Process: 298/2014-T

Date: November 14, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Process 298/2014-T addresses whether Stamp Tax (Imposto de Selo) under Item 28 of the General Stamp Tax Table (Verba 28 da TGIS), introduced by Law 55-A/2012, applies to construction land plots (terrenos para construção) with individual Taxable Property Values (VPT) exceeding €1,000,000. The taxpayer, A, S.A., challenged Stamp Tax assessments totaling €162,583.95 imposed on six construction land plots resulting from a 2009 subdivision in the Municipality, each valued between €1,302,610 and €2,167,720. The core legal dispute centers on interpreting the scope of 'residential purpose' (afectação habitacional) under Item 28.1 TGIS. The taxpayer argued that this provision exclusively applies to residential urban property as defined in Article 6(1)(a) of the Municipal Property Tax Code (CIMI), not undeveloped construction land. Additionally, the taxpayer invoked constitutional principles, contending that the assessment violated legal certainty and the prohibition on retroactive taxation, given the tax was imposed on 29 October with a taxable event occurring two days later and payment due within approximately 30 days. The Tax Authority countered that construction land legally constitutes property with residential purpose because the VPT determination applies the residential use coefficient under Article 41 CIMI. Citing Article 45 CIMI and case law from the Central Administrative Court (Decision 04950/11), the Tax Authority argued that the VPT assessment regime for construction land mirrors that of constructed buildings, calculated based on the projected building, thereby justifying the Stamp Tax application. The arbitral tribunal, constituted under the Legal Framework for Tax Arbitration (RJAT), accepted jurisdiction over the matter. The parties waived the hearing, and the case proceeded to merit determination. This decision represents significant precedent regarding the interpretation of Verba 28 TGIS scope and its application to undeveloped land designated for construction with high taxable values.

Full Decision

ARBITRATION DECISION

CAAD: Tax Arbitration

Case No. 298/2014 – T

Subject Matter: IS – Item 28 of the TGIS

I – REPORT

1 – A, S.A., with Tax Identification Number[1] … , head office at …– x, post office box …, …, filed, on 28/03/2014, a request for constitution of an arbitral tribunal, pursuant to the provisions of paragraph a) of paragraph 1 of article 2, paragraph 1 of article 3, and paragraph a) of paragraph 1 of article 10, all of the Legal Framework for Tax Arbitration[2], with the Tax Authority[3] being required, with a view to assessing the legality of the tax acts imposing Stamp Tax[4] as identified in the assessment notices referred to in the request, which are hereby deemed fully reproduced, relating to plots of land for construction, pursuant to the subdivision application filed with the Municipal Chamber of ... which was approved on 07/10/2009. Despite being notified, the applicant failed to submit the standard IMI declaration form, whereupon the Tax Authority proceeded to its official assessment and the registration of the respective plots in the urban land registry of the parish of … under articles …, …, …, …, … and … council of ... and against which the tax acts contested by the applicant were imposed.

2 – The request for constitution of the arbitral tribunal was made without exercing the option to appoint an arbitrator, and was accepted by the Honourable President of the Administrative Arbitration Centre[5] and automatically notified to the Tax Authority on 31/03/2014.

3 – In accordance with and for the purposes of paragraph 2 of article 6 of the Legal Framework for Tax Arbitration, by decision of the Honourable President of the Ethics Council, duly communicated to the parties within the legally applicable periods, the following were appointed: Judge Court of Appeal Manuel Luís Macaísta Malheiros, Professor Doctor Miguel Patrício and Dr. Arlindo José Francisco, respectively as President and members, who communicated to the Ethics Council and to the Administrative Arbitration Centre their acceptance of the appointments within the regularly established period.

4 – The tribunal was constituted on 04/06/2014 in accordance with the provisions contained in paragraph c) of paragraph 1 of article 11 of the Legal Framework for Tax Arbitration, as amended by article 228 of Law No. 66-B/2012, of 31 December.

5 – Through its request, the applicant seeks a declaration of illegality and consequent annulment of the assessments in question on the ground that, in its view, they suffer from the defect of violation of law.

6 – Supporting its position, item 28 of the General Table of Stamp Tax is inapplicable to land for construction, notwithstanding that its Taxable Property Value[6] individually exceeds €1,000,000.00, given that the expression "residential purpose" of the said tax base rule should only be understood as referring to the concept of residential urban property, as provided for in article 6, paragraph 1, paragraph a), of the Municipal Property Tax Code[7].

7 – It further contends that the assessment acts in question would violate the principle of legal certainty and the constitutional prohibition on the retroactive application of tax law, since this involves a tax imposed on 29 October, the taxable event of which occurs two days after the imposition of the tax, which must be paid within approximately 30 days, facts which in themselves would violate legal certainty, the hallmark of the Rule of Law.

8 – It considers that the Tax Authority makes an erroneous interpretation of article 1, paragraph 1, of the Stamp Tax Code, and of item 28.1 of the General Table of Stamp Tax, as well as of article 6, paragraph 1, paragraphs f) and i), of Law No. 55-A/2012, of 29/10, by presupposing that land for construction has residential purpose.

9 – Finally, it considers that both the jurisprudence of the Supreme Administrative Court and that of the Arbitral Tribunal have been unanimous in excluding land for construction from the tax base rule provided for in item 28.1 of the General Table of Stamp Tax[8].

10 – In its reply, the Tax Authority considers that land for construction has the legal nature of property with residential purpose, since in determining its Taxable Property Value account is taken of the residential use coefficient, provided for in article 41 of the Municipal Property Tax Code.

11 – In this regard it cites Decision 04950/11 of the Central Administrative Court[9] South, of 14/02/2012, which considers that the regime for assessing the taxable property value of land for construction is established in article 45 of the Municipal Property Tax Code, being equal to that of constructed buildings, although proceeding from the building to be constructed, on the basis of the project.

12 – In this perspective, it considers that the assessments contested should be upheld as they do not suffer from the defect of violation of law, whether of the Constitution[10] or of the Stamp Tax Code[11], and the applicant's claim should be judged to lack merit and the Tax Authority should be absolved of the claim.

II – PRELIMINARY EXAMINATION

The tribunal was regularly constituted and is competent ratione materiae, in accordance with article 2 of the Legal Framework for Tax Arbitration.

The parties have legal capacity and standing, are shown to be entitled to appear, and are regularly represented, in accordance with articles 4 and 10, paragraph 2, of the Legal Framework for Tax Arbitration and article 1 of Order No. 112-A/2011, of 22 March.

The parties, with the consent of the Tribunal, waived the hearing referred to in article 18 of the Legal Framework for Tax Arbitration.

The case is free from defects of form and no issues have been raised that would prevent the merits of the case from being heard, the conditions being in place for a final decision to be rendered.

III – REASONING

III.1 – The issues to be resolved, of relevance to the case, are as follows:

  1. Whether land for construction, to which the residential use coefficient was applied in determining its Taxable Property Value and a value equal to or exceeding €1,000,000.00 was calculated, falls within the scope of the Stamp Tax imposed by item 28 of the General Table of Stamp Tax, as amended by Law No. 55-A/2012, of 29 October.

  2. If so, whether the Stamp Tax assessments in question are in violation of law and should be annulled, with the respective legal consequences.

III.2 – Factual Basis:

The relevant factual matters proven on the basis of the elements attached to the case are as follows:

a) The applicant is the owner of land for construction currently registered under urban articles …, …, …, …, …, …, of the union of parishes …, of the council of … .

b) The said articles resulted from a subdivision operation carried out on rural articles … and urban articles … and … of the parish …, duly authorized by the Municipal Chamber … on 07/10/2009.

c) The registration and assessment of the articles resulting from the subdivision was official, given that the applicant was unable to submit the standard IMI declaration form[12] within the period established by the Tax Authority.

d) The subdivision project lapsed in June 2013, the land registry remaining with the original articles.

e) The Taxable Property Value assigned to each of the articles resulting from the subdivision was:

Urban Article …: €1,875,650.00

Urban Article … : €1,302,610.00

Urban Article … : €1,533,470.00

Urban Article … : €2,082,860.00

Urban Article … : €2,167,720.00

Urban Article … : €1,876,620.00

f) It is verified that the Taxable Property Value of each of the articles mentioned above is equal to or exceeding €1,000,000.00.

g) The total amount of the assessments duly notified to the applicant is €162,583.95.

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

III.3 – Legal Analysis:

i) The applicant, in its request for arbitral determination, contends, in essence, that land for construction cannot be considered for the purposes of the incidence of stamp tax provided for in item 28 of the General Table of Stamp Tax, as amended by Law No. 55-A/2012, of 29/10, given that they are not property with residential purpose, as the rule provides, basing its position on the jurisprudence of the Supreme Administrative Court[13], as well as that of the Arbitral Tribunal, which have been unanimous in excluding land for construction from the tax base rule provided for in item 28.1 of the General Table of Stamp Tax, whereby the assessments in question should be declared illegal as they suffer from the material defect of violation of law.

ii) For its part, the respondent contends that land for construction has the legal nature of property with "residential purpose", since in determining its Taxable Property Value account is taken of the residential use coefficient, provided for in article 41 of the Municipal Property Tax Code, and cites, in this regard, Decision 04950/11 of the Central Administrative Court South, of 14/02/2012, which considers that the regime for assessing the taxable property value of land for construction is established in article 45 of the Municipal Property Tax Code, being equal to that of constructed buildings, although proceeding from the building to be constructed, on the basis of the project, whereby it considers that the assessments in question should be upheld and the Tax Authority should be absolved of the claim.

iii) Having summarized the positions of the applicant and respondent, we shall proceed next to an analysis of the tax base rule for stamp tax on urban property with residential purpose.

iv) Item 28 of the General Table of Stamp Tax, as amended by Law No. 55-A/2012, of 29/10, subjects to this tax urban property with residential purpose whose Taxable Property Value, calculated in accordance with the Municipal Property Tax Code, is equal to or exceeding €1,000,000.00, the transitional regime provided for in article 6 of the said Law being in force for the year 2012.

v) The Stamp Tax Code refers to the Municipal Property Tax Code for the regulation of the concept of property and matters not regulated as regards item 28 of the General Table of Stamp Tax (see paragraph 6 of article 1 and paragraph 2 of article 67, both of the Stamp Tax Code).

vi) If we examine article 6 of the Municipal Property Tax Code, it is established therein that urban property is divided into residential, commercial, industrial or service property, land for construction, and other property.

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

viii) From these concepts we can already conclude that there is a distinction between urban property classified as "residential" and urban property classified as "land for construction".

ix) The legislator of the stamp tax, when establishing the taxation of urban property "with residential purpose", did not define the concept, whereby we must, by virtue of the referral, go to the Municipal Property Tax Code, and this, as seen, treats them as distinct from land for construction.

x) The expression "with residential purpose" is in no way apparent in land for construction, nor can it, as the respondent contends, be understood as an integrative expression encompassing other realities.

xi) We follow here the position set out in the decision in case 49/2013 of the Administrative Arbitration Centre, of 18/9, which is transcribed:

"The expression 'with residential purpose' conveys, upon simple reading, an idea of actual and present functionality. From the rule in question it is not possible to extract, by way of interpretation, that, as stated in the respondent's reply, the legislator's choice of that expression was intended to integrate 'other realities beyond those identified in article 6, paragraph 1, paragraph a), of the Municipal Property Tax Code.' Such interpretation has no legal basis, in light of the principles contained in articles 9 of the Civil Code and 11 of the General Tax Law. In effect, if the legislator intended to encompass within the scope of incidence of the tax other realities than those resulting from the classification governed by article 6 of the Municipal Property Tax Code, it would have said so expressly. But it does not, instead referring, wholesale, to the concepts and procedures provided for in the said Code. On the other hand, the respondent's interpretation to the effect that the concept of 'with residential purpose' derives from the rule in article 45 of the Municipal Property Tax Code cannot be accepted. This article refers to the rules applicable in determining the taxable property value of land for construction, establishing that this is what results from the value of the building construction footprint added to the land adjacent to the footprint. In fixing the value of that footprint area account is taken of a percentage varying between 15% and 45% of the value of the authorized or planned buildings. According to the respondent, in fixing the value of the authorized or planned buildings on the land to be assessed, the coefficients applicable in determining the taxable property value are used, namely the residential use coefficient provided for in article 1 of that Code. Concluding therefrom that the consideration of such a coefficient, dependent on the type of use provided for the property to be built on the land, will be decisive for the purposes of application of Item 28 of the General Table of Stamp Tax. This conclusion rests on the premise that the expression 'property with residential purpose' appeals to a classification that overlaps the species provided for in paragraph 1 of article 6 of the Municipal Property Tax Code. It is not possible, however, to follow such a conclusion. [...]. In these terms, as a clear distinction between urban property classified as 'residential' and 'land for construction' results from article 6 of the Municipal Property Tax Code, these cannot be considered, for the purposes of the incidence of stamp tax, as 'property with residential purpose'."

xii) The legislator, when intending to tax land for construction in stamp tax, revisited item 28 of the General Table of Stamp Tax through Law No. 83-C/2013, of 31 December, and introduced them there, which proves that in the formulation of Law No. 55-A/2012, land for construction was excluded from stamp tax under item 28 of the General Table of Stamp Tax, and now, through the said Law No. 83-C/2013, they have become subject to taxation, whereby it appears clear to us that the legislator considers that the expression "with residential purpose" did not include land for construction.

xiii) Nor should it be said that the fact that article 45 of the Municipal Property Tax Code provides for the application of a residential use coefficient in determining the Taxable Property Value of land for construction would be a sufficient condition in itself to permit their inclusion in the tax base rule of item 28 as amended by Law No. 55-A/2012, nor would it alter their nature as land for construction, given that what is at issue here is solely to ascertain the Taxable Property Value which will be influenced by the type of buildings to be carried out (which, it should be noted, are not always realized, as would appear to have been the case here).

xiv) Decision 04950/11 of the Central Administrative Court South, of 14/02/2012, cited by the Tax Authority, which considers that the regime for assessing the taxable property value of land for construction is established in article 45 of the Municipal Property Tax Code, being equal to that of constructed buildings, proceeds, for its part, from a building to be constructed, on the basis of the project, whereby this point of view is confined to assessment and nothing more.

xv) It is concluded, accordingly, that, as has been seen, there emerges from article 6 of the Municipal Property Tax Code an unmistakable distinction between residential property and land for construction, which prevents the latter from being taxed in stamp tax in the manner sought by the respondent.

xvi) In this same sense, several arbitral decisions have already been rendered, among which, for example, the decisions relating to cases No. 42/2013, 48/2013, 49/2013, 53/2013 and 75/2013, all of 2013, or, more recently, the decisions relating to cases No. 158/2013, 288/2013 and 151/2014, all of 2014.

xvii) Finally, consider the provisions, also in the same sense, of a recent Supreme Administrative Court Decision: "Not having the legislator defined the concept of 'property (urban) with residential purpose', and there resulting from article 6 of the Municipal Property Tax Code - subsidiarily applicable to the Stamp Tax provided for in the new item No. 28 of the General Table - a clear distinction between 'residential urban property' and 'land for construction', these cannot be considered, for the purposes of the incidence of Stamp Tax (Item 28.1 of the General Table of Stamp Tax, as amended by Law No. 55-A/2012, of 29 October), as urban property with residential purpose" (Supreme Administrative Court Decision of 23/4/2014, case 0272/14).

IV – DECISION

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

To declare that land for construction is excluded from the taxation in Stamp Tax provided for in item 28.1 of the General Table of Stamp Tax, as amended by Law No. 55-A/2012, of 29/10, and, consequently, to declare the request for arbitral determination to be well-founded, given that the assessments in question are illegal as they violate the said tax base rule, with all the legal consequences flowing therefrom.

The value of the case is fixed at €162,583.95, in accordance with the provisions contained in article 299, paragraph 1, of the Civil Procedure Code[14], article 97-A of the Tax Procedure and Process Code[15], and article 3, paragraph 2, of the Costs Regulation for Tax Arbitration Proceedings[16].

Costs to be borne by the respondent, pursuant to paragraph 4 of article 22 of the Legal Framework for Tax Arbitration, fixing the respective amount at €3,672.00, in accordance with the provisions of Table I referred to in article 4 of the Costs Regulation for Tax Arbitration Proceedings.

Notify.

Lisbon, 14 November 2014

Document prepared by computer, in accordance with article 131, paragraph 5, of the Civil Procedure Code, made applicable by referral from article 29, paragraph 1, paragraph e), of the Legal Framework for Tax Arbitration, with blank lines and reviewed by the tribunal.

The preparation of this decision is governed by the orthography prior to the orthographic agreement.

The arbitrators,

Manuel Luís Macaísta Malheiros

(President)

Miguel Patrício

(Member)

Arlindo Francisco

(Member)

[1] Acronym for Tax Identification Number for Legal Entities.

[2] Acronym for Legal Framework for Tax Arbitration.

[3] Acronym for Tax Authority and Customs Authority.

[4] Acronym for Stamp Tax.

[5] Acronym for Administrative Arbitration Centre.

[6] Acronym for Taxable Property Value.

[7] Acronym for Municipal Property Tax Code.

[8] Acronym for General Table of Stamp Tax.

[9] Acronym for Central Administrative Court.

[10] Acronym for Constitution of the Portuguese Republic.

[11] Acronym for Stamp Tax Code.

[12] Acronym for Municipal Property Tax.

[13] Acronym for Supreme Administrative Court.

[14] Acronym for Civil Procedure Code.

[15] Acronym for Tax Procedure and Process Code.

[16] Acronym for Costs Regulation for Tax Arbitration Proceedings.

Frequently Asked Questions

Automatically Created

Does Verba 28 of the Tabela Geral do Imposto do Selo apply to construction land plots (terrenos para construção) with a VPT exceeding €1,000,000?
The central issue in CAAD Process 298/2014-T is whether Verba 28 of the Tabela Geral do Imposto do Selo applies to construction land plots with VPT exceeding €1,000,000. The taxpayer argued that Item 28.1 TGIS should only apply to residential urban property under Article 6(1)(a) CIMI, excluding undeveloped construction land. However, the Tax Authority maintained that construction land qualifies as property with residential purpose because its VPT determination incorporates the residential use coefficient per Article 41 CIMI, and Article 45 CIMI establishes that the VPT assessment regime for construction land equals that of constructed buildings, calculated based on the projected development.
How does CAAD Process 298/2014-T interpret the concept of 'afectação habitacional' under Verba 28 of the TGIS in relation to Article 6(1)(a) of the CIMI?
CAAD Process 298/2014-T interprets 'afectação habitacional' (residential purpose) under Verba 28 TGIS by examining its relationship with Article 6(1)(a) CIMI's definition of residential urban property. The taxpayer contended that residential purpose should be narrowly construed to mean only existing residential buildings, excluding bare construction land. Conversely, the Tax Authority argued for a broader interpretation, asserting that construction land intended for residential development inherently has residential purpose because the VPT assessment methodology under Article 45 CIMI applies the residential use coefficient and calculates value based on the projected residential building, treating it functionally equivalent to constructed residential property for valuation purposes.
Can Stamp Tax (Imposto de Selo) assessments on building plots be challenged on grounds of retroactivity and the constitutional principle of legal certainty?
Yes, Stamp Tax assessments on building plots under Verba 28 TGIS can be challenged on grounds of retroactivity and violation of the constitutional principle of legal certainty. In CAAD Process 298/2014-T, the taxpayer invoked these constitutional arguments, contending that Law 55-A/2012, enacted on 29 October, created a taxable event occurring just two days later with payment due within approximately 30 days. The taxpayer argued this compressed timeline violated legal certainty, a fundamental pillar of the Rule of Law, and constituted impermissible retroactive taxation. The taxpayer also asserted that the Tax Authority's interpretation violated Article 1(1) of the Stamp Tax Code and constitutional protections against retroactive tax laws.
What is the arbitral procedure for contesting Imposto de Selo liquidations on construction land before the CAAD under the RJAT?
The arbitral procedure for contesting Imposto de Selo liquidations on construction land before CAAD under RJAT involves filing a request for constitution of an arbitral tribunal pursuant to Article 2(1)(a), Article 3(1), and Article 10(1)(a) of the Legal Framework for Tax Arbitration. In Process 298/2014-T, the taxpayer filed on 28 March 2014 without appointing an arbitrator. The President of the Administrative Arbitration Centre accepted the request, which was automatically notified to the Tax Authority on 31 March 2014. The President of the Ethics Council appointed a three-member tribunal comprising an Appellate Judge (President) and two members. The tribunal was constituted on 4 June 2014 under Article 11(1)(c) RJAT. The parties waived the hearing under Article 18 RJAT, and the case proceeded to written decision on the merits.
What was the outcome of the CAAD arbitration regarding the legality of Stamp Tax charged on high-value terrenos para construção under Verba 28 da TGIS?
While the complete decision text is not included in the excerpt, CAAD Process 298/2014-T addressed the legality of Stamp Tax charged on six high-value construction land plots totaling €162,583.95 under Verba 28 da TGIS. The taxpayer sought annulment on grounds that: (1) construction land does not constitute property with 'residential purpose' under Item 28.1 TGIS; (2) the assessments violated legal certainty and constitutional prohibitions on retroactive taxation; and (3) jurisprudence from the Supreme Administrative Court and other arbitral tribunals supported excluding construction land from Verba 28 scope. The Tax Authority defended the assessments based on Article 45 CIMI's VPT methodology and Central Administrative Court precedent. The tribunal addressed questions of statutory interpretation, constitutional principles, and administrative law applicable to Stamp Tax on undeveloped land.