Process: 385/2016-T

Date: March 29, 2017

Tax Type: IMT

Source: Original CAAD Decision

Summary

This CAAD arbitration decision (Process 385/2016-T) addresses whether Stamp Tax under Clause 28.1 of the General Tax Table applies to a land plot for construction valued at €2,400,000. The applicant, a real estate investment fund managed by a management company, challenged the tax assessment arguing that a land plot for construction cannot have 'residential use' as required by item 28.1. The fund contended that residential use requires an actual built property, not merely designated building areas. The Tax and Customs Authority defended the assessment, arguing that the land register clearly identified the plot's residential use based on authorized construction areas, and that the IMI Code methodology applies subsidiarily to determine use classification for land plots. The case illustrates critical interpretative issues regarding when Stamp Tax applies to high-value urban properties, specifically whether 'residential use' under item 28.1 encompasses land plots designated for residential construction or only completed residential buildings. The procedural history shows the fund first filed a gracious complaint (partially successful), then a hierarchical appeal (rejected in March 2016), before pursuing tax arbitration at CAAD seeking full reimbursement and compensatory interest. This decision clarifies the scope of Stamp Tax on undeveloped land with construction permits.

Full Decision

ARBITRATION DECISION

A – REPORT

  1. A…, with tax identification number…, whose managing entity is B… – REAL ESTATE INVESTMENT FUND MANAGEMENT COMPANY, SA, with registered office at Street…, …–…, …-… Lisbon, submitted a request for the constitution of an arbitral tribunal, pursuant to the provisions of articles 2, no. 1, a) and 10, nos. 1 and 2 of the Legal Framework for Tax Arbitration, provided for in Decree-Law 10/2011, of 20 January, hereinafter referred to as "LFTA" and of articles 1 and 2 of Regulation no. 112-A/2011, of 22 March, with a view to declaring the illegality of the assessment of Stamp Tax on item 28.1 relating to urban land parcel … of the Union of Parishes of… and …, in the municipality of Loures (former land parcel…, of the parish of …), as well as of the rejection dispatch of the hierarchical appeal, with the consequent reimbursement of the amount paid, as well as recognition of the right to compensatory interest, with the Tax and Customs Authority being requested (hereinafter referred to as "TCA").

  2. The request for constitution of the arbitral tribunal was submitted on 11-07-2016, having been accepted by the President of CAAD on 13-07-2016 and automatically notified to the Tax and Customs Authority.

  3. The request for constitution of a single arbitral tribunal having been admitted, and the Applicant having not opted for the designation of an arbitrator, in accordance with the provisions of article 6, no. 2, a) and article 11, no. 1, b) of the LFTA, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council designated the undersigned as arbitrator.

  4. The parties were notified of this designation on 19-09-2016 and, having not expressed willingness to refuse the designation of the arbitrator, in accordance with the combined provisions of article 11, no. 1, a) and b) of the LFTA and articles 6 and 7 of the Deontological Code, in compliance with what is provided in article 11, no. 1, c) of the LFTA, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the arbitral tribunal was constituted on 04-10-2016.

  5. Notified, the TCA submitted a reply in which it raised no objections.

  6. The meeting provided for in article 18 of the LFTA was dispensed with, with the parties' consent, as was the presentation of arguments.

  1. The Applicant requests that the illegality of the Stamp Tax assessment no. 2012…, by application of item 28.1 of the General Tax Table, relating to urban land parcel … of the Union of Parishes of… and …, in the municipality of Loures (former land parcel…, of the parish of …), as well as of the rejection dispatch of the hierarchical appeal it submitted, be declared, with the consequent restitution of the amount paid and recognition of the right to compensatory interest, alleging in summary:

a) Upon notification of the assessment of the stamp tax in question, it submitted a gracious complaint of the same and, because in the same it only obtained partial acceptance, it filed on 16-01-2015 a hierarchical appeal in which a rejection dispatch was issued on 18-03-2016 and which was notified to it on 11-04-2016.

b) For the cumulative objective requirements of taxable occurrence provided for in item 28.1 to be met, it is necessary that:
- there is a right of ownership, usufruct or surface right over an urban land parcel;
- the land parcel in question has a tax property value equal to or greater than €1,000,000.00;
- the urban land parcel has "residential use".

c) The property in question has a property value of €2,400,000.00, being a land plot for construction, which qualifies it as an urban land parcel under the provisions of articles 4 and 6 of the IMI Code.

d) Pursuant to article 67, no. 2 of the IS Code, to the matters regulated therein relating to item 28 of the General Tax Table, the provisions of the IMI Code apply subsidiarily.

e) Thus, in the absence of a framework for what is considered "residential use" under the IS Code, the interpreter should resort to the subsidiarily applicable provisions, in this case, the provisions of the IMI Code.

f) The property in question does not have, nor could it have given its nature as a land plot for construction, a "residential use".

g) The criterion of article 6, no. 2 of the IMI Code refers, in the first place, to the use attributed by licensing and, in the absence of a license, to the criterion of normal use.

h) Upon examining articles 41 and 43 of the IMI Code, it is easy to verify that they do not cover land plots for construction, as is the case with the property in question, since land plots for construction, not being built properties, do not differ by their use.

i) The decision to reject the hierarchical appeal, supported by the erroneous relevance of the "residential use" of the property, suffers from a defect of erroneous interpretation of the fiscal law specifically applicable.

  1. For its part, the Respondent replied, in summary:

a) What is at issue here is an assessment that results from the direct application of the legal rule, which translates into objective elements, without any subjective or discretionary appraisal.

b) Consulting the Certificate of the Contents of the urban land parcel that is the basis of the present assessment, it is verified that the land plot for construction is dedicated to residential use.

c) Now, urban land parcels that are land plots for construction and to which the residential use has been assigned within the scope of their respective assessments, appearing such use in their respective registers, are subject to Stamp Tax.

d) Not existing under IS a definition of what is meant by 'urban land parcel', 'land plot for construction' and 'residential use', it is necessary to resort subsidiarily to the IMI Code to obtain a definition that allows determining whether or not there is subjection to IS, in accordance with what is provided in article 67, no. 2 of the IS Code in the wording given to it by Law no. 55-A/2012, of 29/10.

e) The legislator chose to determine the application of the methodology for assessment of properties in general to the assessment of 'land plots for construction', as results from the expression 'value of authorized buildings' referred to in article 45, no. 2 of the IMI Code and applying to it accordingly the use coefficient provided for in article 41 of the IMI Code.

f) In conclusion, in the assessment of land plots for construction, the legislator intended that the methodology for assessment of urban properties in general should be applied, thus all the coefficients, identified above, should be taken into account, particularly the use coefficient provided for in article 41 of the IMI Code, with such legal obligation also resulting from no. 2 of article 45 of the IMI Code, by referring to the value of the authorized or foreseeable buildings on the same land plot for construction.

g) In the case, we are facing a 'land plot for construction', more specifically, before a plot of land for urban construction, with the building and construction implantation areas perfectly defined and identified in the urban land register.

h) The Applicant cannot be unaware that the land register is very clear in defining for the plot of land for construction in question, its respective building and construction implantation area, thus perfectly defined and identified, being therefore evident the residential use of the building.

i) The legislator does not refer to 'properties intended for housing', having opted for the notion 'residential use', a different and broader expression, whose meaning will be found in the need to integrate other realities beyond those identified in article 6, no. 1, a) of the IMI Code.

j) Item 28 of the General Tax Table is a general and abstract rule, applicable indiscriminately to all cases in which the factual and legal requirements are met, and the constitutional principle of equality enshrined in article 13 of the CRP "requires that what is necessarily equal be treated equally and what is essentially different be treated differently, not preventing differentiation of treatment, but only arbitrary, unreasonable discrimination, that is, distinctions of treatment that do not have sufficient justification and material foundation".

k) Taxation under IS obeys the criterion of adequacy, in that it aims at the taxation of wealth embodied in the ownership of properties of high value, arising in a context of economic crisis that cannot be ignored.

l) It concludes, therefore, for the legality of the contested assessment act which should, thus, be maintained.

  1. The Arbitral Tribunal was regularly constituted and is materially competent.

The parties have legal personality and capacity and are legitimate (articles 4 and 10, no. 2, of the same instrument and article 1 of Regulation no. 112-A/2011, of 22 March).

The proceedings are timely and do not suffer from nullities.

No objections were raised that would prevent the tribunal from ruling on the merits of the case.

B. DECISION

  1. MATTER OF FACT

1.1. ESTABLISHED FACTS

Taking into account the positions taken by the Parties and the documentary evidence attached to the proceedings, the following facts with relevance to the decision are considered established:

a) The Applicant was the owner, in the year 2012, of urban land parcel … of the Union of Parishes of …, in the municipality of Loures (former land parcel …, of the parish …);

b) From the respective land register, the property appears as "land plot for construction" with the type of location coefficient "residential" and that the "land plot has different uses, residential, commercial and services";

c) The Applicant was notified of the assessment of stamp tax no. 2012…, by application of item 28.1 of the General Tax Table, relating to that property;

d) Having submitted a gracious complaint of that assessment, which was partially accepted, it filed a hierarchical appeal which received a rejection dispatch notified to it on 11-04-2016;

e) The Applicant proceeded to pay the tax;

1.2 UNESTABLISHED FACTS

There are no facts classified as unestablished with relevance to the appraisal of the claim.

1.3 The facts were classified as established based on the documents attached to the proceedings, as well as the positions of the parties, it being noted that there is no disagreement emerging from the positions taken by Applicant and Respondent regarding the matter of fact, with the dispute being confined to matters of law.

  1. THE LAW

The question at issue in the dispute consists in defining the scope of application of item 28.1 of the General Tax Table, namely to land plots for construction, it being certain that it should be borne in mind that, to the case at hand, the wording of that rule as given by Law no. 55-A/2012, of 29 October is applicable and not the current one.

With this framework, the matter has already been the subject of extensive jurisprudential treatment, both in arbitral tribunals and in tax courts, namely in the higher instances.

Being a recurring topic in arbitral proceedings, always with similar or even analogous factual and legal contours, it should be said, from the outset, that the understanding of the dominant, if not unanimous, position on the matter will be followed (see, in particular, the arbitral decisions rendered in proceedings nos. 125/2015-T, of 12-10-2015, 56/2014-T of 31-07-2014, 210/2014-T of 30-07-2014, 231/2013-T of 03-02-2014, 53/2013-T of 02-10-2013 and 49/2013-T of 18-09-2013, all of CAAD).

It is known that, the legislator not having defined the concept of 'urban properties with residential use', in view of the provisions of article 67 of the IS Code, we should resort, for this purpose, to what is provided in the IMI Code.

We find there the classification of urban properties through their division into categories: residential, commercial, industrial or for services, land plots for construction and others.

Now, it follows from no. 2 of article 6 of the IMI Code that residential, commercial, industrial or service properties are buildings or constructions licensed for such purposes or, in the absence of a license, which have as normal destination each of these purposes. In turn, land plots for construction are land situated within or outside an urban agglomeration, for which a license or authorization has been granted, or previous communication admitted or favorable prior information issued for a subdivision or construction operation and also those that have been thus declared in the deed of acquisition (no. 3 of the same provision). The IMI Code thus offers, unequivocally, a definition of residential properties and land plots for construction as two different species of urban properties.

With regard to the concept of "urban property with residential use", the truth is that the expression use presupposes that the property has an effective use for residential purposes, which necessarily implies that one is not dealing with a mere land plot for construction. In this regard, it is stated in the Arbitral Decision, rendered in Proceedings no. 42/2013-T of 18-10-2013: "we cannot confuse a 'residential use' that implies an effective dedication of an urban property to that purpose, with the expectation, or potentiality, of an urban property being able to have a 'residential use'. Land plots for construction, not being built, do not by themselves satisfy any condition to be considered as properties with residential use, since, on the one hand, they do not have a license for residential use, and, on the other hand, they are not habitable (because they are simply not built)".

Accompanying this position, indeed it does not appear to us sufficient for it to be frameable within the objective taxable occurrence rule in question that there exists the expectation of an urban property coming to have residential use or of having the potentiality of coming to have that use.

The understanding of the Respondent cannot be accepted when it argues that the expression 'residential use', used by the legislator, is broader than if the formulation 'properties intended for housing' had been adopted.

It also follows, on this point, what is being sustained by the SAT [Superior Administrative Court], namely in the Decision of 09-04-2014 – Proceedings 048/14: "the legislator not having defined the concept of 'properties (urban) with residential use', and resulting from article 6 of the IMI Code - subsidiarily applicable to Stamp Tax provided for in the new item no. 28 of the General Tax Table - a clear distinction between 'residential urban properties' and 'land plots for construction', these cannot be considered, for the purposes of taxable occurrence of Stamp Tax (Item 28.1 of the General Tax Table, in the wording of Law no. 55-A/2012, of 29 October), as urban properties with residential use" (among many others more recent such as Decision of 15-02-2017 - Proceedings 0277/16; Decision of 01-02-2017 – Proceedings 01069/16 or Decision 14-12-2016 – Proceedings 01099/16).

From the foregoing, it follows that the contested assessments suffer from an error regarding the requirements, of fact and of law, since the property in relation to which the Stamp Tax was assessed under item no. 28.1 of the General Tax Table, is a land plot for construction that cannot be considered as an urban property with residential use.

In view of the foregoing, it is concluded that the assessment act object of the present arbitral action should be annulled.

COMPENSATORY INTEREST

In addition to the restitution of the tax unduly paid, the Applicant requests that the right to payment of compensatory interest be declared.

Such right is enshrined in article 43 of the General Law on Tax Procedure, which has as a requirement that it be determined, in a gracious complaint or judicial challenge - or in tax arbitration – that there was an error attributable to the services which results in payment of the debt in an amount greater than that legally due.

The recognition of the right to compensatory interest in arbitral proceedings results from the provision of article 24, no. 5 of the LFTA.

In the case at hand, in fact, error attributable to the TCA occurred in the assessment in question.

Therefore, the Applicant has the right to the requested payment of compensatory interest.

  1. DECISION

In view of the foregoing, it is decided:

a) to judge as well-founded, on the ground of violation of law, the request for annulment of the tax act object of the arbitral claim corresponding to the assessment of stamp tax no. 2012…, in the amount of €12,000.00;

b) to condemn the Tax and Customs Administration to reimburse the Applicant the amount of tax paid, plus the respective compensatory interest;

c) to condemn the Tax and Customs Administration to pay the costs of the proceedings.

VALUE OF THE PROCEEDINGS: In accordance with the provisions of article 306, no. 2 of the Code of Civil Procedure, article 97-A, no. 1, a) of the Code of Tax Procedure and Practice and article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at €12,000.00 (twelve thousand euros).

COSTS: Pursuant to the provision of article 22, no. 4, of the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at €1,836.00 (one thousand eight hundred and thirty-six euros), in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings.

Notify.

Lisbon, 29-03-2017

The Arbitrator

António Alberto Franco

Frequently Asked Questions

Automatically Created

What is the Stamp Duty charge under Clause 28.1 of the General Stamp Duty Table (TGIS) for urban properties?
Stamp Duty under Clause 28.1 of the General Tax Table is an annual tax levied on ownership, usufruct, or surface rights over urban properties with a taxable property value equal to or exceeding €1,000,000 and classified as having residential use. The tax assessment requires all three cumulative conditions: the property right, the minimum value threshold, and the residential use classification. Article 67(2) of the Stamp Tax Code provides that the IMI Code applies subsidiarily for matters related to item 28 of the General Tax Table.
Can real estate investment funds challenge Stamp Duty assessments through tax arbitration at CAAD?
Yes, real estate investment funds can challenge Stamp Duty assessments through tax arbitration at CAAD (Centro de Arbitragem Administrativa). In this case, the fund (represented by its management company) successfully invoked Articles 2(1)(a) and 10(1)(2) of the Legal Framework for Tax Arbitration (Decree-Law 10/2011) to request constitution of an arbitral tribunal. The request was accepted, demonstrating that real estate investment funds have standing to pursue tax arbitration for Stamp Tax disputes.
What are the grounds for declaring the illegality of a Stamp Duty assessment under Clause 28.1?
Grounds for declaring the illegality of a Stamp Duty assessment under Clause 28.1 include: (1) challenging whether the property qualifies as having 'residential use' - particularly for land plots for construction versus completed buildings; (2) arguing that the IMI Code provisions do not extend residential use classification to undeveloped land; (3) asserting that land plots for construction are not differentiated by use under Articles 41 and 43 of the IMI Code; and (4) demonstrating erroneous interpretation of applicable tax law by the tax authority, specifically regarding the subsidiary application of the IMI Code to define residential use.
Are taxpayers entitled to compensatory interest (juros indemnizatórios) after a successful arbitration decision?
Yes, taxpayers are entitled to compensatory interest (juros indemnizatórios) following a successful arbitration decision. In this case, the applicant specifically requested recognition of the right to compensatory interest alongside reimbursement of the amount paid. Compensatory interest compensates taxpayers for the financial loss resulting from having paid tax amounts that are subsequently determined to be illegally assessed, covering the period from payment until restitution.
What is the procedure for filing a hierarchical appeal against a Stamp Duty assessment before requesting arbitration?
The procedure requires: (1) First, file a gracious complaint (reclamação graciosa) against the Stamp Tax assessment with the Tax Authority; (2) If the complaint is rejected or only partially accepted, file a hierarchical appeal (recurso hierárquico) to a superior tax authority; (3) After receiving the hierarchical appeal decision, if still unsatisfied, submit a request for constitution of an arbitral tribunal to CAAD within the legal deadline. In this case, the fund filed its hierarchical appeal on 16-01-2015, received a rejection decision on 18-03-2016 (notified 11-04-2016), and submitted the CAAD arbitration request on 11-07-2016.