Process: 286/2014-T

Date: December 2, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 286/2014-T) addresses whether Stamp Tax (Imposto do Selo) under Verba 28.1 of the TGIS applies to construction land with a tax property value exceeding €1,000,000. Law 55-A/2012 introduced Stamp Tax on urban properties with 'residential use' (afetação habitacional) valued at €1,000,000 or more. The claimant, a real estate development company, owned a construction lot in Oeiras with a VPT of €1,239,538.81, designated for residential, commercial, and service construction under a subdivision license that was subsequently suspended by court order. The Tax Authority assessed €12,395.39 in Stamp Tax for 2012. The claimant challenged this assessment, arguing that construction land cannot have 'residential use' since it is unbuilt and uninhabitable, serving merely as raw material for development. The claimant emphasized that only completed buildings capable of actual residential occupation should be subject to this tax, which targets luxury properties indicating taxpayer wealth. Furthermore, the suspended license prevented any construction, and the intended subdivision would create multiple units each valued below the €1,000,000 threshold. The Tax Authority countered that the CIMI (IMI Code) valuation methodology applies use coefficients to construction land based on authorized buildings, making the residential use designation applicable for Stamp Tax purposes. The dispute centers on statutory interpretation: whether 'properties with residential use' in Verba 28.1 encompasses undeveloped construction land or requires actual built residential property. The arbitration tribunal was constituted on 29 May 2014 to resolve this fundamental question affecting real estate developers holding high-value urban land designated for future residential construction.

Full Decision

ARBITRATION AWARD

I. REPORT

  1. A…, S.A., with TIN …, hereinafter identified as Claimant, requested on 25 March 2014 the constitution of an arbitral tribunal, in accordance with the provisions of Articles 2, No. 1, subparagraph a), and 10, No. 1 and 2, of Decree-Law No. 10/2011 of 20 January (hereinafter, Legal Regime for Tax Arbitration or RJAT) and Articles 1 and 2 of Ordinance No. 112-A/2011 of 22 March, with a view to:

a) The declaration of illegality of the assessment of Stamp Duty ("IS"), relating to the urban property …, of the parish of …, municipality of Oeiras, with date of 21.03.2013, in the amount of € 12,395.39, notified through Official Notice No. 2013 …, as well as the deemed rejection of the administrative complaint presented against this assessment act;

b) The annulment of this assessment;

  1. The contested assessment concerns taxation, pursuant to item 28.1 of the General Table of Stamp Duty ("TGIS"), of the ownership of "properties with residential use" with a tax property value ("VPT") equal to or exceeding € 1,000,000, with reference to the year 2012.

  2. Assessments were issued to the Claimant, with the obligation of payment, as we have seen, divided into three installments.

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

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

  5. The tribunal has been regularly constituted since 29 May 2014, to examine and decide on the subject matter of the case, as per the order issued by the President of the Ethics Council of CAAD.

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

7.1 The Claimant is the owner and legitimate possessor of the urban property …, of the parish of …, municipality of Oeiras, which has a Tax Property Value (VPT) exceeding one million euros, more specifically a VPT of € 1,239,538.81.

7.2 The property identified herein is a "construction land lot", corresponding to lot No. … created by subdivision license No. …, issued by the Municipal Council of … on 15 April 2014, and according to this license, the construction of a building for residential, commercial and service purposes was permitted.

7.3 On 11 October 2004 and 10 March 2005, the Public Prosecutor's Office requested, before the Administrative Court of …, the declaration of nullity of the subdivision license held by the aforementioned license and the construction licenses issued based on that license, consequently, all effects of the subdivision license were suspended, which made it impossible to carry out any construction on the property.

7.4 In December 2012 the Claimant was notified of the IS assessment relating to the year 2012, concerning the aforementioned lot and in the amount of € 12,395.39.

7.5 In August 2013 the Claimant filed an administrative complaint against such assessment act.

7.6 Within a period of 4 (four) months no express decision was issued on this complaint, thus forming the presumption of deemed rejection.

7.7 The Claimant paid the amounts charged to it as a result of the assessment acts mentioned above.

7.8 The criterion of residential use should only apply to built properties, as it depends on the type of use thereof.

7.9 Law 55-A/2012 of 29 October created a new incidence of IS, on a determined category of properties - urban properties dedicated to residential use - whose VPT is equal to or exceeding € 1,000,000.00, in terms identical to the assessment and collection of IMI.

7.10 Construction land lots are not covered by the tax base of this item of the TGIS, since this would only occur if the property on which the assessment was made had residential use.

7.11 Now, construction land does not, in an obvious manner, have this use, by the simple and evident fact that it does not appear habitable, since it is merely not suitable for any other use other than construction.

7.12 Only when that construction is completed will there exist, possibly, a building which could then be dedicated to residential use and which, meeting the other requirements, could be taxed under IS, in the terms already mentioned.

7.13 The rules of CIMI, to which CIS itself refers, confirm the Claimant's understanding.

7.14 According to the CIMI, urban properties are classified as to their type by reference to the criterion of their use, which allows the conclusion that the purposes or uses are only foreseen for properties that are already buildings and not for another type of property.

7.15 There is no basis to believe that the legislator intended to disregard, under IS, the distinction between residential properties and construction land that is established in CIMI, especially since the regime provided for this new property tax is instituted in the image and likeness of IMI and expressly requires "residential use".

7.16 This new form of taxation aims to tax a reality that was understood to reveal greater wealth and, consequently, greater financial capacity of the taxpayer, being, as such, known as the "luxury tax" or "luxury homes tax".

7.17 Since the Claimant is a company dedicated to the purchase of construction land and resale in fractions, regardless of its value, the land it acquires are not demonstrative of its wealth or financial capacity, because it is "raw material" necessary for the company's activity.

7.18 In the land in question there is no guarantee that it will be dedicated to the construction of a building with the characteristics that the subdivision license holds, and even if residential use were to be realized, what will exist, after construction, will not be an urban property with tax property value exceeding €1,000,000.00, but rather a plurality of urban properties each with a VPT below this limit.

7.19 Moreover, the license also provides for the occupation of the property also for commerce, services and parking.

7.20 The assessment and collection act in question, referring to the year 2012 – the same year in relation to which this tax was required from the Claimant and paid by it – constitutes a situation of duplicate collection.

  1. In its defense, the Tax Administration considers that the requests formulated by the Claimant should be judged unfounded and, consequently, the assessment acts maintained, sustaining its position with the following arguments:

8.1 IS taxes all acts, contracts, documents, titles, papers and other facts or legal situations provided for in the general table.

8.2 In the absence of any definition of the concepts of urban property, construction land and residential use under IS, reference should be made, in view of the provision in Article 67, No. 2 of the IS Code, to the IMI Code (CIMI) in search of a definition that allows for determining the possible subjection to IS.

8.3 In the CIMI, the notion of use of urban property is found in the part relating to the valuation of real property, which in the view of the Tax Administration is justified and understood since the valuation of the real property (purpose) incorporates value to the real property, constituting a determining fact of distinction.

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

8.5 Thus, for purposes of determining the VPT of construction land, the application of the use coefficient in the valuation process is clear, whereby its consideration for purposes of applying item 28 of TGIS cannot be ignored.

8.6 Item 28 of TGIS, by referring to the expression "properties with residential use", calls for a classification that overlaps with the types provided for in Article 6, No. 1 of CIMI.

8.7 Thus, the Tax Administration considers that the concept of "properties with residential use" for purposes of item 28 of TGIS includes both built properties and construction land, from the outset considering the literal element of the rule.

8.8 The Tax Administration considers that the legislator, by not referring to "properties intended for residential use", choosing the notion "residential use", intends to integrate in this concept other realities beyond those identified in Article 6, subparagraph a) of CIMI.

8.9 The mere establishment of a potential construction right increases the value of the real property in question, hence the rule contained in Article 45 of CIMI of requiring the separation of the two parts of the land, with consideration being given on one hand to the part of the land where the building will be located, and on the other to the free area.

8.10 Taking into account the rules provided in various provisions (Article 77 of RJUE and Municipal Master Plans), well before the actual construction of the property it is possible to determine the use of a property for construction.

8.11 The Tax Administration further understands that the provision of item 28.1 does not constitute the violation of any constitutional command, as item 28 of TGIS does not, in any way, jeopardize the principles of equality and proportionality.

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

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

8.14 The Tax Administration further considers that the different suitability of a real property (residential/services/commerce) sustains the difference in treatment, having been the legislator's choice, for economic and political reasons, to exclude from the incidence of IS real properties intended for purposes other than residential.

8.15 The violation of the aforementioned constitutional principles does not occur since this measure is applicable, indistinctly, to all holders of properties with residential use that have a VPT exceeding € 1,000,000.00.

  1. On 31 October 2014, an order was issued by the Tribunal dispensing with the holding of the meeting referred to in Article 18 of RJAT, as it was considered that that meeting, given the nature of the issues raised, was unnecessary.

  2. In the same order the parties were notified to present their pleadings, this right being conferred successively, first to the Claimant and then to the Respondent.

  3. Still in this order, the undersigned notified the parties that the decision would be issued by 29 November 2014.

  4. Following this order, the Claimant presented its pleadings maintaining the arguments already put forward in its initial request, reinforcing only the fact that its position has been accepted in the most diverse judicial instances.

  5. The Respondent did not present pleadings.

  6. Subsequently, by order issued on this 28 November, and considering that 29 November is a Saturday, the deadline for issuing the decision was extended until 2 December 2014.

II. GROUNDS

II.1 FACTS OF THE CASE

  1. The Claimant is the owner and legitimate possessor of the urban property …, of the parish of …, municipality of Oeiras, which has the Tax Property Value (VPT) of € 1,239,538.81 (one million two hundred thirty-nine thousand five hundred thirty-eight euros and eighty-one cents).

  2. The property on which the IS assessment was made is qualified, in the respective register, as construction land.

  3. The contested assessment concerns the taxation of the aforementioned property in accordance with item 28.1 of TGIS, on the grounds that, in the view of the Tax Administration, it is an urban property with residential use and with a VPT exceeding € 1,000,000.00.

  4. The Claimant paid the tax assessed in the amount of € 12,395.39.

  5. In August 2013 the Claimant filed an administrative complaint against such assessment act.

  6. No express decision having been issued on this complaint within a period of 4 (four) months, the presumption of deemed rejection was thus formed.

  7. On 25 March 2014, the Claimant filed the request for constitution of the Arbitral Tribunal, in accordance with the provisions of Articles 2, No. 1, subparagraph a), and 10, No. 1 and 2, of Decree-Law No. 10/2011 of 20 January (hereinafter, Legal Regime for Tax Arbitration or RJAT) and Articles 1 and 2 of Ordinance No. 112-A/2011 of 22 March, with a view to the declaration of illegality of the IS assessment act and the annulment of that assessment.

  8. The Arbitral Tribunal was constituted on 29 May 2014.

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

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

II.2 ISSUES TO BE EXAMINED

The main and substantive issue to be examined by the Tribunal concerns the legal classification of the property identified in No. 1 of point II.1 above, within the scope of the incidence of item 28.1 of TGIS and the consequent legality of the assessment made by the Tax Administration and contested by the Claimant.

The assessment contested by the Claimant was issued under the incidence rule contained in item 28.1 of TGIS, with the wording it had at the time to which the facts relate.

The Claimant understands that, since the property subject to taxation is qualified and registered in the property register as construction land, the assessment is manifestly illegal, because that property cannot, in any way whatsoever, be considered as having "residential use".

The fundamental issue is, therefore, to determine whether the property in question can have, in light of the applicable rules, this type of "use".

As already mentioned, Law 55-A/2012 of 29 October introduced various amendments to the Stamp Duty Code, the principal of which was the addition to TGIS of item 28, to which it gave the following wording:

"28 – Ownership, usufruct or right of superficies of urban properties whose tax property value in the property register, in accordance with the Code for Municipal Tax on Real Property (CIMI), is equal to or exceeding € 1,000,000 – on the tax property value used for purposes of IMI:

28.1 – For property with residential use – 1%

28.2 - ……….."

The aforementioned Law then, in its Article 6, established certain transitional rules of application, having in this provision, in the same manner as in the cited and transcribed item 28, again used the same concept of property with residential use.

It should be noted that this concept is not used by the legislator in any other tax legislation, namely in CIMI, and it should also be recalled and stressed that, in various provisions of CIS, this Code is indicated as the diploma of subsidiary application relating to the tax provided for in item 28 of TGIS (see, for this purpose, Articles 2, No. 4, 3, No. 3 u), 5 u), 23, No. 7 and 46 and 67, all of CIS).

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

Article 2

Concept of property

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

2 - Buildings or constructions, even though movable by nature, are considered to have a character of permanence when dedicated to permanent purposes.

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

4 - For purposes of this tax, each autonomous unit, under condominium ownership, is considered as constituting a property.

Article 3

Rural Properties

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

a) They are dedicated or, in the absence of concrete use, have as their normal purpose a use generating agricultural income, such as are considered for purposes of personal income tax (IRS);

b) Not having the use indicated in the preceding subparagraph, they are not built or have only buildings or constructions of an accessory character, without economic autonomy and of reduced value.

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

3 - Rural properties also include:

a) Buildings and constructions directly dedicated to the production of agricultural and livestock income, when located on the lands referred to in the preceding numbers;

b) Waters and plants in the situations to which No. 1 of Article 2 refers.

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

Article 4

Urban Properties

Urban properties are all those that should not be classified as rural, without prejudice to the provision of the following article.

Article 5

Mixed Properties

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

2 - If neither part can be classified as main, the property is considered mixed.

Article 6

Types of Urban Properties

1 - Urban properties are divided into:

a) Residential;

b) Commercial, industrial or for services;

c) Construction land;

d) Other.

2 - Residential, commercial, industrial or for services are buildings or constructions licensed for such purpose or, in the absence of a license, which have as their normal purpose each of these uses.

3 - Construction land is considered to be land located within or outside an urban agglomeration for which a license or authorization has been granted, prior notification has been accepted, or favorable prior information has been issued for a subdivision or construction operation, and also those which have been declared as such in the acquisition title, excepting land where the competent entities prohibit any of these operations, namely those located in green areas, protected areas or which, in accordance with municipal land planning plans, are dedicated to public spaces, infrastructure or facilities.

4 - The provision of subparagraph d) of No. 1 includes land located within an urban agglomeration that is not construction land nor is covered by the provision of No. 2 of Article 3, as well as buildings and constructions licensed or, in the absence of a license, which have as their normal purpose uses other than those referred to in No. 2, and also those in the exception of No. 3.

It is easy, therefore, to see from the reading of these rules that, as already mentioned above, the concept of "property with residential use" is not, in any case, used by the legislator in CIMI.

Thus, a literal interpretation of the rule contained in item 28.1 of TGIS leads to the conclusion that the legislator's intention was to include within its scope of application urban properties that have residential use.

Starting from this intention, it should be determined when a property is dedicated to a residential purpose, namely whether it is (i) when this purpose is assigned to it in any administrative licensing act or in an act of similar nature, or (ii) whether it is only when the assignment of that purpose is actually realized.

From the wording given to item 28.1, it appears clear that the legislator's intention was to consider an actual use necessary and not merely when properties, land, buildings or constructions were licensed for such purpose - or, in the absence of such license, those which should have as their normal purpose this use.

If the legislator in item 28.1 were satisfied with these facts, it would have used the expression "residential properties" contained in Article 6 of CIMI and not the expression "properties with residential use".

From this it follows, therefore, that property with "residential use" cannot merely be a property licensed for residential purposes or destined for such purpose, having to be "something more than that", that is, it will have to be a property already built, with actual use for that residential purpose.

That is, it has to be something actually built.

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

Insofar as the correct understanding is that the rule of item 28.1 will only be satisfied when the residential use is actually realized.

In this manner, it does not seem possible to us to support the thesis defended by the Respondent (Tax Administration), that it is enough to have used, in the process of valuing properties, the "residential" use coefficient for one to be before a property with residential use.

Being, in this manner, to be accepted, the thesis supported by the Claimant that residential use cannot be attributed to construction land.

In conclusion, this Tribunal considers that the contested assessment is tainted with illegality, insofar as it affects a property that is construction land, a reality which, for the reasons that have been exposed, cannot be included in the concept of "properties with residential use" enshrined in item 28.1 of TGIS.

III. DECISION

In view of the foregoing, it is decided:

To judge the request for annulment of the contested assessment as founded, on grounds of violation of law.

IV. VALUE OF THE CASE

In accordance with the provision in Article 315, No. 2 of CPC and 97-A, No. 1, subparagraph a) of CPPT and 3, No. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the case is valued at € 12,395.39 (twelve thousand three hundred ninety-five euros and thirty-nine cents).

V. COSTS

In accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at € 918.00 (nine hundred eighteen euros).

Notify the parties.

Lisbon, 2 December 2014

The Sole Arbitrator

(João Marques Pinto)

Frequently Asked Questions

Automatically Created

Is Stamp Tax under Verba 28.1 applicable to construction land (terrenos para construção) with a VPT exceeding €1,000,000?
The central issue is whether Verba 28.1 of the TGIS applies to construction land (terrenos para construção). The taxpayer argued that 'properties with residential use' requires actual built residential buildings capable of habitation, not undeveloped land. Construction land lacks residential use by definition since it is uninhabitable and serves only as raw material for future construction. The Tax Authority contended that CIMI valuation methodology applies residential use coefficients to construction land based on authorized buildings, making such land subject to Stamp Tax. The dispute hinges on interpreting 'afetação habitacional' - whether it requires actual residential occupation or merely planned residential development reflected in property valuation.
Does a construction lot designated for housing in a suspended licensing permit qualify as a 'prédio com afetação habitacional' for Stamp Tax purposes?
A construction lot with a suspended building license presents significant interpretive challenges for Stamp Tax liability under Verba 28.1. The taxpayer argued that since the subdivision license was suspended by court order, no construction could proceed, meaning the property could not fulfill any residential purpose. An undeveloped lot awaiting construction authorization cannot constitute a 'prédio com afetação habitacional' when no habitable structure exists and construction is legally prevented. However, the Tax Authority's position focused on the property's classification and valuation methodology rather than its actual use or constructability status. The suspension of the license arguably strengthens the argument that the property lacks residential character, as it cannot be developed for its intended purpose.
How can taxpayers challenge Stamp Tax assessments on urban land through CAAD arbitration proceedings?
Taxpayers can challenge Stamp Tax assessments through CAAD (Centro de Arbitragem Administrativa) arbitration by filing a request under the Legal Regime for Tax Arbitration (RJAT - Decree-Law 10/2011). The process involves: (1) filing a reclamação graciosa (administrative complaint) with the Tax Authority; (2) if denied or deemed rejected after 4 months without response, requesting arbitration within the legal deadline; (3) submitting the arbitration request identifying the contested act, legal grounds, and desired relief; (4) choosing whether to appoint an arbitrator or allowing CAAD's Ethics Council to appoint a sole arbitrator; (5) participating in the arbitral proceedings; and (6) receiving a binding arbitration award. This procedure offers an alternative to judicial courts for resolving tax disputes efficiently.
What is the impact of a suspended municipal construction license on the Stamp Tax liability under Verba 28.1 of the TGIS?
A suspended municipal construction license significantly impacts Stamp Tax analysis under Verba 28.1. The suspension prevents any construction activity, meaning the property cannot be developed for residential purposes. This factual impossibility of residential use supports the argument that the property lacks 'afetação habitacional' required for Stamp Tax liability. When a Public Prosecutor's action suspends all license effects, the property remains undeveloped construction land without any actual or imminent residential character. The suspended status demonstrates that the property's classification for future residential construction does not equate to current residential use. This reinforces the interpretation that Stamp Tax under Verba 28.1 should apply only to completed residential buildings, not to construction land facing legal impediments preventing residential development.
Can a taxpayer file a reclamação graciosa followed by arbitration to contest Imposto do Selo on high-value urban properties?
Yes, taxpayers can file a reclamação graciosa followed by arbitration to contest Imposto do Selo assessments on high-value urban properties. The standard procedure requires first exhausting the administrative complaint (reclamação graciosa) before accessing arbitration. After filing the complaint, if the Tax Authority issues an express rejection or if 4 months elapse without decision (deemed rejection/indeferimento tácito), the taxpayer may request CAAD arbitration under RJAT. In this case, the claimant filed the administrative complaint in August 2013, and after 4 months without response, requested arbitration in March 2014. This two-step process (administrative complaint then arbitration) is the proper procedural path for challenging Stamp Tax assessments, providing taxpayers an efficient alternative dispute resolution mechanism for contesting assessments on properties valued over €1,000,000.