Process: 344/2016-T

Date: March 13, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD arbitration case 344/2016-T addresses whether Stamp Tax (Imposto do Selo) under Article 28.1 of TGIS applies to high-value construction land (terrenos para construção). The claimant, a Leiria-based company owning construction land valued at €1,394,122.80, challenged stamp tax assessments totaling approximately €30,000 for tax years 2012-2013, arguing that Verba 28.1 only applies to properties with actual residential use, not undeveloped land. The claimant invoked multiple grounds: lack of proper notification of assessment acts, absence of factual and legal reasoning, unconstitutional retroactivity, double taxation alongside IMI (Municipal Property Tax), and violation of the equality principle. The Tax Authority countered that Verba 28.1 should be interpreted broadly to encompass construction land intended for residential development, referencing Article 6(1) of CIMI. The Authority argued that Lei 83-C/2013 merely clarified rather than changed the original legislative intent of Lei 55-A/2012, which aimed to tax all urban properties for residential purposes valued at €1 million or more. The Authority defended the measure as necessary for social equity during austerity, denying claims of double taxation or constitutional violations. The case demonstrates the interpretive challenges surrounding Portugal's extraordinary stamp tax on high-value properties and the proper scope of residential use classification for tax purposes under RJAT arbitration procedures.

Full Decision

ARBITRAL DECISION

Claimant: "A...", Ltd.

Respondent: Tax and Customs Authority

I. REPORT

The company A..., Ltd., Tax Identification Number..., with registered office at Street..., No...., ..., ...-... Leiria (hereinafter referred to only as the Claimant), submitted on 27/06/2016 a request for the constitution of a sole arbitral tribunal (hereinafter referred to as P.I.) pursuant to Articles 2 and 10 of Decree-Law No. 10/2011 of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as RJAT), in conjunction with paragraph a) of Article 99 of the CPPT, in which the Tax and Customs Authority is the Respondent (hereinafter referred to only as the Respondent).

The Claimant requests the declaration of illegality of the following acts of assessment of Stamp Duty, with reference to item 28.1 of the General Table of Stamp Duty (hereinafter, TGIS):

a) Collection document No. 2012..., tax year 2012 – Article 6, No. 1, paragraph F) i of Law No. 55-A/2012, relating to the urban property registered in the property register under article... of the parish of..., in the municipality of Leiria, in the amount of €4,879.43; (doc. 1 of the p.i.);

b) Collection document No. 2013..., 2013..., 2013..., tax year 2012, for the 1st, 2nd and 3rd instalments (April, July and November 2013), relating to the urban property registered in the property register under article... of the parish of..., in the municipality of Leiria, in the amounts of €3,252.96, €3,252.95 and €3,252.95 (docs. nos. 2 to 4 of the p.i.);

c) Collection document No. 2014..., 2014..., 2014..., tax year 2013, for the 1st, 2nd and 3rd instalments (April, July and November 2014), relating to the urban property registered in the property register under article... of the union of parishes of... and..., municipality of Leiria (formerly article... of the parish of..., in the municipality of Leiria), in the amounts of €3,423.74, €3,423.73 and €3,423.73 (docs. nos. 5 to 7 of the p.i.).

The request for constitution of the arbitral tribunal was accepted by the Honourable President of CAAD on 14/07/2016 and automatically notified to the Tax and Customs Authority.

Pursuant to the provisions of paragraph a) of Article 6, No. 2 and paragraph b) of Article 11, No. 1 of RJAT, the Ethics Council appointed the undersigned as arbitrator of the sole arbitral tribunal, who communicated acceptance of the appointment within the applicable time limit.

On 22-08-2014, the Parties were duly notified of this appointment and did not express their intention to refuse the appointment of the arbitrators, in accordance with Article 11, No. 1, paragraphs a) and b) of RJAT and Articles 6 and 7 of the Code of Ethics.

In accordance with the provisions of paragraph c) of Article 11, No. 1 of RJAT, the sole arbitral tribunal was constituted on 13-09-2016.

By order of 14/11/2016, the meeting provided for in Article 18 of RJAT was waived, given the limited complexity of the case, the non-invocation of exceptions and the lack of witness evidence, and the Claimant was notified to submit a legible copy of documents 1 to 7 of the request for arbitral decision, which it did by request of 16/11/2016.

The Parties were notified of the arbitral order of 06/12/2016 to present arguments, but no arguments were presented, the Claimant having declared to waive their presentation by request of 07/12/2016.

The Claimant alleges, briefly, that the acts of assessment of stamp duty pursuant to Article 28.1 of TGIS underlying the collection notes relating to the financial years 2012 and 2013 were not notified, which constitutes an illegality, with the corresponding lack of factual and legal reasoning of these acts. The Claimant further invokes that, notwithstanding the lack of notification of the said reasoning, they were carried out under Article 28.1 of TGIS, which constitutes an illegality, since they relate to a plot of land for construction on which there is no residential use as required by the said article, insofar as there is no project and no building permit was requested from the municipal authorities that would assign this purpose to it. According to the Claimant, the said assessments under Article 28.1 of TGIS are equally illegal as they constitute double taxation, insofar as they tax the same fact or legal situation already taxed under IMI. Finally, the Claimant further invokes that the said assessments are affected by unconstitutionality as to their retroactivity and also by violation of the principle of tax equality insofar as they are directed only at properties for residential purposes.

In response, the Respondent submits, briefly, that despite item 28.1 of TGIS as worded by Law No. 55-A/2012 of 29 October only expressly referring to properties with residential use, it appeals to a qualification that overlaps with the types provided for in Article 6, No. 1 of CIMI, and should be understood in a broad manner, "encompassing both built residential properties and plots of land for construction", and whose meaning must be found in the need to integrate other realities beyond those identified in Article 6, No. 1 of CIMI. The Respondent therefore argues that Law No. 83-C/2013 of 31 December, by expressly broadening the scope of application of the said item, did so only to dispel interpretative doubts raised by the said Law No. 55-A/2012 of 29 October. According to the Respondent, the legislator in recognizing the need to express itself with greater precision ended up demonstrating that it had always been its intention to tax under stamp duty item 28.1 plots of land for construction as urban properties intended for residential use with a tax property value equal to or greater than €1,000,000.00. In this way, according to the Respondent, Article 192 of the draft State Budget Law for 2014 amended item 28 of TGIS in order to expressly determine that stamp duty of 1% on the ownership, usufruct or right of surface of urban properties with residential use should also apply to plots of land for construction whose authorized or anticipated building should be residential. Nevertheless considering that Article 106, No. 2 of the CRP requires that tax base rules must be predetermined in their content and that the constituent elements thereof must be formulated in a precise and definite manner. Finally, it considers that there is no situation of double taxation, since these taxes have different bases and objectives, and furthermore that there is no violation of the principle of equality nor of the principle of taxpaying capacity (Article 104 of the CRP), since the legislator justified its creation as a vehicle to reinforce the principle of social equity in austerity and an effective distribution of the sacrifices necessary to comply with the adjustment programme. To conclude that the acts of assessment now disputed are not affected by any illegality or unconstitutionality that would compromise their legal existence.

II. CASE MANAGEMENT

The Arbitral Tribunal was regularly constituted and is competent.

The parties have legal personality and capacity and are legitimate (Articles 4 and 10, No. 2 of the same decree and Article 1 of Regulation No. 112-A/2011 of 22 March).

There are no preliminary issues or exceptions to decide, therefore the merits of the claims must be considered.

III. REASONING

A. Proven Facts

There are no disputed factual matters, the following essential facts being particularly proven:

1. The Claimant is the owner of 7/10 of the urban property initially registered in the property register under article... of the parish of..., in the municipality of Leiria (the "Property"), and currently registered in the property register under article... of the Union of Parishes of... and....

2. The Property is described as a plot of land for construction (understanding of both Parties).

3. The Property was assigned a tax property value of €1,394,122.80 (understanding of both parties).

4. The identified urban property has no building or construction erected on its land.

5. The Claimant was notified of:

a) Collection documents No. 2012..., tax year 2012 – Article 6, No. 1, paragraph F) i of Law No. 55-A/2012 - relating to the urban property registered in the property register under article... of the parish of..., in the municipality of Leiria, in the amount of €4,879.43; (doc. 1 of the p.i.);

b) Collection document No. 2013..., 2013..., 2013..., tax year 2012, for the 1st, 2nd and 3rd instalments (April, July and November 2013), relating to the urban property registered in the property register under article... of the parish of..., in the municipality of Leiria, in the amounts of €3,252.96, €3,252.95 and €3,252.95 (docs. nos. 2 to 4 of the p.i.);

c) Collection document No. 2014..., 2014..., 2014..., tax year 2013, for the 1st, 2nd and 3rd instalments (April, July and November 2014), relating to the urban property registered in the property register under article... of the union of parishes of... and..., municipality of Leiria (formerly article... of the parish of..., in the municipality of Leiria), in the amounts of €3,423.74, €3,423.73 and €3,423.73 (docs. nos. 5 to 7 of the p.i.).

6. The said collection documents of stamp duty relating to the financial years 2012 and 2013 have a total value of €24,909.49.

7. The tax acts now disputed resulted from the application of the 1% rate provided in the general table of Stamp Duty, item 28.1 to the tax property value, as worded by the transitional regime of Article 6 of Law No. 55-A/2012 of 29 October.

8. The Claimant filed a hierarchical appeal against the said collection documents, which ran its course under number...2013... and culminated in a rejection decision which is now being contested.

9. The collection document No. 2012..., tax year 2012 – Article 6, No. 1, paragraph F) i of Law No. 55-A/2012, relating to the urban property registered in the property register under article... of the parish of..., in the municipality of Leiria, in the amount of €4,879.43, was subject to payment on 19/12/2012 (doc. 1 of the p.i.);

B. Unproven Essential Facts

There are no alleged or officially known facts relevant to the decision that remain unproven.

C. Motivation

For the conviction of the Arbitral Tribunal regarding the proven facts, the documentary elements referred to above in the various paragraphs were relevant, and in general all other documents attached to the case file, as well as the administrative proceedings, all analyzed critically and in conjunction with the pleadings, in which the absence of controversy regarding the facts alleged by the Claimant is noted.

D. The Law

Issues to be Decided

The following are, in summary and as we understand it, the issues to be considered and decided:

1st Whether they are affected by illegality due to lack of notification of the acts of assessment of Stamp Duty;

2nd Whether they are affected by illegality due to lack of factual and legal reasoning and by violation of law;

3rd Whether they are affected by illegality due to double taxation;

4th Whether they are affected by unconstitutionality due to violation of the principle of equality.

Such issues and/or defects will be considered in light of Article 124 of the CPPT. Let us then:

On the alleged illegality due to lack of factual and legal reasoning and by violation of law.

From the set of facts given as proven, it results that Stamp Duty was assessed relating to the years 2012 and 2013 relating to an urban property registered in the property register as a plot of land for construction with a tax property value of €1,394,122.80.

It was demonstrated that these assessments were made under item 28.1 of TGIS as worded by the transitional regime of Article 6 of Law No. 55-A/2012 of 29 October.

Therefore, the question that arises in this case is to determine the scope of application of item No. 28.1 of the General Table of Stamp Duty (TGIS) as worded by Law No. 55-A/2012 of 29 October, particularly whether it includes plots of land for construction, or more precisely, whether plots of land for construction with a tax property value equal to or greater than €1,000,000 can be subsumed within the concept of urban properties "with residential use" to which the said item refers.

According to the said item 28.1 of TGIS introduced by Law No. 55-A/2012 of 29 October, "Stamp duty is applicable to cases of '28 - Ownership, usufruct or right of surface of urban properties whose tax property value recorded in the property register under the Code for Municipal Tax on Real Estate (CIMI), is equal to or greater than (euro) 1,000,000 - on the tax property value used for the purpose of IMI: 28.1 - For property with residential use - 1%. (...)"

The concept of "property (urban) with residential use" was not defined by the legislator of Law No. 55-A/2012 who introduced it, nor was it defined by the Stamp Duty Code, therefore, in accordance with Article 67, No. 2 of the Stamp Duty Code (also introduced by that Law), it refers subsidiarily to CIMI. In fact, the starting point for the correct interpretation of that expression (property with residential use) must be sought not only in the letter of the law on the presumption that the legislator expressed himself appropriately, but also in its systematic integration with the norms contained in CIMI, without overlooking the intention or spirit of the legislator. This will be the path to follow, particularly in view of the provisions on rules for interpretation of norms contained in Article 9 of the Civil Code, by virtue of Article 11 of the General Tax Law.

Thus, in Article 2, No. 1 of CIMI it is established that "[f]or the purposes of this Code, property is any fraction of territory, encompassing waters, plantations, buildings and constructions of any nature incorporated or resting upon it with the character of permanence, provided that it forms part of the assets of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the aforementioned circumstances, endowed with economic autonomy in relation to the land on which they are located, although located on a fraction of territory that constitutes an integral part of different assets or is not patrimonial in nature."

Article 3 refers to rural properties, and Article 4 to urban properties, classifying as such all those that should not be classified as rural, without prejudice to their possible classification as mixed properties, provided that neither of the parts (rural or urban) can be classified as principal - see Article 5, also of CIMI.

Next, Article 6, which is particularly relevant here, under the heading "Types of urban properties", provides that: 1 - Urban properties are divided into: a) Residential; b) Commercial, industrial or for services; c) Land for construction; d) Others. 2 - Residential, commercial, industrial or for services are buildings or constructions licensed for such purposes or, in the absence of a license, which have as their normal purpose each of these uses. 3 - Land for construction are considered as land located inside or outside an urban agglomeration for which a license or authorization has been granted, admitted prior notification or issued favorable prior information of subdivision or construction operation, and also those that have been declared as such in the title of acquisition, except for land where the competent authorities prohibit any of those operations, namely those located in green areas, protected areas or which, in accordance with municipal land planning plans, are intended for public spaces, infrastructures or facilities. (As worded by Law No. 64-A/2008 of 31.12) 4 - Land located within an urban agglomeration falls within the provision of paragraph d) of No. 1 which are not land for construction and are not covered by the provision of Article 3, No. 2, and also buildings and constructions licensed or, in the absence of a license, which have as their normal purpose other uses than those referred to in No. 2 and also those covered by the exception in No. 3."

In turn, land for construction is land located inside or outside an urban agglomeration for which a license or authorization has been granted, admitted prior notification or issued favorable prior information of subdivision or construction operation, and also those that have been declared as such in the title of acquisition, except for land where the competent authorities prohibit any of those operations, namely those located in green areas, protected areas or which, in accordance with municipal land planning plans, are intended for public spaces, infrastructures or facilities.

In turn, the tax property value of residential urban properties is calculated in accordance with Article 38 of CIMI, whereas the tax property value of land for construction is calculated in accordance with Article 45 of the same CIMI.

Thus, and although the starting point for the interpretation of the expression properties with residential use should be the text of the law, it is important to reconstruct the legislative intent from it.

The concept for tax purposes, closest to the literal meaning of the expression used in item 28 of TGIS, is clearly that of residential properties, defined in Article 6, No. 2 of CIMI as encompassing "buildings or constructions" licensed for residential purposes or, in the absence of a license, which have as their normal purpose residential uses.

Thus, given that a plot of land for construction - whatever the type and purpose of the building that will, or may be, erected on it - does not satisfy, by itself, any condition to be licensed as such or to be able to define residential use as its normal purpose, and the tax base rule for stamp duty referring to urban properties with "residential use" without any specific concept being established for this purpose, it cannot be inferred from it that it contains a future potentiality inherent in a different property that may possibly be built on the land.

It is concluded, therefore, that, resulting from Article 6 of the IMI Code a clear distinction between urban properties "residential" and "land for construction", these cannot be considered as "properties with residential use" for the purposes of item No. 28.1 of the General Table of Stamp Duty in its original wording, as given to it by Law No. 55-A/2012 of 29 October.

In fact, the comparison of item No. 28.1 of TGTS with Article 6, No. 2 of CIMI, which defines the concept of residential properties, clearly points to the need for actual use. Indeed, this also results from the discernible ratio legis of the restriction of the field of application of the rule to properties with residential use in the context of "the circumstances under which the law was drafted and the specific conditions of the time in which it is applied", which Article 9, No. 1 of the Civil Code also establishes as interpretative elements.

First, the limitation of stamp duty taxation to "properties with residential use" makes it clear that the intention was not to encompass within the scope of the tax properties intended for services, industry or commerce, that is, properties intended for economic activity, which is understandable in a context in which, as is well known, the economy is in a recessionary spiral, publicly proclaimed at the highest level, with unemployment rates reaching historic highs, with an avalanche of business closures resulting from economic unsustainability.

Bearing this situation in mind and being well known and public that the revival of economic activity and increased exports are the way out of the crisis, it is understandable that legislative measures were not taken which would hinder economic activity, particularly the increase in the tax burden that hinders it and affects international competitiveness.

For this reason, it is to be concluded that the available interpretative elements, including the circumstances under which the law was drafted and the specific conditions of the time in which it is applied, clearly point to the fact that the intention was not to encompass within the scope of item No. 28.1 situations of properties that are not yet intended for residential use, namely land for construction held by companies.

Demonstrating that the legislator, in Law No. 55-A/2012 of 29.10, did not provide within the objective scope of application of item 28.1 of TGIS land for construction, is the State Budget Law for 2014 (Law No. 83-C/2013 of 31.12) - to which the legislator did not assign an interpretative character, nor does it appear to us that it did - in Article 194 of which, under the heading "Amendment to the General Table of Stamp Duty", it provides that item 28.1 of the General Table of Stamp Duty appended to the Stamp Duty Code, approved by Law No. 150/99 of 11 September, now has the following wording: "28.1 For a residential property or for land for construction whose authorized or anticipated building is for residential purposes, in accordance with the provisions of the IMI Code - 1%".

Indeed, the legislator, expressly (in the 2014 State Budget Law), differentiates between a residential property and land for construction whose authorized or anticipated building is for residential purposes, from which it is clear that both are different realities, and that in the wording in force at the time of assessment, only residential properties and not also land for construction whose authorized or anticipated building is for residential purposes, were covered by the objective scope of application of item 28.1 of IGIS.

Moreover, this amendment to item 28.1 introduced by the 2014 State Budget Law - to which, it is repeated, the legislator did not assign an interpretative character - merely makes it unequivocal for the future that land for construction whose authorized or anticipated building is for residential purposes are covered within the scope of item 28.1 of the General Table of Stamp Duty (provided that its respective tax property value is equal to or greater than 1 million euros), but clarifies nothing regarding past situations (assessments of 2012 and 2013), such as those at issue in the present case.

In fact, this has been the understanding unanimously adopted by the case law of the Higher Courts, particularly the Supreme Administrative Court, in its decisions of 28/05/2014 which decided case No. 0396/14, of 9 April 2014, in cases nos. 1870/13 and 48/14, and of 23 April 2014, in cases nos. 270/14, 271/14 and 272/14, and which in the present case is corroborated and endorsed.

Returning to the case sub judice, the property that is the subject of the present case has no building constructed, although it has the potential for residential buildings to be constructed.

In this way, showing that the property that is the subject of taxation is proven to be a plot of land for construction and not a residential urban property, then it does not fall within item 28.1 of TGIS, therefore the assessments under scrutiny are affected by a defect of violation of that item No. 28.1, due to error as to the legal prerequisites, which justifies the declaration of its illegality and annulment (Article 135 of the CPA).

As a result of the foregoing, the declaration of illegality of the assessment which is the subject of the present case, due to a defect which prevents the renewal of the act, becomes moot, as stated above, consideration of the defects relating to lack of notification of the reasoning of the assessment acts, to double taxation and to the unconstitutionality of the tax base rules, which are attributed to it by the Claimant - see Article 608, No. 2 of the CPC, by virtue of Article 2, paragraph e) of CPPT.

IV. DECISION

Accordingly, the request for annulment of the acts of assessment of stamp duty for the financial years 2012 and 2013 filed by the Claimant is wholly granted, with the consequent return of the amount of tax paid by the Claimant.

Value of the case: In accordance with the provision of Article 315, No. 2 of the CPC and Article 97-A, No. 1, paragraph a) of CPPT and Article 3, No. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the case is valued at €24,909.49 (twenty four thousand nine hundred and nine euros and forty nine cents).

Costs: Pursuant to Article 22, No. 4 of RJAT, the amount of costs is set at €1,530.00 (one thousand five hundred and thirty euros), in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Lisbon, 13 March 2017

Susana Soutelinho

(Arbitrator)

Frequently Asked Questions

Automatically Created

Is Stamp Tax (Imposto do Selo) under Verba 28.1 applicable to terrenos para construção (construction land)?
Yes, according to the Tax Authority's position in CAAD case 344/2016-T, Stamp Tax under Verba 28.1 applies to terrenos para construção (construction land) valued at €1 million or more. While Lei 55-A/2012 initially referenced only 'residential use' properties, the Tax Authority argued for broad interpretation including construction land intended for residential development. Lei 83-C/2013 subsequently clarified this by expressly including plots for construction where authorized or anticipated building is residential, demonstrating the legislator's original intent to tax such properties.
What are the legal grounds to challenge Stamp Tax assessments on high-value urban properties at CAAD?
Property owners can challenge Stamp Tax assessments on high-value urban properties at CAAD under Articles 2 and 10 of RJAT (Decree-Law 10/2011) in conjunction with Article 99(a) of CPPT. Legal grounds include: (1) lack of proper notification of assessment acts and absence of factual/legal reasoning; (2) incorrect application of Verba 28.1 to non-residential properties; (3) unconstitutional retroactivity; (4) double taxation with IMI; (5) violation of equality principles under Article 104 CRP; and (6) challenges to the property's classification as residential use when no building project or permit exists.
How does the CAAD arbitration process work for contesting Imposto do Selo liquidations under RJAT?
The CAAD arbitration process for Imposto do Selo under RJAT begins with submitting a request for constitution of a sole arbitral tribunal, which must be accepted by CAAD's President. An arbitrator is appointed by the Ethics Council under Article 6(2) and 11(1)(b) of RJAT. Parties are notified and may refuse the appointment. The tribunal is formally constituted per Article 11(1)(c) RJAT. The arbitrator may waive the Article 18 hearing if the case has limited complexity, no exceptions are invoked, and no witness evidence is needed. Parties submit written arguments, and the arbitrator issues a binding decision on the legality of the tax assessment.
Can property owners request annulment of Stamp Tax charges levied under Lei 55-A/2012 on urban land?
Yes, property owners can request annulment of Stamp Tax charges levied under Lei 55-A/2012 on urban land through CAAD arbitration. In case 344/2016-T, the claimant challenged assessments on construction land arguing that Verba 28.1 illegally applied to land without actual residential use, lacked proper notification, constituted double taxation with IMI, and violated constitutional principles of retroactivity and equality. Valid grounds for annulment include improper classification of land use, procedural defects in notification, constitutional violations, and misapplication of tax law to properties not meeting the 'residential use' criterion as originally defined.
What was the outcome of CAAD decision 344/2016-T regarding Stamp Tax on construction land in Leiria?
While the provided excerpt does not include the final decision of CAAD case 344/2016-T, the tribunal was evaluating whether Stamp Tax under Verba 28.1 of TGIS legally applies to construction land in Leiria valued at €1,394,122.80. The case involved assessments totaling approximately €30,000 for 2012-2013. The claimant argued the tax only applies to properties with actual residential use, not undeveloped construction land, and raised constitutional and procedural challenges. The Tax Authority defended broad interpretation including construction land intended for residential development, claiming Lei 83-C/2013 clarified the original legislative intent of Lei 55-A/2012.