Process: 293/2014-T

Date: December 2, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitration case (Process 293/2014-T) addresses whether Stamp Tax under Verba 28 of the General Stamp Tax Table (TGIS) applies to construction land valued over €1 million. The taxpayer, A... SA, challenged assessments totaling €30,116.26 for construction land valued at €2,258,720, arguing that construction land does not qualify as 'property with residential use' under Verba 28.1 TGIS. The taxpayer contended that Portuguese law distinguishes construction land (terrenos para construção) - defined as land licensed for subdivision or construction operations - from residential properties, which are buildings intended for housing purposes. The taxpayer further argued that Verba 28.1 violates constitutional equality principles by selectively taxing only certain high-value properties while excluding others of equal value, thereby ignoring tax-paying capacity as a fundamental criterion. Additionally, the taxpayer claimed violations of the transitional regime under Law 55-A/2012. The Tax Authority countered that construction land possesses the legal nature of residential-use property, citing the Municipal Property Tax Code (Código do IMI) for definitional guidance. The Authority argued that 'residential use' is broader than 'intended for housing' and that the valuation methodology for construction land necessarily considers use coefficients, including residential use under Article 41 of the IMI Code. The Authority maintained that Verba 28 constitutes valid taxation based on property value without constitutional violations. This case illustrates the interpretative challenges surrounding Stamp Tax on high-value properties, the interplay between Stamp Tax and Municipal Property Tax regulations, and taxpayers' ability to challenge assessments through administrative arbitration (CAAD), seeking declaration of illegality, refunds, and compensatory interest.

Full Decision

ARBITRAL DECISION

The Arbitrator Dr. Maria Celeste Cardona, appointed by the Deontological Council of the Administrative Arbitration Centre to constitute the Arbitral Tribunal, established on 4 June 2014, decides as follows:

1. Report

A…, SA, legal entity no. …, with registered office at …, hereinafter referred to as the Applicant, pursuant to Article 10 of Decree-Law No. 10/2011, of 20 January (RJAT), hereby requests the constitution of an arbitral tribunal.

The Applicant requests a ruling with a view to declaring the illegality of the Stamp Tax assessment issued by the Tax and Customs Authority (ATA), in the total amount of € 22,587.20, which is contained in document no. 1 attached with the request for arbitral ruling.

The Applicant further requests that the ATA be condemned to reimburse the amount unduly paid with respect to the assessment and the compensatory interest due with respect to such payments, as well as the costs resulting from the proceedings, namely the fees of the legal representative, to be determined in execution of judgment.

The Applicant contends, in summary, that:

(a) The assessment of Stamp Tax at the rate applicable to properties with residential use is illegal, due to the absence of the tax incidence requirement;

(b) Land for construction is not "property with residential use" for purposes of item 28 of the General Table of Stamp Tax (TGIS);

(c) The law defines land for construction as land licensed or authorized for subdivision or construction operations and residential properties as buildings or structures licensed or normally intended for residential purposes, in accordance with the Municipal Property Tax Code;

(d) Real property is already subject to a single tax, the Municipal Property Tax, which identifies and taxes essentially all manifestations of tax-paying capacity;

(e) By selecting, from the real property of each taxpayer, only certain properties exceeding a certain value, the Stamp Tax under item 28.1 of the General Table of Stamp Tax introduces inequality in taxation between those whose real property is composed of such properties and those having real property of equal value but composed of other properties;

(f) The singular formulation of the tax base—and the corresponding exclusion field—of the Stamp Tax under Article 28.1 of the General Table of Stamp Tax achieves the feat of completely ignoring tax-paying capacity as a requirement, criterion and measure of the tax, thereby inevitably violating the principle of equality before the law;

(g) Irrespective of the illegality and unconstitutionality, the assessment shall always be illegal due to violation of the transitional regime introduced by Law No. 55-A/2012, namely by item 28 of the TGIS, since item 28 of the TGIS grossly violates the principle of equality, constitutionally enshrined, namely with respect to its proportional equality aspect;

(h) Article 6 of the aforementioned Law provides that, in 2012, the tax fact occurs on 31 October and that the assessment must be made by 20 December 2012 at the rate of 0.5% or 0.8%, depending on whether the property is valued under the terms of the Municipal Property Tax Code or not, a situation which did not occur in the present case.

The Tax and Customs Authority responded, arguing that the property has the legal nature of property with residential use, and therefore the assessment should be upheld as it constitutes correct application of item 28 of the General Table of Stamp Tax.

Following the legislative amendment, Stamp Tax began to apply also to the ownership, usufruct or right of superficies of urban properties whose tax value contained in the matrix, under the terms of the Municipal Property Tax Code, is equal to or greater than € 1,000,000.00.

Stamp Tax thus began to apply to all acts, contracts, documents, titles, papers and other legal facts or situations provided for in the general table, including gratuitous transfers of property.

In the absence of any definition of the concepts of urban property, land for construction and residential use in the context of Stamp Tax, one must resort to the Municipal Property Tax Code in search of a definition that allows for determining possible subjection to Stamp Tax.

Article 6 of the Municipal Property Tax Code includes in the concept of urban property land for construction, that is, 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 so declared in the acquisition document, excepting land where the competent entities prohibit any of those operations.

The notion of use of urban property is based on the part relating to the valuation of land for construction in which the legislator intended that the valuation methodology of urban properties in general be applied, thus necessarily taking into account all coefficients, namely the use coefficient provided for in Article 41 of the Municipal Property Tax Code, with such legal requirement further resulting from No. 2 of Article 45 of the Municipal Property Tax Code, in referring to the value of buildings authorized or provided for on the same land for construction.

The legislator does not refer to properties intended for housing, having opted for the notion of "residential use," an expression different and broader whose meaning must be found in the need to integrate other realities beyond those identified in Article 6, No. 1, subsection (a) of the Municipal Property Tax Code.

The provision of item 28 of the General Table of Stamp Tax does not constitute a violation of any constitutional command, since it applies to the ownership, usufruct or right of superficies of urban properties with residential use, whose tax value contained in the matrix, under the terms of the Municipal Property Tax Code, is equal to or greater than € 1,000,000.00, that is, it applies to the value of the property.

Likewise, the different valuation and taxation of a property held in full ownership as opposed to a property held in condominium ownership derives from the different legal effects inherent to these two arrangements.

Following the response, the ATA submitted a petition on 7 July 2014, proposing that the meeting referred to in Article 18 of the RJAT be dispensed with.

The Applicant was notified of the content of the ruling of 10 July 2014 to rule on the ATA's petition and to inform whether it wished to present any evidence production, but made no statement and on 16 September 2014 submitted a petition requesting expansion of the claim with respect to the year 2013, given that the grounds and amount are identical, without the ATA having ruled thereon.

The assessment of Stamp Tax for the year 2013 is € 7,529.06, which means that the total value of the claim is € 30,116.26.

The parties presented no written pleadings.

The arbitral tribunal was regularly constituted and is materially competent, under the provisions of Articles 2, No. 1, subsection (a), and 30, No. 1, both of the RJAT.

The parties possess legal personality and capacity and are legitimate parties (Articles 4 and 10, No. 2, of the same statute and Article 1 of Ordinance No. 112-A/2011, of 22 March).

The proceedings contain no defects of nullity.

2. Findings of Fact

2.1 Facts Found to be Proven

a) The Applicant is the owner and legitimate possessor of land for construction with a tax value of € 2,258,720, registered in the urban property matrix of the parish of …, in the municipality of …, under no. U-… .

b) The Applicant was notified of assessment no. 2013…, of 14 July 2013, in the amount of € 22,587.20, made under item 28 of the General Table of Stamp Tax, in the wording given to it by Article 4 of Law No. 55-A/2012, of 29 October.

c) The Applicant was likewise notified of assessments nos. 2014… and 2014…, both of 17 March 2014, in the amounts of € 7,529.06 each, made under item 28 of the General Table of Stamp Tax, in the wording given to it by Article 4 of Law No. 55-A/2012, of 29 October.

d) The tax assessments should have been paid during the month of December 2013 and during the months of April and July 2014, in accordance with the payment notices attached to the case file;

e) The Applicant paid assessment no. 2013…, of 14 July 2013, in the amount of € 22,587.20, on 27 December 2013.

f) On 31-3-2014, the Applicant submitted the request for constitution of the arbitral tribunal (CAAD computer system).

2.2 Facts Found Not to be Proven

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

2.3 Justification of Proven Findings of Fact

The proven facts are based on the documents indicated for each of the points, whose authenticity and correspondence to reality were not questioned.

3. Legal Analysis

3.1 Question of Classification of Land for Construction Within the Scope of Item No. 28.1 of the TGIS

3.1.1 Regime of Law No. 55-A/2012, of 29 October

Law No. 55-A/2012, of 29 October, made various amendments to the Stamp Tax Code and added item 28 to the TGIS, with the following wording:

28 - Ownership, usufruct or right of superficies of urban properties whose tax value contained in the matrix, under the terms of the Municipal Property Tax Code (CIMI), is equal to or greater than € 1,000,000 - on the tax value used for Municipal Property Tax purposes;

28.1 - For property with residential use - 1%

28.2 - For property, when the taxpayers 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 ordinance of the Minister of Finance - 7.5%.

In the transitional provisions contained in Article 6 of Law No. 55-A/2012, the following rules were established regarding the assessment of the tax provided for in that item:

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

a) The tax fact occurs on 31 October 2012;

b) The taxpayer is the one mentioned in No. 4 of Article 2 of the Stamp Tax Code on the date referred to in the preceding subsection;

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

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

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

f) The applicable rates are as follows:

i) Properties with residential use valued under the terms of the Municipal Property Tax Code: 0.5%;

ii) Properties with residential use not yet valued under the terms of the Municipal Property Tax Code: 0.8%;

iii) Urban properties when the taxpayers 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 ordinance of the Minister of Finance: 7.5%

2 - In 2013, the assessment of the stamp tax provided for in item no. 28 of the respective General Table must be based on the same tax value used for purposes of assessment of municipal property tax to be made in that year.

3 - The failure to deliver, in whole or in part, within the indicated period, of the amounts assessed as stamp tax constitutes a tax violation, punished in accordance with the law.

In item 28.1 and in sub-items i) and ii) of subsection f) of No. 1 of Article 6 of Law No. 55-A/2012, a concept was used that is not employed in any other tax legislation in these precise terms, namely "property with residential use." Specifically, in the Municipal Property Tax Code, which in various norms of the Stamp Tax Code introduced by that Law is indicated as subsidiary legislation relating to the tax provided for in that item no. 28 [Articles 2, No. 4, 3, No. 3, subsection u), 5, subsection u), 23, No. 7, and 46 and 67 of the Stamp Tax Code], a concept thus defined is not employed.

3.1.2 Concepts of Properties Used in the Municipal Property Tax Code

Under the Municipal Property Tax, the types of properties are enumerated in its Articles 2 to 6 as follows:

Article 2

Concept of Property

1 - For purposes of this Code, property is any parcel of land, encompassing waters, plantations, buildings and structures of any nature incorporated or situated therein, with a character of permanence, provided that it forms part of the assets of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or structures, in the circumstances above, endowed with economic autonomy in relation to the land on which they are located, although situated in a parcel of land that constitutes an integral part of different assets or does not have a patrimonial nature.

2 - Buildings or structures, although movable by nature, are deemed to have a character of permanence when devoted to non-temporary purposes.

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

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

Article 3

Rural Properties

1 - Rural properties are land situated outside an urban agglomeration that are not to be classified as land for construction, under No. 3 of Article 6, provided that:

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

b) Not having the use indicated in the preceding subsection, are not constructed or have only buildings or structures of an accessory character, without economic autonomy and of reduced value.

2 - Also rural properties are land situated within an urban agglomeration, provided that, due to legally approved provision, they cannot have a use generating any income or can only have a use generating agricultural income and are having, in fact, this use.

3 - Also rural properties are:

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

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

4 - For purposes of this Code, urban agglomerations are deemed to include, in addition to those situated within legally established perimeters, clusters with a minimum of 10 dwellings served by public streets, with its perimeter delimited by points at 50 m distance from the axis of the streets, in the transverse sense, 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 both rural and urban parts it is classified, in its entirety, according to the predominant part.

2 - If neither part can be classified as predominant, 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 structures licensed for such purposes or, in the absence of a license, having as their normal destination each of these purposes.

3 – Land for construction is deemed 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 land so declared in the acquisition document, excepting land where the competent entities prohibit any of those operations, namely those located in green areas, protected areas or which, in accordance with municipal territorial planning instruments, are devoted to public spaces, infrastructure or equipment. (Wording of Law No. 64-A/08, of 31-12).

4 – Included in the provision of subsection d) of No. 1 are land situated within an urban agglomeration that are not land for construction nor are covered by the provision in No. 2 of Article 3, and also buildings and structures licensed or, in the absence of a license, having as their normal destination other purposes than those referred to in No. 2, and also those in the exception of No. 3.

3.1.3 Rules on Interpretation of Laws

Article 11 of the General Tax Law establishes the essential rules for interpretation of tax laws as follows:

Article 11

Interpretation

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

  2. Whenever tax norms employ terms specific to other branches of law, they must be interpreted in the same sense they have therein, unless otherwise directly provided for by law.

  3. If doubt persists as to the meaning of the tax incidence norms to be applied, the economic substance of the tax facts must be taken into account.

  4. Gaps resulting from tax norms covered by the reserve of law of the Assembly of the Republic are not susceptible to analogical integration.

The general principles of interpretation of laws, to which No. 1 of Article 11 of the General Tax Law refers, are established in Article 9 of the Civil Code, which provides as follows:

Article 9

Interpretation of Law

  1. Interpretation must not confine itself to the letter of the law, but must reconstruct from the texts the legislative intent, taking especially into account the unity of the legal system, the circumstances in which the law was elaborated 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 appropriate solutions and knew how to express its intent in adequate terms.

3.1.4 Hypotheses for Interpretation of the Concept of "Property with Residential Use"

As can be seen from the norms of the Municipal Property Tax Code transcribed above, the concept of "property with residential use" is not employed in the classification of properties. Nor is this concept, with this terminology, found in any other statute.

Thus, in the absence of exact terminological correspondence of the concept of "property with residential use" with any other employed in other statutes, several interpretive hypotheses may be presented.

The starting point for the interpretation of that expression "properties with residential use" is, naturally, the text of the law, and it is on its basis that the "legislative intent" must be reconstructed, as required by No. 1 of Article 9 of the Civil Code, applicable by virtue of the provision in Article 11, No. 1, of the General Tax Law.

3.1.5 Concept of "Property with Residential Use" Referring to Residential Properties

The concept closest to the literal tenor of this expression employed is manifestly that of "residential properties," defined in No. 2 of Article 6 of the Municipal Property Tax Code as encompassing "buildings or structures" licensed for residential purposes or, in the absence of a license, having as their normal destination residential purposes.

If one understands that the expression "property with residential use" coincides with "residential properties," it is manifest that the assessments will be affected by error as to the facts and law, since the property with respect to which the Stamp Tax was assessed under the aforementioned item no. 28.1 is land for construction, without any building or structure required to fill that concept of "residential property."

For this reason, if one adopts the interpretation that "property with residential use" means "residential property," the assessments whose declaration of illegality is requested are illegal, as there is no building or structure on any of the parcels of land.

However, the non-coincidence of the terms of the expression employed in item no. 28.1 of the TGIS with that extracted from No. 2 of Article 6 of the Municipal Property Tax Code suggests that it was not intended to use the same concept.

3.1.6 Concept of "Property with Residential Use" as a Concept Distinct from "Residential Properties"

The word "use" (afetação), in this context of the use of a property, has the meaning of "the action of devoting something to a particular use."

When, according to Batista Machado, Introduction to Law and Legitimating Discourse, p. 182, as is generally the case, norms (legislative formulas) bear more than one meaning, then the positive function of the text is expressed in giving stronger support to or more strongly suggesting one of the possible meanings. For, among the possible meanings, some will correspond to the more natural and direct meaning of the expressions used, while others will only fit within the verbal framework of the norm in a forced, contrived manner. Now, in the absence of other elements that induce the choice of the less immediate sense of the text, the interpreter should in principle opt for that meaning which best and most directly corresponds to the natural meaning of the verbal expressions used and in particular to their technical-legal meaning, in the assumption, not always exact, that the legislator knew how to express its intent correctly.

The relevance of the text of the law is especially emphasized in the interpretation of norms concerning the incidence of Stamp Tax, which are reducible to an amalgam, under a common denomination, of an incongruous set of taxes of completely distinct natures (on income, on expenditure, on property, on acts, etc.), which leaves no appreciable margin for application of the primary interpretive criterion, which is the unity of the legal system, which demands its overall coherence.

The recognized lack of coherence of Stamp Tax is particularly evident in the case of this item no. 28.1, hastily included outside the General State Budget by a fiscal legislator without perceivable overall fiscal guidance, who is successively implementing tax-increase norms in accordance with the vicissitudes of budget execution, the impositions of international institutional creditors and the oversight of the Constitutional Court.

In fact, although in the "Statement of Reasons" of Bill No. 96/XII/2nd legislature, on which Law No. 55-A/2012 was based, reference is made to the commendable concern of the Government to "strengthen the principle of social equity in austerity, ensuring an effective sharing of the necessary sacrifices to fulfill the adjustment program" and its commitment "to ensure that the sharing of these sacrifices will be made by all and not just by those who live from the income of their work," it is manifest, on the one hand, that these reasons of equity, certainly existing, did not begin to apply in mid-2012, already existing at the beginning of the year, when the General State Budget entered into force, and on the other hand, that the scope of item no. 28.1, by additionally taxing properties with residential use and not also properties that do not have such use, suggests that the concerns of social equity and the proclaimed intention of sharing the sacrifices by all, affect much more some than actually all.

In this context, as there are no secure interpretive elements that allow detecting legislative coherence in the solution adopted in the aforementioned item no. 28.1 or the correctness or incorrectness of the adopted solution (relevant for interpretive purposes in light of No. 3 of Article 9 of the Civil Code), the tenor of the legal text must be the primary element of interpretation, in accordance with the presumption, imposed by the same No. 3 of Article 9, that the legislator knew how to express its intent in adequate terms.

In light of those meanings of the words "use" (afetação) and "to use" (afetar), which are "to give destination" or "to apply," the formula used in that item no. 28.1 of the TGIS manifestly encompasses properties that are already applied to residential purposes, making it necessary to determine whether it also encompasses properties that, although not yet applied to residential purposes, are destined to these purposes and those whose destination is unknown.

In light of the literal tenor of item no. 28.1, it must be excluded from the scope of incidence of the Stamp Tax provided therein the Applicant's land for construction, as it is not yet applied nor destined to residential purposes. That is, land for construction that does not have a defined use cannot be considered property with residential use, as it does not yet have any use nor any other destination than construction of unknown type. An interpretation to the effect that item no. 28.1 refers to properties whose use is unknown does not have the minimum of verbal correspondence in the letter of that norm, and therefore a hypothetical legislative intent of such type cannot be considered by the interpreter of the law, in light of the prohibition contained in No. 2 of Article 9 of the Civil Code.

However, this is not sufficient to clarify the situation of those properties for construction that, although not yet applied to residential purposes, already have a determined destination, particularly in a subdivision license.

For this reason, it must be clarified when a property can be understood to be devoted to a residential purpose, specifically whether it is when such a destination is fixed in an act of licensing or the like or only when the effective assignment of that purpose is realized.

In the first place, the comparison of item no. 28.1 of the TGIS with No. 2 of Article 6 of the Municipal Property Tax Code, which defines the concept of residential properties, clearly points to the necessity of an effective use.

In fact, a building or structure licensed for housing or, even without a license, but having housing as its normal destination, is, in light of No. 2 of that Article 6, a residential property.

For this reason, on the assumption that the legislator of Law No. 55-A/2012 knew how to express its intent in adequate terms, as required by Article 9, No. 3, of the Civil Code, if it intended to refer to these properties already licensed for housing or having housing as their normal destination, it would certainly have used the concept of "residential properties," which would express perfectly and clearly its intent, in light of the definition given by that No. 2 of Article 6 of the Municipal Property Tax Code.

Consequently, it must be presumed that the use of a different expression is intended to refer to a different reality, and therefore, in proper hermeneutics, "property with residential use" cannot be a property merely licensed for housing or destined for that purpose (that is, it will not be sufficient that it be a "residential property"), but must be a property that already has effective use for that purpose.

That this is the meaning of the expression "use" (afetação), in the same context of classification of properties in the Municipal Property Tax Code, is confirmed by Article 3, which, regarding rural properties, refers to those "that are devoted to or, in the absence of concrete use, have as their normal destination a use generating agricultural income," which shows that use is concrete, effective. In fact, as can be seen from the final part of this text, a property may have a particular destination for use and be or not be devoted to it, which shows that use is, at the level of the connection of a property to a particular use, something more intense than mere destination and may or may not occur, downstream of this and not upstream of it.

Moreover, the text of the law, in adopting the formula "property with residential use" instead of "urban properties with residential use," which appears in the aforementioned "Statement of Reasons," strongly suggests that it is required that residential use already be realized, as only then will the property have such use.

With respect to Article 45 of the Municipal Property Tax Code, it has no relation to the classification of properties, merely indicating the factors to be considered in the valuation of land for construction. What is considered there, in referring to the "building to be constructed," is the consideration of the destination of the land which, as has been seen, is something that, in the context of the Municipal Property Tax Code, does not imply use and occurs before it.

The correctness of this interpretation to the effect that only properties that are effectively devoted to housing fall within the scope of incidence of item no. 28.1 of the TGIS is also confirmed by the perceivable ratio legis of the restriction of the scope of application of the norm to properties with residential use, in the context of "the circumstances in which the law was elaborated and the specific conditions of the time in which it is applied," which Article 9, No. 1, of the Civil Code also sets out as interpretive elements.

In the first place, the limitation of Stamp Tax to "properties with residential use" suggests that it was not intended to encompass within the scope of incidence of the tax properties devoted to services, industry or commerce, that is, properties devoted to economic activity, which is understandable in a context in which, as is notorious, the economy is in a recessionary spiral.

For this reason, it must be concluded that the interpretive elements available, including the "circumstances in which the law was elaborated and the specific conditions of the time in which it is applied," clearly point to the fact that it was not intended to encompass within the scope of incidence of item 28.1 situations of properties that are not yet devoted to housing, namely land for construction held by companies.

3.2.7 Application of the Regime to the Applicant's Situation

The Applicant's property is land for construction.

Based on the foregoing, there is no property with current residential use, and therefore the Stamp Tax provided for in item 28.1 of the TGIS does not apply to that property.

For this reason, the assessments whose declaration of illegality is requested are affected by a defect of violation of that item no. 28.1, due to error as to the legal presuppositions, which justifies the declaration of their illegality and annulment.

3.2.8 Questions Not Reaching Adjudication

Given the foregoing declaration of illegality of the assessments that are the subject of these proceedings, the determination of the remaining defects attributed to them by the Applicant becomes moot.

In fact, Article 124 of the Tax Procedure and Process Code, subsidiarily applicable by virtue of the provision in Article 29, No. 1, of the RJAT, in establishing an order of consideration of defects, presupposes that, once a defect is found to be sustained that ensures effective protection of the rights of the challengers, it is not necessary to consider the rest, as, if it were always necessary to examine all defects attributed to the challenged act, the order of their consideration would be irrelevant.

Based on the foregoing, the remaining defects attributed by the Applicant to the acts whose declaration of illegality is sought are not considered.

4. Reimbursement of Amounts Paid and Compensatory Interest

The Applicant further requests reimbursement of the amounts paid, which corresponds to € 22,587.20.

The Applicant further requests compensatory interest for the undue payment of such amounts.

In accordance with the provision in subsection b) of Article 24 of the RJAT, an arbitral decision on the merits of a claim against which no appeal or challenge may be brought binds the Tax Administration from the end of the period provided for appeal or challenge, and the latter must, in the exact terms of the pronouncement of the arbitral decision in favor of the taxpayer and until the end of the period provided for the voluntary execution of decisions of tax judicial courts, "restore the situation that would have existed if the tax act that is the subject of the arbitral decision had not been performed, adopting the acts and operations necessary therefor," which is in keeping with the provision in Article 100 of the General Tax Law, applicable by virtue of the provision in subsection a) of No. 1 of Article 29 of the RJAT, which establishes that "the tax administration is obliged, in case of total or partial sustaining of a claim, judicial challenge or appeal in favor of the taxpayer, to immediately and fully restore the legality of the act or situation that is the subject of the dispute, including the payment of compensatory interest, if applicable, from the end of the period of execution of the decision."

Although Article 2, No. 1, subsections a) and b), of the RJAT uses the expression "declaration of illegality" to define the competence of the arbitral tribunals that function in the CAAD, making no reference to condemning decisions, it should be understood that the competence includes the powers that in judicial challenge proceedings are attributed to tax courts, this being the interpretation that is consistent with the sense of the legislative authorization on which the Government based itself to approve the RJAT, in which it proclaims, as a primary guideline, that "the tax arbitral process must constitute an alternative procedural means to the judicial challenge process and to the action for recognition of a right or legitimate interest in tax matters."

The judicial challenge process, although essentially a process of annulment of tax acts, admits condemnation of the Tax Authority to payment of compensatory interest, as appears from Article 43, No. 1, of the General Tax Law, in which it is established that "compensatory interest is due when it is determined, in an administrative claim or judicial challenge, that there was error attributable to the services resulting in payment of the tax debt in an amount greater than that legally due" and from Article 61, No. 4 of the Tax Procedure and Process Code, in the wording given by Law No. 55-A/2010, of 31 December, to which corresponds No. 2, in the original wording), which provides that "if the decision recognizing the right to compensatory interest is judicial, the period for payment runs from the beginning of the period for its voluntary execution."

Thus, No. 5 of Article 24 of the RJAT, in stating that "payment of interest is due, irrespective of its nature, in the terms provided in the general tax law and in the Tax Procedure and Process Code," should be understood as permitting recognition of the right to compensatory interest in the arbitral process.

It is therefore necessary to examine the request for reimbursement of the amount unduly paid, plus compensatory interest.

In the case at hand, it is manifest that, following the illegality of the assessment acts, reimbursement of the tax paid is in order, by virtue of the aforementioned Articles 24, No. 1, subsection b), of the RJAT and 100 of the General Tax Law, as this is essential to "restore the situation that would have existed if the tax act that is the subject of the arbitral decision had not been performed."

With respect to compensatory interest, it is also clear that the illegality of the assessment acts is attributable to the Tax Authority, which, on its own initiative, performed them without legal support.

Consequently, the Applicant is entitled to compensatory interest, under Article 43, No. 1, of the General Tax Law and Article 61 of the Tax Procedure and Process Code.

Compensatory interest shall be paid at the legal rate, from the date on which the respective payment was made until the full reimbursement of the amount expended.

5. Decision

Based on the foregoing, this Arbitral Tribunal decides:

a) Finds well-founded the requests for declaration of illegality of the Stamp Tax assessments nos. 2013…, of 14 July 2013 and 2014…, of 17 March 2014;

b) Condemns the Tax and Customs Authority to reimburse the Applicant for the amount paid in respect of assessment no. 2013…, in the amount of € 22,587.20, plus compensatory interest at the legal rate in effect, from 27 December 2013 until the date of effective reimbursement of such amount.

6. Value of the Case

In accordance with the provision in Article 315, No. 2, of the Code of Civil Procedure and Article 97-A, No. 1, subsection a), of the Tax Procedure and Process Code and Article 3, No. 2, of the Regulation on Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 30,116.26.

7. Costs

In accordance with Article 22, No. 4, of the RJAT, the amount of costs is fixed at € 1,836.00, in accordance with Table I annexed to the Regulation on Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Lisbon, 2 December 2014

The Arbitrator

(Maria Celeste Cardona)

Frequently Asked Questions

Automatically Created

Is Stamp Tax (Imposto do Selo) under Verba 28 TGIS applicable to construction land (terrenos para construção)?
The applicability of Stamp Tax under Verba 28 TGIS to construction land remains contested in Portuguese tax law. The taxpayer argued that construction land (terrenos para construção), defined as land licensed for subdivision or construction operations, does not constitute 'property with residential use' as required by Verba 28.1. However, the Tax Authority maintained that construction land qualifies as residential-use property based on the Municipal Property Tax Code definitions and valuation methodology, which incorporates residential use coefficients when valuing construction land. The Authority interpreted 'residential use' as a broader concept than properties merely 'intended for housing,' encompassing land authorized for residential construction projects.
How does CAAD distinguish between construction land and residential property for Stamp Tax purposes?
CAAD (Administrative Arbitration Centre) approaches this distinction by examining the definitions within the Municipal Property Tax Code (Código do IMI). Article 6 of the IMI Code defines construction land as land within or outside urban areas with licenses, authorizations, or favorable information for construction operations. The Tax Authority argued that when valuing construction land, Article 45(2) of the IMI Code requires considering the value of buildings authorized or projected on such land, applying use coefficients under Article 41, including residential use. The taxpayer contested this interpretation, emphasizing that construction land and residential properties are distinct categories with different legal definitions - one being undeveloped land with construction potential, the other being actual buildings licensed for residential purposes.
Can taxpayers challenge Stamp Tax assessments on high-value construction land through tax arbitration in Portugal?
Yes, Portuguese taxpayers can challenge Stamp Tax assessments on high-value construction land through the Administrative Arbitration Centre (CAAD) under the RJAT (Legal Framework for Tax Arbitration). This case demonstrates the process: the taxpayer filed for arbitration under Article 10 of Decree-Law 10/2011, requesting a declaration of illegality for Stamp Tax assessments totaling €30,116.26. The arbitration request can seek: (1) declaration of the assessment's illegality; (2) condemnation of the Tax Authority to reimburse amounts unduly paid; (3) compensatory interest on such payments; and (4) reimbursement of legal costs including representative fees. The CAAD provides material jurisdiction under Articles 2(1)(a) and 30(1) of the RJAT to adjudicate disputes involving Stamp Tax assessments.
Does applying Verba 28.1 of the TGIS exclusively to certain property types violate the constitutional principle of equality?
The taxpayer raised substantial constitutional equality arguments against Verba 28.1 TGIS. The core contention was that by selectively taxing only urban properties with residential use exceeding €1 million in taxable value, while excluding other property types of equal or greater value, the provision creates arbitrary inequality between taxpayers. The taxpayer argued this selective taxation 'completely ignores tax-paying capacity as a requirement, criterion and measure of the tax,' violating the constitutional principle of equality before the law and its proportional equality aspect. Additionally, different treatment of properties held in full ownership versus condominium ownership was challenged. The Tax Authority countered that taxation based on property value is legitimate and that different legal arrangements (full ownership vs. condominium) justify differential treatment due to their distinct legal effects.
What is the procedure for requesting a refund and compensatory interest after an illegal Stamp Tax assessment in Portugal?
To request a refund and compensatory interest after an illegal Stamp Tax assessment in Portugal, taxpayers must include these demands in their arbitration petition filed with CAAD. The process involves: (1) requesting the arbitral tribunal declare the assessment's illegality; (2) specifically requesting condemnation of the Tax Authority to reimburse amounts unduly paid; (3) requesting compensatory interest (juros indemnizatórios) on those payments; and (4) requesting reimbursement of procedural costs including legal representative fees, to be determined during execution of judgment. The arbitration request must identify the challenged assessments by document number and amount. Taxpayers may also expand their claims during proceedings, as this taxpayer attempted for the 2013 assessment, though such expansions require proper procedural authorization.