Process: 366/2016-T

Date: January 23, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Arbitration Decision 366/2016-T addresses whether Entry 28.1 of the Stamp Duty General Table (TGIS) applies to building land not exclusively designated for residential purposes. A real estate company challenged a €9,876.60 stamp duty assessment on building land valued at €1,975,320.00, arguing the property was designated for mixed use including residential, commercial, services, and parking under the Municipal Master Plan. The taxpayer contended that Entry 28.1, introduced by Law 83-C/2013, was intended to tax only plots exclusively for residential construction, not mixed-use developments. The company also invoked principles of equality and contributive capacity, arguing that real estate companies lack the exceptional wealth that justifies the additional tax burden. The Tax Authority defended the assessment, emphasizing that the property was evaluated under IMI Code rules as building land intended for residential purposes, with the evaluation remaining uncontested. The Authority argued that the literal interpretation of 'building land whose authorized or planned construction is for residential purposes' encompasses land predominantly residential even if complemented by other uses. This case exemplifies interpretive disputes surrounding Entry 28.1 TGIS, particularly regarding mixed-use properties. The central legal question concerns whether 'para fins habitacionais' (for residential purposes) requires exclusive residential designation or includes predominantly residential land with ancillary commercial uses. The outcome has significant implications for real estate developers and property owners subject to the 1% annual stamp duty on high-value properties, especially given the prevalence of mixed-use urban developments in Portuguese cities.

Full Decision

ARBITRATION DECISION

The Arbitrator Dr. Maria Antónia Torres, appointed by the Deontological Council of the Center for Administrative Arbitration ("CAAD") to form a Sole Arbitration Tribunal, constituted on 21 September 2016, hereby decides as follows:

1. REPORT

1.1 A…, Lda., taxpayer no.…, hereinafter referred to as "Applicant", with registered address at Rua …, …, …, requested the constitution of an arbitration tribunal, pursuant to Article 2, paragraph 1, subparagraph a), and Article 10, both of Decree-Law no. 10/2011, of 20 January (hereinafter "RJAT"[1]).

1.2. The request for arbitral determination aims at the declaration of illegality, and consequent annulment, of the stamp duty assessment act in the total amount of €9,876.60, relating to the year 2015, as set forth in the assessment notice attached by the Applicant in its request for arbitral determination, and which is hereby incorporated and reproduced for all legal purposes, which concerns a plot of land for construction of which the Applicant is a co-owner, and registered in the urban property register under no.… and located in the Union of Parishes of … and …, such assessment having been effected under Entry 28.1 of the General Table of Stamp Duty Tax, as amended by Law no. 83-C/2013, of 31 December.

1.3. To support its request, the Applicant alleges that the building land of which it is a co-owner was the subject of a prior information request submitted to the Municipal Council of …, regarding the use provided for or authorized by the Municipal Master Plan, and it was found that it does not have a use, authorized or provided for, exclusively for residential purposes, but is also intended for services, commerce and covered parking.

The Applicant considers that the legislator omitted the realities in which we are faced with subdivision operations in which buildings with units allocated to various purposes, not merely residential, are approved, and intended only to tax plots exclusively intended for residential purposes.

The Applicant further alleges violation of the principle of equality and contributive capacity, and that in the case at hand, since the property is held by a real estate company, there is no exceptional contributive capacity, and further alleges the existence of error due to lack of grounds.

1.4. The Tax and Customs Authority defends that the request for declaration of illegality, and consequent annulment, of the disputed assessment should be judged to be without merit.

First, the Respondent states that the property in question was evaluated according to the new rules of the IMI Code, and it was confirmed to be building land intended for residential purposes, the evaluation not having been contested. Thus, it considers that such use cannot be disregarded in the application of Entry 28.1 of the TGIS. Furthermore, it is clear from the evaluation process of the building land that account is taken of the characteristics of the urban properties to be constructed thereon, with the value of the building land also always depending on the value of the property envisaged to be constructed thereon.

The Respondent considers that the very evidence presented by the Applicant confirms the correct subsumption of the taxable fact to the norm under judgment.

With regard to the alleged lack of grounds for the tax act, the Tax Authority considers that, being a "mass assessment" act, it contains all essential elements for the addressee to know the facts and legal reasons that determine the decision. And that it results from the petition that the Applicant perfectly understood the meaning and scope of the assessments.

As to the alleged violation of the principles of equality and tax capacity, the Tax Authority considers that the legislator used legitimate criteria regarding Entry 28.1, and therefore does not see grounds for the aforementioned violation, considering the constitutional norm, in line moreover with decisions already known from the Constitutional Court.

1.5. The parties further agreed to dispense with the meeting of the arbitration tribunal provided for in Article 18 of the RJAT.

2. JUDICIAL CLARIFICATION

The Tribunal was regularly constituted and is competent ratione materiae, in accordance with Article 2 of the RJAT.

The parties have standing and legal capacity, are legitimate and are regularly represented (cf. Articles 4 and 10, paragraph 2 of the RJAT and Article 1 of Ministerial Order no. 112-A/2011, of 22 March).

No procedural defects were identified in the case.

3. MATTERS TO BE DECIDED

The issue to be decided in the present proceedings is whether the property that was subject to the stamp duty assessment mentioned above, being building land, is or is not subject to Entry 28.1 of the General Table of Stamp Duty Tax (TGIS), as worded on the date to which the assessment relates, with the amendments introduced by Law no. 83-C/2013, of 31 December.

4. ESTABLISHED FACTS

The following facts, relevant to the appraisal and decision on the merits, are established:

4.1 The Applicant is a co-owner of the urban property registered in the urban property register under no.… and located in the Union of Parishes of … and …;

4.2 The property is building land with a taxable patrimonial value of €1,975,320.00, with no construction existing on the land at the relevant date;

4.3 In accordance with a prior information request submitted to the Municipal Council of …, regarding the use provided for or authorized by the Municipal Master Plan, it was concluded that "the land in question…is located…in a predominantly residential area. It is intended for the predominantly residential location of activities, complemented with other activities, namely commercial, equipment, services, business and industrial, provided that they do not create conditions of incompatibility with residential activity in accordance with the law";

4.4 The Applicant was notified of the said stamp duty assessment, relating to the year 2015, and concerning the property referred to above;

4.5 All as per documents attached to the arbitration request and in the response presented by the Respondent;

4.6 On 5 July 2016 the Applicant submitted the request for constitution of the Arbitration Tribunal – cf. electronic application in the CAAD system.

5. UNPROVEN FACTS

There are no facts with relevance to the decision on the merits that have not been established, the factual situation being agreed upon by both parties.

6. ON THE LAW

Applicable Norm

Law no. 55-A/2012, of 29 October, added Entry 28 to the General Table of Stamp Duty Tax (TGIS), with the following wording:

28 – Ownership, usufruct or surface right over urban properties whose taxable patrimonial value as recorded in the register, under the terms of the Municipal Property Tax Code (IMI Code), is equal to or greater than €1,000,000 – on the taxable patrimonial value used for IMI purposes:

28.1 – For property with residential use – 1% (…);

In the transitional provisions contained in Article 6 of that Law no. 55-A/2012, the following rules were established:

c) The taxable patrimonial value to be used in the assessment of the tax corresponds to that resulting from the rules provided in the Municipal Property Tax Code by reference to the year 2011; (…)

f) The applicable rates are as follows:

i) Properties with residential use evaluated under the IMI Code: 0.5%;

ii) Properties with residential use not yet evaluated under the IMI Code: 0.8%;

With the State Budget Law for 2014, Entry 28.1 of the TGIS was expressly amended, so as to include, from 01.01.2014, building land, as follows:

28.1 For residential property or for building land whose authorized or planned construction is for residential purposes, under the terms of the Municipal Property Tax Code – 1%

With the State Budget for 2017, Entry 28.1 of the TGIS was repealed, and the Surcharge on Municipal Property Tax (AIMI) was created, in accordance with which:

"Persons, whether natural or legal, who are owners, usufructuaries or surface right holders of urban properties situated in Portuguese territory are passive subjects of the surcharge on municipal property tax.

The surcharge on municipal property tax applies to the aggregate of the taxable patrimonial values of the urban properties situated in Portuguese territory of which the passive subject is the holder.

Urban properties classified as 'commercial, industrial or for services' and 'other' are excluded from the surcharge on municipal property tax, under the terms of subparagraphs b) and d) of paragraph 1 of Article 6 of this Code."

Now, in the case at hand, the wording introduced by the State Budget for 2014 in Entry 28.1 of the TGIS is applicable:

"…for building land whose authorized or planned construction is for residential purposes, under the terms of the Municipal Property Tax Code – 1%"

On the Legal Grounds of the Assessment

The Applicant considers that the additional assessment under judgment suffers from lack of legal grounds, which would render it voidable under the law.

Now, we cannot agree with the Applicant's position, since the assessment act in question contains all the elements necessary for its understanding. We do not see that further details on the reason underlying the application of the norm would have been necessary for the Applicant to understand the assessment act and prepare its challenge. And this is so much the case that the Applicant had no doubts about the classification given by the Tax Authority to the situation in question.

On the Constitutionality of the Norm

The Applicant alleges that the norm under judgment violates the principle of equality and contributive capacity, and therefore should be considered unconstitutional.

Now, the Constitutional Court has already ruled on Entry 28.1 of the TGIS, including with the wording given to it by the State Budget Law for 2014, applicable to the situation under judgment. And this tribunal can only agree with the decision of the Constitutional Court. Let us see.

The Constitutional Principle of Equality is expressed in the principle of generality and in the principle of contributive capacity. Now, the principle of equality does not prevent the legislator from freely choosing and treating situations it considers as taxable facts, provided that they reveal the contributive capacity of the passive subject.

As well decided in Constitutional Court Decision no. 590/2015, of 11 November, the taxation of the ownership of residential urban properties (and of building land whose authorized or planned construction is for residential purposes), with a taxable patrimonial value equal to or greater than €1,000,000, "as a fiscal measure aimed at more intensely affecting the holders of real estate rights of enjoyment over urban properties with residential vocation and of higher value, accessible only to holders of elevated economic strength", reveals an unequivocal contributive capacity, as it concerns properties of value considerably higher than the generality of urban properties with residential use, even if potential, "capable of founding the imposition of increased contribution for the remedy of public accounts on its holders, in realization of the aforementioned 'principle of social equity in austerity.'"

"What the Constitution of the Republic requires is that equal treatment be given to what is necessarily equal and different treatment to what is essentially different, not preventing differentiation of treatment, but only arbitrary, unreasonable discriminations, that is to say, distinctions of treatment that do not have sufficient justification and material foundation".

As has been the uniform understanding of the Constitutional Court, the principle of equality, as a limit on the discretion of the legislator, does not prohibit choices, but rather prohibits the promotion of distinctions lacking objective and rational justification.

"Only those choices of regime made by the ordinary legislator can be censured, on the grounds of violation of the principle of equality, in those cases in which it is proved that they result in differences of treatment between persons that do not find justification in reasonable grounds, which is not the case in the situation under judgment…".

That is, from the principle of tax equality does not result the prohibition of freedom on the part of the legislator, which can choose to tax certain facts and not others, but rather the prohibition of arbitrariness.

Therefore, we conclude that the norm in question is constitutional.

On the Application of the Norm to the Situation Under Judgment

Now, having ruled out the illegality of the tax act due to lack of grounds for the assessment and having considered the norm under judgment to be constitutional, we must decide on the applicability of Entry 28.1 of the TGIS to the building land of which the Applicant is a co-owner.

Let us see. Entry 28.1 of the TGIS establishes the application of a rate of 1% to "building land whose authorized or planned construction is for residential purposes, under the terms of the Municipal Property Tax Code", with a taxable patrimonial value equal to or greater than €1,000,000.

In the case at hand, it is established as proven, and assumed by the Applicant in its petition, that the property is building land whose taxable patrimonial value exceeds €1,000,000.

It remains for us to verify whether it is building land "whose authorized or planned construction is for residential purposes, under the terms of the Municipal Property Tax Code".

The Applicant alleges, on the one hand, that with the norm in question the legislator intended to tax "houses" of high value and that, therefore, the norm should not be applied to building land where no construction exists.

We assume that the legislator said what it intended to say. In the wording given to Entry 28.1 by the State Budget for 2014, it clearly distinguishes two realities: (i) residential property and (ii) building land whose authorized or planned construction is for residential purposes. Now, in this wording the legislator intended to tax two distinct realities that cannot be reduced to only one.

It intended to tax residential properties and intended to tax building land. In the latter case, limiting such taxation to those with planned or authorized construction for residential purposes.

We therefore agree with the case law that understands that, with the new wording of Entry 28.1 of the TGIS, given by Law no. 83-C/2013, of 31 December (and applicable in the present proceedings), the scope of objective application of the norm was expanded, by explicitly including building land for which authorization or planning has been made for residential construction.

That is, we understand that the legislator's intention is not to tax future residential properties (for which it might be relevant to know, in particular, the taxable patrimonial value of such future properties or to verify, effectively, their construction) but rather to tax the building land itself, with taxable patrimonial value greater than €1,000,000, whose planned or authorized construction is for residential purposes.

We mentioned above the wording of the AIMI norm, which is considered to "replace" Entry 28.1 of the TGIS, because precisely in it the legislator maintains the clear option for taxation of building land, as such, with authorized or planned residential construction.

In light of this, it remains for us to ascertain whether the building land under judgment has or does not have such "authorized or planned construction for residential purposes".

Now, in accordance with prior information from the Municipal Council of …, attached by the Applicant, it is concluded that "the land in question…is located…in a predominantly residential area. It is intended for the predominantly residential location of activities, complemented with other activities, namely commercial, equipment, services, business and industrial, provided that they do not create conditions of incompatibility with residential activity in accordance with the law".

The Applicant considers that it is found that it does not have a use, authorized or planned, exclusively for residential purposes but is also intended for services, commerce and covered parking, the legislator having intended only to tax building land exclusively intended for residential purposes.

Now, the norm in question does not refer to the need for building land to be intended "solely" or "exclusively" for residential purposes. It is therefore necessary to see how to establish that there is construction for residential purposes, planned or authorized.

The use classification of the property constitutes a determining factor for the evaluation of urban properties, as established in Article 41 of the IMI Code, influencing the formula for determining the taxable patrimonial value, defined in Article 38 of the IMI Code and the area adjustment coefficient provided for in Article 40-A of the IMI Code, which in paragraph 5 expressly refers to building land.

It being provided in Article 450 of the IMI Code that in determining the taxable patrimonial value of building land, account shall be taken of "the value of authorized or planned constructions". Note that this norm uses precisely the expression used in Entry 28.1 of the TGIS.

Thus, the valuation model for building land is the same as for constructed buildings, although starting from the building to be constructed, based on the respective design. "The value of building land corresponds, fundamentally, to a legal expectation, embodied in a right to construct thereon a property with certain characteristics and a certain value. It will be this expectation of production of wealth materialized in a property to be constructed that makes the value of assets increase and the wealth of the owner of the building land increase, once the property in question begins to be considered as building land. For that reason, the greater the value of the property to be constructed, the greater is the value of the building land underlying it (cf. Article 6, paragraph 3, of the IMI Code)".

That is, in determining the taxable patrimonial value of the Applicant's building land, account was taken of the residential classification, considering in that valuation the value of the constructions authorized or planned on the same building land.

In the case at hand, the Applicant (i) did not contest the evaluation of the property which was based on its residential classification and on residential constructions authorized or planned (ii) also did not contest that there is an effective potential for residential construction, having presented not only the prior information from the Municipal Council referred to above, but also having assumed that the project it has for the land involves precisely the construction of residential units.

Here there is no doubt that there is an effective potential for residential construction. Now, we understand that, given the foregoing, the fact that there may be complementary constructions not specifically for residential purposes, such as garages or commercial spaces, does not prevent it from being considered as building land with constructions, planned or authorized, for residential purposes.

7. DECISION

In view of the foregoing, the Applicant's request is judged to be without merit, with all legal consequences.

The value of the case is fixed at €9,876.60 in accordance with the provisions of Articles 3, paragraph 2 of the Regulation of Costs in Tax Arbitration Proceedings ("RCPAT"), 97-A, paragraph 1, subparagraph a) of the Code of Tax Procedure and 306, paragraph 2 of the Code of Civil Procedure.

The amount of costs is fixed at €918 to be borne by the Applicant, in accordance with the provisions of Articles 12, paragraph 2 of the RJAT and 4, paragraph 4 of the RCPAT.

Notice to be given.

Lisbon, 23 January 2017

Text prepared by computer, in accordance with Article 131, paragraph 5 of the Code of Civil Procedure (CPC), applicable by reference of Article 29, paragraph 1, subparagraph e) of the RJAT, with blank verses. The wording of this arbitration decision is governed by the old spelling.

The Arbitrator,

Maria Antónia Torres

[1] Acronym for Legal Framework for Tax Arbitration.

Frequently Asked Questions

Automatically Created

Does Verba 28.1 of the Stamp Tax General Table apply to building land not exclusively designated for housing?
The application of Entry 28.1 TGIS to building land not exclusively designated for housing depends on the interpretation of 'authorized or planned construction for residential purposes.' Tax authorities typically apply a broad interpretation, arguing that land predominantly residential in character falls within the scope even if the Municipal Master Plan authorizes complementary commercial or service uses. However, taxpayers have contested this, arguing the legislator intended to tax only exclusively residential plots. The key factor is whether the property evaluation under the IMI Code classified it as residential building land, as this classification generally binds the stamp duty assessment unless successfully challenged.
Can a mixed-use building plot (housing, commerce, and services) be subject to Stamp Tax under Portuguese law?
Yes, mixed-use building plots can be subject to stamp duty under Entry 28.1 TGIS if the predominant use authorized is residential. Portuguese tax authorities interpret 'building land whose authorized or planned construction is for residential purposes' to include land where residential use predominates, even when complemented by commercial, services, or parking facilities. The Municipal Master Plan designation as 'predominantly residential area' supports this interpretation. However, this remains contested, with taxpayers arguing that truly mixed-use developments should be excluded or proportionally taxed based on residential versus non-residential allocation.
How does the property valuation under CIMI rules affect the application of Stamp Tax on building land?
Property valuation under IMI Code rules is fundamental to Entry 28.1 stamp duty application. First, the IMI Code valuation determines whether the property exceeds the €1,000,000 threshold triggering the tax. Second, the classification as 'building land intended for residential purposes' under IMI evaluation procedures typically binds the stamp duty assessment. Third, the taxable patrimonial value established under IMI rules serves as the tax base for the 1% stamp duty rate. If taxpayers contest the residential classification, they must challenge the underlying IMI evaluation; otherwise, tax authorities rely on the IMI assessment's characterization as conclusive for stamp duty purposes.
What are the grounds for challenging a Stamp Tax assessment on building land before the CAAD arbitral tribunal?
Grounds for challenging stamp duty assessments on building land before CAAD include: (1) incorrect legal qualification—arguing the property doesn't meet Entry 28.1 criteria because it's not exclusively or predominantly residential; (2) violation of constitutional principles, particularly equality and contributive capacity, especially when real estate companies own the property commercially rather than as exceptional wealth; (3) lack of proper grounds in the assessment notice; (4) errors in the IMI valuation serving as the tax base; (5) incorrect application of transitional rules when properties were evaluated under old versus new IMI Code provisions. Taxpayers must demonstrate that the specific characteristics of their property fall outside the legal definition or that procedural irregularities vitiated the assessment.
Does the principle of equality and ability to pay apply when a real estate company owns land subject to Verba 28.1 TGIS?
The principle of equality and contributive capacity does apply, though its interpretation is contested. Taxpayers argue that when real estate companies hold building land as business inventory rather than personal wealth, there's no 'exceptional contributive capacity' justifying the additional tax burden that Entry 28.1 represents. They contend the tax discriminates by treating commercial property holdings identically to personal luxury assets. However, tax authorities and some arbitration decisions maintain that the legislator legitimately established objective criteria based on property value and residential use, regardless of owner type. The Constitutional Court has generally upheld Entry 28.1 against equality challenges, finding rational basis for taxing high-value properties, though specific applications involving commercial landholders continue generating disputes over whether the tax truly reflects ability to pay.