Process: 380/2016-T

Date: November 10, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Process 380/2016-T addressed whether Stamp Tax under Item 28.1 of the General Stamp Tax Table (TGIS) applies to urban property classified as 'land for construction' with a patrimonial tax value exceeding €1,000,000. The claimant argued that 'residential use' (afetação habitacional) requires actual residential utilization, excluding properties without defined use or those classified as land for construction. The Tax Authority (AT) countered that Article 67(2) of the Stamp Tax Code mandates subsidiary application of IMI (Municipal Property Tax) rules, which classify land for construction with building licenses as urban property subject to taxation. The claimant challenged the 2013 assessments totaling €13,492.90 after dismissal of their official review request. The dispute centered on interpretative methodology: literal versus systematic interpretation incorporating IMI Code definitions. The claimant alternatively argued constitutional violations of equality and contributive capacity principles under Article 104(3) CRP. The arbitral tribunal was constituted in October 2016 under the RJAT regime, with proceedings deemed ready for decision without oral hearing, demonstrating the procedural pathway from administrative dismissal to tax arbitration for high-value property taxation disputes.

Full Decision

ARBITRAL DECISION

I – Report

1.1. A..., S.A. (hereinafter referred to as the "claimant"), with the TIN ... and registered office at Rua..., ...-... Funchal, not agreeing with the act of dismissal of the application for official review filed against the Stamp Tax (IS) assessments issued by the Tax Authority (AT) under item 28.1 of the General Table of Stamp Tax (TGIS), with reference to the year 2013 and relating to the urban property with registration article..., of the Union of Freguesias of..., ..., ..., ..., ... and ..., municipality and district of Porto, filed on 11/7/2016 an application for constitution of an arbitral tribunal and for arbitral pronouncement, in accordance with articles 2, no. 1, al. a), and 10, nos. 1 and 2, of Decree-Law no. 10/2011, of 20/1 (Legal Regime for Arbitration in Tax Matters, hereinafter referred to as "RJAT"), in which the Tax and Customs Authority (AT) is requested, with a view to the "illegality [of the aforementioned acts] before this Tribunal and to request the [...] annulment [thereof]."

1.2. On 11/10/2016, the present Singular Arbitral Tribunal was constituted.

1.3. On 12/10/2016, the AT was cited, as the respondent party, to file a response, in accordance with article 17, no. 1, of the RJAT. The AT filed its response on 2/11/2016, having argued, in summary, for the total rejection of the claimant's petition.

1.4. By order of 3/11/2016, the Tribunal considered, under article 16, al. c), of the RJAT, that the meeting provided for in article 18 of the RJAT was dispensable, and that the proceedings were ready for decision. Thus, the Tribunal fixed the pronouncement of the arbitral decision for 10/11/2016.

1.5. The Arbitral Tribunal was duly constituted, is materially competent, the proceedings are not vitiated by defects that would invalidate it and the Parties have legal personality and capacity, being duly legitimate.

II – Allegations of the Parties

2.1. The claimant alleges, in its initial petition, that: a) "given that the Stamp Tax assessments sub judice refer to the year 2013, we shall consider the original wording of item 28.1 of the TGIS. Now, as previously mentioned, the legislator, in article 67, no. 2, of the Stamp Tax Code, determined the subsidiary application of the rules of the Property Tax Code to the special taxation provided for in item 28 of the TGIS"; b) "the concept of 'properties with residential use' provided for in the aforementioned item 28.1 of the TGIS is not defined – or even provided for – in that diploma"; c) "therefore, in the implementation thereof it shall be necessary to take into account the general rules for interpretation of norms, considering especially the text of the law and also the principles that were at its origin"; d) "now, the expression 'residential use' necessarily implies a 'residential utilization', referring to urban properties that have (or may have) an actual use for residential purposes, whether because they are licensed for such, or because they have that normal destination"; e) "thus, given the literal wording of item 28.1 of the TGIS, its scope of application cannot include properties that have another use – other than residential – or properties that do not have any type of defined use, given that they are not actually devoted to residential purposes"; f) "according to the legislator's intention, the special taxation provided for in item 28.1 should apply only to properties intended for residential purposes, specifically 'houses', whose patrimonial tax value exceeds the limit provided for in that item"; g) "it is evident that the scope of application of item 28.1 of the TGIS, in its original version, did not include properties that do not have a defined use or that are devoted to purposes other than residential. [...]. In this sense, properties registered in the property roll as 'land for construction' cannot be subject to the special taxation provided for in the aforementioned item 28.1 of the TGIS"; h) "a property classified as 'land for construction', as provided for by law, does not have an actual and real residential use"; i) "the scope of application of Stamp Tax provided for in item 28.1 cannot include properties registered as 'land for construction', given that they do not have any type of defined use, not being applied (or intended) for residential purposes as required by the aforementioned item. [...]. Given the foregoing, the Stamp Tax assessments in question are illegal, due to errors in the factual and legal premises, and should be immediately annulled"; j) "as an alternative basis, and without prejudice to what was set out above, the Claimant considers that the taxation provided for in item 28 of the TGIS is contrary to the fundamental principle of equality [...] and, in parallel, contrary to the principle of fiscal equality and contributive capacity provided for in article 104, no. 3, [of the C.R.P.]"; l) "the Claimant, despite not being able to agree with the Stamp Tax assessments sub judice, made the respective payment, in the total amount of €13,492.90 [...] therefore, being the assessments under analysis manifestly illegal as set out above, the Claimant should be reimbursed for the amount of Stamp Tax assessed on the basis thereof, as it was not due"; m) "the Claimant requests that the AT be condemned to pay compensatory interest, at the legal rate, counted from the date of payment of the tax in question here until its full reimbursement."

2.2. The claimant concludes that [it] should "be judged favorably the petition for declaration of illegality of the act of dismissal of the application for official review filed and the tax acts for assessment of Stamp Tax sub judice and, consequently: a) the tax acts that constitute its object be annulled, relating to the Stamp Tax assessments above identified, due to defect of violation of law, due to errors in the factual and legal premises; b) the Tax and Customs Authority be condemned to reimburse the Claimant for the amount of Stamp Tax paid relating to the assessments sub judice; c) the Tax and Customs Authority be condemned to pay, to the Claimant herein, compensatory interest, at the legal rate, until full reimbursement of the amount due."

2.3. For its part, the AT alleges, in its response, that: a) "as regards item 28.1 of the TGIS, a fact of interest to us is that, presumably for reasons of legal certainty and security, Law 83-C/2013, of December 31 (State Budget Law 2014) was not given an interpretative nature, which prevents its application to tax events occurring prior to its entry into force, as occurs in the present case"; b) "it does not [...] appear to be without relevance the conclusion that the legislator, by recognizing the need to express itself with greater precision, thereby just demonstrated that it had always been its intent to tax, under Stamp Tax – item 28.1, land for construction, as urban properties devoted to residential use with a patrimonial tax value equal to or greater than €1,000,000.00"; c) "the AT has always been certain in appealing to an interpretation that would take into account the spirit of the norm, seeking to systematize it within the broader context of the codification of taxes on property, namely in the Property Tax Code"; d) "the AT has always advocated the understanding that, although not expressly provided for by law, land for construction, in accordance with no. 1 of article 2 of the Property Tax Code and with no. 1 of article 6 of the same diploma, to which no. 2 of article 67 of the Stamp Tax Code refers, are equally subject to taxation under Stamp Tax – item 28.1 of the General Table, as urban properties, 'land situated inside or outside an urban area, for which building or subdivision license or authorization has been granted, or advance notice or favorable advance information for subdivision or construction operations has been issued'"; e) "as to the moment that should determine [the residential use of the property], the AT has always argued that that moment should correspond to the granting of the subdivision license as at this stage, although actual building of the property has not yet occurred, it is possible to determine with precision the use of the land for construction, given the specific requirements imposed by article 77 of the Legal Regime for Urban Planning and Building (RJUE) and also by Municipal Master Plans"; f) "the AT sought to systematize the taxation of item 28.1 in the Property Tax Code and in the rules for assessment of urban properties, promoting an interpretation of the expression 'residential use' in light of the interpretative criteria inherent in article 9 of the Civil Code, given the evident non-conformity between the letter and the thought of the law"; g) "in light of the arguments set forth, the AT does not consider that the assessments now under scrutiny are vitiated by the defect of violation of law but in order to better conclude we lack here the fixing of the teleological element of the aimed norm"; h) "it is quite clear in the preamble of the bill where the legislator made known its reasons, what Law no. 55-A/2012, of 29.10, aimed to tax by subjecting to Stamp Tax (IS) property and other real rights over urban properties with patrimonial tax value (PTV) equal to or greater than €1,000,000.00, was the wealth indicated by that property"; i) "the intention [of taxation] that we think was not the subject of proper consideration and to this conclusion the legislator also arrived when it decided, through article 192 of the Proposed Law of the State Budget for 2014, to alter the text of the norm of item 28 of the General Table of Stamp Tax, making it expressly determined that the 1% Stamp Tax on property, usufruct or surface right of urban properties with residential use, with patrimonial tax value equal to or greater than one million euros, would also apply to 'land for construction, whose authorized or planned building is residential', thereby expanding its scope of application"; j) "there is no violation in casu of the principle of equality"; l) "given what has been argued, the Claimant does not have the right to compensatory interest."

2.4. The AT concludes, from the foregoing, that "the petition for declaration of illegality of the contested assessment should be judged unsuccessful, absolving the AT of the petition."

III – Proven Facts, Non-Proven Facts and Respective Reasoning

3.1. The following facts are considered proven:

i) The present claimant, in the scope of its activity, is the owner of various properties, including residential properties, commercial properties and land for construction.

ii) The claimant questions the decision for dismissal expressly sanctioned, on 6/4/2016, by order of the Head of Division of the "Unit of Large Taxpayers" – in the official review proceedings no. ...2015... –, of which it was notified on 12/4/2016, and which had as its object the petition for annulment of the act of assessment of Stamp Tax (item 28.1 of the TGIS) of the year 2013, in the disputed amount (and paid: see Doc. 6) of €13,492.90.

iii) The assessment act above referred to resulted from the application of the rate of 1%, provided for in the General Table of Stamp Tax (TGIS) – Item 28.1, to the PTV of €1,349,290.00 of the property registered in the property roll as "land for construction" (see Doc. 5) under article..., of the Union of Freguesias of..., ..., ..., ..., ... and ..., Municipality and District of Porto, owned by the present claimant.

iv) Not agreeing with the Stamp Tax assessment above referred to, the claimant filed an application for official review. By order dated 6/4/2016 (already mentioned above), such petition was dismissed. Not conforming to this decision, the present claimant filed the present petition for arbitral pronouncement on 11/7/2016.

3.2. There are no non-proven facts relevant to the decision of the case.

3.3. The facts considered pertinent and proven (v. 3.1) are based on the analysis of the positions set forth by the parties and the documentary evidence attached to the present proceedings.

IV – On the Law

It follows from the above the invocation made: 1) of the unconstitutionality of item 28.1 of the TGIS, in its original wording and, namely, of the violation of the constitutional principle of equality; 2) of the illegality of the assessment in question because it applies to "land for construction" (as such registered in the property roll); and 3) of compensatory interest to be paid to the claimant.

Let us see then.

1 and 2) While it is certain that the Arbitral Tribunal does not have competence to assess or declare the unconstitutionality of norms, it is no less certain that the present claimant raises, in the present proceedings, the "illegality" of the Stamp Tax assessment in question. To that extent, it is necessary, first and foremost, to ascertain whether said assessment is in conformity with the immediate parameter to which the AT is subject: in the case of the present proceedings, item 28.1 of the TGIS, according to the original wording (conferred by Law no. 55-A/2012, of October 29).

Thus, and in view of the foregoing, the analysis of law contained in Arbitral Decision no. 467/2015-T, of 4/2/2016, will be echoed, without further developments (but with the necessary adaptations), in the drafting of which I participated as a member of the respective collective jury (and also because it is considered that there are no reasons to, in the case of the present proceedings, alter the direction of that analysis):

"The Administration is subordinated to the Constitution, like any power or organ of the State, but what characterizes it is the immediate subordination to the law, and there cannot be Administration without legal mediation. The principle of legality understood in a broad sense (of the lawfulness of the administration) constitutes the presupposition and foundation of all administrative activity, and only exceptionally can there be administrative activity directly bound to the Constitution[1].

In this conformity, it is necessary, first and foremost, to ascertain whether the tax assessment acts subject to the present arbitral petition are or are not in conformity with the immediate parameter to which the Tax Administration is subject, in the case of the proceedings: item 28.1 of the TGIS, according to the wording given by Law no. 83-C/2013, of December 31.

As we have seen, the present claimant alleges, in summary, that the Stamp Tax assessments in question are illegal due to errors in the factual and legal premises [...].

It is necessary to assess this.

For the resolution of the questions listed above, it is important to keep in mind, first and foremost, the evolution and framework of the aforementioned item 28 of the TGIS, both before and after the amendment determined by article 194 of Law no. 83-C/2013, of 31/12 [...].

In that sense, it becomes useful to refer to the Judgment of the Supreme Administrative Court of 9/4/2014 (case no. 1870/13), which, like other judgments of the Supreme Administrative Court – e.g.: Judgment of 9/4/2014 (case no. 48/14); Judgments of 23/4/2014 (case nos. 270/14, 271/14 and 272/14); Judgment of 25/11/2015 (case 1338/15) – makes a detailed historical and chronological analysis of the evolution and framework of item 28 now under analysis:

'The concept of (urban) property with residential use' was not defined by the legislator. Neither in Law no. 55-A/2012, which introduced it, nor in the Property Tax Code, to which no. 2 of article 67 of the Stamp Tax Code (equally introduced by that Law), refers on a subsidiary basis. And it is a concept that, probably due to its imprecision – a fact all the more serious as it is a function of it that the scope of objective application of the new taxation is delineated –, had a short life, as it was abandoned when the State Budget Law for 2014 (Law no. 83-C/2013, of December 31) came into force, which gave new wording to that item no. 28 of the General Table, and which now delineates its scope of objective application through the use of concepts that are legally defined in article 6 of the Property Tax Code.

This amendment – to which the legislator did not attribute an interpretative character, nor does it seem to us that it did –, merely makes it unequivocal for the future that land for construction whose building, authorized or planned, is for residential purposes is included within the scope of item 28.1 of the General Table of Stamp Tax (provided that its respective patrimonial tax value is of a value equal to or greater than 1 million euros)'. [...].

Before the legislative amendment that innovatively began to include the aforementioned land for construction, it was necessary to ascertain, making use of various interpretative elements, whether, in the absence of literal reference, such land could, nevertheless, be included within the scope of objective application of the aforementioned item 28. And, for that reason, the aforementioned judgment proceeded, saying:

'[Nothing] clarifying [the legislator] with respect to past situations [i.e., assessments prior to 2014], such as the one at issue in the present proceedings, it does not seem possible to adopt [as to these] the interpretation of the appellant, as it does not clearly result either from the letter, nor from the spirit of the law that the intention thereof was, ab initio, to include within its scope of objective application land for construction for which construction of residential buildings had been authorized or planned, as now clearly results from item 28.1 of the General Table of Stamp Tax.

Nothing unequivocal follows from the letter of the law, indeed, as it itself, by using a concept that it did not define and that was also not defined in the diploma to which it referred on a subsidiary basis lent itself, unnecessarily, to ambiguities, in a matter – of tax scope – in which certainty and legal security should also be paramount concerns of the legislator.

And from its 'spirit', ascertainable in the statement of reasons of the bill proposal that is at the origin of Law no. 55-A/2012 (Bill Proposal no. 96/XII – 2nd, Journal of the Assembly of the Republic, series A, no. 3, 21/09/2012, p. 44 [...]) nothing more results than the concern to raise new tax revenues, on sources of wealth 'more spared' in the past from the fiscal appetite than labor income, in particular capital income, securities gains and property, reasons that bring no relevant contribution to the clarification of the concept of '(urban) properties with residential use', as they give it as settled, without any concern to clarify it. Such clarification should, however, have emerged – as reported in the Arbitral Decision handed down on December 12, 2013, in case no. 144/2013-T, available in the CAAD database –, when the aforementioned bill proposal was presented and discussed in the Assembly of the Republic, in the words of the Secretary of State for Tax Affairs, which reportedly specifically referred, as gathered from the Journal of the Assembly of the Republic (DAR Series I no. 9/XII – 2, of October 11, p. 32) that: 'The Government proposes the creation of a special tax on urban residential properties of higher value. This is the first time in Portugal that a special taxation on properties of high value intended for residential purposes is created. This rate will be 0.5% to 0.8% in 2012 and 1% in 2013, and will apply to houses with a value equal to or greater than 1 million euros' (underlining ours), from which it is gathered that the reality to be taxed taken into account are, after all, and despite the terminological imprecision of the law, 'the (urban) residential properties', in common parlance 'houses', and not other realities. [...].

It is concluded therefore, in accordance with what was decided in the judgment under appeal that, resulting from article 6 of the Property Tax Code a clear distinction between urban properties 'residential' and 'land for construction', the latter cannot be considered as 'properties with residential use' for the purposes of the provision in item no. 28.1 of the General Table of Stamp Tax, in its original wording, as conferred by Law no. 55-A/2012, of October 29.'" [End of quotation.]

The excerpt from the above cited judgment is sufficiently clarifying (and categorical) as to the exclusion from the scope of objective application of item 28.1 of the TGIS, in the original wording, of "land for construction". These cannot, in light of the aforementioned wording, be considered "properties with residential use" for the purposes of the provision in the aforementioned norm.

Thus, and taking into account the foregoing, it is concluded that the Stamp Tax assessment in question violates the provision in item 28.1 of the TGIS, in the wording conferred by Law no. 55-A/2012, of October 29.

  1. Compensatory interest is due when it is determined, in a grace period reclamation or judicial challenge, that there has been an error attributable to the services from which results payment of the tax debt in an amount greater than legally due (see article 43, no. 1, of the General Tax Code). It is, therefore, a necessary condition for the attribution of the aforementioned interest the demonstration of the existence of error attributable to the services: "The right to compensatory interest provided for in no. 1 of article 43 of the General Tax Code [...] depends on it having been demonstrated in the proceedings that that act is affected by error over the factual or legal premises attributable to the AT." (Judgment of the Supreme Administrative Court of 30/5/2012, case 410/12).

Verifying itself – as follows from the analysis made at point 2) – that there has been error attributable to the services, this determines the success of the petition for payment of compensatory interest to the claimant.

V – DECISION

In view of the foregoing, it is decided:

  • To judge successful the present petition for arbitral pronouncement and, in consequence, to annul the Stamp Tax assessment here in question, determining the return of the amounts wrongfully collected.

  • To judge successful the petition also in the part relating to the recognition of the right to compensatory interest in favor of the claimant.

The value of the case is fixed at €13,492.90 (thirteen thousand four hundred and ninety-two euros and ninety cents), in accordance with articles 32 of the Code of Administrative Court Procedure and 97-A of the Code of Tax Procedure, applicable by force of the provision in article 29, no. 1, als. a) and b), of the RJAT, and in article 3, no. 2, of the Regulation on Costs in Tax Arbitration Proceedings (RCPAT).

Costs charged to the respondent, in the amount of €918.00, in accordance with Table I of the RCPAT, and in compliance with the provisions of articles 12, no. 2, and 22, no. 4, both of the RJAT, as well as the provision in article 4, no. 4, of the aforementioned Regulation.

Notify.

Lisbon, November 10, 2016.

The Arbitrator,

(Miguel Patrício)

Text prepared by computer, in accordance with the provision in article 131, no. 5, of the Code of Civil Procedure, applicable by referral of article 29, no. 1, al. e), of the RJAT.

The wording of this decision is governed by the spelling prior to the Orthographic Agreement of 1990.

[1] For further developments on the binding of the Administration to the law and the Constitution, see GOMES CANOTILHO / VITAL MOREIRA – Constitution of the Portuguese Republic, Annotated. Coimbra, Coimbra Editora, 4th ed., 2014, pp. 798 et seq.

Frequently Asked Questions

Automatically Created

What does 'habitation allocation' (afectação habitacional) mean under Verba 28.1 of the Portuguese Stamp Tax General Table (TGIS)?
Under Verba 28.1 TGIS, 'afetação habitacional' (habitation allocation) was disputed in this case. The claimant interpreted it as requiring actual residential utilization—properties licensed for or normally destined to residential purposes. The AT applied a broader interpretation using Article 67(2) of the Stamp Tax Code, which mandates subsidiary application of IMI Code rules, arguing that 'land for construction' qualifies as urban property with residential allocation based on Articles 2(1) and 6(1) of the IMI Code, regardless of current actual use.
Can Stamp Tax under Verba 28.1 TGIS be applied to urban properties not effectively used for habitation purposes?
This was the central issue in Process 380/2016-T. The claimant argued that Stamp Tax under Verba 28.1 TGIS cannot apply to properties not effectively used for habitation, particularly 'land for construction' without defined residential use. The AT maintained that taxation applies based on IMI Code definitions through subsidiary application (Article 67(2) Stamp Tax Code), where land with building licenses constitutes urban property subject to the tax irrespective of actual occupation. The literal text 'prédios urbanos com afetação habitacional' created interpretative uncertainty resolved differently by each party.
How are IMI (Municipal Property Tax) rules applied subsidiarily to Stamp Tax under Article 67(2) of the Código do Imposto do Selo?
Article 67(2) of the Código do Imposto do Selo establishes subsidiary application of IMI (Property Tax) Code rules to special taxation under Item 28 TGIS. The AT relied on this provision to apply IMI Code Articles 2(1) and 6(1), which define urban properties including 'land for construction' with building licenses or favorable advance information. This subsidiary application framework meant IMI classification criteria determined Stamp Tax applicability, creating systematic interpretation rather than isolated textual analysis of Item 28.1. The claimant contested this approach, arguing for autonomous interpretation of Stamp Tax provisions.
What is the procedure for challenging Stamp Tax liquidations through official review (revisão oficiosa) and tax arbitration at CAAD?
The procedure demonstrated in Process 380/2016-T follows a two-stage path: (1) Filing an official review request (pedido de revisão oficiosa) with the Tax Authority challenging the Stamp Tax assessments; (2) Upon dismissal of the official review, filing an arbitration request at CAAD under Articles 2(1)(a) and 10(1-2) of Decree-Law 10/2011 (RJAT - Legal Regime for Arbitration in Tax Matters). The claimant filed the arbitration request on 11/7/2016, the tribunal was constituted on 11/10/2016, the AT filed its response on 2/11/2016, and proceedings were declared ready for decision on 3/11/2016 without oral hearing under Article 16(c) RJAT, with decision scheduled for 10/11/2016.
What was the outcome of CAAD Process 380/2016-T regarding the annulment of 2013 Stamp Tax assessments on urban property?
The excerpt provided does not include the final arbitral decision outcome. The case file shows the arbitral tribunal was properly constituted in October 2016, found itself materially competent, deemed parties duly legitimate, and scheduled the decision for 10/11/2016 after determining oral hearing was dispensable. The claimant sought annulment of 2013 Stamp Tax assessments totaling €13,492.90 on property classified as land for construction, plus reimbursement and compensatory interest. The AT requested total rejection of the petition. The substantive decision on whether Item 28.1 TGIS applies to land for construction versus only properties with actual residential use is not disclosed in this excerpt.