Process: 305/2017-T

Date: January 13, 2018

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Process 305/2017-T addresses whether construction land (terrenos para construção) with a tax asset value exceeding €1,000,000 falls within the scope of Stamp Tax under item 28.1 of the General Stamp Tax Table (TGIS). The claimant challenged six Stamp Tax assessments for 2015 on urban properties registered as construction land in Porto, arguing that such properties cannot be classified as 'properties with residential use' required by the legal provision. The taxpayer contended that item 28.1 only applies when there is an authorized or planned building for residential purposes, and that mere construction land without such authorization falls outside the tax's objective scope. Additionally, the claimant raised constitutional concerns regarding violation of the equality principle under Article 13 of the Portuguese Constitution. The Tax and Customs Authority defended the assessments, arguing that Law 55-A/2012 introduced item 28 to tax ownership, usufruct, or surface rights over urban properties with high patrimonial values as a legitimate measure during economic crisis to rebalance fiscal sacrifices. The AT maintained that the relevant criterion is the property's value and cadastral classification, not whether actual residential construction exists. The arbitral tribunal was constituted on July 14, 2017, with both parties waiving oral submissions. The core legal issue centers on interpreting whether the statutory reference to 'urban properties' in item 28.1 TGIS encompasses undeveloped construction land or requires actual residential use or authorized construction plans to trigger Stamp Tax liability.

Full Decision

ARBITRAL DECISION

The arbitrators Fernanda Maçãs (arbitrator president), Cristina Coisinha and Pedro Miguel Bastos Rosado, appointed by the Deontological Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, agree as follows:

REPORT

  1. A A…, with tax identification number … and with registered address at Rua …, n.º…-…, …-…, Lisbon, hereinafter referred to as the Claimant, filed on 29 April 2017 a request for arbitral ruling in which it requests the declaration of unlawfulness of the act, and consequent revocation, of dismissal of the official review no. …2016…, relating to the year 2015, which has as its object the assessment of the lawfulness of the tax acts of Stamp Tax assessment no. 2016…, no. 2016…, no. 2016…, no. 2016…, no. 2016…, no. 2016…, referring to urban properties registered under the property articles … and …, both belonging to the Union of Parishes of … and …, municipality of Porto, with the Tax and Customs Authority being the respondent.

  2. The purpose of the subject matter of the request for arbitral ruling consists of the declaration of unlawfulness and consequent annulment of the tax acts of Stamp Tax assessment no. 2016…, no. 2016…, no. 2016…, no. 2016…, no. 2016…, no. 2016…, relating to the fiscal year 2015, by defect of violation of law, by error in the factual and legal presuppositions.

  3. The Claimant further requests the restitution of the entire tax paid plus indemnificatory interest, at the legal rate, until the complete reimbursement of the amount owed calculated on the tax.

  4. The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority (AT) on 2 May 2017.

  5. The Claimant did not proceed with the appointment of an arbitrator, whereby, under the provisions of paragraph a) of section 2 of article 6 and paragraph b) of section 1 of article 11 of the RJAT, the President of the Deontological Council appointed the undersigned as arbitrators of the collective arbitral tribunal, who communicated their acceptance of the appointment within the prescribed period.

5.1. On 29 June 2017, the parties were notified of the appointment of the arbitrators, having raised no objections.

5.2. In compliance with the provision of paragraph c) of section 11 of the RJAT, the collective arbitral tribunal was constituted on 14 July 2017.

5.3. In these terms, the Arbitral Tribunal is regularly constituted to assess and decide the subject matter of the proceedings.

  1. To support the request for arbitral ruling, the Claimant alleges, in summary, the following:

6.1. Properties registered in the cadastre as properties for construction cannot be subsumed under the concept of "properties with residential use" and, consequently, are not included within the scope of the objective incidence of item 28.1 of the GIST, which is why the incidence norm could never have been applied to the properties sub judice, with the Stamp Tax assessments lacking legal justification.

6.2. The unconstitutionality of item 28 of the General Stamp Tax Table when applied to "land for construction".

  1. The Tax and Customs Authority, duly notified for this purpose on 17 July 2017, filed its response in a timely manner and attached the administrative file, defending itself by opposition, concluding for the unfoundedness of the claim and invoking, in summary, the following:

7.1. With Law no. 55-A/2012, of 29 October, which amended article 1 of the Stamp Tax Code, added to the General Table of this tax, item 28, whereby Stamp Tax also came to apply to the ownership, usufruct or right of surface of urban properties whose tax asset value recorded in the respective cadastre, under the terms of the IMI Code be equal to or greater than € 1,000,000.00.

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

7.3. It refuted the alleged constitutionality of item 28 of the Stamp Tax Code, defending that it was a legitimate choice of the legislator to rebalance the distribution of sacrifices, so that these would not fall only on "those who live from the income of their work" (which, evidently, had in mind the measures implemented in the field of Personal Income Tax regarding the alteration of the structure of rates and brackets of Personal Income Tax, the 3.5% surtax, and the additional solidarity tax).

Furthermore, taxation under stamp tax is subject to the adequacy criterion, to the exact extent that it aims at the taxation of wealth embodied in the ownership of properties with residential use of high value and arises in a context of economic crisis that cannot be ignored.

Indeed, for the AT, the factual-legal reality selected by the legislator to constitute the basis of the incidence of the tax is the property itself considered, with regard to its use and its tax asset value, not the overall property portfolio of the taxpayers.

  1. As proof production was not requested and without prejudice to the possibility of the parties wishing to present submissions, the tribunal dispensed with the holding of the first meeting provided for in art. 18 of the RJAT and invited them to state whether they intended to present submissions and to clarify the manner in which they should take them, oral or written. The Tribunal set 14 January 2018 as the deadline for delivery of the award.

  2. Both parties waived the presentation of submissions.

2. CONSOLIDATION OF PROCEEDINGS

Article 3, section 1, of the RJAT provides that: "The joinder of claims even if relating to different acts and the combination of claimants are admissible when the merits of the claims depend essentially on the assessment of the same factual circumstances and on the interpretation and application of the same principles or rules of law".

Thus, the joinder of claims underlying the present proceedings is admissible, since it concerns acts of assessment of the same tax, Stamp Tax. As the identity between the factual matter also applies and the merits of the claim depend on the interpretation of the same principles and rules of law, cfr. art. 3, section 1, of the RJAT.

Consequently, the proceedings do not suffer from nullities, no questions have been raised that prevent the assessment of the merits of the case, the arbitral tribunal is regularly constituted and is materially competent to hear and decide the claim, and, consequently, the conditions for delivery of the final decision are met.

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

3. SUBJECT MATTER OF THE DISPUTE

To support its claim, the Claimant begins by stating that the subjection of land for construction with TPV exceeding one million euros is expressly provided when there exists authorized or planned building for residential purposes, and that land for construction without any planned or authorized building cannot be subject to item 28.1.

It contends that the relevant tax event for the application of Stamp Tax is based on the ownership of a real right – "ownership, usufruct or right of surface" – over land for construction which, having a tax asset value exceeding € 1,000,000.00, has a "building for residential purposes" "authorized or planned".

Whereby, the taxation under analysis can only be applied in situations in which the effective building of the "land" has been authorized or planned in the particular case and such building is intended for "residential purposes".

It adds that item 28.1 of the General Stamp Tax Table is unconstitutional when applied to land for construction, as it is contrary to the fundamental principle of equality enshrined in article 13 of the Constitution of the Portuguese Republic and, in parallel, contrary to the principle of fiscal equality and contributory capacity enshrined in article 104, section 3 of the same instrument.

The Claimant contends that the taxation enshrined in item 28.1 of the GIST arbitrarily excludes a significant portion of assets "of high value", insofar as the relevant tax event is restricted to a portion of real property assets with value exceeding € 1,000,000, that is, on that property destined for residential purposes, being excluded from the scope of taxation assets of high value intended for other purposes. In other words, with such exclusion, the law differentiates between taxpayers, without regard to their contributory capacity.

It understands and argues that the special taxation, as it has been implemented, by applying to urban properties considered individually, does not effectively aggravate all owners who have assets of high value and who, consequently, demonstrate a higher contributory capacity. Moreover, if an owner holds only a single urban property with tax asset value exceeding € 1,000,000, he will be subject to special taxation, differently from another who is owner of several urban properties with value less than € 1,000,000, whose sum equals a much higher amount than the aforesaid € 1,000,000, a case in which he will not be subject to such taxation. A circumstance that leads to different treatment of taxpayers owning very high-value assets, depending on whether they are concentrated or dispersed.

In a third line of argumentation (articles 75 to 92 of the Arbitral Request), the Claimant bases the annulment of the assessments in question on manifest unlawfulness by error in the factual and legal presuppositions. Thus, the legislative formulation of special taxation, applying to properties with residential use with value exceeding € 1,000,000, introduced by Law no. 55-A/2012, violates the constitutional principle of fiscal equality and its corollary of the principle of contributory capacity.

Moreover, the Claimant further understands that the aforementioned incidence norm constitutes double taxation of the same tax event, the ownership of a real right and, consequently, the assessments should be annulled. Indeed, the facts to which item 28 of the GIST applies are equally taxed under the Municipal Tax on Real Property. In this manner, a negative discrimination is automatically generated for certain taxpayers who, regarding the same tax event, only saw a single tax applied.

According to the Claimant, the specific tax event generating stamp tax, as defined by the legislator with the amendments introduced by Law no. 83-C/2013, of 31 December, is constituted by three cumulative requirements: a) ownership of a real right over the property; b) tax asset value of the property; and c) a "building, authorized or planned" for residential purposes. Which is why the taxation of "land for construction" rests on the existence of an "authorization" or mere "expectation" that the land in question will be built upon and that such building will be intended for residential purposes.

Now, in the end, even if the "building" or any "building for residential purposes" is never completed, the respective owner, usufructuary or holder of a surface right should bear the Stamp Tax arising from the "potential building for residential purposes". However, this purpose of burdening a prediction or expectation of "building for residential purposes" cannot be accepted as it does not constitute an externalization of contributory capacity.

The Claimant alleges that, "(…) without that prediction or expectation of «building for residential purposes» being materialized, the demonstration of wealth or fortune that the law intended to achieve cannot be considered verified in this case" (article 86 of the Request), and that what the legislator has always intended to tax, since the genesis of item 28 under analysis, "(…) were properties with effective «residential use», always associated with existing «buildings» or «constructions», since only these could be inhabited (…)" (article 90 of the Request).

In this regard, the Claimant further states that the taxation of "land for construction", under the conditions described above, does not derive from the laws that were at the genesis of item 28 of the GIST, since the intention of the legislator aimed at properties effectively destined for residential purposes, that is, those that could be inhabited, as the Secretary of State for Tax Affairs described in the presentation of Bill no. 96/XII.

Such possibility of use for residential purposes is not necessarily present in all "land for construction", but only if and when construction authorized and planned for such purpose is built thereon. However, when such occurs, they will no longer be "land for construction" but another type of urban property, "residential", "commercial", "industrial or for services" or "other".

Thus, it concludes that Stamp Tax assessments, by applying to a mere "expectation or prediction" of construction intended for residential purposes, appear to be unlawful, by error in the factual and legal presuppositions.

Furthermore, it clarifies that with respect to the properties at issue in the present request, they did not have in 2015 a "building, authorized or planned" for "residential purposes", as required by item 28.1 of the GIST.

Without waiving this, it contends that given the activity conducted by the Claimant, particularly credit operations, it is owner of multiple properties acquired, in its generality, through dación en pago, not representing such properties any investment, being intended only to be resold, to discharge debts incurred by its defaulting customers, which is why the ownership of the right of property over these properties does not, in itself, evidence a higher contributory capacity.

Consequently, the Claimant requests that:

  • The decision dismissing the official review be revoked with respect to the tax acts of Stamp Tax assessment, thus proceeding with the request for declaration of unlawfulness of the tax acts sub judice;

  • The unlawfulness of the tax acts of Stamp Tax assessment be declared for defect of violation of law, by error in the factual and legal presuppositions;

  • The Tax and Customs Authority be condemned to reimburse the Claimant for the value of the tax paid;

  • The Tax and Customs Authority be condemned to pay indemnificatory interest, at the legal rate, until the complete reimbursement of the amount owed and calculated on the tax.

For its part, the Tax and Customs Authority (hereinafter referred to simply as AT), in its response, argued for the maintenance of the tax acts, with the consequent dismissal of the claim, arguing that the Claimant's properties have the characteristics contained in the definition of land for construction for purposes of the application of item 28.1 of the GIST, in the wording given by Law no. 83-C/2013, that is, land for construction whose planned building, whether for residential purposes, under the terms provided in the IMI Code.

Indeed, for the AT we are dealing with land for construction, more specifically with plots of land for urban construction, with areas of building footprint and construction perfectly defined and identified in urban property registries, as indeed results from the urban property registry in which the following can be read in the description of properties … and …, respectively: "

And, in that measure, the land is subject to stamp tax given that they are land for construction, with approved subdivision permit, concluding that, long before building it is possible to determine and establish the use of the land for construction.

It further alleges that there is no double taxation, since taxation under IMI and under stamp tax are different taxes.

It understands that, for purposes of applying item 28.1 of the GIST, it is irrelevant what economic activity the Claimant conducts, since the legislator defined an economically justified presupposition.

Finally, it rejects the alleged unconstitutionality of item 28.1 arguing that it does not violate the principles of fiscal equality and contributory capacity, given that it is a general and abstract rule, applicable indistinctly to all cases in which the factual and legal presuppositions are met.

In this particular, it further defends that, for the legislator, item 28.1 of the GIST aimed to rebalance the distribution of sacrifices, so that these would not fall only on "those who live from the income of their work" (which, evidently, had in mind the measures implemented in the field of Personal Income Tax regarding the alteration of the structure of rates and brackets of Personal Income Tax, the 3.5% surtax, and the additional solidarity tax.

Furthermore, taxation under stamp tax is subject to the adequacy criterion, to the exact extent that it aims at the taxation of wealth embodied in the ownership of properties with residential use of high value and arises in a context of economic crisis that cannot be ignored, the choice of this mechanism for obtaining revenue is thus legitimized, since such measure is applicable indistinctly to all and any holders of properties with residential use with value exceeding €1,000,000.00, applying to the wealth embodied and manifested in the value of the properties.

4. FACTUAL MATTER

4.1. Established Facts

Based on the elements contained in the proceedings and in the administrative file attached to the record, the following facts are considered established:

A) The Claimant is the owner and legitimate proprietor of the urban properties registered under the property articles … and …, both belonging to the Union of Parishes of … and …, municipality of Porto (See Urban property registries attached to the Administrative File in the record);

B) The urban properties described in A) are matricially registered as "land for construction" (See Urban property registries attached to the Administrative File in the record);

C) In the respective urban property registry, the urban property registered under property article … is described in the following terms: "Assessment made under the terms of the IMI Code, of an urban plot of land (lot no. 1) for construction of a property intended for residential purposes, commerce on the ground floor and parking in basements, with the Subdivision Permit no. ALV/…/…/DMU, issued on 04/04/2008, by the City Council of Porto, having validated the elements presented as they are in accordance with the said permit and subdivision layout plan" (See Urban property registry attached to the Administrative File in the record);

D) In the respective urban property registry, the urban property registered under property article … is described in the following terms: "Assessment made under the terms of the IMI Code, of an urban plot of land (lot no. 2) for construction of a property intended for residential purposes, commerce on the ground floor and parking in basements, with the Subdivision Permit no. ALV/…/…/DMU, issued on 04/04/2008, by the City Council of Porto, having validated the elements presented as they are in accordance with the said permit and subdivision layout plan" (See Urban property registry attached to the Administrative File in the record);

E) In the "Assessment Data" of the respective urban property registries, the urban properties described in A) are registered in the following terms: "Type of location coefficient: Residential" (See Urban property registries attached to the Administrative File in the record);

F) On 5 April 2016, the AT made Stamp Tax assessments, in the total amount of € 43,895.82, for the year 2015 and relating to the urban property mentioned registered under property article …, which were duly notified to the Claimant (cfr. Documents 2, 4 and 7 attached to the Arbitral Request and Administrative File in the record);

G) On 5 April 2016, the AT made Stamp Tax assessments, in the total amount of € 25,329.88, for the year 2015 and relating to the urban property mentioned registered under property article …, which were duly notified to the Claimant (cfr. Documents 3, 5 and 6 attached to the Arbitral Request and Administrative File in the record);

H) In the tax year to which the said assessments relate (2015), the tax asset values of the urban properties registered under property articles … and … were € 4,389,582.28 and € 2,532,988.13, respectively (cfr. Documents 2 to 7 attached to the Arbitral Request and Administrative File in the record);

I) Following the Stamp Tax assessments, the Claimant was notified of the collection documents which are then detailed (See Documents 2 to 7 attached to the Arbitral Request and Administrative File in the record)

As to property article …:

I - Tax Year: 2015; Document Identification – 2016…; Date of Assessment – 2016-04-05; Due Date – APRIL/2016; 1st Installment; Amount Due - € 14,631.94;

II - Tax Year: 2015; Document Identification – 2016…; Date of Assessment – 2016-04-05; Due Date – JULY/2016; 2nd Installment; Amount Due - € 14,631.94;

III - Tax Year: 2015; Document Identification – 2016…; Date of Assessment – 2016-04-05; Due Date – NOVEMBER/2016; 3rd Installment; Amount Due - € 14,631.94;

As to property article …:

I - Tax Year: 2015; Document Identification – 2016…; Date of Assessment – 2016-04-05; Due Date – APRIL/2016; 1st Installment; Amount Due - € 8,443.29;

II - Tax Year: 2015; Document Identification – 2016…; Date of Assessment – 2016-04-05; Due Date – JULY/2016; 2nd Installment; Amount Due - € 8,443.29;

III - Tax Year: 2015; Document Identification – 2016…; Date of Assessment – 2016-04-05; Due Date – NOVEMBER/2016; 3rd Installment; Amount Due - € 8,443.29;

J) On 20 April 2016, the Claimant proceeded, with respect to the property registered under property article …, to timely and complete payment of the amount corresponding to the 1st installment of the said Stamp Tax assessment, in the amount of € 14,631.94 (cfr. Document 2 attached to the Arbitral Request and pp… of the Administrative File in the record);

L) On 27 July 2016, the Claimant proceeded, with respect to the property registered under property article …, to timely and complete payment of the amount corresponding to the 2nd installment of the said Stamp Tax assessment, in the amount of € 14,631.94 (cfr. Document 4 attached to the Arbitral Request and pp… of the Administrative File in the record);

M) In November 2016, the Claimant proceeded, with respect to the property registered under property article …, to timely and complete payment of the amount corresponding to the 3rd installment of the said Stamp Tax assessment, in the amount of € 14,631.94 (cfr. Document 7 attached to the Arbitral Request and pp… of the Administrative File in the record – Information no. 20-APT/2017);

N) On 20 April 2016, the Claimant proceeded, with respect to the property registered under property article …, to timely and complete payment of the amount corresponding to the 1st installment of the said Stamp Tax assessment, in the amount of € 8,443.29 (cfr. Document 3 attached to the Arbitral Request and pp… of the Administrative File in the record);

O) On 27 July 2016, the Claimant proceeded, with respect to the property registered under property article …, to timely and complete payment of the amount corresponding to the 2nd installment of the said Stamp Tax assessment, in the amount of € 8,443.29 (cfr. Document 5 attached to the Arbitral Request and pp… of the Administrative File in the record);

P) In November 2016, the Claimant proceeded, with respect to the property registered under property article …, to timely and complete payment of the amount corresponding to the 3rd installment of the said Stamp Tax assessment, in the amount of € 14,631.94 (cfr. Document 6 attached to the Arbitral Request and pp… of the Administrative File in the record – Information no. …-APT/2017);

Q) The said Stamp Tax assessments resulted from the application of item 28.1 of the GIST to the urban properties described in A). (Cfr. Documents 2 to 7 attached to the Arbitral Request and Administrative File in the record);

R) On 25 November 2016, the Claimant filed with the AT a request for official review of the tax acts of Stamp Tax assessment, which corresponded to the Administrative Procedure for Official Review no. …2016… (See pp… of the Administrative File in the record);

S) By Memorandum no. … of 16-02-17 of the AT, the Claimant was notified of the decision to dismiss the request filed for official review of the tax acts of Stamp Tax assessment (Cfr. Document 1 attached to the Arbitral Request and pp… of the Administrative File in the record).

4.2. Substantiation of Factual Matter

The factual matter given as established has its origin in the documents used for each of the facts alleged and whose authenticity was not called into question, in particular in the documents attached by the Claimant with the request for arbitral ruling and in the administrative file.

4.3. Unestablished Facts

With relevance for the assessment and decision of the case, there are no facts that have not been established.

5. ON THE LAW

5.1. As to the Merits

Above all that has been set out, the Claimant challenges the Stamp Tax assessments under analysis, based on the following grounds:

  • Unlawfulness by error in the factual and legal presuppositions;

  • Unconstitutionality of item 28.1 of the GIST, with the wording given by Law no. 83-C/2013, of 31 December, if interpreted in the sense that the relevant tax event rests on an expectation of residential use, by violation of the constitutional principles of contributory capacity and fiscal equality.

The Administration is subordinate to the Constitution, like any power or organ of the State, but what characterizes it is immediate subordination to law, there being no Administration without legal mediation. The principle of legality, understood in a broad sense (of the juridicity of administration), constitutes the presupposition and foundation of all administrative activity, and only exceptionally can there be administrative activity directly linked to the Constitution.

In this conformity, it is imperative, first and foremost, to ascertain whether or not the tax acts of assessment that are the subject of the present Arbitral Request are in conformity with the immediate parameter to which the Tax Administration is subordinated, in the case of the record: item 28.1 of the GIST, according to the wording given by Law no. 83-C/2013, of 31 December.

As we have seen, the Claimant alleges, in summary, that the Stamp Tax assessments in question are unlawful by error in the factual and legal presuppositions.

It is necessary to assess this.

For the resolution of the question identified above, it is important to keep in mind, first and foremost, the evolution and framework of the said item 28, both before and after the amendment determined by article 194 of Law no. 83-C/2013, of 31 December (which is, as mentioned, the wording applicable to the present case).

In that sense, reference to the Award of the STA of 9 April 2014 (proc. no. 1870/13) becomes useful, which, like other STA decisions – e.g.: Award of 9 April 2014 (proc. no. 48/14), Awards of 23 April 2014 (proc. nos. 270/14, 271/14 and 272/14), Award of 25 November 2015 (proc. 1338/15) – makes a detailed historical and chronological analysis of the evolution and framework of item 28, now under analysis:

"The concept of «property (urban) with residential use» was not defined by the legislator. Neither in Law no. 55-A/2012, which introduced it, nor in the IMI Code, to which section 2 of article 67 of the Stamp Tax Code (equally introduced by that Law) refers, on a subsidiary basis. And it is a concept that, probably due to its imprecision – a fact all the more serious given that it is based on it that the scope of objective incidence of the new taxation is delimited –, had a short life, as it was abandoned upon the entry into force of the State Budget Law for 2014 (Law no. 83-C/2013, of 31 December), which gave new wording to that item no. 28 of the General Table, and which now delimits its scope of objective incidence through the use of concepts that are legally defined in article 6 of the IMI Code.

This amendment – to which the legislator did not give an interpretative character, nor does it seem to us that it did –, merely makes it unequivocal for the future that land for construction whose building, authorized or planned, is for residential purposes, are covered within the scope of item 28.1 of the General Stamp Tax Table (provided that the respective tax asset value is equal to or greater than 1 million euros)". (End of quotation.)

Before the legislative amendment which, in an innovative manner, came to include the said land for construction, it was necessary to ascertain, using the various interpretative elements, whether, in the absence of that literal reference, such land could still be included within the scope of objective incidence of item 28.

It is for this reason that it is understood that the said award proceeded, stating:

"[With] no clarification [from the legislator] regarding previous situations [i.e., assessments prior to 2014], such as the one at issue in the present proceedings, it does not seem possible to adopt [with respect to these] the interpretation of the appellant, since it does not result unequivocally, neither from the letter nor from the spirit of the law, that the intention of the latter was, ab initio, to encompass within its scope of objective incidence land for construction for which construction of residential buildings has been authorized or planned, as results today unequivocally from item 28.1 of the General Stamp Tax Table.

From the letter of the law nothing unequivocal follows, indeed, as it itself, by using a concept that it did not define and which also was not defined in the statute to which it referred on a subsidiary basis, lent itself, unnecessarily, to equivocation in a matter – of tax incidence – in which certainty and legal security should also be paramount concerns of the legislator.

And from its «spirit», apprehensible in the explanatory statement of the bill that is at the origin of Law no. 55-A/2012 (Bill no. 96/XII – 2nd, Journal of the Assembly of the Republic, series A, no. 3, 21 September 2012, p. 44 [...]) nothing more follows than the concern of securing new tax revenues, on sources of wealth «more spared» in the past to the ravages of the Tax Authority than income from work, in particular income from capital, capital gains and property, reasons which contribute nothing of relevance to the clarification of the concept of «properties (urban) with residential use», as they take it as settled, without any concern to clarify it. Such clarification did, however, emerge – as reported in the Arbitral Decision delivered on 12 December 2013, in case no. 144/2013-T, available in the CAAD database –, upon the presentation and discussion in the Assembly of the Republic of that bill, in the words of the Secretary of State for Tax Affairs, who will have expressly stated, as appears from the Journal of the Assembly of the Republic (DAR I Series no. 9/XII – 2, of 11 October, p. 32) that: «The Government proposes the creation of a special rate on residential urban properties of higher value. It is the first time that in Portugal a special taxation on high-value properties intended for residential purposes is created. This rate will be 0.5% to 0.8% in 2012 and 1% in 2013, and will apply to houses valued at equal to or greater than 1 million euros» (underscored), from which it follows that the reality intended to be taxed is, after all, and notwithstanding the terminological imprecision of the law, «properties (urban) residential», in common parlance «houses», and not other realities.

[...]. [...] as the incidence norm of stamp tax refers to urban properties with «residential use», without it being established any specific concept for that purpose, it cannot be inferred from it that it contains a future potentiality, inherent to a distinct property that may possibly be built on the land.

It is concluded, therefore, in conformity with what was decided in the appealed judgment, that, as it results from article 6 of the IMI Code a clear distinction between urban properties «residential» and «land for construction», the latter cannot be considered as «properties with residential use» for purposes of item no. 28.1 of the General Stamp Tax Table, in its original wording, which was given by Law no. 55-A/2012, of 29 October." (End of quotation.)

In summary, it is inferred from the jurisprudence of the Venerable STA that, with the new wording of item 28.1 of the GIST, given by art. 194 of Law no. 83-C/2013, of 31 December (and applicable to the present record), the scope of objective incidence of the rule was broadened, in an innovative manner, by explicitly including land for construction for which building for residential purposes has been authorized or planned.

Having made the indispensable historical-legal framework, it is now, in a second moment, important to analyze the terms of the said broadening of the scope of objective incidence of the rule in question and to assess the lawfulness of its application to the case of the present record.

The new wording of item 28.1 of the GIST (given, as mentioned, by art. 194 of Law no. 83-C/2013, of 31 December) states the following: "By residential property or by land for construction whose building, authorized or planned, is for residential purposes, under the terms provided in the IMI Code" - 1%".

Attentive to the letter of the law, it is verified that the incidence norm in question restricts the tax event to land for construction whose authorized or planned building is for residential purposes.

Excluding land for construction whose authorized or planned building is for other purposes, such as commerce or services.

In the absence of a definition of "land for construction" in the Stamp Tax Code, it is important to ascertain the concept of "land for construction" as provided in section 3 of article 6 of the IMI Code.

Thus, land for construction is considered "(…) land situated within or outside an urban area, for which a license or authorization has been granted, prior communication admitted or favorable prior information issued for subdivision or construction operation, and also those which have been declared as such in the acquisition title, excepting land in which the competent entities prohibit any of those operations, in particular those located in green areas, protected areas or which, in accordance with municipal land use planning plans, are intended for spaces, infrastructure or public facilities".

Indeed, the concept of "land for construction" for tax purposes should not be understood as a concept of formal nature, but rather as a concept of material nature, especially translated in the potential destination for construction.

The essential question that, in this context, arises, is whether or not there exists a prediction or expectation of "building for residential purposes" regarding the land for construction under analysis and whether the application of stamp tax, as carried out by the AT, can be accepted.

To respond to the said question, it appears to be particularly useful to consider the following: "with regard to land for construction, whether or not located within an urban area, as defined in art. 3/4 of this statute [IMI Code], should, as such, be considered land with respect to which there has been granted: - license for subdivision operation; - building license; - authorization for subdivision operation; - building authorization; - favorable prior communication admitted for subdivision or building operation; - 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 necessary to bear in mind that, also for that purpose, only the acquisition title with the form prescribed by civil law should be relevant, that is, the public deed or the authenticated private document referred to in art. 875 CC." [see. ANTÓNIO SANTOS ROCHA / EDUARDO JOSÉ MARTINS BRÁS – Taxation of Assets. IMI-IMT and Stamp Tax (Annotated and Commented). Coimbra, Almedina, 2015, p. 44].

Therefore, although the properties here in question are matricially registered as "land for construction", this does not legitimize the automatic application of item 28.1 of the GIST, since, as seems obvious, the mere matricial registration does not, by itself, constitute proof that a property has a building for residential purposes planned.

And it also does not legitimize the automatic application of item 28.1 of the GIST the attribution by the AT of a residential use within the scope of their respective assessments, with such use being contained, without more, in their respective cadastres. The legislator did not attribute to the use of that coefficient any relevance in the qualification of the property, but only in its respective assessment.

Now, within the scope of the application of Item no. 28.1 of the General Table, the jurisprudence has been consistent in considering that "(…) only properties that are effectively intended for residential use are included within the scope of incidence (…), an interpretation based on the literal element "use", which presupposes a concrete and effective use for residential purposes, and on the "ratio legis", resulting from the restriction of the field of application of the rule to properties with residential use, to the circumstances under which the law was enacted.".

(See Award of the Supreme Administrative Court of 28 January 2015, delivered in case no. 0419/14, available at http://www.dgsi.pt.)

The current wording of Item no. 28.1 of the General Table, introduced by Law no. 83-C/2013, of 31 December, broadened, in an innovative manner, the scope of objective incidence of the rule, by explicitly including "land for construction" for which building for residential purposes has been authorized or planned.

However, the current wording of Item no. 28.1 of the General Table, having come to include "land for construction", maintained the conditionality regarding the inclusion of the building, authorized or planned, being for residential purposes.

In practice, the scope of incidence continues to be restricted, in the case of "land for construction", to the authorized or planned building that is for residential purposes, under the terms provided in the IMI Code.

In this measure, subjection to Item no. 28.1 of the General Table depends on the cumulative fulfillment of the following requirements (in addition to ownership of the property):

  • the tax asset value contained in the cadastre, under the terms of the IMI Code, being equal to or greater than € 1,000,000.00;

  • being land for construction; and

  • the authorized and planned building for the land for construction being for residential purposes, under the IMI Code.

Thus, it is important to verify in the case at hand, the fulfillment of the same.

As to the first requirement, each of the properties, considered as a whole, have a tax asset value exceeding € 1,000,000.00, whereby the same is verified.

As to the second requirement, there are no doubts about the qualification of the properties as "land for construction", nor about their inclusion in the definition contained in section 3 of article 6 of the IMI Code, whereby the same is also verified.

Finally, it is necessary to analyze whether the third requirement is also fulfilled: whether the building, authorized and planned, is for residential purposes, under the terms provided in the IMI Code.

In the case now under analysis, the urban properties are covered by the Subdivision Permit no. ALV/…/…/DMU, issued on 04/04/2008, by the City Council of Porto.

Furthermore, each of the urban properties is described in their respective urban property registries as being an "urban plot of land for construction of a property intended for residential purposes, commerce on the ground floor and parking in basements", and this in accordance with the said permit and subdivision layout plan" (underscored).

The essential question is whether, despite the existence of a subdivision permit, the express mention that the land for construction is planned for the construction of a property intended for residential purposes, but also for other purposes, such as commerce, will be sufficient for the application of Item 28.1 of the GIST.

Being certain that the stamp tax assessments considered in full the tax asset value of the land for construction of the Claimant.

Now, it is the understanding of this Tribunal that the interpretation that is required of Item 28.1 of the GIST does not accord with the application of the incidence rule to land for construction that is only in part intended for residential purposes, within the scope of the subdivision permit, as it is equally intended for other purposes, in particular for commerce.

Thus, the third requirement contained in the incidence rule of the tax is not fulfilled, since the "land for construction" (in this case each of the land owned by the Claimant) does not have a building, authorized or planned, exclusively intended for residential purposes.

Indeed, we are dealing with properties in which part is potentially intended for residential purposes and another part for commerce and parking, that is, a mixed use, whereby they do not have a building planned exclusively intended for residential purposes.

It is possible to state that we are dealing with a situation not provided for, having reference to both the literal element and the ratio legis of the incidence rule of stamp tax.

The understanding championed by the Tribunal is, moreover, in the context of abundant jurisprudence of CAAD (see, by way of example, the decisions delivered in Cases nos. 522/2015-T, 578/2015-T and 658/2016-T and 213/2017-T).

Given the above, and without need for further considerations, it is imperative to conclude that Stamp Tax as provided for in the incidence rule contained in Item 28.1 of the GIST does not apply to the urban properties at issue – land for construction.

Consequently, both the express dismissal of the request for official review no. …2016… and the contested Stamp Tax assessments, suffer from the defect of violation of law, by error regarding the factual and legal presuppositions, embodied in the erroneous interpretation and application of Item 28.1 of the GIST, which implies the declaration of their unlawfulness and consequent annulment, which will be decided in the end.

As the understanding of the Claimant regarding the question referred to proves to be well-founded, the assessment of other allegations of the Claimant is prejudiced, given the provision of art. 124 of the Code of Tax Procedure and Process (CTPP), ex vi art. 29, section 1, paragraph c), of the RJAT, in particular the alleged unconstitutionality (there being, in light of this decision, any prejudice to the more stable or effective protection of the interests of the same).

5.2. Indemnificatory Interest and Reimbursement of Amount Paid

In light of the provision in section 5 of art. 24 of the RJAT – to the extent that it states that "payment of interest, regardless of its nature, is due, under the terms provided in the general tax law and in the Code of Tax Procedure and Process", it has been understood that such rule allows recognition of the right to indemnificatory interest in arbitral proceedings.

It is thus justified, based on the above, to analyze the request for payment of indemnificatory interest to the Claimant.

Indemnificatory interest is owed when it is determined, in gracious reclamation or judicial challenge, that there has been error attributable to the services from which results payment of the tax debt in an amount exceeding that legally owed (see art. 43, section 1, of the General Tax Law).

It is, therefore, a necessary condition for the award of said interest the demonstration of the existence of error attributable to the services. In that sense, see, for example, the following awards: "The right to indemnificatory interest provided for in section 1 of art. 43 of the General Tax Law [...] depends on it being demonstrated in the proceedings that that act is affected by error regarding the factual or legal presuppositions attributable to the AT." (Award of the STA of 30 May 2012, proc. 410/12); "The right to indemnificatory interest provided for in section 1 of article 43 of the General Tax Law presupposes that the proceedings determine that in the assessment «there was error attributable to the services», understood as the «error regarding factual or legal presuppositions attributable to the Tax Administration»" (Award of the STA of 10 April 2013, proc. 1215/12).

Now, as there has been, as follows from what was stated in point 5.1 of the present arbitral decision, error attributable to the services – which leads to the annulment of the tax acts in question and the consequent return of the amounts paid by the Claimant, under the terms of art. 173, section 1, of the CTPP, ex vi art. 29, section 1, paragraph c), of the RJAT –, it is concluded, without need for further considerations, for the well-foundedness of the request for payment of indemnificatory interest to the Claimant.

DECISION

In these terms, the arbitrators of this Tribunal agree to:

  • Declare the present request for arbitral ruling well-founded and, in consequence, annul the decision of express dismissal of the official review and, following this,

  • Annul the Stamp Tax assessments at issue;

  • Declare well-founded the claim insofar as it relates to recognition of the right to indemnificatory interest in favor of the Claimant, by virtue of the tax improperly paid, under the legal terms, to be concretized in the execution of sentence.

VALUE OF THE PROCEEDINGS

In accordance with the provisions of articles 306, section 2, and 297, section 2 of the Civil Procedure Code, article 97-A, section 1, paragraph a) of the Code of Tax Procedure and Process and article 3, section 2, of the Regulation on Costs in Tax Arbitration Proceedings, the case is valued at € 69,225.67.

IV. COSTS

In accordance with the provisions of articles 22, section 4, and 12, section 2, of the Legal Regime of Arbitration, article 2, section 1 of article 3 and sections 1 to 4 of article 4 of the Regulation on Costs in Tax Arbitration Proceedings, as well as in Table I attached to this regulation, the total amount of costs is set at € 2,448.00, to be borne by the Tax and Customs Authority.

Lisbon, 13 January 2018

The arbitrators,

Fernanda Maçãs

Cristina Coisinha

Pedro Miguel Bastos Rosado

Frequently Asked Questions

Automatically Created

Are construction land plots subject to Stamp Tax under Verba 28.1 of the General Stamp Tax Table (TGIS) in Portugal?
The taxation of construction land under item 28.1 TGIS depends on statutory interpretation. The claimant argued that mere construction land without authorized or planned residential buildings does not constitute 'properties with residential use' and therefore falls outside the scope of item 28.1. The Tax Authority contended that urban properties with tax asset values exceeding €1,000,000 are taxable based on their cadastral classification and value, regardless of actual residential use or construction authorization. The legal debate centers on whether the reference to 'urban properties' in the provision encompasses undeveloped construction land or requires demonstrated residential purpose.
What is the legal distinction between 'residential use properties' and 'construction land' for Stamp Tax purposes?
The legal distinction is crucial for Stamp Tax purposes. 'Residential use properties' typically refer to built properties actually used or intended for residential purposes with authorized or planned construction. 'Construction land' (terrenos para construção) refers to cadastrally registered plots designated for future building but without existing structures or authorized construction projects. The claimant emphasized that construction land lacks the essential characteristic of residential use required by item 28.1 TGIS, arguing that statutory interpretation should differentiate between actual residential properties and mere development potential. The Tax Authority adopted a broader interpretation focused on cadastral classification and property value.
Can taxpayers challenge Stamp Tax assessments on construction land through CAAD arbitration proceedings?
Yes, taxpayers can challenge Stamp Tax assessments on construction land through CAAD (Centro de Arbitragem Administrativa) arbitration proceedings. The claimant in Process 305/2017-T successfully initiated arbitration after the Tax Authority dismissed an official review request. CAAD provides an alternative dispute resolution mechanism for tax matters, including challenges based on legal errors in applying item 28.1 TGIS to construction land. The arbitration procedure allows taxpayers to contest both the factual and legal grounds for Stamp Tax assessments, including constitutional challenges and statutory interpretation issues regarding whether construction land qualifies as taxable property under the applicable provisions.
What was the outcome of CAAD Process 305/2017-T regarding Stamp Tax on urban properties registered as construction land?
Process 305/2017-T involved a challenge to six Stamp Tax assessments for fiscal year 2015 on urban properties registered as construction land in Porto with tax asset values exceeding €1,000,000. The claimant requested annulment of the assessments, arguing that construction land without authorized or planned residential buildings does not fall within item 28.1 TGIS scope. The taxpayer also raised constitutional objections based on the equality principle. The Tax Authority defended the assessments as lawful applications of Law 55-A/2012, which introduced taxation on high-value urban property ownership during economic crisis. The arbitral tribunal, constituted in July 2017, examined whether the statutory reference to 'urban properties' encompasses undeveloped construction land for Stamp Tax purposes.
Are property owners entitled to refund and compensatory interest when Stamp Tax is unlawfully levied on construction land?
When Stamp Tax is unlawfully levied, taxpayers are entitled to full restitution of amounts paid plus compensatory interest (juros indemnizatórios) at the legal rate until complete reimbursement. The claimant in Process 305/2017-T explicitly requested such relief, calculated on the tax amount from payment date until full refund. Portuguese tax law provides that successful challenges to unlawful tax assessments trigger automatic entitlement to principal refund and compensatory interest to restore the taxpayer's financial position. The interest compensates for the State's unlawful retention of funds and accrues continuously until the Tax Authority effectuates complete payment of the amounts owed.