Process: 318/2016-T

Date: February 3, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 318/2016-T) examines whether Stamp Tax under Item 28.1 of the General Stamp Tax Schedule (TGIS) applies to mixed-use development land. The taxpayer challenged 2015 stamp tax assessments on two urban properties with approved construction projects combining residential, commercial, services, and parking facilities. Item 28.1, introduced by Law 55-A/2012 during Portugal's fiscal consolidation period, taxes luxury residential properties and land for construction whose building, authorized or planned, is for residential purposes under the IMI Code, when taxable value exceeds €1,000,000. The claimant argued the provision requires exclusive residential purpose, not mixed-use developments, and that taxing investment properties violates constitutional principles of equality and contributory capacity. The taxpayer also alleged assessment acts lacked proper reasoning, constituting a formal defect. The Tax Authority countered that the properties are predominantly residential and correctly fall within Item 28.1's scope. Key legal issues include: the interpretation of residential purposes (exclusive versus predominant use), whether development land constitutes luxury property warranting taxation, the distinction between demonstrated contributory capacity and mere legal expectations, and reasoning requirements for automated stamp tax assessments. The taxpayer sought annulment of the assessments, declaration that errors were attributable to the Tax Services, and reimbursement with compensatory interest under article 43 of the General Tax Law. This case highlights fundamental interpretive tensions in applying wealth taxation provisions to commercial real estate development operations versus completed luxury residences.

Full Decision

ARBITRATION DECISION

I. REPORT

1.1. A..., S.A., NIPC..., with headquarters at..., no.º..., ..., ..., ...-... Maia (hereinafter referred to as "Claimant"), petitioned on 09-06-2016 for the constitution of an Arbitral Tribunal and presented a request for arbitral pronouncement for appraisal of the legality of the tax acts for assessment of STAMP TAX provided for in Item 28.1 of the General Schedule of Stamp Tax relating to the year 2015 and with reference to urban properties registered in the land registry under article U-... and U-..., of the parish of ..., municipality of Porto, in which the Tax and Customs Authority (hereinafter referred to as "Respondent") is named as defendant.

1.2. The Claimant requests that the Arbitral Tribunal annul the stamp tax assessment acts challenged, and declare the error attributable to the Services, ordering the reimbursement of the tax paid, as well as the other payments, plus compensatory interest.

1.3. The request for constitution of the arbitral tribunal was accepted by the Honorable President of CAAD and automatically notified to the Tax and Customs Authority on 01-07-2016.

1.4. Pursuant to the provisions of subparagraph a) of paragraph 2 of article 6 and subparagraph b) of paragraph 1 of article 11 of Decree-Law No. 10/2011, of January 20, as amended by article 228 of Law No. 66-B/2012, of December 31, the Deontological Council appointed the undersigned as arbitrator of the sole arbitral tribunal, who communicated acceptance of the appointment within the applicable period, and notified the parties of this appointment on 19-08-2016, with the Parties having manifested no intention to refuse this appointment.

1.5. In accordance with the provisions of subparagraph c) of paragraph 1 of article 11 of Decree-Law No. 10/2011, of January 20, as amended by article 228 of Law No. 66-B/2012, of December 31, the sole arbitral tribunal was constituted on 05-09-2016.

1.6. In the Arbitral Petition, presented by itself, the Claimant invoked, in summary, the following:

a) Considering that Item 28 of the TGIS applies to "residential property or land for construction whose building, authorized or planned, is for residential purposes, in accordance with the provisions of the Property Tax Code (Código do IMI)", the properties shall be considered as such provided they meet the requirements of article 6 of the Property Tax Code, that is, provided the properties at issue are effectively "land for construction", and provided the construction whose building was authorized and/or planned is intended for residential purposes;

b) With regard to the approved projects for the urban articles in question, they are not exclusively intended for residential purposes in accordance with the Property Tax Code, so although there is authorization for construction of a building for residential purposes, they are also intended for commerce and services, as well as covered parking;

c) Thus, it is concluded that an error occurred regarding the prerequisites of the assessment, given that the Respondent assessed Stamp Tax on properties that fall within, according to their nature in accordance with the Property Tax Code, the classification of "land for construction", but which are intended for residential purposes, services, commerce and covered parking, whereas the rule of material scope defines as the taxable event, in the case of the same land for construction, the building authorized or planned solely for residential purposes, in accordance with the Property Tax Code;

d) Furthermore, the legislator, with Law 55-A/2012 and with the amendment to the TGIS, intended, in a context of national emergency, to tax taxpayers with increased contributory capacity, through the taxation of luxury properties;

e) In the legislator's choice, luxury properties are those that, having residential allocation or having building authorized or planned for residential purposes, in accordance with the Property Tax Code, have a TPA greater than €1,000,000;

f) Now, land for construction whose building, authorized or planned, is for residential purposes, in accordance with the provisions of the Property Tax Code, are not considered luxury goods, since they constitute mere legal expectations, and are therefore considered investment goods intended for real estate development operations;

g) In fiscal terms, what is intended is to tax the contributory capacity demonstrated by the taxpayer, and not a mere legal expectation, as is evident in the present case;

h) The fact that the Respondent now intends to assess Stamp Tax in accordance with Item 28.1 of the TGIS regarding investment goods reveals a clear violation of the constitutional principle of equality and contributory capacity;

i) In addition to being illegal due to error regarding the prerequisites, the assessment in dispute is also illegal due to defect in reasoning;

j) Thus, to support the assessment at issue, the Tax Authority would have to invoke that we are dealing with land for construction whose building, authorized or planned, is for residential purposes, in accordance with the provisions of the Property Tax Code;

k) In addition to asserting that this does not correspond to the truth inasmuch as the assessment acts suffer from error regarding the prerequisites on which they rest, from a formal perspective it is evident that the assessment acts lack reasoning, and are therefore illegal;

l) Analyzing the Stamp Tax assessment notes at issue, it is concluded that the reasoning contained therein is non-existent, not allowing the taxpayer, or a reasonable recipient, to reconstruct the cognitive and evaluative process followed by the Respondent;

m) The acts subject to the request for arbitral pronouncement are affected by illegality which, under article 99 of the Administrative Tax Procedural Code, generates their voidability;

n) Having an illegal action by the Respondent resulted in the undue payment of the tax, the taxpayer has the right to be indemnified for the harm that this payment caused him, to the extent that the amounts paid became unproductive for him;

o) Thus, the Claimant is entitled to reimbursement of the amounts unduly paid, plus compensatory interest calculated in accordance with article 43 of the General Tax Law;

p) In these terms, the present request for arbitral pronouncement should be judged meritorious and consequently well-founded, and the Stamp Tax assessment acts subject to the request should be annulled;

q) It should also be declared that the error is attributable to the Services and the reimbursement of the Stamp Tax paid should be ordered as well as the other payments, plus the respective compensatory interest.

1.7. The Respondent presented a Response, where it presents its defense by way of objection, alleging, in the sense of the groundlessness of the request for arbitral pronouncement, in summary, the following:

a) Contrary to what is intended by the Claimant, the licensing permit of the properties at issue confirms that the buildings to be constructed will be predominantly intended for residences, and thus fully fall within the definition of land for construction for purposes of item 28.1 of the TGIS, in the wording given by Law 83-C/2013;

b) The assessments in dispute constitute a correct interpretation and application of item 28.1 of the TGIS, in the wording of Law No. 83-C/2013, which expressly prescribes that land for construction constitutes the objective element of material scope of the rule, and therefore necessarily lacks any attempt to call into question any interpretive issue regarding the letter of the Law;

c) The tax act of assessment of item 28.1 of the TGIS has a periodic character, its assessment is made annually, based on pre-established elements in the land registry, and the assessments, notifications and payment periods of the respective collection documents follow, with the necessary adaptations, the rules provided for Property Tax;

d) All elements – identification of the taxpayer, tax year, property identification, tax year, rate, TPA, levy and tax to be paid – are expressed in the collection notices for payment, with no administrative procedure underlying each assessment act, and therefore there is no violation of the duty to provide reasoning;

e) One cannot see, nor did the Claimant manage to demonstrate, how and in what measure the assessment act under challenge violated the constitutional principle of equality enshrined in article 13 of the Constitution of the Portuguese Republic in the aspect of contributory capacity;

f) The legislator, with Item 28.1 of the TGIS, introduced a principle of taxation of wealth demonstrated in ownership, usufruct or right of superficies over urban properties with residential allocation of higher value, so-called luxury properties, and which resulted in the establishment of a measurable value – the Taxable Patrimonial Value equal to or greater than € 1,000,000.00;

g) The legislative criterion would be based on the fact that ownership of properties intended for residential purposes with value equal to or greater than € 1,000,000.00 demonstrates superior contributory capacity of the respective owner inasmuch as it presupposes financial means capable of being mobilized in the acquisition of a single property at that value for their own residence;

h) The rule of Item 28.1 cannot fail to fit within the expressed objective of the legislator to additionally burden residential properties of higher value in achieving the distribution, beyond the holders of income and pensions, also among the holders of certain real estate property, of the sacrifices imposed by austerity in a concrete economic and financial situation of the country;

i) It is within this framework that one can assess the conformity of Item 28.1 with the principle of equality and the principle of contributory capacity;

j) In these terms, the present arbitral request should be judged groundless, with all legal consequences.

1.8. By order of 14-11-2016, this Arbitral Tribunal, under the principles of the autonomy of the Arbitral Tribunal in conducting the process, celerity, simplification and informality of proceedings (articles 19, paragraph 2, and 29, paragraph 2, of the RJAT), and having in mind that no exceptions were raised, decided to dispense with the holding of the meeting provided for in article 18 of the RJAT and to determine that the process proceed with optional written submissions, to be presented by the Parties within the simultaneous period of 20 days, as provided for in article 91, paragraph 5, of the CPTA, applicable by virtue of the provisions of article 29, paragraph 1, subparagraph c), of the RJAT, and set February 5, 2017 as the deadline for rendering the arbitral decision;

1.9. In final submissions, the Claimant maintained, in essence, the position it sustained in the request for arbitral pronouncement.

1.10. The Respondent did not present final submissions.

II. PRELIMINARY MATTERS

2.1. No exceptions were invoked.

2.2. The Parties possess legal personality and capacity, are legitimated as to the request for arbitral pronouncement and are duly represented, in accordance with the provisions of articles 4 and 10 of the RJAT and article 1 of Ordinance No. 112-A/2011, of March 22.

2.3. No procedural defects are present, and therefore the merits must be addressed.

III. MERITS

III.1. MATTER OF FACT

§1. Established Facts

The following facts are established:

a) The Claimant is the legitimate owner of the urban property located at Place... (Road...) and described in the Land Registry under No.../ ... of the parish of... and registered in the competent urban land registry under article... (cf. Docs. 3 and 4);

b) The Claimant is the legitimate owner of the urban property located at Place... and described in the Land Registry under No./... of the parish of... and registered in the competent urban land registry under article... (cf. Docs. 5 and 6);

c) The referred urban properties were subject to a subdivision operation and in this connection, on 18/08/2008, the subdivision licensing permit No. ALV/.../…/DMU (Process No./.../CMP) was issued in the name of the Claimant;

d) According to the referred subdivision permit, the urban articles registered in the above-mentioned urban land registry under articles... and... which correspond to the referred Lot 1 and 2, respectively, have authorized and/or planned construction, in accordance with the Property Tax Code, for residential, commercial, service and covered parking purposes, as shown in the following summary table contained in the referred licensing permit:

[Original table preserved as presented]

e) The Claimant was notified of the assessment of Stamp Tax in accordance with Item 28.1 of the TGIS with regard to article U-... (Doc. No. 1), as well as with reference to article U-... (Doc. No. 2), as shown in the table below:

[Original table preserved]

f) The referred assessments total the amount of €48,405.08, already fully paid by the Claimant.

§2. Unestablished Facts

With relevance to the decision, there are no other essential unestablished facts.

§3. Reasoning as to the Matter of Fact

With regard to the established facts, the conviction of the Tribunal was based on the free evaluation of the positions assumed by the Parties as to facts and on the content of the documents attached to the record, not contested by the Parties.

III.2. MATTER OF LAW

§1. Questions to be Decided

The main question to be decided in the case sub judice is whether the rule of material scope contained in Item 28.1 of the General Schedule of Stamp Tax is applicable to land for construction whose authorized or planned building has a mixed allocation – for residential, commercial, service and covered parking purposes.

Another question is whether the challenged assessment acts suffer from the defect of violation of the duty to provide reasoning.

The Claimant also raises, incidentally, the question relating to the alleged unconstitutionality of the rule contained in item 28.1 of the TGIS due to violation of the principles of equality and contributory capacity.

In function of the sense of the decision of the questions mentioned above, it will also be important to know whether the Claimant is entitled to restoration of the tax paid and to compensatory interest.

§2. Legal Regime and Its Application to the Case Sub Judice

Article 4 of Law No. 55-A/2012, of October 29, which entered into force on the following October 30, added an item to the TGIS then in force, with the following wording:

"28 - Ownership, usufruct or right of superficies of urban properties whose taxable patrimonial value recorded in the land registry, in accordance with the Property Tax Code (CIMI), is equal to or greater than € 1,000,000 - on the taxable patrimonial value used for purposes of Property Tax:

• 28.1 - For residential property - 1%;

• 28.2 - For property, when the taxpayers who are not natural persons are residents 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%."

Subsequently, article 194 of Law No. 83-C/2013, of December 31, introduced a new wording to item 28 of the TGIS, which came to include land for construction, in the following terms:

"28.1 - For residential property or for land for construction whose authorized or planned building is for residential purposes, in accordance with the provisions of the Property Tax Code - 1%".

The amendment introduced by Law No. 83-C/2013, of December 31, entered into force on 01/01/2014, and is applicable to the tax period to which the assessment subject of the present request for arbitral pronouncement relates.

The text of the rule contained in Item 28.1 of the TGIS shows, unequivocally, that the legislator only intended to reach properties with residential allocation, thereby excluding properties with other allocations.

This sense also clearly results from the text of the Bill No. 96/XII – 2nd, of 21/09/2012, on which the creation of the tax on residential properties of higher value is based, stating that "... a tax will be created under Stamp Tax applicable to urban properties of residential allocation whose taxable patrimonial value is equal to or greater than one million euros".

As the Respondent correctly notes in its response, "[t]he legislative criterion would be based on the fact that ownership of properties intended for residential purposes with value equal to or greater than € 1,000,000.00 demonstrates superior contributory capacity of the respective owner inasmuch as it presupposes financial means capable of being mobilized in the acquisition of a single property at that value for their own residence".

In this manner, it is concluded that a property with value greater than one million euros, but with non-residential allocation, is not subject to the objective rule of material scope provided for in Item 28.1 of the TGIS.

And what is to be said, then, regarding land for construction whose authorized or planned building has a mixed allocation – residential and non-residential?

The relevant value for purposes of applying the rule of Item 28.1 of the TGIS is that determined in accordance with the provisions of the Property Tax Code (CIMI).

Thus, in the present case it is important to consider the rule provided for in article 45 of the Property Tax Code, under the heading "Taxable patrimonial value of land for construction", whose text is as follows:

"1 - The taxable patrimonial value of land for construction is the sum of the value of the building implantation area to be constructed, which is that situated within the perimeter of the building's attachment to the ground, measured by its outer part, added to the value of the land adjacent to the implantation.

2 - The value of the implantation area varies between 15% and 45% of the value of the authorized or planned buildings.

3 - In fixing the percentage of the value of the terrain of implantation, consideration is given to the characteristics referred to in paragraph 3 of article 42.

4 - The value of the area adjacent to the construction is calculated in accordance with paragraph 4 of article 40.

5 - When the document evidencing constructive viability referred to in article 37 only makes reference to the indexes of the Master Plan, the evaluating experts must, on a reasoned basis, estimate the respective construction area, taking into consideration, in particular, the average construction areas of the surrounding area."

The legislator does not provide that in determining the TPA of land for construction, factors of allocation for each of the purposes provided for the authorized or planned building should be considered.

As SILVÉRIO MATEUS and CORVELO DE FREITAS note, in annotation to the cited article, "[t]he taxable patrimonial value of land for construction depends, firstly and essentially, on the construction area that is authorized for that land, a value that must be situated between 15% and 45% of the value of the authorized building. Secondly, the location coefficient where the land is situated is also relevant, since the value of the building depends to a large extent on this coefficient. Finally, if the building does not occupy the entire land and there is a remaining part, this will also have repercussions on its value" [Real Estate Property Taxes. Stamp Tax, Lisbon, Engifisco, 2005, p. 214].

In this manner, in the case of land for construction whose authorized or planned building with mixed allocation, residential and non-residential, the law does not provide for the calculation of the part of the TPA of the land for construction corresponding to the residential allocation, and therefore the possibility of applying the rule contained in Item 28.1 of the TGIS to those properties is made impossible.

And there is also no legal basis that allows the Respondent to apply a criterion of predominant allocation. There is no legal foundation that allows one to assert that being the area with residential allocation the majority should this allocation prevail for purposes of applying item 28.1 of the TGIS. Other criteria would be possible, such as for example that of considering the TPA in proportion to the area with residential allocation.

The truth is that the legislator does not provide any criterion that allows the rule contained in Item 28.1 of the TGIS to be applied to land for construction whose authorized or planned building has a mixed allocation. Neither under Stamp Tax nor under Property Tax. And the interpreter cannot substitute himself for the legislator in defining a criterion, under pain of violation of the principle of fiscal legality.

This is, moreover, the interpretive sense most in conformity with the Constitution of the Republic, in particular with the principle of contributory capacity, inherent to the principle of equality. Indeed, the interpretation adopted by the Respondent would result in equal taxation of materially different situations – properties with differentiated allocations –, revealing different levels of contributory capacity. The contributory capacity revealed by a property with TPA equal to or greater than one million euros intended for the taxpayer's residence does not reveal identical contributory capacity to that of land for construction that could come to have a building with various units in condominium ownership, each with a TPA less than one million euros, and with differentiated allocations. For that reason, the legislator circumscribed the application of Item 28.1 of the TGIS to properties with residential allocation, which, within the applicable normative framework, can only mean exclusively residential allocation.

In this manner, it is concluded that the rule contained in Item 28.1 of the TGIS does not apply to land for construction that does not have exclusively residential allocation.

Thus, it is unavoidably concluded that, in the present case, the challenged assessment acts were practiced based on error regarding their respective prerequisites, and are therefore illegal and should be annulled.

There is, therefore, no need for this Tribunal to pronounce on the other defects alleged by the Claimant.

§3. Request for Restitution of Amounts Paid and Compensatory Interest

The Claimant requests reimbursement of the tax unduly paid, plus compensatory interest.

In accordance with the provisions of article 24, paragraph 1, subparagraph b) of the RJAT "[t]he arbitral decision on the merits of the claim that is not subject to appeal or challenge binds the tax administration from the end of the period provided for appeal or challenge, and this should, in the exact terms of the meritoriousness of the arbitral decision in favor of the taxpayer and until the end of the period provided for voluntary execution of sentences of the tax courts, alternatively or cumulatively, as the case may be:

[…]

b) Restore the situation that would exist if the tax act subject of the arbitral decision had not been

[…]".

In the same sense, article 100 of the General Tax Law provides that "[t]he tax administration is obliged, in case of total or partial meritoriousness of complaints or administrative appeals, or of judicial process in favor of the taxpayer, to the immediate and full restoration of the situation that would exist if the illegality had not been committed, including the payment of compensatory interest, in the terms and conditions provided for in law".

Thus, by virtue of articles 24, paragraph 1, subparagraph b), of the RJAT and 100 of the General Tax Law, there is entitlement to reimbursement of the tax paid in the sequence of the illegal assessment acts that are the subject of the present process.

As to compensatory interest, article 43, paragraph 1, of the General Tax Law provides that "[c]ompensatory interest is due when it is determined, in a gracious complaint or judicial challenge, that there was error attributable to the services from which results payment of the tax debt in an amount greater than legally due".

In the case sub judice, the assessments suffer from error attributable to the Respondent, and therefore the request for compensatory interest is judged meritorious, which should be calculated by the Tax and Customs Authority in execution of the present arbitral decision.

IV. DECISION

In these terms, this Arbitral Tribunal decides:

a) Judge the request for arbitral pronouncement meritorious;

b) Declare the illegality of the tax acts for assessment of Stamp Tax that are the subject of the present process;

c) Judge meritorious the request for reimbursement of the tax unduly paid, plus compensatory interest, at the legal rate, counted from the date of payment of the tax, until full reimbursement, all in accordance with what is determined in execution of sentence.

V. VALUE OF THE PROCESS

In accordance with the provisions of article 306, paragraph 2, of the Code of Civil Procedure, 97-A, paragraph 1, subparagraph a), of the Code of Administrative Tax Procedure and 3, paragraph 2, of the Rules for Costs in Tax Arbitration Processes, the value of the process is set at €48,405.08.

VI. COSTS

Pursuant to article 22, paragraph 4, of the RJAT, the amount of costs is set at €2,142.00, in accordance with Table I attached to the Rules for Costs in Tax Arbitration Processes, to be borne by the Respondent.

Let notification be made.

Lisbon, February 3, 2017

The Arbitrator

Paulo Nogueira da Costa

Frequently Asked Questions

Automatically Created

What is Verba 28.1 of the Tabela Geral do Imposto do Selo and when does it apply to building land?
Item 28.1 of the General Stamp Tax Schedule (Tabela Geral do Imposto do Selo) applies to residential properties and land for construction whose building, authorized or planned, is for residential purposes according to the Property Tax Code (Código do IMI), when the taxable patrimonial value exceeds €1,000,000. It was introduced by Law 55-A/2012 to tax luxury properties demonstrating enhanced contributory capacity. For building land specifically, the tax applies when construction permits or planning documents indicate residential purposes, triggering annual stamp tax assessments based on land registry valuations.
Does Stamp Tax under Verba 28.1 apply to mixed-use properties that include both housing and commercial purposes?
The central legal dispute concerns whether Item 28.1 applies when approved construction projects include both residential and non-residential uses (commercial, services, parking). Taxpayers argue the provision requires exclusive residential purpose under the IMI Code definition, meaning mixed-use properties should be excluded. The Tax Authority contends that predominantly residential projects suffice, even with ancillary commercial components. The interpretive issue turns on whether 'residential purposes' means sole residential use or permits mixed developments where housing is the primary function.
Can taxpayers request arbitration at CAAD to challenge Stamp Tax assessments on urban properties?
Yes, taxpayers have the right to request arbitration at CAAD (Centro de Arbitragem Administrativa) to challenge Stamp Tax assessments on urban properties under Decree-Law 10/2011, as amended. The arbitration process provides an alternative dispute resolution mechanism to judicial courts for reviewing tax assessment legality. Taxpayers petition for constitution of an arbitral tribunal, which is appointed by the CAAD Deontological Council. The tribunal examines whether tax acts comply with legal requirements and can annul illegal assessments, order refunds, and award compensatory interest.
What are the legal grounds for annulling Imposto de Selo assessments based on errors in tax assessment assumptions?
Stamp Tax assessments under Item 28.1 can be annulled based on several legal grounds: (1) Error regarding assessment prerequisites (erro sobre os pressupostos) - when factual or legal requirements for taxation are not met, such as when properties don't qualify as land for exclusively residential purposes; (2) Defect in reasoning (vício de fundamentação) - when assessment acts lack sufficient explanation to allow taxpayers to reconstruct the administration's cognitive and evaluative process; (3) Violation of constitutional principles, including equality and contributory capacity, when taxation targets investment goods rather than demonstrated wealth. Under article 99 of the Administrative Tax Procedural Code, such illegalities render assessments voidable.
Are taxpayers entitled to a refund with compensatory interest when Stamp Tax is wrongly levied under Verba 28.1?
Yes, when Stamp Tax is wrongly levied under Item 28.1, taxpayers are entitled to full reimbursement of amounts unduly paid plus compensatory interest calculated according to article 43 of the General Tax Law (Lei Geral Tributária). Compensatory interest compensates taxpayers for the period funds remained unproductively with the State due to illegal taxation. When the error is attributable to the Tax Services (rather than taxpayer conduct), courts or arbitral tribunals must declare this attribution and order payment of interest alongside the principal refund amount. This ensures taxpayers are made whole for financial harm caused by unlawful assessments.