintained, as they constitute a correct interpretation of item 28 of the TGIS, amended by Law 55-A/2012.

9 – Regarding the petitioner's request for compensation, the Tax Authority considers that the request falls outside the jurisdiction granted to the tribunal by article 2 of RJAT.

II - PRELIMINARY EXAMINATION

The tribunal was regularly constituted and is competent ratione materiae in the tax matter under discussion, in accordance with article 2 of RJAT.

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

The parties agreed to dispense with the hearing provided for in article 18 of RJAT, without the need for written or oral submissions, which the tribunal accepted.

III - REASONING

1 – The issues to be decided, which are relevant to these proceedings, are as follows:

a) To determine whether lands for construction to which, in the determination of their Property Value for Tax Purposes (VPT), the residential allocation coefficient was applied and a value equal to or greater than € 1,000,000.00 was determined, fall within the scope of the imposition of Stamp Tax provided for in item 28 of the TGIS, amended by Law No. 55-A/2012, of 29 October;

b) Or whether such imposition violates the aforementioned Law;

c) And also whether the regime established by it is materially unconstitutional;

d) Finally, whether the Tax Authority shall be held liable for damages arising from the exercise of administrative functions.

2 – Factual Matters

The relevant factual matters proven based on the evidence attached to these proceedings are as follows:

a) The petitioner is the owner of the land for construction registered in the urban property register of the parish of ..., municipality of ... under article ....

b) The Property Value for Tax Purposes (VPT) of the land in question is € 2,139,570.00, therefore exceeding € 1,000,000.00 referred to in item 28.1 of the TGIS.

c) The petitioner was notified of the tax acts imposing Stamp Tax for payment of the 1st, 2nd, and 3rd installments, as per payment notices ..., ... and ... in the total amount of € 21,395.70.

d) He filed a gracious complaint against such assessment, which was denied as per notification of 3 October from the Tax Service of ....

e) From this denial he appealed hierarchically on 23 October 2013 and was not notified of any decision issued thereon, for which reason he considered it tacitly denied on 22 December 2013, pursuant to article 66 subsection 5 of the Tax Code and Procedure Code (CPPT).

f) In the respective property registration record there is stated only "land for construction".

g) The Stamp Tax in question was not paid.

3 – Factual and Legal Matters

3.1 – Request Based on Tax Subject Matter

a) The petitioner, in his petition for arbitral determination, argues, in essence, that since land for construction is not a residential property, it is unclear how it can be subject to the taxation provided for in item 28 of the TGIS, amended by Law 55-A/2012, and that in the present case there is no construction license, and that the Tax Authority, in making this taxation, erred in the application of law, which will result in the annulment of the assessment, in accordance with article 135 of the Administrative Procedure Code (CPA), applicable pursuant to article 29 subsection 1 paragraph d) of RJAT.

b) The respondent, for its part, understands that lands for construction have the legal nature of properties with residential allocation, which in its perspective derives from the provision contained in article 45 subsection 2 of the Municipal Property Tax Code (CIMI), which provides for the application of the residential allocation coefficient set forth in article 41 of the same statute, when being valued, a fact which should be considered for the purposes of the taxation provided for in item 28 of the TGIS.

c) After summarizing the positions of the petitioner and the respondent, we shall proceed with an analysis of the rule of incidence of Stamp Tax on urban properties with residential allocation.

d) Item 28 of the TGIS, amended by Law 55-A/2012, subjects to this tax urban properties with residential allocation whose Property Value for Tax Purposes (VPT), determined in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than € 1,000,000.00.

e) The Stamp Tax Code (CIS) refers to the Municipal Property Tax Code (CIMI) for the regulation of the concept of property and matters not regulated regarding item 28 of the TGIS (see article 1 subsection 6 and article 67 subsection 2, both of the CIS).

f) If we examine article 6 of the CIMI, it is established therein that urban properties are divided into residential, commercial, industrial or for services, lands for construction, and others.

g) From its subsection 2, it is understood that residential urban properties "are buildings or constructions licensed for such purpose or, in the absence of a license, that have such purpose as their destination," and its subsection 3 tells us that lands for construction "are those situated within or outside an urban agglomeration, for which a license or authorization for subdivision or construction operations has been granted, and also those that have been declared as such in the title of acquisition...".

h) From these concepts we can already conclude the existence of autonomy between urban properties that are "residential" and urban properties that are "lands for construction".

i) The legislator of the Stamp Tax, in establishing the taxation of urban properties "with residential allocation," did not define the concept, so we must, by virtue of the referral, go to the Municipal Property Tax Code, and this, as already seen, makes them autonomous in relation to lands for construction.

j) The expression "residential allocation" is in no way apparent in lands for construction, nor can it, as the respondent claims, be understood as an expression encompassing other realities.

k) We agree with the position advocated in case 49/2013, which is transcribed: "The expression 'with residential allocation' conveys, upon simple reading, an idea of real and present functionality. From the rule in question, it is not possible to extract, through interpretation, that, as is stated in the respondent's answer, the legislator's choice of that expression is aimed at integrating 'other realities beyond those identified in article 6, paragraph 1, a), of the Municipal Property Tax Code.' Such interpretation has no legal support, in light of the principles contained in articles 9 of the Civil Code and 11 of the General Tax Law. Indeed, if the legislator intended to encompass within the scope of the tax incidence other realities than those resulting from the classification governed by article 6 of the Municipal Property Tax Code, it would have said so expressly. But it does not, instead referring, in their entirety, to the concepts and procedures provided for in the aforementioned Code. On the other hand, the respondent's understanding that the concept of 'residential allocation' derives from the rule of article 45 of the Municipal Property Tax Code cannot be accepted. This article refers to the rules applicable in determining the patrimonial value of lands for construction, establishing that this is the value resulting from the value of the building implantation area to be constructed added to the land adjacent to the implantation. In determining the value of that area, a variable percentage between 15% and 45% of the value of the authorized or intended buildings is considered. According to the respondent, in determining the value of the authorized or intended buildings on the land being valued, the coefficients applicable in determining the patrimonial value for tax purposes are used, namely the residential allocation coefficient provided for in article 1 of that Code. Concluding from this that the consideration of such a coefficient, dependent on the type of use intended for the property to be built on the land, will be determinative for the purposes of applying Item 28 of the TGIS. This conclusion is based on the assumption that the expression 'properties with residential allocation' calls for a classification that overlays the types provided for in paragraph 1 of article 6 of the Municipal Property Tax Code. It is not possible, however, to agree with such conclusion. [...]. In these terms, resulting from article 6 of the Municipal Property Tax Code a clear distinction between residential urban properties and lands for construction, these cannot be considered, for the purposes of the incidence of stamp tax, as 'properties with residential allocation.'"

l) So much so that the legislator, when intending to tax lands for construction under Stamp Tax, revisited the Law, making them now appear in the provision of the rule (Law No. 83-C/2013, of 31 December).

m) What is proven is that in the formulation of Law 55-A/2012, lands for construction were excluded from Stamp Tax taxation under item 28 of the TGIS and only now, through Law 83-C/2013, their taxation is contemplated, so that it can be concluded that the legislator considers that the expression "residential allocation" did not encompass lands for construction in Stamp Tax, contrary to what the Tax Authority contends.

n) Nor should it be said that the fact that article 45 of the Municipal Property Tax Code provides for the application of a residential allocation coefficient in determining the Property Value for Tax Purposes of lands for construction will be a sufficient condition, in itself, to allow including them in the rule of incidence of item 28 amended by Law 55-A/2012, nor less still to alter their nature as land for construction, since what is at issue here is solely to determine the Property Value for Tax Purposes, which will be influenced by the type of buildings to be carried out (which, it should be noted, are not always materialized, and in the present case there was not even specific licensing for any construction).

o) Now, as already seen, it results from article 6 of the Municipal Property Tax Code a clear distinction between residential properties and lands for construction, which prevents these from being taxed as Stamp Tax under the terms sought by the respondent.

p) In this sense, several arbitral decisions have already been issued, namely cases 42, 48, 49, and 75, all from 2013.

q) Having reached this point, and the petition for determination being admissible, since the taxation of lands for construction to which, in the determination of their Property Value for Tax Purposes, the residential allocation coefficient was applied, do not fall within the provision of the rule of item 28 of the TGIS, amended by Law 55-A/2012, of 29 October, the tribunal considers it unnecessary to examine the constitutional defects that it may possibly have or the material unconstitutionality of the regime established by it.

3.2- Request Regarding the Tort Liability of the Tax Authority for Damages Arising from the Exercise of Administrative Functions

On this request, the tribunal considers that this matter does not fall within, or rather, falls outside the boundaries established in article 2 of RJAT, so it declines jurisdiction.

IV – DECISION

In view of the foregoing, the tribunal decides as follows:

a) To declare the petition for arbitral determination admissible, with respect to the annulment of the Stamp Tax assessment acts embodied in the payment notices ..., ... and ... in the total amount of € 21,395.70.

b) To declare the request for compensation in the amount of € 2,439.60 inadmissible, as it is a matter that falls outside the jurisdiction of this tribunal.

c) To set the value of the case at € 23,835.30 in accordance with the provisions contained in article 299 subsection 1 of the Civil Procedure Code (CPC), article 97-A of the Tax Code and Procedure Code (CPPT), and article 3 subsection 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

d) Costs in the amount of € 1,224.00, to be borne by the Petitioner and the Tax and Customs Authority in proportion to their respective loss, that is, € 125.30 (for the petitioner) and € 1,098.70 (for the Tax and Customs Authority) in accordance with the provisions of article 12 subsection 2 of RJAT and article 4 subsection 4 of RCPAT.

Notify.

Lisbon, 19 November 2014

Text prepared by computer, pursuant to the provisions of article 131 subsection 5 of the Civil Procedure Code, applicable by referral of article 29 subsection 1 paragraph e) of RJAT, with blank lines and reviewed by the tribunal.

The text of this decision is governed by the spelling prior to the Orthographic Agreement.

The sole arbitrator,

Arlindo Francisco

Frequently Asked Questions

Automatically Created

Does Verba 28 of the General Stamp Tax Table apply to building land (terrenos para construção)?
The central dispute in this case concerns whether Item 28 of the General Stamp Tax Table applies to building land (terrenos para construção). The taxpayer argues that building land is explicitly distinguished from residential properties under Article 6 of CIMI and therefore cannot be subject to stamp tax designed for residential properties. The Tax Authority contends that building land should be treated as having residential allocation because Article 45(2) CIMI applies the residential allocation coefficient during property valuation. The tribunal must determine whether the application of a residential coefficient for valuation purposes means the land constitutes a 'residential property' under Item 28 TGIS, despite being undeveloped land without construction licenses.
Can building land be classified as residential property for Stamp Tax purposes under Portuguese law?
Under Portuguese law, there is a fundamental distinction between building land and residential property. Article 6 of the Municipal Property Tax Code (CIMI) categorizes urban properties into separate types: residential, commercial, industrial, building land, and others. Article 6(2) defines residential properties as buildings or constructions. However, the Tax Authority argues that Article 45(2) CIMI, which applies the residential allocation coefficient when valuing building land, effectively gives such land the legal nature of residential property for tax purposes. This creates interpretative tension: while building land is structurally distinct from residential property under CIMI's classification system, the valuation methodology treats it similarly to residential property, raising the question of whether valuation methodology determines tax classification.
What are the grounds for challenging Stamp Tax assessments on building land at CAAD arbitration?
Taxpayers can challenge Stamp Tax assessments on building land at CAAD arbitration on several grounds: (1) incorrect legal interpretation arguing that building land does not constitute residential property under Article 6 CIMI and therefore falls outside Item 28 TGIS scope; (2) violation of law due to misapplication of tax rules to property without residential characteristics or construction licenses; (3) impossibility of allocating undeveloped land to residential use; (4) material unconstitutionality of Law 55-A/2012's regime; and (5) violation of constitutional principles including equality, proportionality, and property rights. Challenges must follow administrative procedures including gracious complaint and hierarchical appeal before accessing CAAD arbitration under Article 10 RJAT.
Is the legal regime introduced by Law 55-A/2012 for Stamp Tax on high-value properties constitutional?
The constitutionality of Law 55-A/2012's stamp tax regime on high-value properties was challenged in this case. The taxpayer raised arguments of material unconstitutionality and violation of various constitutional principles. While the specific constitutional reasoning is not fully detailed in the available excerpt, typical constitutional challenges to such tax regimes include: violation of property rights, breach of the principle of fiscal equality (treating similar situations differently), disproportionality in taxation, potential retroactivity concerns, and violation of legitimate expectations. The tribunal must assess whether the legislative framework establishing stamp tax on properties valued over €1,000,000 complies with constitutional limitations on taxation power, particularly when applied to undeveloped land that generates no income.
Can taxpayers claim compensation for guarantee costs in CAAD arbitration proceedings?
Regarding compensation claims for guarantee costs, the Tax Authority argues that such claims fall outside CAAD jurisdiction under Article 2 of the Legal Regime of Arbitration in Tax Matters (RJAT). The taxpayer sought €2,439.60 compensation for costs incurred providing guarantees to suspend tax enforcement proceedings during administrative appeals and arbitration. While CAAD tribunals have jurisdiction to review the legality of tax acts and order their annulment, the authority to award damages for costs arising from administrative functions may require separate civil proceedings. Article 2 RJAT defines CAAD's material jurisdiction primarily for reviewing tax act legality, not necessarily for adjudicating broader compensation claims arising from the exercise of tax administration functions.