Process: 290/2016-T

Date: October 26, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 290/2016-T) concerns the application of stamp tax (Imposto de Selo) under Verba 28.1 of the General Stamp Tax Table (TGIS) to construction land. The claimant, A... Unipessoal Lda, a real estate development company, challenged a stamp tax assessment of €12,687.60 for 2015 on an urban property registered as 'land for construction' with a patrimonial value of €1,268,760.00. The core dispute centers on whether building land can be classified as residential property subject to this luxury property tax.

The claimant argued that Verba 28.1, introduced by Article 194 of Law 83-C/2013, applies only to properties immediately intended for housing, not construction plots. The company contended that owning this land represents productive investment in its commercial activity, not the high-wealth residential property ownership that the tax targets. Additionally, the claimant raised constitutional challenges, asserting the provision violates the principle of tax equality (Article 13 CRP) because it discriminates between land for housing construction versus land for commercial or service buildings. The claimant also alleged violation of tax neutrality principles (Article 81(e) CRP and Article 7(3) LGT) by discriminating against specific economic activities.

The Tax and Customs Authority defended the assessment, arguing the property has residential dedication based on its licensing or normal destination under Articles 2(1) and 41 of CIMI. The Authority contended that the property's evaluation and residential classification became legally consolidated when the taxpayer failed to challenge it through available procedures. Regarding constitutionality, the Authority invoked the exceptional economic context requiring extraordinary revenue measures, arguing the legislature legitimately targeted luxury housing properties and that different treatment of residential versus non-residential properties has material foundation recognized throughout Portuguese tax law.

The tribunal noted conflicting precedents: Case 385/2016-T ruled against the Tax Authority on similar facts, while Case 601/2016-T involving the same taxpayer ruled in favor of the Authority. The decision portion of this arbitral ruling is not included in the available excerpt.

Full Decision

ARBITRAL DECISION

  1. REPORT

1.1 A…, UNIPESSOAL, LDA., taxpayer…, with registered office at Rua…, …, …-… ..., filed on 27.05.2016, under Article 2, paragraph 1, sub-paragraph a) of Decree-Law No. 10/2011, of 20 January (hereinafter RJAT) and Ordinance No. 112-A/2011, of 22 March, a request for the constitution of the arbitral tribunal.

1.2 The TAX AND CUSTOMS AUTHORITY is the respondent in these proceedings.

1.3 The Deontological Council of the Administrative Arbitration Centre (CAAD) appointed the undersigned to constitute the Single Arbitral Tribunal, having notified the parties thereof, and the Tribunal was constituted on 4 August 2016.

1.4 The request for arbitral ruling is aimed at the annulment of the Stamp Duty assessment for 2016…, relating to the year 2015, in the amount of €12,687.60, which is better identified in the Claimant's request and in the documents attached thereto, to which reference is made herein.

1.5 The Claimant manifests its disagreement with the tax assessment at issue, primarily on the grounds that the property on which the tax is levied is not a property for housing purposes, but rather a plot of land for construction, incapable of being inhabited, and for which there is no provision or authorization for the construction of only buildings – or autonomous fractions of buildings – intended for housing, and therefore does not fall within the scope of item No. 28.1 of the TGIS in the wording introduced by Article 194 of Law 83-C/2013, of 31.12.

It alleges, in summary, that the ownership of this property is, having regard to its commercial activity, productive investment and not "a residential-vocation property of high economic significance, externalizing levels of wealth corresponding to the highest standards of Portuguese society" and, therefore, not revelatory of the contributive capacity that such item in the Table considers.

It submits that items Nos. 28 and 28.1 of the TGIS, in their original wording, had and must be interpreted as applying only to properties immediately intended for housing and, likewise, that the amendment introduced by Article 194 of Law 83-C/2013, of 31.12, is unconstitutional, because it violates the principle of tax equality emanating from Article 13 of the CRP, insofar as, if the legislator aims at contributive capacity revealed by the ownership of land for construction, it cannot tax those intended for the construction of buildings for housing and spare those intended for the construction of buildings for commerce and services.

It further considers that the norm is unconstitutional because it is discriminatory of certain economic activities and, therefore, violates the principle of tax neutrality flowing from Article 81, sub-paragraph e), of the CRP and finds expression in Article 7, paragraph 3 of the LGT.

Wherefore it concludes that the application of the norm must be rejected and that the assessment at issue is unlawful, petitioning for its respective annulment.

1.6 The TAX AND CUSTOMS AUTHORITY responded, defending itself by impugnation, requesting the maintenance in the legal order of the impugned act on the grounds that the property has residential dedication, revealed by its licensing or normal destination – a conclusion which it supports on the provisions of Articles 2, paragraph 1, and 41 of the CIMI – and that, therefore, the assessment corresponded to a correct application of law to the material reality in dispute.

It alleges, summarily, that the determination of the VPT of urban properties in the CIMI is ascertained within the framework of a proper evaluation procedure, whether by impulse of the taxpayer, whether by periodic evaluations, or by the occurrence of some transferential fact, being the result of the evaluation of the property notified to the taxpayer who, if disagreeing, may submit a request for second evaluation and, also disagreeing with this, has at his disposal the possibility of judicially challenging, in accordance with the CPPT, the result thereof, on the grounds of any illegality. Being that, in the case, the Claimant did nothing, whereby the residential dedication of the property and its evaluation were consolidated in the legal order.

With regard to the alleged unconstitutionality of the norm, the Respondent maintains that "with respect to paragraph 3 of Article 104 of the CRP, doctrine provides that the principle of equality as concerns property must be interpreted with some restraint. In the sense that it does not involve a particular and autonomous legal content of the principle of equality in the framework of taxation on property" (sic), whereby the norm applied is in conformity with the C.R.P.

It further invokes the exceptional context and evident difficulties that the Country, especially public accounts, faced when item 28.1 of the TGIS emerged, which required extraordinary measures for collection and increased tax revenue, reasons by which "the legislator, without there being any need here to discuss the merits of the legislative measure and its scope, but only its manifest constitutional conformity, decided to call to the collective effort segments of society that were previously outside the fiscal spectrum" (sic), although assuming that the norm aims at the taxation of properties for housing "of luxury."

It further submits that the distinction made by the legislator between properties for housing and the remainder has material foundation widely recognized by the legislator and embodied in various norms, beginning with the CIMI, whereby, being different the situations in substance, they cannot be the object of the same "type of regulation."

It concludes, expending argument regarding properties in full ownership and those susceptible of independent use and on the non-existence of double economic taxation and ends requesting the legality of the assessment.

1.7 The Tribunal issued, on 28.09.2016, a ruling to the effect that it appeared to be dispensable the holding of the tribunal meeting provided for in Article 18 of the RJAT, as well as oral arguments, and, having been notified, the parties did not object.

1.8 The Respondent came on 29.09.2016 to submit a request in which it informs the Tribunal of the Arbitral Decision rendered in case No. 601/2016 – T CAAD, which, it says, dealt with the same tax, the same taxpayer (Claimant), differing only in the year of the tax, was decided on the merits in favor of the TA.

1.9 The Claimant, in turn, came on 03.10.2016 to submit a request in which it draws the Tribunal's attention to the decision rendered in case No. 385/2016-T, which, it says, concerning the same tax, of the same year and with the same factual situation, differing only in the person of the Respondent, was decided on the merits against the TA for refusal to apply the norm whose unconstitutionality it invoked.

1.10 The Respondent did not attach to the proceedings the administrative file, informing that it is "composed solely of the assessment at issue."

  1. PROCEDURAL REVIEW

The Tribunal was regularly constituted.

The parties have legal personality and capacity, show themselves to be legitimate and are regularly represented.

The proceedings do not suffer from any defects that would invalidate it.

  1. FACTS

With relevance to the decision on the merits, the Tribunal considers the following facts proven:

  1. The Claimant is a commercial company that engages in the activity of "real estate promotion and management and purchase for resale or lease of real property";

  2. The Claimant is the owner of the urban property located at Rua…, Rua … and…, parish of … of the municipality of ..., registered in the urban property register of the said parish under article...º;

  3. The property is described in the register as "land for construction";

  4. In the assessment of the property there was applied "the type of location coefficient: housing";

  5. The property has the tax patrimonial value of €1,268,760.00;

  6. On 05.04.2016 the Tax and Customs Authority proceeded to assess the Stamp Duty of item 28.1 of the TGIS with reference to the property described in point 2, in the total amount of €12,887.60;

  7. For payment of the first installment of the assessed tax a notice was issued with due date in April;

  8. The collection notice relating to the first installment was paid by the Claimant on 06.05.2016, by voluntary payment in the context of tax enforcement.

Facts Not Proven

With relevance to the assessment of the merits of the case, it was not proven that on the property in question any construction had been authorized, designed or foreseen, in particular, intended for housing, a fact whose proof was incumbent upon the Respondent, as it constitutes a fact essential to the integration within the norm establishing the actual scope of the tax and is, therefore, constitutive of the right to assess it.

No other facts with relevance to the assessment of the merits of the case, which were not proven, were alleged by the parties.

Reasoning of the Decision on the Facts

The conviction regarding the facts was based on the allegations of the Claimant and the Respondent not contradicted by the opposing party, supported by documentary evidence presented both by the Claimant and by the Respondent, whose authenticity and correspondence to reality were also not questioned.

  1. LEGAL MATTERS – ISSUES TO BE DECIDED

In the view of the Tribunal, the following are the issues which it must decide:

A) For purposes of applying the aforementioned item, whether the property in question, land for construction, without authorized or foreseen construction, is covered by the norm establishing actual scope;

B) Whether item 28.1 of the TGIS, in the wording introduced by Law No. 83-C/2013, of 13 December, is unconstitutional for violation of the constitutional principles of tax equality and tax neutrality, and should, in that case, the respective application be refused, which would remove legal support from the assessment which, being unlawful, would have to be annulled.

It is necessary to decide:

A) Whether the property is covered by the norm establishing actual scope:

The subjection to Stamp Duty of properties with residential dedication resulted from the addition of Item No. 28 to the TGIS, effected by Article 4 of Law 55-A/2012, of 29 October, which typified the following taxable events:

"28 – Ownership, usufruct or right of superficies of urban properties whose tax patrimonial value appearing in the register, in accordance with the Municipal Tax Code on Real Estate (CIMI), is equal to or greater than €1,000,000.00 – on the tax patrimonial value used for purposes of IMI:

28.1 – For property with residential dedication – 1%

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

The Law also added to the Stamp Duty Code paragraph 7 of Article 23, relating to the assessment of Stamp Duty: "in the case of tax due for the situations provided in item No. 28 of the General Table, the tax is assessed annually, in relation to each urban property, by the central services of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in the CIMI", and Article 67, paragraph 2, which provides that "to matters not regulated in the present Code concerning item 28 of the General Table, the CIMI applies, subsidiarily."

Law No. 83-C/2013, of 31 December came to amend the wording of the norm, which became as follows: "28.1 For residential property or for land for construction whose construction, authorized or foreseen, is for housing, in accordance with the provisions of the Real Estate Municipal Tax Code."

In Articles 2 to 6 of the Real Estate Municipal Tax Code the types of properties are enumerated as follows:

"Article 2 – Concept of property

1 – For purposes of this Code, property is any fraction of territory, encompassing waters, plantations, buildings and constructions of any nature incorporated therein or situated thereon, with the 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 located, although situated in a fraction of territory that constitutes an integral part of a diverse patrimony or does not have patrimonial nature.

2 – Buildings or constructions, even if movable by nature, are deemed to have the character of permanence when devoted to purposes that are not transitory.

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

4 – For purposes of this tax, each autonomous fraction, under the regime of condominium ownership, is deemed to constitute a property."

"Article 3 – Rural Properties

1 – Rural properties are lands situated outside an urban agglomeration that are not to be classified as land for construction, in accordance with paragraph 3 of Article 6, provided that:

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

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

2 – Rural properties are also lands 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 dedication.

3 – The following are also rural properties:

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

b) Waters and plantations in the situations referred to in paragraph 1 of Article 2.

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

"Article 4 – Urban Properties

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

"Article 5 – Mixed Properties

1 – Whenever a property has rural and urban parts, it is classified, in its entirety, in accordance with the principal part.

2 – If neither of the parts can be classified as principal, the property is deemed mixed."

"Article 6 – Types of Urban Properties

1 – Urban properties are divided into:

a) Residential;

b) Commercial, industrial or for services;

c) Land for construction;

d) Other.

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

3 – Lands for construction are considered lands situated within or outside an urban agglomeration for which a license or authorization has been granted, admitted prior communication or issued favorable prior information of a subdivision or construction operation, and also those that have been so declared in the title of acquisition, except lands on which the competent entities prohibit any of those operations, namely those located in green areas, protected areas or that, in accordance with municipal land use plans, are devoted to spaces, infrastructures or public facilities.

4 – The provision of sub-paragraph d) of paragraph 1 encompasses lands situated within an urban agglomeration that are not lands for construction nor are covered by the provisions of paragraph 2 of Article 3 and also buildings and constructions licensed or, in the absence of a license, that have as their normal purpose other ends than those referred to in paragraph 2 and also those of the exception of paragraph 3."

It is within this legal framework that it is necessary to assess the legal qualification of the property on which the tax at issue was levied.

There is no doubt that the property is "land for construction." This is a qualification that was not contested by any of the parties and which results from the content of the respective property sheet and from the comparison of the cited Articles 2, 4, and 6 of the CIMI applicable by express reference of the norm establishing actual scope that was applied.

That norm is item 28.1 of the TGIS which, let us recall, provides as follows: "28.1 For residential property or for land for construction whose construction, authorized or foreseen, is for housing, in accordance with the provisions of the Real Estate Municipal Tax Code."

It is necessary, then, for the fulfillment of the norm establishing actual scope, that the property be residential or, if not, be land for construction and that construction intended for housing has been authorized or is foreseen.

Being that it will always be said that, in that case, the wording adopted by the legislator was unfortunate and does not make clear whether the construction will have to be exclusively for housing and, if not so, whether it is intended that the tax base correspond to the tax value of the property, or only to the part that is intended for housing (being that its respective determination does not appear viable to us). The Tribunal does not ignore the context in which the norm was produced, but not even in a context of urgency is the legislator dispensed from observing Constitutional provisions, in particular, the principle of legality in the sense of typifying with clarity the taxable events that are subject to tax.

Paragraph 2 of Article 5 of the CIMI clarifies what it understands by "residential" properties for purposes of sub-paragraph a) of paragraph 1, classifying as such constructions licensed for housing or that in the absence of a license, have this normal use, is not referring to lands for construction, but to constructions already realized that will be residential when that is the use licensed by the local authority or when, in the absence of a license, that is their normal use. The criterion of "normal use" in the absence of a license cannot be extrapolated with the objective of guessing at constructions that may be made on lands for construction, a type of property provided for in sub-paragraph d) of paragraph 1 of the same article, as the Respondent appears to seek.

Certainly in the assessment of the land the Tax and Customs Authority used the location coefficient of the housing type, being that the taxpayer could, in fact, have reacted against the application of this coefficient, it not having been demonstrated that he did so. That, however, is not the criterion adopted by the legislator either in the CIMI or in the Stamp Duty Code. The legislator did not attribute to the use of that coefficient any relevance in the qualification of the property, solely in its respective assessment. Let it be said en passant still that without consequences on the decision of the dispute, that we believe there is an error by the Tax and Customs Authority in the use of such coefficient.

Item 28.1 of the TGIS appears to us – in that part, at least – perfectly clear: they are subject to tax, in addition to residential properties (those of sub-paragraph a) of paragraph 1 and paragraph 2 of Article 5 of the CIMI), lands for construction (i.e., the type of property provided for in sub-paragraph d) of paragraph 1 of the same article of the CIMI), provided that construction intended for housing has been authorized or is foreseen (leaving only to be defined whether it is total or partial and, in the latter case, what is the value considered for purposes of subjection to taxation).

Now, it was not demonstrated that the land for construction in question had authorization, design or foreseen construction for housing, in such a way as to be subject to Stamp Duty in accordance with Item No. 28.1 of the TGIS.

Proof that was incumbent upon the Respondent and should moreover have appeared in the reasoning of the assessment, which was not attached to the proceedings. The Respondent, moreover, did not attach the administrative file, alleging that it consists solely of the assessment notice at issue, which may suggest that this does not exist. The defect resulting therefrom was not, however, raised.

It appears to us, therefore, evident that the property, land for construction with respect to which it was not proven to have authorization or foreseen construction intended for housing, does not meet the norm establishing actual scope of the tax that served as basis for the assessment.

Wherefore, without need for further considerations and on this ground, the assessment is deemed to be voidable, as being unlawful, as the item of Article 28.1 of the TGIS is not applicable to the property on which it was levied.

The consideration of the other defects pointed out by the Claimant is rendered unnecessary, in particular, the invoked unconstitutionality of the norm.

  1. DECISION

In these terms and with the reasoning above, it is decided:

To deem the Claimant's request to be entirely well-founded and, in consequence, to annul the assessment at issue, the Respondent being obliged, as a result of the annulment, to refund to the Claimant the sums already paid by it as tax, increased by the respective indemnificatory interest, in accordance with Article 43, paragraph 1, of the LGT, from the date of payment until full and complete reimbursement.

The value of the case is fixed at €12,687.60 (twelve thousand, six hundred and eighty-seven euros and sixty cents) in accordance with the provisions of Articles 3, paragraph 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), 97-A, paragraph 1, sub-paragraph a) of the CPPT and 306 of the CPC.

The amount of costs is fixed at €918.00 (nine hundred and eighteen euros) under Article 22, paragraph 4 of the RJAT and Table I attached to the RCPAT, at the expense of the Respondent, in accordance with the provisions of Articles 12, paragraph 2 of the RJAT and 4, paragraph 4 of the RCPAT and 527 of the CPC.

Let notification be made.

Lisbon, 26 October 2016

The Arbitrator,

(Eva Dias Costa)

Text drawn up by computer, in accordance with Article 131, paragraph 5 of the Code of Civil Procedure, applicable by reference of Article 29, paragraph 1, sub-paragraph e) of the RJAT.

Frequently Asked Questions

Automatically Created

Is stamp tax (Imposto de Selo) under Verba 28.1 of the TGIS applicable to building land (terrenos para construção)?
The applicability of stamp tax under Verba 28.1 of the TGIS to building land ('terrenos para construção') is disputed. The claimant argued that Verba 28.1 should apply only to properties immediately intended for housing, not construction plots, since the land is not inhabitable and represents productive investment rather than luxury residential property ownership. The Tax Authority countered that the property has residential dedication based on its licensing or normal destination under CIMI provisions, specifically citing Articles 2(1) and 41. The Authority argued that because the property evaluation used a 'housing' location coefficient and this classification was not challenged through proper procedures, the residential character became legally consolidated. The case reflects broader uncertainty in Portuguese tax law about whether undeveloped land zoned or intended for residential construction falls within the scope of this luxury property tax.
Can a construction plot be considered a residential property for purposes of Verba 28.1 of the General Stamp Tax Table?
Whether construction plots can be considered residential property under Verba 28.1 depends on interpretation of 'residential dedication.' The Tax Authority's position is that land can have residential character based on its licensing or 'normal destination' even before construction occurs, relying on the property cadastre classification under CIMI. In this case, the property's evaluation applied a 'housing type location coefficient,' which the Authority argued demonstrated residential dedication. The claimant rejected this interpretation, asserting that only properties capable of immediate habitation should qualify as residential under Verba 28.1. The claimant emphasized that the property is registered as 'land for construction' and argued that the original wording and legislative intent of Verba 28.1 targeted actual luxury homes, not development land. The tribunal noted conflicting CAAD precedents on this issue, with Case 385/2016-T ruling that construction land should not be taxed under Verba 28.1, while Case 601/2016-T (involving the same taxpayer) upheld such taxation.
Is the taxation of building land under Article 194 of Law 83-C/2013 unconstitutional under the principle of tax equality?
The claimant raised two constitutional challenges to Article 194 of Law 83-C/2013. First, it argued the provision violates the principle of tax equality under Article 13 of the Portuguese Constitution (CRP) because it creates arbitrary distinctions: if the legislature seeks to tax contributive capacity revealed by land ownership, it cannot rationally tax land for residential construction while exempting land for commercial or service buildings. This differential treatment lacks objective justification. Second, the claimant contended the provision violates tax neutrality principles under Article 81(e) CRP and Article 7(3) of the General Tax Law (LGT) by discriminating against specific economic activities, namely residential real estate development. The Tax Authority defended constitutionality by arguing that property taxation permits restraint in applying equality principles, that the exceptional economic crisis context justified extraordinary revenue measures targeting luxury properties, and that Portuguese tax law (including CIMI) consistently recognizes material differences between residential and non-residential properties, providing rational basis for differential treatment.
How does the CAAD arbitral tribunal assess the fiscal neutrality principle when applying stamp tax to construction land?
The CAAD arbitral tribunal's assessment of fiscal neutrality principles when applying stamp tax to construction land involves balancing competing constitutional and policy considerations. The claimant invoked Article 81(e) of the Portuguese Constitution, which establishes tax neutrality as a fundamental economic principle, and Article 7(3) of the General Tax Law (LGT), arguing that taxing land for residential construction while exempting land for commercial construction discriminates against real estate development activities focused on housing. This differential treatment potentially distorts economic decisions and market competition. The Tax Authority countered that fiscal neutrality must be balanced against legitimate policy objectives, including the exceptional need for revenue during Portugal's financial crisis and the social policy goal of targeting luxury residential property ownership. The Authority argued that the distinction between residential and non-residential properties has material foundation throughout Portuguese tax law, particularly in CIMI, and reflects different economic and social characteristics rather than arbitrary discrimination. The incomplete decision excerpt shows the tribunal was aware of conflicting CAAD precedents on this issue, suggesting the fiscal neutrality analysis remains unsettled in Portuguese administrative arbitration.
What is the procedure for challenging a stamp tax assessment on building land through CAAD arbitration in Portugal?
The procedure for challenging stamp tax assessments on building land through CAAD arbitration follows the framework established by Decree-Law No. 10/2011 (RJAT) and Ordinance No. 112-A/2011. In this case, the claimant filed the arbitration request on May 27, 2016, under Article 2(1)(a) of RJAT, challenging a 2016 stamp tax assessment of €12,687.60 for the 2015 tax year. The CAAD Deontological Council appointed a single arbitrator who constituted the tribunal on August 4, 2016. The claimant's request must identify the contested assessment and attach supporting documentation. The Tax Authority responds with its defense, and both parties may submit the administrative file (though in this case the Authority indicated the file consisted only of the assessment itself). The tribunal has discretion to dispense with oral hearings if the parties do not object. Parties may also submit additional requests drawing the tribunal's attention to relevant precedents. Notably, taxpayers must exhaust certain administrative remedies before arbitration: the Authority argued the claimant's failure to challenge the property's cadastral classification through available CIMI procedures (including requests for second evaluation and judicial challenge under CPPT) consolidated the residential designation, potentially weakening the arbitration challenge.