Process: 318/2015-T

Date: March 8, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

Process 318/2015-T addresses whether land for construction (terreno para construção) falls within the scope of Stamp Tax under Verba 28.1 of the General Stamp Tax Table (TGIS). The Claimant challenged a €10,657.60 Stamp Tax assessment for 2012 on a construction plot, arguing that undeveloped land cannot be classified as property with residential use. The central legal question concerns the interpretation of Verba 28.1, introduced by Law 55-A/2012, which subjects urban properties with residential use valued at €1,000,000 or more to annual Stamp Tax. The Claimant contended that land for construction lacks a residential use license and cannot generate taxable capacity until developed, making the assessment unconstitutional under the principle of ability to pay. The Tax Authority countered that the concept of residential use property includes both built properties and building plots, citing Article 67(2) of the Stamp Tax Code which refers to IMI Code definitions. The Respondent argued that the mere creation of construction potential increases property value, justifying taxation before actual development. The case also raised procedural issues regarding timeliness of the arbitral request, as the Respondent claimed the filing exceeded the legal deadline after the voluntary payment period ended on November 30, 2013. This arbitral decision is significant for determining the scope of Stamp Tax on undeveloped land and clarifying when construction plots acquire taxable residential character for purposes of annual property taxation.

Full Decision

ARBITRAL DECISION

I – REPORT.

  1. On 19 May 2015 the association "A..., CRL", holder of legal entity number ... (hereinafter referred to as "the Claimant"), submitted to the Administrative Arbitration Center (CAAD) a request for constitution of an arbitral tribunal in order to obtain an arbitral award, in accordance with the provisions of articles 2, no. 1, paragraph a) and 10 of Decree-Law No. 10/2011, of 20 January (hereinafter referred to as "RJAT"), following the tacit dismissal of the request for revision of the tax act constituting the Stamp Tax (IS) assessment for the year 2012, relating to Lot No. ... of the Development of..., land for construction registered under article..., in the urban property register of the Parish of..., municipality of ..., in the total amount of € 10,657.60 (ten thousand, six hundred and fifty-seven euros and sixty cents).

  2. In the request for arbitral award, the Claimant opted not to designate an arbitrator.

  3. In accordance with no. 1 of article 6 and paragraph b) of no. 1 of article 11 of RJAT, as amended by article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council appointed the undersigned as sole arbitrator, who accepted the position within the legally prescribed period.

  4. The arbitral tribunal was constituted on 10 August 2015.

  5. On 29 September 2015, the Respondent, duly notified for that purpose, submitted its reply.

  6. The meeting provided for in article 18 of RJAT, as well as the submissions were waived by the Tribunal on grounds of procedural economy and expeditiousness and the prohibition on the performance of useless acts.

  7. The position of the Claimant, expressed in the request for arbitral award, is, in summary, as follows:

7.1. The tacit dismissal of the request for revision of the tax act constituting the Stamp Tax (IS) assessment for the year 2012, subject to this arbitral award, in the amount of € 10,657.60, is unlawful due to violation of article 1 of the Stamp Tax Code and Item 28.1 of the General Stamp Tax Table (TGIS), and for this reason requests from the Arbitral Tribunal its annulment.

7.2. The Claimant understands that the interpretation underlying the assessment in question, according to which land for construction are properties with residential use, is unconstitutional due to violation of the principle of ability to pay enshrined in the Constitution of the Portuguese Republic.

7.3. Moreover, the concept of land for construction, for tax purposes, cannot be considered property intended for residential use, under the provisions of article 1, no. 1, of the Stamp Tax Code and the same Item 28. The property in question has the nature of land for construction, and therefore does not have, nor could it have, a license to use for residential purposes.

7.4. Thus, the understanding of the AT suffers from an error in the factual presuppositions, when it asserts that the property on which the disputed assessment falls has the legal nature of property with residential use, and as such, the assessment act subject to this request for arbitral award should be maintained, as it embodies the correct interpretation of Item 28 of the General Table, amended by Law 55-A/2012, of 29/12.

7.5. For all the foregoing, the Stamp Tax assessment, relating to the year 2012, made under Item 28.1 of the respective TGIS, corresponding to the property in question, should be annulled, with all legal consequences, namely the refund of the amount paid of € 10,657.60, plus compensatory interest.

  1. The position of the Respondent expressed in the Reply is, in brief summary, as follows:

8.1. In the Initial Petition submitted by the Claimant, any reference to a request for annulment of the act of tacit dismissal of the request for official revision is omitted. Therefore, the act under review is the Stamp Tax assessment of the year 2012, whose voluntary payment period deadline relating to the 3rd and final installment occurred on 30.11.2013.

8.2. However, having the voluntary payment period ended on 31.11.2013, the arbitral request submitted on 19.05.2015 is untimely, in accordance with article 10 of RJAT, and the Respondent should be absolved.

8.3. Nevertheless, it is the understanding of the AT that the property on which the disputed assessment falls has the legal nature of property with residential use, in accordance with Item 28 of the General Stamp Tax Table, amended by Law 55-A/2012, of 29/12, and the assessment act subject to the request for arbitral award should be maintained.

8.4. The legislative amendment meant that Stamp Tax also became applicable to the ownership, usufruct or right of superficies of urban properties whose tax assessed value (VPT) registered in the property register, in accordance with the Municipal Property Tax Code (IMI Code) is equal to or greater than € 1,000,000.00.

8.5. However, since there is no definition of the concept of urban property, land for construction and residential use under Stamp Tax provisions, one must resort to the IMI Code, in accordance with the provisions of article 67, no. 2 of the Stamp Tax Code, as amended by Law No. 55-A/2012, of 29/10, determining the exact meaning and scope of the rule, in accordance with the provisions of article 9 of the Civil Code, pursuant to article 11 of the General Tax Law (LGT).

8.6. Thus, the concept of "properties with residential use", for the purposes of Item 28 of TGIS, includes both built properties and land for construction, noting that the mere creation of a potential construction right immediately increases the value of the property in question, hence the rule of article 45 of the IMI Code, providing that for purposes of determining the VPT of land for construction, there must be a division between the part of the land where the building to be constructed will be built and the area of free land.

8.7. Still, the Legal Regime of Urbanization and Building (RJUE) cannot be ignored, which has as a prerequisite already constructed buildings, in accordance with article 77 of the RJUE, that is, long before the actual construction of the property, it is possible to determine and establish the intended use of land for construction.

8.8. In this sequence, the Respondent concludes for the total lack of merit of the request for arbitral award formulated, it being evident the legal conformity of the act subject to these proceedings, not violating any constitutional provision.

II – ISSUE TO BE DECIDED.

  1. In light of what has been set out in the foregoing numbers, the main issue to be decided is the following:

a) The tacit dismissal of the request for revision of the tax act constituting the Stamp Tax (IS) assessment for the year 2012, relating to Lot No. ... of the Development of..., land for construction registered under article..., in the urban property register of the Parish of..., municipality of ..., in the total amount of € 10,657.60 (ten thousand, six hundred and fifty-seven euros and sixty cents) by the Tax and Customs Authority, suffers from an error regarding the factual and legal presuppositions and also from a defect of violation of the law, in the sense that land for construction are comprised within the concept of properties with "residential use" for purposes of the incidence of Stamp Tax referred to in Item 28 of TGIS, amended by Law No. 55-A/2012, of 29 October, in its original wording.

III – PROCEDURAL SANATION.

  1. The Tribunal is regularly constituted and is materially competent, in accordance with articles 2, no. 1, paragraph a), 5, no. 2, and 6, no. 1, of RJAT.

In the reply submitted by the Respondent, in accordance with article 17, no. 1 of RJAT, an exception was raised: (i) untimeliness of the request for arbitral award submitted by the Claimant, on the ground that in the initial petition any reference to a request for annulment of the act of dismissal of the request for official revision is omitted, with the act under review being reduced to the Stamp Tax assessment recorded in the collection notices with a voluntary payment deadline of 30.11.2013. Given that the Claimant submitted its request for constitution of the arbitral tribunal on 19.05.2015, this is manifestly untimely, in accordance with article 10 of RJAT.

However, the Claimant, in a petition dated 08.10.2015 in which it contests the merit of such exception of untimeliness, requested, if any doubts existed, an expansion of the claim, in accordance with article 265 of the Code of Civil Procedure (CCP), applicable pursuant to paragraph e) of article 2 of the Code of Tax Procedure and Process (CPPT).

Thus, since the expansion of the claim can be made up to the closure of the discussion in the first instance, if the expansion is the development or consequence of the original claim, as is the case, considering the submission of the request for official revision on 03.12.2014, with the tacit dismissal being formed on 02.04.2015, the Claimant had until 01.08.2015 to submit an appeal to this Tribunal, which it did on 19.05.2015 (cf. article 57, no. 1, 3 and 5 of the LGT, article 279, paragraph c) of the Civil Code, article 102, no. 1 paragraph d) of the CPPT).

Therefore, the Tribunal considers that the request for arbitral award is timely, in accordance with no. 1 of article 10 of RJAT.

The parties have standing and capacity to sue, are legitimate and are duly represented, in accordance with articles 4 and 10, no. 2 of RJAT and article 1 of Ordinance No. 112-A/2011, of 22 March.

The proceedings do not suffer from defects that would invalidate them.

Having considered all matters, it falls to decide.

IV – FACTUAL GROUNDS.

  1. Taking into account the administrative tax proceedings and the documentary evidence attached to the record, it is now necessary to set forth the factual matters relevant to the understanding of the decision, which are established as follows:

  • The Claimant is the legitimate owner of Lot No. ... of the Development of..., land for construction registered under article..., in the urban property register of the Parish of..., municipality of ... (cf. document attached to these proceedings as doc. no. 3 annexed to the Initial Petition).

  • The AT assigned to the property in question, for purposes of applying Item 28.1 of TGIS, the "tax assessed value of the property – total subject to tax" of € 1,065,760.00 (one million, sixty-five thousand, seven hundred and sixty euros) – (cf. documents attached to these proceedings as docs. no. 3 and 6 annexed to the Initial Petition).

  • In conformity with the tax assessed value assigned to the property in question, the AT proceeded with the respective Stamp Tax assessments based on Item 28.1 of the General Stamp Tax Table, notified to the Claimant, in the total amount of € 10,657.60 (ten thousand, six hundred and fifty-seven euros and sixty cents) – (cf. document attached to these proceedings as doc. no. 6 annexed to the Initial Petition).

  • The assessments referenced in the previous paragraph were subject to a request for official revision on 03.12.2014 (cf. document attached to these proceedings as doc. no. 2 annexed to the Initial Petition).

  • The Claimant, in the enforcement phase, made full payment of the same (cf. documents attached to these proceedings as docs. no. 1-A, 1-B and 1-C annexed to the Initial Petition).

  1. The facts stated in the previous number constitute uncontested matter and are documentarily demonstrated in the record.

  2. There are no facts deemed unproven, because all facts relevant to the assessment of the claim were deemed proven.

V – LEGAL GROUNDS.

  1. We shall now determine the law applicable to the underlying facts, in accordance with the issue already stated (see, above, no. 9).

  2. Thus, the issue that arises is whether the understanding that land for construction are comprised within the concept of properties with "residential use", for purposes of the incidence of Stamp Tax referred to in Item 28 of TGIS, amended by Law No. 55-A/2012, of 29 October, in its original wording, is lawful.

  3. Law No. 55-A/2012, of 29 October, in accordance with article 4, determined that from the year 2012 onwards, Stamp Tax must apply to all acts, contracts, documents, titles, papers that held "...Ownership, usufruct or right of superficies of urban properties whose tax assessed value registered in the property register, in accordance with the Municipal Property Tax Code (IMI Code), (...) is equal to or greater than (euro) 1,000,000 - on the tax assessed value used for purposes of IMI.", defining a new objective scope of Stamp Tax on property (transitional regime defined for the year 2012 by article 6 of the said Law).

In the factuality of these arbitral proceedings (see point A of no. 11), it is verified that the AT assigned to the property of which the Claimant is the owner, for purposes of applying Item 28 of TGIS, the tax assessed value of € 1,065,760.00 (one million, sixty-five thousand, seven hundred and sixty euros). One might think, at first, that such property fell within the scope of Item 28 of TGIS amended by Law No. 55-A/2012, of 29 October. However, this legal instrument, in adding Item 28 to the TGIS, further adds an additional requirement of applicability contained in Item 28.1 – the incidence of Stamp Tax at a rate of 1% on the tax assessed value of properties equal to or greater than € 1,000,000.00 is applicable only to properties with "residential use".

  1. And it is before this additional requirement that the Claimant and Respondent differ. Does the concept of "residential use" necessarily integrate the concept of "land for construction" for purposes of the incidence of Stamp Tax? The Claimant argues that such concept does not appear defined in any provision of the Stamp Tax Code, and is also not used in the IMI Code, to which article 67, no. 2 of the Stamp Tax Code expressly refers when matters not regulated in the Stamp Tax Code relative to Item 28 are at issue, as is the case. Seeking to interpret the law in accordance with article 9 of the Civil Code, pursuant to article 11 of the General Tax Law (LGT), the Claimant understands unequivocally that it does not result from the law or its spirit the intention to encompass in Item 28.1 of TGIS land for construction, whatever its future potential, inherent to a distinct property that may eventually be built on the land, as is the interpretation of the Respondent.

  2. We cannot agree with, with all due respect, the position of the Respondent because it is not acceptable that, faced with an imprecise concept not defined by the legislator, land for construction be included, whatever their type and purpose, buildings that will be, or could be, built on them.

Given the realities identified in article 6 of the IMI Code, a legal instrument to which article 67, no. 2 of the Stamp Tax Code refers, there is a clear distinction between urban properties that are "residential" and "land for construction", which does not in any way suggest that, without more, "land for construction" should be considered as "properties with residential use", even though they may entail such future potential.

  1. The Respondent argues that the fact that it may be considered that, in determining the tax assessed value of urban properties classified as land for construction, the intended use of the building authorized or planned for it should be taken into account, for determination of the respective value of the construction area (see article 45, nos. 1 and 2 and article 41, both of the IMI Code), the STA, in its judgment of 09 April 2014, to which this Tribunal fully adheres, concluded that "... does not determine that land for construction can be classified as 'properties with residential use', because the 'residential use' appears always in the IMI Code referred to 'buildings' or 'constructions', existing, authorized or planned, because only these can be inhabited, which is not the case with land for construction, which do not have, in themselves, conditions for this, not being capable of being used for residential purposes unless and when the construction authorized and planned for them is built on them (but in that case they would no longer be 'land for construction' but another kind of urban property – 'residential', 'commercial, industrial or service' or 'other' – article 6 of the IMI Code)." (see case no. 01870/13, available at www.dgsi.pt/jsta).

  2. The legislator chose to segment urban properties according to their respective use (see article 41 of the IMI Code). In accordance with articles 4 and 6 of the IMI Code, urban properties are grouped according to three categories: (i) residential, commercial, industrial and service; (ii) land for construction and (iii) other. Therefore, in the definition of "properties with residential use", the legislator did not intend to refer to land for construction and include it in the 1st group. Moreover, the Respondent could never have been right when it understands that long before the actual construction of the property, it is possible to determine and establish the intended use of land for construction, which does not necessarily imply the existence of buildings or constructions, when only before an existing construction in a space in which, the same, is even legally prohibited, is it taken into account for merely taxation purposes, in accordance with article 10 of the LGT.

  3. It should be noted that only two years later, certainly as a result of its imprecision, the concept of "residential use" was abandoned by Item 28 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 28 of the General Table, in effect from 2014 onwards. It is now stated that land for construction whose construction, authorized or planned, is for residential purposes are encompassed within the scope of Item 28.1 of TGIS, provided that the VPT is equal to or greater than € 1,000,000.00, now circumscribing its objective scope of application through the use of concepts that are legally defined in article 6 of the IMI Code.

  4. We have already verified that from the letter of the law nothing unequivocal ensues to define the concept of "residential use". However, it is enlightening what was said in the words of the State Secretary for Tax Affairs, when presenting and discussing in the National Assembly the proposal of Law No. 55-A/2012, as gathered from the National Assembly Records (DAR I Series No. 9/XII – 2, of 11 October, p. 32), as elucidated by the jurisprudence of CAAD, which: "The Government proposes the creation of a special tax rate on high-value residential urban properties. It is the first time that Portugal has created a special taxation on high-value properties intended for residential use. This rate will be 0.5% to 0.8% in 2012 and 1% in 2013, and will apply to houses with a value equal to or greater than 1 million euros." (see Case No. 144/2013-T, available at https://caad.org.pt/tributario/decisoes).

  5. Thus it is reflected that the reality to be taxed in mind is urban residential properties and not other realities.

  6. As it is jurisprudence which is also received here, fully agreeing with it, and as has been decided unanimously, land for construction cannot be considered, for purposes of the incidence of Stamp Tax provided for in Item 28.1 (in the wording of Law No. 55-A/2012), as urban properties with residential use (see Tax Contentious Section of 9 April 2014, cases nos. 1870/13 and 48/14, and of 23 April 2014, cases nos. 270/14, 271/14 and 272/14 and of 14/05/2015 in appeal 46/14-30, being in the same sense the current jurisprudence of CAAD).

  7. Considering what has been set out in the foregoing points, the allegations of the Claimant are well-founded, from which follows the annulment of the act of tacit dismissal of the request for official revision, and consequently, the annulment of the tax act constituting the Stamp Tax assessment for the year 2012, in the amount of € 10,657.60.

  8. Finally, the Claimant also requests compensatory interest which should accrue to the refund of the unduly paid tax.

VI – DECISION

For these reasons, this Arbitral Tribunal decides:

A) In favor of the Claimant's request, considering unlawful the act of tacit dismissal of the request for official revision, and consequently, the Stamp Tax assessment in question, due to error regarding the factual and legal presuppositions and violation of article 1 of the Stamp Tax Code and Item 28.1 of TGIS, with the said acts being annulled, in view of the fact that land for construction cannot be considered, for purposes of the incidence of Stamp Tax provided for in Item 28.1 (in the wording of Law No. 55-A/2012), as urban properties with residential use, as has been demonstrated in these proceedings.

B) To condemn the Respondent to refund the amount unduly assessed and paid in the sum of € 10,657.60 (ten thousand, six hundred and fifty-seven euros and sixty cents).

C) To further condemn the Respondent, since we are dealing with a defect pertaining to the tax legal relationship, because the existence of this defect entailed the injury of a subjective legal situation, embodied in the imposition on the Claimant of the performance of a patrimonial obligation contrary to law, to the payment of compensatory interest, in accordance with the terms and conditions provided for in law (see articles 43 and 100 of the LGT and article 61 of the CPPT).

The value of the case is set at € 10,657.60, in accordance with article 97-A, no. 1, a), of the Code of Tax Procedure and Process, applicable by virtue of paragraphs a) and b) of no. 1 of article 29 of RJAT and no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

The amount of costs is set at € 918.00, in accordance with Table I of the Regulation of Costs of Tax Arbitration Proceedings, to be paid by the Tax and Customs Authority, as the claim was entirely well-founded, in accordance with articles 12, no. 2, and 22, no. 4, both of RJAT, and article 4, no. 4, of the aforementioned Regulation.

Notice to be served.

Lisbon, 08 March 2016.

The Arbitrator

(Jorge Carita)

Frequently Asked Questions

Automatically Created

Is a plot of land for construction subject to Stamp Tax under Verba 28.1 of the General Stamp Tax Table?
Yes, according to the Tax Authority's interpretation, land for construction can be subject to Stamp Tax under Verba 28.1 of the TGIS when valued at €1,000,000 or more. The Tax Authority argues that Article 67(2) of the Stamp Tax Code requires reference to the IMI Code for defining urban properties, and under this framework, land for construction qualifies as urban property with residential use when designated for residential development. However, this interpretation is contested by taxpayers who argue that undeveloped land without a residential use license cannot be classified as residential property for tax purposes.
Can land for construction be classified as residential property for Stamp Tax purposes in Portugal?
The Tax Authority maintains that land for construction can be classified as residential property for Stamp Tax purposes based on its intended use, even before actual construction occurs. This interpretation relies on Article 67(2) of the Stamp Tax Code and the IMI Code definitions, which distinguish between built areas and construction potential. The Authority argues that the Legal Regime of Urbanization and Building (RJUE) allows determination of intended use before construction. However, taxpayers challenge this classification, arguing that only completed properties with actual residential licenses should qualify as residential use property under Verba 28.1.
Does applying Stamp Tax Verba 28.1 to building plots violate the constitutional principle of contributive capacity?
Taxpayers argue that applying Stamp Tax Verba 28.1 to building plots violates Article 104 of the Portuguese Constitution, which establishes the principle of contributive capacity (ability to pay). The argument is that undeveloped land generates no income or utility comparable to finished residential property, making taxation based on potential rather than actual use unconstitutional. Land for construction lacks habitability and cannot produce economic benefit until developed. However, the Tax Authority counters that the creation of construction rights immediately increases property value, establishing sufficient taxable capacity. The constitutional validity of this interpretation depends on whether potential value constitutes adequate contributive capacity.
How can taxpayers challenge an unlawful Stamp Tax assessment through CAAD arbitration proceedings?
Taxpayers can challenge unlawful Stamp Tax assessments through CAAD (Centro de Arbitragem Administrativa) by filing an arbitration request under Decree-Law 10/2011 (RJAT). The process involves: (1) filing a prior administrative review request with the Tax Authority; (2) if denied or tacitly rejected, submitting an arbitration request to CAAD within the legal deadline; (3) choosing whether to designate an arbitrator or allowing appointment by the Deontological Council; (4) presenting legal and factual arguments supporting the assessment's unlawfulness; and (5) responding to the Tax Authority's reply. Critical deadlines must be observed, as untimeliness can result in dismissal of the request.
What are the legal grounds for requesting annulment of a Stamp Tax assessment on undeveloped land?
Legal grounds for requesting annulment of Stamp Tax assessments on undeveloped land include: (1) violation of Article 1 of the Stamp Tax Code and Verba 28.1 of TGIS through incorrect classification of land for construction as residential use property; (2) error in factual presuppositions, specifically that the property has residential use when it lacks any residential license or habitability; (3) violation of the constitutional principle of ability to pay when taxing unrealized potential rather than actual use; (4) misapplication of Article 67(2) of the Stamp Tax Code and improper reliance on IMI Code definitions; and (5) substantive illegality in extending Stamp Tax beyond the legislative intent of taxing only properties actually used for residential purposes.