Process: 337/2014-T

Date: December 2, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Tax Arbitration Process 337/2014-T addressed a critical distinction in Portuguese Stamp Tax (Imposto de Selo) law regarding whether construction land (terrenos para construção) falls under Item 28.1 of the General Tax Schedule (TGIS). The claimant, a Portuguese branch of an international company, challenged nine stamp tax assessment acts totaling €45,564.23 for the 2012 tax year, applied at a 1% rate on three urban construction lots with residential classification. The central legal question concerned whether construction land designated for future residential development constitutes 'urban property with residential designation' subject to stamp tax under Item 28.1 TGIS, as amended by Law 55-A/2012. The claimant argued that construction land represents a distinct legal category under Article 6(1) of the IMI Code (Property Tax Code), separate from completed residential buildings. The properties were registered in the urban property matrix as 'lots of land for urban construction' with patrimonial values ranging from €1.1 million to €2.1 million. The Tax and Customs Authority contended that the legislature intended a broader interpretation, arguing that the valuation methodology applicable to properties generally extends to construction land, including the residential designation coefficient under Article 41 of the IMI Code. After the gracious complaint was dismissed in January 2014, the claimant escalated to CAAD arbitration, requesting annulment of the assessments, reimbursement of taxes paid, and compensatory interest (juros indemnizatórios). This case highlights the importance of precise legal classification in Portuguese tax law, where the distinction between undeveloped construction land and completed residential property carries significant fiscal implications. The arbitration proceedings demonstrate taxpayers' rights to challenge administrative tax assessments through the CAAD system when fundamental questions of legal interpretation arise regarding the scope and application of stamp tax provisions.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Case No. 337/2014– T

Subject: Land for construction – Item 28.1 of the General Tax Schedule for Stamp Duty

I – Report

  1. On 16.04.2014, the Claimant, A, S. A. – BRANCH IN PORTUGAL, tax identification number …, with tax residence at …, notified of the dismissal of a gracious complaint regarding the tax acts of assessment referred to below, requested from the CAAD the establishment of an arbitral tribunal, under the terms of Article 10 of Decree-Law No. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter only designated as "RJAT"), in which the Tax and Customs Authority is the Respondent, with a view to annulling the stamp tax assessment acts corresponding to the collection documents numbers 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ... (documents No. 2 to 10 attached with the arbitral statement), in the total amount of 45,564.23 €.

The Claimant further requested the recognition of the right to reimbursement of taxes paid, as well as the condemnation of the Respondent to the payment of compensatory interest.

  1. The request for the establishment of the arbitral tribunal was accepted by His Excellency the President of the CAAD and notified to the Tax and Customs Authority.

Under the terms and for the purposes of the provisions in Article 6(1) of the RJAT, by decision of the Lord President of the Deontological Council, duly communicated to the parties within the legally applicable deadlines, the undersigned was appointed arbitrator, who communicated to the Deontological Council and to the Centre for Administrative Arbitration the acceptance of the assignment within the regularly applicable deadline.

The Arbitral Tribunal was established on 25.06.2014.

  1. The joinder of claims is admissible under Article 3(1) of the RJAT, given the identity of the tax, as well as the grounds of fact and law invoked in the request for annulment, for illegality, of the present stamp tax assessments.

  2. The grounds presented by the Claimant, in support of its claim, are, in summary, that there is erroneous application of item No. 28.1 of the General Tax Schedule for Stamp Duty, amended by Law No. 55-A/2012, of 29 October, given that the properties in question are land for construction and not buildings intended for residential purposes, not being subsumed in the definition of "urban property with residential designation", not being, therefore, faced with urban properties with residential designation, but rather with land for construction of residential property, as shown in the classification of the respective property register and Article 6, No. 1 of the Property Tax Code (Código do IMI).

  3. The ATA – Tax and Customs Authority, called upon to respond, contested the claim of the Claimant.

From its response it appears that its position is, in summary, that the properties on which each of the assessments challenged falls have the nature of properties with residential designation, so that the tax assessment acts subject to this arbitral statement should be maintained, as they constitute a correct interpretation of Item 28 of the General Tax Schedule, amended by Law 55-A/2012, of 29/12. To this end, the Respondent sustains that the legislator chose to determine the application of the methodology for the valuation of properties in general to the valuation of land for construction, and that consequently, the coefficient of designation provided for in Article 41 of the IMI Code is applicable to them, and from which results a different and broader sense of the realities identified in Article 6, No. 1, paragraph a) of the IMI Code.

  1. The Tribunal is materially competent and is regularly established under the terms of the RJAT.

The parties have personality and judicial capacity, are entitled and are legally represented.

The process does not suffer from defects that invalidate it.

II – The Material Facts

  1. The Tribunal considers the following facts proven:

1- In the urban property matrix of the parish of ..., Municipality of …, the Claimant registered as owner of the following properties:

  • Lot of land for urban construction registered in the urban property matrix of the parish of ..., under the property register item ... with the patrimonial value of 2,131,756.54 euros.

  • Lot of land for urban construction registered in the urban property matrix of the parish of ... under the property register item ..., with the patrimonial value of 1,281,229.56 euros.

  • Lot of land for urban construction registered in the urban property matrix of the parish of ..., under the property register item ..., with the patrimonial value of 1,143,436.32 euros.

2- The Claimant was notified of the following collection documents, relating to 3 installments of stamp tax for each of the properties identified above:

  • No. 2013 ..., referring to the urban property registered with the property register item ..., in the urban property matrix of the parish of ..., in the amount of 7,105.87 euros.

  • No. 2013 ..., referring to the urban property registered with the property register item ..., in the urban property matrix of the parish of ..., in the amount of 7,105.85 euros.

  • No. 2013 ... referring to the urban property registered with the property register item ..., in the urban property matrix of the parish of ..., in the amount of 7,105.85 euros.

  • No. 2013 ... referring to the urban property registered with the property register item ..., in the urban property matrix of the parish of ..., in the amount of 4,270.78 euros.

  • No. 2013 ... referring to the urban property registered with the property register item ..., in the urban property matrix of the parish of ..., in the amount of 4,270.76 euros.

  • No. 2013 ... referring to the urban property registered with the property register item ..., in the urban property matrix of the parish of ..., in the amount of 4,270.76 euros.

  • No. 2013 ... referring to the urban property registered with the property register item ..., in the urban property matrix of the parish of ..., in the amount of 3,811.46 euros.

  • No. 2013 ... referring to the urban property registered with the property register item ..., in the urban property matrix of the parish of ..., in the amount of 3,811.45 euros.

  • No. 2013 ..., referring to the urban property registered with the property register item ..., in the urban property matrix of the parish of ..., in the amount of 3,811.45 euros.

3- According to the notifications, the assessments were made on the basis of item 28.1 of the General Tax Schedule for Stamp Duty and referring to the year 2012, at the rate of 1.00%.

4- The Claimant proceeded with the payments relating to the 1st installment on 29 April 2013, the payments relating to the 2nd installment on 12 August 2013, and the payments relating to the 3rd installment on 5 November 2013.

5- Not agreeing with the aforementioned assessments, the Claimant filed the gracious complaint No. ..., in which it requested the annulment of the assessments in question, relating to the 1st and 2nd installment, subsequently adding to the same gracious complaint procedure, a request for annulment of the 3rd installment, requesting the joinder of claims, which was accepted by the Respondent.

6- The gracious complaint was dismissed, with the Claimant being notified on 21.01.2014.

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

SUBSTANTIATION OF THE FACTS

  1. The decision on the facts is based on the documents submitted by the Claimant with the request for arbitral statement, as well as those contained in the administrative process submitted by the Respondent, which were not subject to any challenge, and are all consistent with each other. In the present case, there was, moreover, no disagreement between the parties regarding the facts, with the divergence being limited to the matter of law.

III – The Applicable Law

  1. Item 28 of the General Tax Schedule for Stamp Duty provided, in the wording at the time of the facts, that stamp tax was applicable to ownership of properties with residential designation with PVT equal to or greater than 1,000,000 euros, in the following terms:

"28 – Ownership, usufruct or right of superficies of urban properties whose taxable patrimonial value contained in the matrix, under the terms of the Property Tax Code (CIMI), is equal to or greater than 1,000,000 euros – on the taxable patrimonial value used for purposes of IMI:[1]

28.1 – For property with residential designation – 1%;

28.2 – For property, when the taxpayers who are not individuals are resident in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by ministerial order of the Minister of Finance – 7.5%".

  1. It has already been abundantly emphasized in various arbitral decisions[2] (namely in cases 42/2013-T, 48/2013-T, 49/2013-T, 51/2013-T, 53/2013-T, 144/2013-T and 202/2014-T) that the concept of "property with residential designation" (which is not the object of any specific definition in the Stamp Tax Code) is not used by the IMI Code[3], nor in any other legislative instrument.

All of these arbitral decisions, whose doctrine is upheld, go, in essence, in the sense that such concept requires, for its fulfillment, at least the real possibility of the existing property being used for residential purposes and, in all of them, it was understood that land for construction, even if intended for the construction of residential buildings, are not subsumed in the concept of "property with residential designation", as shown in the following passages:

Case 42/2013-T:

"The expression "residential designation" does not seem to be able to have any other meaning than that of "residential use", that is, urban properties that have an actual use for residential purposes, either because they are licensed for such purposes, or because that is their normal destination.

And we cannot confuse a "residential designation" which implies an actual designation of an urban property for that purpose, with the expectation, or potentiality, of an urban property being able to have a "residential designation".

Case 49/2013-T:

"The expression "with residential designation" conveys, in a simple reading, an idea of real and present functionality. From the provision in question, it is not possible to extract, by interpretation, that, as stated in the respondent's reply, the legislator's choice of that expression was intended to integrate "other realities beyond those identified in Article 6, No. 1, paragraph a), of the IMI Code." Such interpretation lacks legal support, in light of the principles contained in Articles 9 of the Civil Code and 11 of the General Tax Law.

In fact, if the legislator intended to encompass within the scope of the tax other realities than those resulting from the classification governed by Article 6 of the IMI Code, it would have said so expressly. But it does not, instead referring, as a whole, to the concepts and procedures provided for in the said Code".

Case 51/2013-T:

"The point that matters to decide is this: is there a difference between the expression that the IMI Code uses of "residential urban property" and the expression used by Article 4 of Law No. 55-A/2012, when referring to "property with residential designation"?

We believe not, since the same fundamental sense prevails, even if using slightly different words, of taxing the ownership of properties with the same destination, the effectivity or the possibility of use for purposes of human habitation, with all the consequences that legislation in general and the IMI Code in particular gives it."

Case 53/2013-T:

"(...) it must be presumed that the use of a different expression is intended to capture a distinct reality, so that, in good hermeneutics, "property with residential designation", cannot be a property merely licensed for residential purposes or destined for that purpose (that is, it will not be sufficient to be a "residential property"), having to be a property that already has actual designation for that purpose."

Case 144/2013-T:

"(...) we judge that it is necessary, in the interpretation of the provision in item 28.1 of the General Tax Schedule for Stamp Duty, the understanding according to which the residential designation of an urban property suggests that it be given that actual destination, or that it can be directly given that destination."

Case 202/2014-T:

"The expression "with residential designation" conveys, in a simple reading, an idea of real and present functionality. From the provision in question, it is not possible to extract, by interpretation, that, as stated in the Respondent's reply, the legislator's choice of that expression was intended to integrate "other realities beyond those identified in Article 6, No. 1, paragraph a), of the IMI Code." Such interpretation lacks legal support, in light of the principles contained in Articles 9 of the Civil Code and 11 of the General Tax Law."

  1. Likewise, in the judgment of the STA (Supreme Administrative Court), of 09-04-2014, appeal No. 048/14 it was considered that:

"The concept of "property (urban) with residential designation" was not defined by the legislator. Neither in Law No. 55-A/2012, which introduced it, nor in the Property Tax Code, for which Article 67, No. 2 of the Stamp Tax Code (likewise 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 since it is in light of it that the scope of the objective taxable base of the new taxation is cut – had a short life, since it was abandoned when the State Budget Law for 2014 came into force (Law No. 83-C/2013, of 31 December), which gave new wording to that item No. 28 of the General Tax Schedule, and now cuts its scope of objective incidence

Through the use of concepts that are legally defined in Article 6 of the Property Tax Code.

This change - to which the legislator did not attribute an interpretive character, nor does it seem to us that it did – only makes it unequivocal for the future that land for construction whose construction, authorized or planned, is for residential purposes are included within the scope of item 28.1 of the General Tax Schedule for Stamp Duty (provided that their respective taxable patrimonial value is equal to or greater than 1 million euros), but clarifies nothing, however, regarding prior situations (assessments for 2012 and 2013), such as the one at issue in the present proceedings.

Now, as to these, it does not seem possible to uphold the interpretation of the appellant, since, contrary to what is alleged, it does not result unequivocally either from the letter or 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 the construction of residential buildings had been authorized or planned, as now results unequivocally from item 28.1 of the General Tax Schedule for Stamp Duty."

(...)

"It is concluded, therefore, with the respondent and in conformity with what was decided in the judgment under appeal, that, resulting from Article 6 of the Property Tax Code a clear distinction between "residential" urban properties and "land for construction", these cannot be considered, (...) as "properties with residential designation" for purposes of the provision in item No. 28.1 of the General Tax Schedule for Stamp Duty, in its original wording, which was conferred upon it by Law No. 55-A/2012, of 29 October."

  1. This understanding continued to be followed by the Supreme Administrative Court, uniformly, in the other cases in which it was called upon to pronounce itself. As can be read in the judgment issued in case 0707/14, of 10.09.2014:

"The question was already decided by this Section of Tax Litigation of the Supreme Administrative Court on 9 April 2014, in cases No. 1870/13 (Not yet published in the official journal, available at http://www.dgsi.pt/jsta.nsf/35fbbbf22e1bb1e680256f8e003ea931/f6fd29ac6d6ebaf380257cc30030891a?OpenDocument.) and 48/14 (Not yet published in the official journal, available at http://www.dgsi.pt/jsta.nsf/35fbbbf22e1bb1e680256f8e003ea931/0e28073928824e5080257cc3003a0cbd?OpenDocument.), and, since then, reiterated and uniformly in numerous judgments, and it can be considered that settled case law exists in the sense 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, of 29 October) as urban properties with residential designation.

This is case law that we also uphold here, as we fully agree with it and given the provision of No. 3 of Article 8 of the Civil Code (CC) (...)"

  1. Thus, an unequivocally common point in all these decisions, which we also uphold, is the understanding that land for construction, even if intended for residential construction, are not properties with residential designation. We understand that the application of item No. 28.1 of the General Tax Schedule for Stamp Duty, in the wording amended by Law No. 55-A/2012, requires, at least, the actuality of the property's designation for residential purposes, and is not sufficient the mere potentiality of construction for residential purposes.

In fact, we understand that regardless of the reasons that may have led Law No. 55-A/2012 to use the expression "property with residential designation", instead of "residential property" contained in Article 6, No. 1, paragraph a) of the IMI Code, for the subsumption to item 28.1 of the Stamp Tax Code cannot fail to require, at least, the real and current potentiality (relatively to the taxable fact) of the property in question to be used for residential purposes.

A land for construction cannot, in our understanding, be considered a property with "residential designation", since it consists of a reality not fit for human habitation. To achieve that fitness, it is necessary for an occurrence of a reality that is external to it - the construction of the building fit for habitation - and that, with such an event, land for construction ceases to exist and a new reality comes into being: the building. And it is this that can have residential designation.

Accordingly, land for construction are not subsumed in the concept of "property with residential designation", and item 28.1 of the General Tax Schedule for Stamp Duty is not applicable to it.

  1. Taking into account the above, being item 28.1 of the Stamp Tax Code inapplicable to the Claimant's properties, the Claimant's request for annulment cannot fail to proceed, since the tax acts are tainted with the defect of violation of law due to error in the legal presuppositions.

COMPENSATORY INTEREST

  1. The Claimant has also petitioned for the right to compensatory interest.

The Claimant's claim must be assessed in light of Article 43 of the General Tax Law.

Article 1 of that article provides that "Compensatory interest is due when it is determined, in a gracious complaint or judicial challenge, that there was error attributable to the services from which resulted payment of the tax debt in an amount greater than that legally due".

We uphold the understanding of Diogo Leite de Campos, Benjamin Silva Rodrigues and Jorge Lopes de Sousa who maintain that "Error attributable to the services that carried out the assessment is demonstrated when they proceed to a gracious complaint or judicial challenge of that same assessment and the error is not attributable to the taxpayer" (General Tax Law, writing encounters, 4th Edition, 2012, p. 342).

In the case "sub judice" being unable the error that gave rise to the assessment to be attributable to the Claimant but only to the Respondent, the request for condemnation of the Respondent to pay compensatory interest cannot fail to proceed.

IV – Decision

Thus, the Tribunal decides, judging the present request for arbitral statement to be entirely well-founded:

a) Declare the non-applicability of item 28 of the General Tax Schedule for Stamp Duty to the properties in question, of which the Claimant is the registered owner in the urban property matrix.

b) Declare the illegality and consequent annulment of all tax acts sub judice, and the Respondent must consequently reimburse the Claimant the amount of improperly paid tax in the total amount of 45,564.23 €.

c) Also judge the request for condemnation of the Tax and Customs Authority to pay compensatory interest, in accordance with the law, from the date on which the payments were made until the date of complete reimbursement.

Value of the action: 45,564.23 € (forty-five thousand, five hundred and sixty-four euros and twenty-three cents), in accordance with the provision in Article 315, No. 2 of the CPC and 97-A, No. 1, paragraph a) of the CPPT and 3, No. 2 of the Regulation on Costs in Arbitration Proceedings.

Costs to the Respondent, in the amount of 2,142.00 € (two thousand one hundred and forty-two euros) in accordance with No. 4 of Article 22 of the RJAT.

Lisbon, CAAD, 2 December 2014.

The Arbitrator

Marcolino Pisão Pedreiro

[1] Recently, the provision was amended with the entry into force of the State Budget Law for 2014, Law No. 83-C/2013, of 31 December, expressly broadening the tax base, now including land for construction.

[2] Which can be consulted on the website "https://caad.org.pt/tributario/decisoes/"

[3] Article 67, No. 2 of the Stamp Tax Code provides that "To matters not regulated in this Code concerning item No. 28 of the General Tax Schedule, the provision contained in the IMI Code applies, subsidiarily." In turn, the IMI Code uses the concept of residential urban property, being considered as such buildings, constructions licensed for such or those that have as normal destination each of these purposes, under the terms of Article 6, No. 1, paragraph a) and No. 2. This same article clearly differentiates the concept of land for construction, in its No. 1, paragraph c) and in No. 3.

Frequently Asked Questions

Automatically Created

Does Stamp Tax (Imposto de Selo) under Clause 28.1 of the TGIS apply to construction land (terrenos para construção) classified for housing?
Based on CAAD Process 337/2014-T, the application of Stamp Tax under Item 28.1 of the TGIS to construction land classified for housing is disputed. The claimant successfully argued that 'terrenos para construção' (construction land) constitute a separate legal category under Article 6(1) of the IMI Code, distinct from completed 'urban property with residential designation.' While the Tax Authority contended that the residential designation coefficient applies broadly to construction land through the valuation methodology, the taxpayer's position was that Item 28.1 should apply only to actual residential buildings, not undeveloped lots. The property matrix registration as 'lots of land for urban construction' supported the classification as construction land rather than residential property subject to the stamp tax.
What is the distinction between 'urban property with housing designation' and 'construction land for housing' under Portuguese tax law?
Portuguese tax law distinguishes between 'prédio urbano com destino habitacional' (urban property with residential designation) and 'terrenos para construção de habitação' (construction land for housing) under Article 6(1) of the IMI Code. Urban property with residential designation refers to completed buildings actually used or intended for residential purposes, while construction land represents undeveloped urban lots designated for future construction. This distinction is reflected in the property matrix registration system. The Tax Authority argued that the valuation methodology and residential designation coefficient under Article 41 of the IMI Code creates a broader interpretation that encompasses construction land. However, the claimant maintained that these are fundamentally different asset categories with distinct legal treatment, particularly for stamp tax purposes under Item 28.1 of the TGIS.
Can taxpayers challenge Stamp Tax assessments on construction land through CAAD tax arbitration proceedings?
Yes, taxpayers can challenge Stamp Tax assessments on construction land through CAAD (Centro de Arbitragem Administrativa) tax arbitration proceedings, as demonstrated in Process 337/2014-T. After the Tax and Customs Authority dismissed the gracious complaint (reclamação graciosa) on January 21, 2014, the claimant successfully invoked arbitration under Article 10 of Decree-Law 10/2011 (RJAT - Legal Framework for Arbitration in Tax Matters). The arbitral tribunal was established on June 25, 2014, with material competence to review the stamp tax assessments. The joinder of multiple claims was permitted under Article 3(1) of RJAT due to identity of tax type and common legal grounds. This case confirms that taxpayers have access to administrative arbitration as an alternative dispute resolution mechanism for contesting stamp tax assessments involving legal interpretation questions.
What was the legal basis for annulling the Stamp Tax liquidation acts in CAAD Process 337/2014-T?
The legal basis for annulling the Stamp Tax liquidation acts in CAAD Process 337/2014-T centered on the erroneous application of Item 28.1 of the General Tax Schedule for Stamp Duty (TGIS), as amended by Law 55-A/2012. The claimant argued that the properties in question were classified in the property matrix as 'terrenos para construção' (construction land) rather than buildings intended for residential purposes. Under Article 6(1) of the IMI Code, construction land for residential purposes constitutes a separate legal category from completed urban properties with residential designation. The nine assessment acts, totaling €45,564.23 at a 1% rate for 2012, were challenged on grounds that Item 28.1 applies exclusively to actual residential properties, not undeveloped construction lots. The annulment request was based on illegal application of the tax norm to properties not subsumed within the legal definition triggering stamp tax liability.
Are taxpayers entitled to reimbursement and compensatory interest (juros indemnizatórios) when Stamp Tax is wrongfully applied to construction land?
Yes, taxpayers are entitled to reimbursement and compensatory interest (juros indemnizatórios) when Stamp Tax is wrongfully applied to construction land, as claimed in CAAD Process 337/2014-T. The claimant specifically requested not only annulment of the nine stamp tax assessment acts totaling €45,564.23 but also recognition of the right to reimbursement of taxes already paid and condemnation of the Tax Authority to pay compensatory interest. The claimant had paid the first installment on April 29, 2013, the second on August 12, 2013, and the third on November 5, 2013. Under Portuguese tax law, when administrative acts are annulled due to illegal assessment, taxpayers have the right to full restitution plus compensatory interest to compensate for the financial loss caused by the erroneous tax collection, calculated from payment date until reimbursement.