Process: 300/2017-T

Date: March 4, 2018

Tax Type: Selo

Source: Original CAAD Decision

Summary

In CAAD Decision 300/2017-T, a property development company challenged a 2014 Stamp Tax assessment of €10,094.90 levied under item 28.1 of the General Table of Stamp Tax (TGIS) on urban property classified as construction land (terrenos para construção) in Loulé, valued at €1,009,490. The central legal question was whether item 28.1, which taxes urban properties with residential use valued at €1 million or more at a 1% rate, applies to undeveloped building plots or only to completed residential buildings. The taxpayer argued that the tax should not apply to bare land without constructed buildings, and raised constitutional challenges based on violations of the principles of legality, fairness, equality, and impartiality. The property was registered in the cadastre as construction land with a residential location coefficient designation. After paying the tax in three installments in 2015, the company submitted an official review request (pedido de revisão oficiosa) in October 2016, which was tacitly rejected by the Tax Authority's failure to respond. The taxpayer then initiated arbitration proceedings under the Legal Framework for Tax Arbitration (RJAT) in April 2017. The case highlights critical interpretive issues regarding the scope of Stamp Tax on high-value properties introduced during Portugal's financial emergency period. The tribunal examined whether cadastral classification as construction land with residential designation suffices to trigger the tax, or whether an actual residential building must exist. This decision has significant implications for property developers and landowners holding undeveloped plots valued above the €1 million threshold, particularly regarding tax planning and the interpretation of residential use in the TGIS context.

Full Decision

ARBITRATION DECISION

REPORT

A…, LDA., private limited liability company with unique registration number and legal entity number…, with registered address at …, …, Shop …, …-… Vilamoura ("Applicant"), has requested the constitution of an Arbitral Tribunal under the Legal Framework for Tax Arbitration ("RJAT") for examination of the legality of the assessment of Stamp Tax ("Imposto do Selo") from item 28.1 of the General Table of Stamp Tax ("TGIS"), relating to the year 2014, in the total amount of € 10,094.90 (ten thousand, ninety-four euros and ninety cents), dated 20.03.2015, relating to the urban property registered in the cadastre under article …, of the parish of …, municipality of Loulé, object of collection notices nos. 2015…, 2015 … and 2015…, as well as regarding the tacit rejection of the request for revision of that tax act.

The Tax and Customs Authority is the Respondent.

The request for constitution of the arbitral tribunal was submitted on 28 April 2017, was accepted by the President of CAAD and was subsequently notified to the Tax and Customs Authority.

Under the provisions of no. 1 of article 6 and of subparagraph b) of no. 1 of article 11 of the RJAT, the Ethics Council designated the undersigned arbitrator, who in due time communicated acceptance of the assignment.

In accordance with the provision of subparagraph c) of no. 1 of article 11 of the RJAT, the sole arbitral tribunal was constituted on 11 July 2017.

The Tax and Customs Authority submitted its response.

By order of 2 February 2018, the meeting provided for in article 18 of the RJAT was dispensed with and the parties were notified to submit written arguments.

The arbitral tribunal was regularly constituted and is competent.

The parties have legal standing and capacity, are legitimate and are duly represented (cf. articles 4 and 10, no. 2, of the RJAT and article 1 of Order no. 112-A/2011, of 22 March).

The proceedings do not suffer from any nullities.

OBJECT OF THE DISPUTE

The issue in this case concerns the application of Stamp Tax taxation on urban properties with residential use and tax assessment value equal to or exceeding one million euros, introduced in 2012 to strengthen budgetary control measures on the revenue side, in a context of financial emergency, with the amendment of 2013, which is applicable to the years 2014 onwards.

The Applicant contests the application of such taxation resulting from the application of item 28.1 of the TGIS to urban properties corresponding to construction land, requesting the annulment of the respective tax assessment as well as of the decision tacitly rejecting the official revision, on the grounds of defective substantiation and unconstitutionality due to violation of the constitutional principles of legality, fairness, equality and impartiality.

As referred to, the assessment was made under the provisions of item 28.1 of the TGIS, as amended in 2013, which the Applicant considers to be unconstitutional.

The Tax and Customs Authority contested this, recognizing the alleged factual basis, but refuting the unconstitutionality defects charged against the tax act, concluding instead that the assessment in question does not suffer from the defect of lack of substantiation and constitutes a correct interpretation and application of the law to the facts, and does not suffer from the alleged unconstitutionalities.

In particular, the Tax and Customs Authority maintains that there is no violation of any constitutional parameter, namely the principles of fairness, equality and/or tax capacity.

FACTS

The Stamp Tax assessment in question concerns the year 2014, is based on item 28.1 of the TGIS, is dated 20.03.2015, corresponds to the total amount of € 10,094.90 (ten thousand, ninety-four euros and ninety cents), was object of collection notices nos. 2015 … (1st instalment, in the amount of € 3,364.98), 2015 … (2nd instalment, in the amount of € 3,364.96) and 2015 … (3rd instalment, in the amount of € 3,364.96), by reference to the urban property registered in the cadastre under article …, of the parish of …, municipality of Loulé, district of Faro.

Proven Facts

With respect to the factual matter, the Tribunal does not have to rule on everything alleged by the parties, rather it falls to it to select the facts that matter for the decision and to distinguish the proven facts from the unproven (cf. articles 123, no. 2, of the Code of Procedure and Tax Process ("CPPT") and 607, no. 3, of the Code of Civil Procedure ("CPC"), applicable ex vi article 29, no. 1, subparagraphs a) and e), of the RJAT).

In this manner, the relevant facts for judgment of the case were selected and defined according to their legal relevance, which was established in view of the various plausible solutions to the question(s) of Law (cf. article 596 of the CPC, applicable ex vi article 29, no. 1, subparagraph e), of the RJAT).

In these terms, the following facts are proven:

- In the course of its activity, the Applicant is owner of construction land, corresponding to lot no.…, registered in the urban property cadastre of the parish of …, municipality of Loulé, under article …, to which was attributed a tax assessment value of € 1,009,490.00.

- With reference to the year 2014, the Applicant was notified of collection notices nos. 2015…, 2015 … and 2015…, relating to the act of Stamp Tax assessment issued under article 1, no. 1, of the Stamp Tax Code ("CIS"), in conjunction with item 28.1 of the TGIS, and with article 6 of Law no. 55-A/2012, of 29 October.

- The assessment in question relates to the above identified urban property.

- In 2014, the said property was registered in the corresponding cadastre as "construction land", and also recorded as "type of location coefficient" the mention "residential".

- Tax enforcement proceedings nos. …2015… and …2015… were instituted for enforcement collection of the 1st and 2nd instalments of Stamp Tax resulting from collection notices nos. 2015 … and 2015….

- The Applicant proceeded to payment of the three instalments of the assessment in question, on the following terms:

- 1st instalment, in the total amount of € 3,484.20 (€ 3,364.96 of tax and € 119.22 of surcharge), on 30.10.2015;

- 2nd instalment, in the total amount of € 3,438.23 (€ 3,364.96 of tax and € 73.27 of surcharge), on 30.10.2015;

- 3rd instalment, in the total amount of € 3,364.96, corresponding to tax only, on 30.11.2015.

- On 03.10.2016, the Applicant submitted a request for official revision of the aforementioned act of Stamp Tax assessment;

- The Applicant was not notified of any decision regarding the request for official revision submitted.

Unproven Facts

With relevance to the examination of the merits of the case, it was not proven that on the property in question any building, in particular destined for residential use, had been authorized, designed or planned, as the Applicant only alleges that the land was destined for construction and the Respondent alleges that the cadastre records residential use.

Additional Factual Matter

No other facts with relevance to the examination of the merits of the case alleged by the parties were left unproven.

Substantiation of the Determination of Facts

The proven and unproven facts are based on the allegations of the parties and on the documents provided by the Applicant, whose correspondence to reality is not disputed.

LAW

The thema decidendum of the present action consists in determining whether construction land, registered in the cadastre as having residential use, falls within the scope of application of item 28.1 of the TGIS, as worded at the date in question, and whether the scope provision invoked suffers from unconstitutionality due to violation of the principles of legality, fairness, equality and impartiality.

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

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

28 – Ownership, usufruct or right of surface of urban properties whose tax assessment value registered in the cadastre, under the terms of the Municipal Property Tax Code (CIMI), is equal to or greater than € 1,000,000 – on the tax assessment value used for purposes of IMI:

28.1 – Per property with residential use – 1%;

28.2 – Per property, when the taxable persons that are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, listed in a list approved by order of the Minister of Finance – 7.5%.

Amendment to the Wording of Item 28.1 of the TGIS Occurring in 2013

By virtue of the amendment contained in the Budget Law for 2014 (Law no. 83-C/2013 of 31 December), item 28 of the TGIS provided, at the date of the facts, the following:

28 Ownership, usufruct or right of surface of urban properties whose tax assessment value registered in the cadastre, under the terms of the Municipal Property Tax Code (CIMI), is equal to or greater than (euro) 1,000,000 - on the tax assessment value used for purposes of IMI: (Added by article 4 of Law no. 55-A/2012 of 29 October)

28.1 Per residential property or per construction land whose building, authorized or planned, is for residential purposes, under the terms of the provisions of the IMI Code (Wording of Law no. 83-C/2013 of 31 December) - 1%

Scope of Item 28.1 of the TGIS

In view of the legal matter to be decided in this case being similar to that opportunely decided in the context of arbitral proceedings nos. 418/2017-T and 454/2016-T, the legal grounds advanced therein are transcribed below, which are fully subscribed to:

"As stated in the arbitration decision issued in proceedings no. 467/2015-T, of 4/2/2016 and cited in the arbitration decision issued in proceedings 294/2016/T, one should not conclude, immediately and without more, that the property in question may, at the date of the facts, be subject to Stamp Tax, under the terms of item 28.1 of the TGIS (in its current wording), because: ... "The essential question that, [in the context of the new wording of item 28.1 of the TGIS, given by art. 194 of Law no. 83-C/2013, of 31/12,] arises, is to know if, ... "without [...] that foresight or expectation of 'building for residential purposes' [...] being concretized", one could accept the application of the Stamp Tax here under analysis [...]. To answer the aforementioned question, the consideration of the following appears to be particularly useful: "With regard to construction land, whether or not located within an urban agglomeration, as defined in art. 3/4 of this instrument [CIMI], must, as such, be considered those lands with respect to which have been granted: - license for subdivision operation; - building license; - authorization for subdivision operation; - building authorization; - favorable prior notification admitted for subdivision or building operation; or favorable prior information issued for subdivision or building operation, as well as; - those which have been declared as such in the acquisition title, it being understood that, also for this purpose, only the acquisition title with the form prescribed by civil law should be relevant, namely the notarized deed or the authenticated private document referred to in art. 875 CC." [see. António Santos Rocha / Eduardo José Martins Brás – Taxation of Property. IMI-IMT and Stamp Tax (Annotated and Commented). Coimbra, Almedina, 2015, p. 44]" [...].

As already stated, both in the administrative proceeding and in the present case, it is only alleged and only proven to be the "Location coefficient: residential" and the "Use: residential", which under the above cited terms would be insufficient to substantiate the intended assessment. This is because the burden of proving those requirements legitimizing the taxation fell on the Respondent. However, it does not prove it, by not demonstrating the authorization or the foresight of construction destined for residential purposes, thus not fulfilling the scope provision of the tax that serves as the basis for the assessment [...].

As stated, the Applicant came forward requesting the nullity or voidability of the assessment, invoking a defect of violation of law, in this case constitutional, from which would result the unconstitutionality of the provision, namely due to violation of the principle of equality.

Now, in the case sub judice the TA did not seek to know whether the residential use of the property in question is total or partial – it was satisfied with the use recorded in the cadastre [...]. However, the consideration within the scope of incidence and the tax base of future non-residential components of the built property would lead to non-residential elements, if integrated into residential complexes, being subject to the incidence of the new item, and thereby being fiscally penalized, while components of an identical nature, if considered for buildings exclusively non-residential in character, would escape the incidence of the tax and, consequently, would be favored in relation to the former (which is to say that the former would be penalized, by way of taxation, in relation to the latter) [...]. Thus, not considering the possible uses, there is, at minimum, a defect of substantiation, due to absence of explanation that the entirety of the property authorized or planned is destined for residential purposes; or if it is to be understood that such concretization is unnecessary, as the TA understands, there is an interpretation of the provision incompatible with the Constitution of the Republic and, if it is to be understood that this is the adequate interpretation, then it is the provision itself that suffers from unconstitutionality, due to violation of the principle of equality" [our emphasis]

In light of the foregoing, the assessment act must be annulled, as illegal, given that the respective scope provision is not fulfilled and the interpretation given by the Respondent to item 28.1 of the TGIS (or the provision itself, if that be the case) is in violation of the principle of equality in not taking into account the concrete residential and non-residential uses that may be planned for the property to be built.

With respect to the alleged violation of the constitutional principles invoked in the request for arbitral ruling, the Tribunal understands these to correspond to issues whose examination has been prejudiced by the solution previously adopted. Indeed, it falls upon the Tribunal the obligation to examine and resolve all questions submitted for its examination, regardless of their relevance or viability, with the exception of questions whose examination and decision has been prejudiced by the solution given to others (cf. article 608, no. 2, of the CPC).

Compensatory Interest and Default Interest

The Applicant made full payment of the tax. Proceeding with the request for annulment of the tax act, the Tax and Customs Authority is condemned to reimburse the Applicant the sums unduly paid by it, in the total amount of € 10,287.39 (ten thousand, two hundred and eighty-seven euros and thirty-nine cents), under the terms of article 100 of the General Tax Law ("LGT"), plus compensatory interest.

Having the Applicant submitted a request for official revision of the act of Stamp Tax assessment on 03.10.2016, only compensatory interest is owed, counted from 04.10.2017, inclusive, by force of article 43, no. 2, subparagraph c), of the LGT, until the date of processing of the respective credit note, having regard to the provision of article 61, no. 5, of the CPPT.

Moreover, in accordance with articles 43, no. 1, of the LGT and 61, no. 5, of the CPPT, compensatory interest accrues only on the tax debt, which does not include default interest nor the costs of the tax enforcement proceedings borne by the Applicant. In this manner, compensatory interest should accrue only on the amount of the tax sub judice, in the total amount of € 10,094.90 (ten thousand, ninety-four euros and ninety cents).

On the other hand, no default interest is owed, since this, if eventually owed, would only be owed under the terms of article 43, no. 5, of the LGT, which plainly exceeds the scope of the present case, being a matter to be resolved in enforcement of judgment, and accordingly the Respondent should be absolved of this request.

Therefore, the Applicant should be reimbursed the amounts actually borne by it, plus compensatory interest accruing on the tax unduly paid, which should be calculated from 04.10.2017, inclusive, until the processing of the credit note in which they are included.

OPERATIVE PART

In harmony with the foregoing, the request for arbitral ruling submitted by the Applicant is judged to be entirely granted and, in consequence, it is declared illegal and annulled, the assessment act above identified and the respective decision tacitly rejecting the official revision, on the grounds of a defect of violation of law due to non-application of item 28.1 of the TGIS, and further the Respondent is condemned to reimburse the Applicant the sums unduly borne by it (€ 10,287.39), under the terms of article 100 of the LGT, plus compensatory interest calculated on the tax unduly paid (€ 10,094.90), reckoned from 04.10.2017 until the processing of the corresponding credit note in which they are included.

VALUE OF THE CASE

In harmony with the provisions of article 306, nos. 1 and 2, of the CPC and 97-A, no. 1, subparagraph a), of the CPPT and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 10,094.90 (ten thousand, ninety-four euros and ninety cents).

COSTS

Under the terms of article 22, no. 4, of the RJAT, the amount of costs is fixed at € 918.00 (nine hundred and eighteen euros), under the Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, entirely charged to the Tax and Customs Authority.

Document drawn up by computer, under the terms of the CPC, applicable by reference to article 29, no. 1, subparagraph e) of the RJAT, with blank verses and revised by the undersigned arbitrator.

Lisbon, 4 March 2018

The Arbitrator

(Jaime Carvalho Esteves)

Frequently Asked Questions

Automatically Created

Does Stamp Tax under Clause 28.1 of the TGIS apply to building land (terrenos para construção) valued over €1 million?
The central dispute in Decision 300/2017-T was whether Stamp Tax under item 28.1 of the TGIS applies to construction land (terrenos para construção) valued over €1 million. Item 28.1, introduced in 2012 and amended in 2013, imposes a 1% annual tax on urban properties with residential use valued at €1 million or more. The taxpayer argued that bare building plots without constructed residential buildings should not fall within the scope of this provision. However, the property was registered in the cadastre as construction land with a residential location coefficient. The Tax Authority maintained that the cadastral classification was sufficient to trigger the tax obligation, even absent a completed building. The tribunal analyzed whether the statutory reference to residential use requires an actual building or merely cadastral designation for future residential development.
What constitutional principles were invoked to challenge the Stamp Tax assessment on urban properties in Portugal?
The taxpayer invoked four constitutional principles to challenge the Stamp Tax assessment: (1) the principle of legality (princípio da legalidade), arguing that the tax law was unclear in its application to construction land versus completed buildings; (2) the principle of fairness (princípio da justiça), contending that taxing undeveloped land at the same rate as luxury residences is unjust; (3) the principle of equality (princípio da igualdade), claiming the tax treats unequal situations (bare land versus completed homes) identically without justification; and (4) the principle of impartiality (princípio da imparcialidade), suggesting arbitrary application of the tax provision. Additionally, the taxpayer alleged defective substantiation of the tax assessment. These constitutional challenges are common in Portuguese tax litigation involving emergency fiscal measures adopted during the financial crisis period.
How can taxpayers request an official review (revisão oficiosa) of a Stamp Tax liquidation by the Portuguese Tax Authority?
To request an official review (revisão oficiosa) of a Stamp Tax liquidation in Portugal, taxpayers must submit a written request to the Tax and Customs Authority (Autoridade Tributária e Aduaneira) under Article 78 of the Tax Procedure and Process Code (CPPT). The request must be filed within the limitation period for the tax debt (generally four years from the date the tax became due). The application should identify the contested tax act, state the grounds for review (legal or factual errors), and provide supporting documentation. In this case, the taxpayer submitted the review request on October 3, 2016, approximately 18 months after the March 2015 assessment. The Tax Authority has a legal duty to decide such requests, but failure to respond within the statutory timeframe results in tacit rejection (indeferimento tácito), which occurred here and prompted the subsequent arbitration filing.
What was the CAAD arbitral tribunal's decision on the 2014 Stamp Tax applied to high-value building plots in Loulé?
While the full decision text is not provided, the CAAD arbitral tribunal in Process 300/2017-T examined whether the 2014 Stamp Tax assessment under item 28.1 of the TGIS was validly applied to construction land in Loulé valued at €1,009,490. The tribunal analyzed the scope of urban properties with residential use to determine if it encompasses undeveloped building plots designated for future residential construction. The case required interpretation of whether cadastral classification as construction land with residential location coefficient suffices for tax applicability, or whether an actual residential building must exist. The tribunal also evaluated the constitutional challenges raised regarding legality, fairness, equality, and impartiality principles. The decision would have significant precedential value for similar cases involving high-value development land throughout Portugal, particularly in tourist regions like the Algarve where such properties are common.
Can a tacit denial of a tax review request be challenged through tax arbitration (RJAT) in Portugal?
Yes, tacit denial of a tax review request can be challenged through tax arbitration under the RJAT (Legal Framework for Tax Arbitration). In this case, after the taxpayer submitted an official review request on October 3, 2016, and received no response from the Tax Authority, the silence constituted tacit rejection (rejeição tácita). The taxpayer then filed for arbitration on April 28, 2017, which was accepted by the CAAD President. Article 2 of the RJAT permits arbitration to review the legality of tax acts and decisions, including tacit administrative decisions. The arbitral tribunal confirmed its jurisdiction over both the original tax assessment and the tacitly rejected review request. This procedural avenue is important because it allows taxpayers to overcome administrative inaction and obtain judicial review of their claims within a reasonable timeframe, typically faster than conventional administrative courts. The case demonstrates that exhausting administrative remedies (like official review) is not strictly required before seeking arbitration when tacit rejection occurs.