Process: 349/2016-T

Date: February 7, 2019

Tax Type: Selo

Source: Original CAAD Decision

Summary

This revised CAAD arbitral decision (Process 349/2016-T) addresses the constitutionality and application of Stamp Tax (Imposto do Selo) under Item 28.1 of the General Stamp Tax Table (TGIS) to construction land intended for housing. The taxpayer, a real estate investment fund, challenged two 2015 stamp duty assessments totaling over €26,000 on land parcels in Lisbon with tax-assessed values exceeding €1,000,000. The fund argued the assessments lacked proper substantiation, violated procedural formalities by omitting prior hearing rights under Article 60 of the General Tax Law, and erroneously applied Item 28.1 because the properties were construction land without actual building capacity under the Lisbon Master Plan. The Tax Authority countered that periodic stamp duty assessments follow Municipal Real Estate Tax procedures, prior hearing is not required for automated assessments based on registry data, and the properties qualified as construction land per their acquisition deeds and valid building licenses. The original 2017 decision favored the taxpayer, but the Constitutional Court ruled on November 21, 2018 (final December 6, 2018) that Item 28.1 TGIS, as amended by Laws 55-A/2012 and 83-C/2013, is constitutional insofar as it imposes annual taxation on construction land ownership where authorized or planned construction is residential and property value equals or exceeds €1,000,000. Following this Constitutional Court decision granting the Public Prosecutor's appeal, the arbitrator reformed the original decision, demonstrating how CAAD arbitral decisions must be revised when the Constitutional Court overturns them on constitutional grounds, establishing important precedent for annual property taxation under Portuguese stamp duty law.

Full Decision

ARBITRAL DECISION

— Revised following Summary Decision of the Constitutional Court —

Arbitrator Raquel Franco, appointed by the Deontological Council of the Administrative Arbitration Centre (CAAD) to form the single arbitral tribunal constituted on 13 September 2016, hereby, following the decision of the Constitutional Court of 21.11.2018 and final as of 06.12.2018[1], which granted the appeal presented by the Public Prosecutor's Office against the decision handed down on 13.03.2017, ruling that the norm contained in Item 28.1 of the General Table of Stamp Duty, approved by Law no. 55-A/2012, of 29 October and amended by Law no. 83-C/2013, of 31 December, is not unconstitutional insofar as it imposes annual taxation on the ownership of land for construction whose building, authorized or foreseen, is for housing purposes, whose tax-assessed property value is equal to or exceeding € 1,000,000.00, hereby amends the decision previously handed down, which shall now read as follows:

REPORT

Procedural Framework

On 27-06-2016, the company "A... – CLOSED REAL ESTATE INVESTMENT FUND", Tax ID no..., filed a request for constitution of a single arbitral tribunal, pursuant to the combined provisions of Articles 2 and 10 of Decree-Law no. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter designated only as LRAT), in which the Tax Authority and Customs Authority (TA) is the respondent.

The request for constitution of the Arbitral Tribunal was accepted by the Esteemed President of CAAD and automatically notified to the TA on 14-09-2016.

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 20 January, as worded by Article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council appointed the undersigned as arbitrator of the single arbitral tribunal, who communicated acceptance of the assignment within the applicable time period.

On 29.08-2016, the parties were duly notified of this appointment and neither expressed a wish to refuse the arbitrator's appointment pursuant to the combined provisions of Article 11, paragraph 1, subparagraphs a) and b) of the LRAT and Articles 6 and 7 of the Deontological Code.

Thus, pursuant to the provisions of subparagraph c) of paragraph 1 of Article 11 of Decree-Law no. 10/2011, of 20 January, as worded by Law no. 66-B/2012, of 31 December, the arbitral tribunal was constituted on 13-09-2016.

The Tribunal delivered its decision on the case on 13.03.2017, with the case being archived on 29.03.2017.

The Public Prosecutor's Office filed a request for appeal of the decision to the Constitutional Court on 18.04.2017, regarding which an order was issued and notified to the Parties and the Public Prosecutor's Office on 27.04.2017.

The summary decision of the Constitutional Court was received and notified on 17.12.2018.

Summary of Grounds Invoked by the Applicant

In the present case, the Applicant requests that the Arbitral Tribunal declare the illegality, by reason of violation of law, of the following stamp duty assessment acts relating to the year 2015:

  • The first relating to a plot of land registered in the property register of the parish of..., municipality of Lisbon, under article U-..., in the amount of € 13,042.50;

  • The second relating to a plot of land registered in the property register of the parish of..., municipality of Lisbon, under article U-..., in the amount of € 13,494.70.

The grounds presented by the Applicant are as follows:

  • Lack of substantiation of the assessment acts, since the same do not contain the factual and legal reasons that determined their issuance, in particular the nature and allocation of the properties to which the tax applies and the reason for their subsumption to Item 28.1 of the GTSD, with the consequent determinations of the respective collections;

  • Breach of an essential legal formality by virtue of the circumstance that the Applicant was not notified in accordance with the provisions of subparagraph a) of paragraph 1 of Article 60 of the General Tax Law;

  • Erroneous application of Item 28.1 of the GTSD, since, in light of the ICPI, the concept of "residential property" is integrated into the definition of urban residential property contained in Article 6, paragraph 2, of the said law, which covers solely "buildings or constructions licensed for such or, in the absence of a license, which have as their normal destination each of these purposes". Already land for construction, pursuant to paragraph 3 of the same legal provision, are those plots of land situated within or outside an urban agglomeration for which a license has been granted or an authorization issued, prior notification admitted, or favorable prior information issued for subdivision or construction operations, and also those declared as such in the acquisition title, excepting lands where the competent entities prohibit any of those operations, namely those located in protected green zones or which, in accordance with municipal territorial planning plans, are allocated to spaces, infrastructure or public facilities. Now, according to the Applicant, in accordance with Article 50 of the Lisbon Master Plan Regulation, although the land registered in the property register of the parish of... under no. U-... is land for construction, it does not have building capacity, pursuant to the LMPL in force and for this reason is excluded from the taxable base of Item 28.1 of the GTSD, which applies only to "(…) land for construction whose building, authorized or foreseen, is for housing purposes." On the other hand, Article 58 of the Lisbon Master Plan Regulation integrates the land registered in the property register of the parish of... under article U-... in an area whose urban reconversion is not yet defined, making it impossible, until such reconversion occurs, to promote any kind of construction.

Summary of the TA's Counter-Arguments

Regarding the alleged lack of substantiation:

The stamp duty assessment act for Item 28.1 of the GTSD has a periodic character; its assessment is made annually, based on elements pre-established in the register, and the assessments, notifications and payment deadlines of the respective collection documents follow, with necessary adjustments, the rules provided for the Municipal Real Estate Tax;

All elements – taxpayer's tax identification, tax year, property identification, tax year, rate, tax-assessed property value, collection and tax payable – are expressed in the payment collection notes, with no underlying administrative procedure for each assessment act.

Regarding the alleged violation of Article 60 of the GTL – for not having ensured the taxpayer's participation in the decision – the TA invokes jurisprudence favorable to it, in particular from the Supreme Administrative Court, which has decided that (notwithstanding prior hearing constituting an important manifestation of the principle of contradiction and aiming to associate the administrated with the task of preparing the final decision and enabling them to participate and influence the formation of the Administration's will), the same constitutes a non-essential formality when, given the circumstances, the intervention of the interested party becomes useless – Supreme Administrative Court Judgment dated 3/3/04, Appeal no. 240/02 and Judgment of 24/10/2007, rendered in Appeal 429/07.

Regarding the argument of erroneous application of law by (i) the property registered in the matrix under article... being classified in the planning map as consolidated area/green recreational and production spaces and (ii) the property registered under article... being classified as consolidated area/central and residential spaces, the TA defends itself in the following way:

  • the acquisition act of the referred properties by the Applicant in 2010 described them as land for construction, whereby, pursuant to paragraph 3 of Article 6 of the ICPI, even if there were no approved urbanization operations that would determine such qualification, they would always be considered land for construction;

  • the properties are covered by the scope of the concept provided in Item 28.1 of the GTSD, insofar as their tax-assessed property value is equal to or exceeding € 1,000,000.00. Considering the scope of application of the norm to land for construction of buildings, taxation falls upon values corresponding to properties to be built which, according to their authorization or forecast, are intended to have a use for housing purposes. Regarding the lands in question, it contests that they do not have building capacity and asserts that, in order to disqualify them as "land for construction," the Applicant would have to submit a request for amendment to the register, duly supported by a document from the municipal chamber certifying the impossibility of construction.

  • in the concrete case, although the land plots are subject to strong urban planning restrictions, there is no construction impossibility that would determine non-subjection to tax.

In the Response presented, the TA further states that "there is a proper procedural means that safeguards matrix alterations and aims to adjust the matrix in light of the physical and economic reality of the properties." It makes reference to paragraph 3 of Article 130 of the ICPI, pursuant to which taxpayers may, at any time, challenge any incorrectness in matrix registrations, concluding that "challenging the assessment is not the appropriate means to discuss matters related to acts of matrix registration which constitute an administrative act in tax matters, and for which the Arbitral Tribunal is not competent to decide." However, it does not draw any incompetence of the arbitral tribunal from this regarding the request formulated by the Applicant and, indeed, concludes the Response by stating that there are no exceptions whatsoever that the tribunal should hear. This is, moreover, the Tribunal's understanding, both regarding its competence in relation to the impugned acts and regarding its competence to hear the questions in which the Applicant understands to be expressed the violation of law vice imputed to those acts.

Thus, regarding this point, nothing more need be stated, with the request presented by the Applicant as "Response to the Exceptions" not requiring more in-depth analysis.

Regarding the request for witness examination presented by the Applicant, it is important to note that the Tribunal, through an order of 19-10-2016, transmitted to the parties its understanding that the disputed issues were sufficiently documented in the case file.

II. PRELIMINARY MATTERS

  1. The Tribunal is competent and is duly constituted, pursuant to Articles 2, paragraph 1, subparagraph a), 5 and 6, all of the LRAT.

  2. The parties have legal personality and capacity, are legitimate and are legally represented, pursuant to Articles 4 and 10 of the LRAT and Article 1 of Ordinance no. 112-A/2011, of 22 March.

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

III. FACTS

Before proceeding to the consideration of legal questions, it is necessary to present the factual matters relevant to their understanding and decision, which, having examined the documentary evidence and the administrative proceedings (AP) annexed to the case file and also taking into account the facts alleged, shall be established as follows:

III.1 Proven Facts

  • The applicant is the owner of land for construction registered in the property register of the parish of..., municipality of Lisbon, under article U-..., valued at € 13,042.50;

  • The applicant is also the owner of a plot of land registered in the property register of the parish of..., municipality of Lisbon, under article U-..., valued at € 13,494.70;

  • Pursuant to its respective property certificate, the land registered under article U-... has "housing" as its location coefficient type.

  • The same land has a total area of 10,500.0000 m², a gross construction area of 4,000.0000 m² and a building footprint area of 2,000.0000 m².

  • It further has a tax-assessed property value of € 1,304,250.00.

  • As for the land registered under article U-..., it has "housing" as its location coefficient type.

  • Total area of 16,500.0000 m², gross construction area of 4,000.0000 m² and building footprint area of 2,000.0000 m².

  • It further has a tax-assessed property value of € 1,349,470.

  • The TA issued a stamp duty assessment act relating to the year 2015, which applied to the land identified in a., which was collected in three installments, totaling € 13,042.50.

  • The TA issued a stamp duty assessment act relating to the year 2015, which applied to the land identified in b., which was collected in three installments, totaling € 13,494.70.

  • Both plots were described in their respective acquisition act as land for construction.

  • The land registered under article U-... is located, pursuant to the LMPL, in a zone classified as "Central and Residential Space to be Consolidated."

  • In accordance with Article 58 of the LMPL, the land referred to in the preceding paragraph has its building capacity dependent on urban reconversion operations not yet carried out.

  • The land registered under article U-... is classified as "Consolidated Recreation and Production Green Space."

  • Pursuant to Article 50 of the LMPL, in areas classified as consolidated recreation and production green space, subdivision operations or construction in plots with an area of less than 2 hectares are not possible.

III.2 Unproven Facts

There are no material facts relevant to the decision that have been ruled as unproven.

III.3 Justification of the Decision Regarding the Facts

The decision regarding the facts is based on the documents annexed to the case file, which are hereby reproduced, as well as on the absence of controversy about them regarding the points indicated.

IV. THEMA DECIDENDUM

The fundamental question that the Applicant placed before this tribunal is whether, in the concrete case, the assessment act was based on an illegal application of the norm contained in Item 28.1 of the GTSD by virtue of it not concerning a "land for construction whose building, authorized or foreseen, is for housing purposes."

The tribunal also considers it relevant to the decision concerning the validity of the assessments that are the subject of this dispute to determine whether the norm contained in Item 28.1 of the GTSD, insofar as it subjects to taxation residential properties and land for construction whose building, authorized or foreseen, is for housing purposes, constitutes an unconstitutionality by violation of the principle of contributory capacity arising from the principle of equality provided in Article 13 of the Constitution.

V. LEGAL GROUNDS

Item 28 of the GTSD provided, at the date of the facts, as follows:

28 Ownership, usufruct or surface right of urban properties whose tax-assessed property value recorded in the register, pursuant to the Code of Municipal Real Estate Tax (ICPI), is equal to or exceeding (euro) 1,000,000 - on the tax-assessed property value used for purposes of the Municipal Real Estate Tax: (Added by Article 4 of Law no. 55-A/2012 of 29 October)

28.1 For residential property or for land for construction whose building, authorized or foreseen, is for housing purposes, pursuant to the provisions of the ICPI Code (Wording of Law no. 83-C/2013 of 31 December) - 1%

In accordance with Item 28.1 of the GTSD, in its original wording, ownership, usufruct and surface rights over urban properties with residential use whose tax-assessed property value recorded in the register, pursuant to the ICPI Code, was equal to or exceeding € 1,000,000 were subject to this tax. Later, with the amendment made in 2013 and which had repercussions in the years 2014 and following – in particular in the year 2015, to which the assessment in dispute relates – land for construction whose building, authorized or foreseen, is for housing purposes, pursuant to the provisions of the ICPI Code, also became subject to taxation at the rate of 1%.

Within the scope of that previous wording of Item 28.1 of the GTSD, it was concluded in various tax arbitration proceedings that the expression "residential use," contained in the text of the then-current norm, referred to a "use" for housing purposes, that is, to urban properties that had actual use for residential purposes (cf., in particular, proceedings 42/2013-T, 48/2013-T, 49/2013-T, 53/2013-T, 75/2013-T, 144/2013-T and 158/2013-T).

Law no. 55-A/2012, of 29 October, introduced a set of amendments to the codifying laws of three taxes – Personal Income Tax, Corporate Income Tax and Stamp Duty – as well as to the General Tax Law, among which the norm contained in Item 28.1 of the GTSD, all guided by obtaining supplementary tax revenue and, in general, to counter the extreme budgetary imbalance then experienced by the country. Measures were introduced to strengthen the fight against tax fraud and evasion, and, within the scope of Stamp Duty, taxation of legal situations was created (expression added to paragraph 1 of Article 1 of the Stamp Duty Code), which was understood to be demonstrative of the capacity of their respective holders to bear an increased tax burden, thereby more equitably distributing the sacrifice to achieve the budgetary consolidation required of taxpayers. This is what results from the explanatory memorandum of Bill no. 96/XII/2nd, which was the origin of said Law no. 55-A/2012:

"The pursuit of the public interest, in light of the Country's economic and financial situation, requires an effort at consolidation that will require, in addition to permanent activism in reducing public expenditure, the introduction of fiscal measures inserted in a broader set of measures to combat the budget deficit.

These measures are fundamental to reinforce the principle of social equity in austerity, ensuring an effective distribution of the sacrifices necessary to comply with the adjustment program. The Government is strongly committed to ensuring that the distribution of these sacrifices will be made by all and not just by those who live on the income of their work. In accordance with this objective, this law broadens the taxation of capital income and property, equitably covering a broad set of sectors of Portuguese society.

In these terms, the taxation of capital gains and securities gains will be aggravated, with their respective rates going from 25% to 26.5% under Personal Income Tax. The taxation rates applicable to income obtained from, or transferred to, tax havens are also increased to 35%.

On the other hand, a rate is created under Stamp Duty applicable to urban properties with residential use whose tax-assessed property value is equal to or exceeding one million euros.

Finally, this law introduces a measure to strengthen the fight against tax fraud and evasion, through the strengthening of the regime applicable to wealth displays by taxpayers (Personal Income Tax) and transfers to and from tax havens. First, the operationalization of Personal Income Tax assessment based on wealth displays is strengthened, reducing the differential from 50% to 30% between wealth displays and income declared under Personal Income Tax. On the other hand, transfers to and from tax havens made between accounts of the taxpayer, not declared in accordance with law, now become considered a wealth display and, as such, subject to taxation under Personal Income Tax through indirect methods."

The mere extension of a rule of incidence to situations for which it was not originally conceived carries the risk of subjecting situations that are in themselves distinct and that would therefore merit differentiation in taxation to the same regime of taxation. In the case of Item 28.1 of the GTSD, if the taxation of luxury properties with residential use may be considered constitutional precisely because, there being actual use thereof by their respective owners, this situation reveals materially relevant conduct from the standpoint of assessing the owner's wealth, the same cannot be said of the case of taxation of land for construction, where, as long as there are no constructions capable of being used for housing purposes and as such licensed by the competent authorities, the land itself is, objectively, incapable of having such use. Now, something entirely different from the actual use of a property for housing is the expectation, or potentiality, of an urban property being able to have a "residential use" – which is precisely what characterizes land for construction. Indeed, land for construction, because it is unbuilt, does not satisfy, by itself, any condition to be considered as a property "with use" (whatever it may be). In them there exists nothing more than the expectation, or potentiality, that a property may, after its respective construction, come to have a "use." Therefore, only when this "use" is realized, which will never occur before its construction, can we consider that the land for construction begins to present any similarity with the urban property, in particular by allowing its holder to derive some benefit from it.

In the words of JOSÉ MARIA FERNANDES PIRES, "the value of land for construction corresponds, fundamentally, to a legal expectation, embodied in a right to construct thereon a property with certain characteristics and a certain value." (cf. "Lectures on Property and Stamp Taxes," Almedina, 2010, p. 101). A plot of land for construction, notwithstanding its classification as an urban property for purposes of the Municipal Real Estate Tax, is characterized above all by its constructive viability, which gives its owner nothing more than the possibility of constructing thereon a property with the characteristics permitted by the applicable urban management instruments.

In this manner, if it is true that the holder of land for construction with value exceeding € 1,000,000.00 has within his legal sphere a property of high value, it is also true that his situation is different from that of the owner of a property with residential use, who actually benefits from the property of which he is the holder. It could be said, in this regard, that the fact that the owner of the property with residential use can derive an income from the property while the owner of the land for construction cannot is not relevant in this context because this is taxation of assets and not of income. However, it is not true that this is irrelevant. On the one hand, in the case of the owner of residential property who does not lease the property but enjoys it directly, the value of the assets of both is the same, but we still have two completely distinct situations: that of an owner enjoying a luxury residence, on the one hand, and that of the owner of land for construction, who enjoys nothing. It could still be said that the owner of land for construction can sell the property of which he is the owner and realize income in that way and that this possibility justifies taxation under stamp duty. It is true that he can. However, this income will already be taxed under Personal Income Tax or Corporate Income Tax, as the case may be. Furthermore, the owner of rustic property with value equal to or exceeding 1 million euros can also sell the property and this is not why it is taxed under Item 28.1 of the GTSD.

It is undeniable that what the legislator intended, when creating Item 28.1 of the GTSD, was to tax luxury residential properties; however, we believe that, by introducing land for construction within the scope of application of the norm, the initial regime was distorted, extending it to situations entirely distinct from those which it originally aimed. The amendment introduced to Item 28.1 of the GTSD in 2014 has, moreover, the effect of clarifying the distinction between the reality "residential property" and the reality "land for construction," demonstrating that one and the other are not the same.

Furthermore, the extension of the rule of incidence to land for construction whose building, authorized or foreseen, is for housing purposes, was not accompanied by a distinction relating to the value of the building erected, reason for which, applying general rules, even when the building authorized or foreseen for the land is housing in multiple units, it is the tax-assessed property value of the land, the only one that exists before the construction is realized and which is "used for purposes of the Municipal Real Estate Tax," that is relevant to determine the incidence of the tax.

This circumstance raises questions of constitutionality of the norm in question, which are analyzed here in a manner very close to that contained in the judgment handed down in the course of proceedings 507/2015-T. Thus, in summary terms:

  • the tax-assessed property value of land for construction is the sum of the value of the building footprint area to be constructed, which is that situated within the perimeter of the building's fixation to the ground, measured by the outer part, added to the value of the land adjacent to the footprint," with "the value of the footprint area varying between 15% and 45% of the value of authorized or foreseen buildings" (Article 45, paragraphs 1 and 2, of the ICPI).

  • in relation to land for construction for which only building of residential units with value below € 1,000,000.00 is foreseen or authorized, the justification for the high contributory capacity revealed by holding such assets does not hold because the fact that the land has value equal to or exceeding that does not allow identification of a taxpayer with a contributory capacity at the level of "the highest standards of Portuguese society."

  • the holding of rights over land for construction of units susceptible to independent use even reveals less contributory capacity than that revealed by the holding of rights over an already-built property, which is why a rational justification cannot be found for taxing the holding of rights over land, when it has value equal to or exceeding € 1,000,000.00, and not taxing the holding of rights of the same taxpayer over the already-built property, when all units have values below that amount.

  • it lacks rational justification to tax on the basis of hypothetical elevated contributory capacity situations where rights over land for construction are held in which exclusively authorized or foreseen buildings are constituted by units of individual value below € 1,000,000.00 and not apply the same taxation to situations where these buildings have already been constructed on the land, with enormous increase in the tax-assessed property value of the building, since "the value of the footprint area varies between 15% and 45% of the value of authorized or foreseen buildings."

  • as for land for construction destined for building autonomous housing with value equal to or exceeding € 1,000,000.00, the holding of rights over land with this purpose reveals, by itself, a situation of wealth, at the level of "the highest standards of Portuguese society."

Item 28.1 of the GTSD, in the part relating to land for construction, makes no distinction based on the value of authorized or foreseen housing, which is why it must be concluded that it depends only on the tax-assessed property value of the land itself. Being thus, it must be concluded that the norm of Item 28.1 of the GTSD, in the wording introduced by Law no. 83-C/2013, of 31 December, is materially unconstitutional, by violation of the principle of equality, enunciated generically in Article 13 of the Constitution, by applying to land for construction with tax-assessed property value equal to or exceeding € 1,000,000.00 for which authorized or foreseen construction does not include any unit susceptible to independent use with value equal to or exceeding that amount.

Moreover, in the case being analyzed here, the lands do not have any authorization, project or forecast for building for housing purposes. On the contrary, pursuant to the LMPL applicable to both, both are subject to strong restrictions in terms of buildability. As regards the land registered under article U-..., it is located in a zone classified as "Central and Residential Space to be Consolidated," which, in accordance with Article 58 of the LMPL, implies having its building capacity dependent on urban reconversion operations not yet carried out. It is true, as the TA says, that, when these operations occur, it may be possible to build on the land in question. However, the truth is that, at this moment, if the Applicant submits a project to the Lisbon Municipal Chamber for the purpose of construction on the land in question, it will receive a negative response – that is, the potential to build is merely future and uncertain. As for the land registered under article U-..., it is classified as "Consolidated Recreation and Production Green Space," which means, pursuant to Article 50 of the LMPL, that subdivision operations or construction in plots with an area of less than 2 hectares are not possible. Given the area of the land in question (less than 2 hectares), its potential buildability is, at this moment, zero.

In sum, and in light of the foregoing, it is concluded that the properties in question cannot, at the date of the facts, be subject to Stamp Duty pursuant to Item 28.1 of the GTSD.

By virtue of the material unconstitutionality from which the norm contained in Item 28.1 of the GTSD, in the wording introduced by Law no. 83-C/2013, of 31 December, suffers, by violation of the constitutional principle of equality, the assessments that are the subject of this proceeding suffer from a vice of violation of law, embodied in error regarding the legal prerequisites, which justifies their annulment pursuant to Article 163, paragraph 1 of the Administrative Procedure Code, applicable by virtue of Article 2, subparagraph d) of the Tax Court Procedure Code.

Thus, the consideration of the remaining questions placed before this tribunal is prejudiced, relating to the lack of substantiation of the assessment acts and to the breach of essential formalities.

VI. DECISION

In accordance with what is set out above, it is decided that the request for an arbitral pronouncement is well-founded and, as a consequence, to declare the consequent unconstitutionality of the stamp duty assessment acts in dispute, with the consequent annulment of those same assessments.

Value: In accordance with the provisions of paragraph 2 of Article 315 of the Code of Civil Procedure, combined with subparagraph a) of paragraph 1 of Article 97-A of the Tax Court Procedure Code and paragraph 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings, the case value is fixed at € 26,537.20.

Costs: In accordance with the provisions of Article 22, paragraph 4, of the LRAT and in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at € 1,530.00, to be borne by the Respondent pursuant to Articles 12, paragraph 2, and 22, paragraph 4, both of the LRAT, and Article 4, paragraph 4, of the aforementioned Regulation.

Let it be registered and notified.

Lisbon, 13 March 2017

The Arbitrator,

Raquel Franco

ARBITRAL DECISION

The Arbitrator Raquel Franco, appointed by the Deontological Council of the Administrative Arbitration Centre (CAAD) to form the single arbitral tribunal constituted on 13 September 2016, decides as follows:

REPORT

Procedural Framework

On 27-06-2016, the company "A... – CLOSED REAL ESTATE INVESTMENT FUND", Tax ID no..., filed a request for constitution of a single arbitral tribunal, pursuant to the combined provisions of Articles 2 and 10 of Decree-Law no. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter designated only as LRAT), in which the Tax Authority and Customs Authority (TA) is the respondent.

The request for constitution of the Arbitral Tribunal was accepted by the Esteemed President of CAAD and automatically notified to the TA on 14-09-2016.

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 20 January, as worded by Article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council appointed the undersigned as arbitrator of the single arbitral tribunal, who communicated acceptance of the assignment within the applicable time period.

On 29.08-2016, the parties were duly notified of this appointment and neither expressed a wish to refuse the arbitrator's appointment pursuant to the combined provisions of Article 11, paragraph 1, subparagraphs a) and b) of the LRAT and Articles 6 and 7 of the Deontological Code.

Thus, pursuant to the provisions of subparagraph c) of paragraph 1 of Article 11 of Decree-Law no. 10/2011, of 20 January, as worded by Law no. 66-B/2012, of 31 December, the arbitral tribunal was constituted on 13-09-2016.

Summary of Grounds Invoked by the Applicant

In the present case, the Applicant requests that the Arbitral Tribunal declare the illegality, by reason of violation of law, of the following stamp duty assessment acts relating to the year 2015:

  • The first relating to a plot of land registered in the property register of the parish of…, municipality of Lisbon, under article U-…, in the amount of € 13,042.50;

  • The second relating to a plot of land registered in the property register of the parish of…, municipality of Lisbon, under article U-…, in the amount of € 13,494.70.

The grounds presented by the Applicant are as follows:

  • Lack of substantiation of the assessment acts, since the same do not contain the factual and legal reasons that determined their issuance, in particular the nature and allocation of the properties to which the tax applies and the reason for their subsumption to Item 28.1 of the GTSD, with the consequent determinations of the respective collections;

  • Breach of an essential legal formality by virtue of the circumstance that the Applicant was not notified in accordance with the provisions of subparagraph a) of paragraph 1 of Article 60 of the General Tax Law;

  • Erroneous application of Item 28.1 of the GTSD, since, in light of the ICPI, the concept of "residential property" is integrated into the definition of urban residential property contained in Article 6, paragraph 2, of the said law, which covers solely "buildings or constructions licensed for such or, in the absence of a license, which have as their normal destination each of these purposes." Already land for construction, pursuant to paragraph 3 of the same legal provision, are those plots of land situated within or outside an urban agglomeration for which a license has been granted or an authorization issued, prior notification admitted, or favorable prior information issued for subdivision or construction operations, and also those declared as such in the acquisition title, excepting lands where the competent entities prohibit any of those operations, namely those located in protected green zones or which, in accordance with municipal territorial planning plans, are allocated to spaces, infrastructure or public facilities. Now, according to the Applicant, in accordance with Article 50 of the Lisbon Master Plan Regulation, although the land registered in the property register of the parish of... under no. U-... is land for construction, it does not have building capacity, pursuant to the LMPL in force and for this reason is excluded from the taxable base of Item 28.1 of the GTSD, which applies only to "(…) land for construction whose building, authorized or foreseen, is for housing purposes." On the other hand, Article 58 of the Lisbon Master Plan Regulation integrates the land registered in the property register of the parish of... under article U-... in an area whose urban reconversion is not yet defined, making it impossible, until such reconversion occurs, to promote any kind of construction.

Summary of the TA's Counter-Arguments

Regarding the alleged lack of substantiation:

The stamp duty assessment act for Item 28.1 of the GTSD has a periodic character; its assessment is made annually, based on elements pre-established in the register, and the assessments, notifications and payment deadlines of the respective collection documents follow, with necessary adjustments, the rules provided for the Municipal Real Estate Tax;

All elements – taxpayer's tax identification, tax year, property identification, tax year, rate, tax-assessed property value, collection and tax payable – are expressed in the payment collection notes, with no underlying administrative procedure for each assessment act.

Regarding the alleged violation of Article 60 of the GTL – for not having ensured the taxpayer's participation in the decision – the TA invokes jurisprudence favorable to it, in particular from the Supreme Administrative Court, which has decided that (notwithstanding prior hearing constituting an important manifestation of the principle of contradiction and aiming to associate the administrated with the task of preparing the final decision and enabling them to participate and influence the formation of the Administration's will), the same constitutes a non-essential formality when, given the circumstances, the intervention of the interested party becomes useless – Supreme Administrative Court Judgment dated 3/3/04, Appeal no. 240/02 and Judgment of 24/10/2007, rendered in Appeal 429/07.

Regarding the argument of erroneous application of law by (i) the property registered in the matrix under article... being classified in the planning map as consolidated area/green recreational and production spaces and (ii) the property registered under article... being classified as consolidated area/central and residential spaces, the TA defends itself in the following way:

  • the acquisition act of the referred properties by the Applicant in 2010 described them as land for construction, whereby, pursuant to paragraph 3 of Article 6 of the ICPI, even if there were no approved urbanization operations that would determine such qualification, they would always be considered land for construction;

  • the properties are covered by the scope of the concept provided in Item 28.1 of the GTSD, insofar as their tax-assessed property value is equal to or exceeding € 1,000,000.00. Considering the scope of application of the norm to land for construction of buildings, taxation falls upon values corresponding to properties to be built which, according to their authorization or forecast, are intended to have a use for housing purposes. Regarding the lands in question, it contests that they do not have building capacity and asserts that, in order to disqualify them as "land for construction," the Applicant would have to submit a request for amendment to the register, duly supported by a document from the municipal chamber certifying the impossibility of construction.

  • in the concrete case, although the land plots are subject to strong urban planning restrictions, there is no construction impossibility that would determine non-subjection to tax.

In the Response presented, the TA further states that "there is a proper procedural means that safeguards matrix alterations and aims to adjust the matrix in light of the physical and economic reality of the properties." It makes reference to paragraph 3 of Article 130 of the ICPI, pursuant to which taxpayers may, at any time, challenge any incorrectness in matrix registrations, concluding that "challenging the assessment is not the appropriate means to discuss matters related to acts of matrix registration which constitute an administrative act in tax matters, and for which the Arbitral Tribunal is not competent to decide." However, it does not draw any incompetence of the arbitral tribunal from this regarding the request formulated by the Applicant and, indeed, concludes the Response by stating that there are no exceptions whatsoever that the tribunal should hear. This is, moreover, the Tribunal's understanding, both regarding its competence in relation to the impugned acts and regarding its competence to hear the questions in which the Applicant understands to be expressed the violation of law vice imputed to those acts.

Thus, regarding this point, nothing more need be stated, with the request presented by the Applicant as "Response to the Exceptions" not requiring more in-depth analysis.

Regarding the request for witness examination presented by the Applicant, it is important to note that the Tribunal, through an order of 19-10-2016, transmitted to the parties its understanding that the disputed issues were sufficiently documented in the case file.

II. PRELIMINARY MATTERS

  1. The Tribunal is competent and is duly constituted, pursuant to Articles 2, paragraph 1, subparagraph a), 5 and 6, all of the LRAT.

  2. The parties have legal personality and capacity, are legitimate and are legally represented, pursuant to Articles 4 and 10 of the LRAT and Article 1 of Ordinance no. 112-A/2011, of 22 March.

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

III. FACTS

Before proceeding to the consideration of legal questions, it is necessary to present the factual matters relevant to their understanding and decision, which, having examined the documentary evidence and the administrative proceedings (AP) annexed to the case file and also taking into account the facts alleged, shall be established as follows:

III.1 Proven Facts

  • The applicant is the owner of land for construction registered in the property register of the parish of..., municipality of Lisbon, under article U-..., valued at € 13,042.50;

  • The applicant is also the owner of a plot of land registered in the property register of the parish of..., municipality of Lisbon, under article U-..., valued at € 13,494.70;

  • Pursuant to its respective property certificate, the land registered under article U-... has "housing" as its location coefficient type.

  • The same land has a total area of 10,500.0000 m², a gross construction area of 4,000.0000 m² and a building footprint area of 2,000.0000 m².

  • It further has a tax-assessed property value of € 1,304,250.00.

  • As for the land registered under article U-..., it has "housing" as its location coefficient type.

  • Total area of 16,500.0000 m², gross construction area of 4,000.0000 m² and building footprint area of 2,000.0000 m².

  • It further has a tax-assessed property value of € 1,349,470.

  • The TA issued a stamp duty assessment act relating to the year 2015, which applied to the land identified in a., which was collected in three installments, totaling € 13,042.50.

  • The TA issued a stamp duty assessment act relating to the year 2015, which applied to the land identified in b., which was collected in three installments, totaling € 13,494.70.

  • Both plots were described in their respective acquisition act as land for construction.

  • The land registered under article U-... is located, pursuant to the LMPL, in a zone classified as "Central and Residential Space to be Consolidated."

  • In accordance with Article 58 of the LMPL, the land referred to in the preceding paragraph has its building capacity dependent on urban reconversion operations not yet carried out.

  • The land registered under article U-... is classified as "Consolidated Recreation and Production Green Space."

  • Pursuant to Article 50 of the LMPL, in areas classified as consolidated recreation and production green space, subdivision operations or construction in plots with an area of less than 2 hectares are not possible.

III.2 Unproven Facts

There are no material facts relevant to the decision that have been ruled as unproven.

III.3 Justification of the Decision Regarding the Facts

The decision regarding the facts is based on the documents annexed to the case file, which are hereby reproduced, as well as on the absence of controversy about them regarding the points indicated.

IV. THEMA DECIDENDUM

The fundamental question that the Applicant placed before this tribunal is whether, in the concrete case, the assessment act was based on an illegal application of the norm contained in Item 28.1 of the GTSD by virtue of it not concerning a "land for construction whose building, authorized or foreseen, is for housing purposes."

The tribunal also considers it relevant to the decision concerning the validity of the assessments that are the subject of this dispute to determine whether the norm contained in Item 28.1 of the GTSD, insofar as it subjects to taxation residential properties and land for construction whose building, authorized or foreseen, is for housing purposes, constitutes an unconstitutionality by violation of the principle of contributory capacity arising from the principle of equality provided in Article 13 of the Constitution.

V. LEGAL GROUNDS

Item 28 of the GTSD provided, at the date of the facts, as follows:

28 Ownership, usufruct or surface right of urban properties whose tax-assessed property value recorded in the register, pursuant to the Code of Municipal Real Estate Tax (ICPI), is equal to or exceeding (euro) 1,000,000 - on the tax-assessed property value used for purposes of the Municipal Real Estate Tax: (Added by Article 4 of Law no. 55-A/2012 of 29 October)

28.1 For residential property or for land for construction whose building, authorized or foreseen, is for housing purposes, pursuant to the provisions of the ICPI Code (Wording of Law no. 83-C/2013 of 31 December) - 1%

In accordance with Item 28.1 of the GTSD, in its original wording, ownership, usufruct and surface rights over urban properties with residential use whose tax-assessed property value recorded in the register, pursuant to the ICPI Code, was equal to or exceeding € 1,000,000 were subject to this tax. Later, with the amendment made in 2013 and which had repercussions in the years 2014 and following – in particular in the year 2015, to which the assessment in dispute relates – land for construction whose building, authorized or foreseen, is for housing purposes, pursuant to the provisions of the ICPI Code, also became subject to taxation at the rate of 1%.

Within the scope of that previous wording of Item 28.1 of the GTSD, it was concluded in various tax arbitration proceedings that the expression "residential use," contained in the text of the then-current norm, referred to a "use" for housing purposes, that is, to urban properties that had actual use for residential purposes (cf., in particular, proceedings 42/2013-T, 48/2013-T, 49/2013-T, 53/2013-T, 75/2013-T, 144/2013-T and 158/2013-T).

Law no. 55-A/2012, of 29 October, introduced a set of amendments to the codifying laws of three taxes – Personal Income Tax, Corporate Income Tax and Stamp Duty – as well as to the General Tax Law, among which the norm contained in Item 28.1 of the GTSD, all guided by obtaining supplementary tax revenue and, in general, to counter the extreme budgetary imbalance then experienced by the country. Measures were introduced to strengthen the fight against tax fraud and evasion, and, within the scope of Stamp Duty, taxation of legal situations was created (expression added to paragraph 1 of Article 1 of the Stamp Duty Code), which was understood to be demonstrative of the capacity of their respective holders to bear an increased tax burden, thereby more equitably distributing the sacrifice to achieve the budgetary consolidation required of taxpayers. This is what results from the explanatory memorandum of Bill no. 96/XII/2nd, which was the origin of said Law no. 55-A/2012:

"The pursuit of the public interest, in light of the Country's economic and financial situation, requires an effort at consolidation that will require, in addition to permanent activism in reducing public expenditure, the introduction of fiscal measures inserted in a broader set of measures to combat the budget deficit.

These measures are fundamental to reinforce the principle of social equity in austerity, ensuring an effective distribution of the sacrifices necessary to comply with the adjustment program. The Government is strongly committed to ensuring that the distribution of these sacrifices will be made by all and not just by those who live on the income of their work. In accordance with this objective, this law broadens the taxation of capital income and property, equitably covering a broad set of sectors of Portuguese society.

In these terms, the taxation of capital gains and securities gains will be aggravated, with their respective rates going from 25% to 26.5% under Personal Income Tax. The taxation rates applicable to income obtained from, or transferred to, tax havens are also increased to 35%.

On the other hand, a rate is created under Stamp Duty applicable to urban properties with residential use whose tax-assessed property value is equal to or exceeding one million euros.

Finally, this law introduces a measure to strengthen the fight against tax fraud and evasion, through the strengthening of the regime applicable to wealth displays by taxpayers (Personal Income Tax) and transfers to and from tax havens. First, the operationalization of Personal Income Tax assessment based on wealth displays is strengthened, reducing the differential from 50% to 30% between wealth displays and income declared under Personal Income Tax. On the other hand, transfers to and from tax havens made between accounts of the taxpayer, not declared in accordance with law, now become considered a wealth display and, as such, subject to taxation under Personal Income Tax through indirect methods."

The mere extension of a rule of incidence to situations for which it was not originally conceived carries the risk of subjecting situations that are in themselves distinct and that would therefore merit differentiation in taxation to the same regime of taxation. In the case of Item 28.1 of the GTSD, if the taxation of luxury properties with residential use may be considered constitutional precisely because, there being actual use thereof by their respective owners, this situation reveals materially relevant conduct from the standpoint of assessing the owner's wealth, the same cannot be said of the case of taxation of land for construction, where, as long as there are no constructions capable of being used for housing purposes and as such licensed by the competent authorities, the land itself is, objectively, incapable of having such use. Now, something entirely different from the actual use of a property for housing is the expectation, or potentiality, of an urban property being able to have a "residential use" – which is precisely what characterizes land for construction. Indeed, land for construction, because it is unbuilt, does not satisfy, by itself, any condition to be considered as a property "with use" (whatever it may be). In them there exists nothing more than the expectation, or potentiality, that a property may, after its respective construction, come to have a "use." Therefore, only when this "use" is realized, which will never occur before its construction, can we consider that the land for construction begins to present any similarity with the urban property, in particular by allowing its holder to derive some benefit from it.

In the words of JOSÉ MARIA FERNANDES PIRES, "the value of land for construction corresponds, fundamentally, to a legal expectation, embodied in a right to construct thereon a property with certain characteristics and a certain value." (cf. "Lectures on Property and Stamp Taxes," Almedina, 2010, p. 101). A plot of land for construction, notwithstanding its classification as an urban property for purposes of the Municipal Real Estate Tax, is characterized above all by its constructive viability, which gives its owner nothing more than the possibility of constructing thereon a property with the characteristics permitted by the applicable urban management instruments.

In this manner, if it is true that the holder of land for construction with value exceeding € 1,000,000.00 has within his legal sphere a property of high value, it is also true that his situation is different from that of the owner of a property with residential use, who actually benefits from the property of which he is the holder. It could be said, in this regard, that the fact that the owner of the property with residential use can derive an income from the property while the owner of the land for construction cannot is not relevant in this context because this is taxation of assets and not of income. However, it is not true that this is irrelevant. On the one hand, in the case of the owner of residential property who does not lease the property but enjoys it directly, the value of the assets of both is the same, but we still have two completely distinct situations: that of an owner enjoying a luxury residence, on the one hand, and that of the owner of land for construction, who enjoys nothing. It could still be said that the owner of land for construction can sell the property of which he is the owner and realize income in that way and that this possibility justifies taxation under stamp duty. It is true that he can. However, this income will already be taxed under Personal Income Tax or Corporate Income Tax, as the case may be. Furthermore, the owner of rustic property with value equal to or exceeding 1 million euros can also sell the property and this is not why it is taxed under Item 28.1 of the GTSD.

It is undeniable that what the legislator intended, when creating Item 28.1 of the GTSD, was to tax luxury residential properties; however, we believe that, by introducing land for construction within the scope of application of the norm, the initial regime was distorted, extending it to situations entirely distinct from those which it originally aimed. The amendment introduced to Item 28.1 of the GTSD in 2014 has, moreover, the effect of clarifying the distinction between the reality "residential property" and the reality "land for construction," demonstrating that one and the other are not the same.

Furthermore, the extension of the rule of incidence to land for construction whose building, authorized or foreseen, is for housing purposes, was not accompanied by a distinction relating to the value of the building erected, reason for which, applying general rules, even when the building authorized or foreseen for the land is housing in multiple units, it is the tax-assessed property value of the land, the only one that exists before the construction is realized and which is "used for purposes of the Municipal Real Estate Tax," that is relevant to determine the incidence of the tax.

This circumstance raises questions of constitutionality of the norm in question, which are analyzed here in a manner very close to that contained in the judgment handed down in the course of proceedings 507/2015-T. Thus, in summary terms:

  • the tax-assessed property value of land for construction is the sum of the value of the building footprint area to be constructed, which is that situated within the perimeter of the building's fixation to the ground, measured by the outer part, added to the value of the land adjacent to the footprint," with "the value of the footprint area varying between 15% and 45% of the value of authorized or foreseen buildings" (Article 45, paragraphs 1 and 2, of the ICPI).

  • in relation to land for construction for which only building of residential units with value below € 1,000,000.00 is foreseen or authorized, the justification for the high contributory capacity revealed by holding such assets does not hold because the fact that the land has value equal to or exceeding that does not allow identification of a taxpayer with a contributory capacity at the level of "the highest standards of Portuguese society."

  • the holding of rights over land for construction of units susceptible to independent use even reveals less contributory capacity than that revealed by the holding of rights over an already-built property, which is why a rational justification cannot be found for taxing the holding of rights over land, when it has value equal to or exceeding € 1,000,000.00, and not taxing the holding of rights of the same taxpayer over the already-built property, when all units have values below that amount.

  • it lacks rational justification to tax on the basis of hypothetical elevated contributory capacity situations where rights over land for construction are held in which exclusively authorized or foreseen buildings are constituted by units of individual value below € 1,000,000.00 and not apply the same taxation to situations where these buildings have already been constructed on the land, with enormous increase in the tax-assessed property value of the building, since "the value of the footprint area varies between 15% and 45% of the value of authorized or foreseen buildings."

  • as for land for construction destined for building autonomous housing with value equal to or exceeding € 1,000,000.00, the holding of rights over land with this purpose reveals, by itself, a situation of wealth, at the level of "the highest standards of Portuguese society."

Item 28.1 of the GTSD, in the part relating to land for construction, makes no distinction based on the value of authorized or foreseen housing, which is why it must be concluded that it depends only on the tax-assessed property value of the land itself. Being thus, it must be concluded that the norm of Item 28.1 of the GTSD, in the wording introduced by Law no. 83-C/2013, of 31 December, is materially unconstitutional, by violation of the principle of equality, enunciated generically in Article 13 of the Constitution, by applying to land for construction with tax-assessed property value equal to or exceeding € 1,000,000.00 for which authorized or foreseen construction does not include any unit susceptible to independent use with value equal to or exceeding that amount.

Moreover, in the case being analyzed here, the lands do not have any authorization, project or forecast for building for housing purposes. On the contrary, pursuant to the LMPL applicable to both, both are subject to strong restrictions in terms of buildability. As regards the land registered under article U-..., it is located in a zone classified as "Central and Residential Space to be Consolidated," which, in accordance with Article 58 of the LMPL, implies having its building capacity dependent on urban reconversion operations not yet carried out. It is true, as the TA says, that, when these operations occur, it may be possible to build on the land in question. However, the truth is that, at this moment, if the Applicant submits a project to the Lisbon Municipal Chamber for the purpose of construction on the land in question, it will receive a negative response – that is, the potential to build is merely future and uncertain. As for the land registered under article U-..., it is classified as "Consolidated Recreation and Production Green Space," which means, pursuant to Article 50 of the LMPL, that subdivision operations or construction in plots with an area of less than 2 hectares are not possible. Given the area of the land in question (less than 2 hectares), its potential buildability is, at this moment, zero.

In sum, and in light of the foregoing, it is concluded that the properties in question cannot, at the date of the facts, be subject to Stamp Duty pursuant to Item 28.1 of the GTSD.

By virtue of the material unconstitutionality from which the norm contained in Item 28.1 of the GTSD, in the wording introduced by Law no. 83-C/2013, of 31 December, suffers, by violation of the constitutional principle of equality, the assessments that are the subject of this proceeding suffer from a vice of violation of law, embodied in error regarding the legal prerequisites, which justifies their annulment pursuant to Article 163, paragraph 1 of the Administrative Procedure Code, applicable by virtue of Article 2, subparagraph d) of the Tax Court Procedure Code.

Thus, the consideration of the remaining questions placed before this tribunal is prejudiced, relating to the lack of substantiation of the assessment acts and to the breach of essential formalities.

VI. DECISION

In accordance with what is set out above, it is decided that the request for an arbitral pronouncement is well-founded and, as a consequence, to declare the consequent unconstitutionality of the stamp duty assessment acts in dispute, with the consequent annulment of those same assessments.

Value: In accordance with the provisions of paragraph 2 of Article 315 of the Code of Civil Procedure, combined with subparagraph a) of paragraph 1 of Article 97-A of the Tax Court Procedure Code and paragraph 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings, the case value is fixed at € 26,537.20.

Costs: In accordance with the provisions of Article 22, paragraph 4, of the LRAT and in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at € 1,530.00, to be borne by the Respondent pursuant to Articles 12, paragraph 2, and 22, paragraph 4, both of the LRAT, and Article 4, paragraph 4, of the aforementioned Regulation.

Let it be registered and notified.

Lisbon, 13 March 2017

The Arbitrator,

Raquel Franco

Frequently Asked Questions

Automatically Created

Is Stamp Tax (Imposto do Selo) under Verba 28.1 TGIS applicable to construction land intended for housing with a value over €1,000,000?
Yes, according to the Constitutional Court's 2018 ruling, Stamp Tax under Verba 28.1 TGIS is constitutionally applicable to construction land (terreno para construção) intended for housing purposes with a tax-assessed property value equal to or exceeding €1,000,000. The tax is imposed annually on ownership of such properties where building is authorized or foreseen for residential purposes, as established by Law 55-A/2012 and amended by Law 83-C/2013.
Did the Constitutional Court rule that taxing construction land under Verba 28.1 of the General Stamp Tax Table is constitutional?
Yes, the Constitutional Court ruled on November 21, 2018 (decision final as of December 6, 2018) that the norm contained in Item 28.1 of the General Stamp Tax Table is constitutional insofar as it imposes annual taxation on ownership of construction land whose authorized or planned building is for housing purposes and whose tax-assessed property value equals or exceeds €1,000,000. This ruling overturned the original CAAD arbitral decision that had favored the taxpayer.
What happens when the Constitutional Court overturns a CAAD arbitral decision on tax matters?
When the Constitutional Court overturns a CAAD arbitral decision, the original arbitrator must reform (revise) the decision to conform with the Constitutional Court's ruling. In this case, following the Constitutional Court's summary decision granting the Public Prosecutor's appeal against the March 13, 2017 arbitral decision, the arbitrator issued a revised decision that now reflects the Constitutional Court's determination that Verba 28.1 TGIS is constitutional. The reformed decision replaces the original ruling entirely, and parties are notified of the revision.
How does the reform of an arbitral decision work after a Constitutional Court ruling in Portuguese tax arbitration?
The reform of an arbitral decision following a Constitutional Court ruling involves several steps: (1) the Public Prosecutor's Office may appeal the arbitral decision to the Constitutional Court on constitutional grounds; (2) the arbitral tribunal issues an order notifying all parties of the appeal; (3) the Constitutional Court issues its decision; (4) upon receiving the Constitutional Court's final decision, the original arbitrator reforms the arbitral decision to align with the constitutional ruling; (5) the reformed decision substitutes the original decision entirely. This process ensures constitutional supremacy over arbitral tax decisions while maintaining the specialized arbitral framework for tax disputes.
What is the scope of Verba 28.1 TGIS as amended by Law 55-A/2012 and Law 83-C/2013 regarding annual property taxation?
Verba 28.1 TGIS, as amended by Law 55-A/2012 of October 29 and Law 83-C/2013 of December 31, establishes annual taxation on ownership of construction land (terreno para construção) where the building that is authorized or foreseen is for housing purposes (destinado a habitação) and the tax-assessed property value (valor patrimonial tributário) equals or exceeds €1,000,000. The tax applies periodically each year to qualifying properties, with assessment procedures following Municipal Real Estate Tax (IMI) rules with necessary adjustments. The taxation targets high-value residential development land, creating an annual holding cost for undeveloped properties with residential building potential.