Process: 386/2016-T

Date: December 12, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Decision 386/2016-T addresses whether construction land (terreno para construção) is subject to Stamp Tax under Item 28 of the General Stamp Tax Table (TGIS), as amended by Law 55-A/2012. A Real Estate Investment Fund challenged €24,000 in stamp duty assessments levied on construction land with a Taxable Patrimonial Value exceeding €1,000,000. The central legal question concerns whether construction land qualifies as property with 'residential use classification' (afetação habitacional) merely because a residential use coefficient under Article 41 of the Municipal Property Tax Code (CIMI) was applied in calculating its patrimonial value. The Fund argued that construction land categorically differs from urban residential properties and lacks the essential requirement of residential use classification for Item 28 taxation, citing Supreme Administrative Court precedent (STA Decision 048/14) that clearly distinguishes between these property types. The Tax Authority contended that applying the residential use coefficient in VPT determination gives construction land the legal nature of residential property, referencing TCAS Decision 04950/11. After the Fund's reconsideration petition was partially dismissed and hierarchical appeal rejected, it sought arbitral review at CAAD. The tribunal, constituted in October 2016, proceeded to examine whether Item 28's scope extends to undeveloped construction land or requires actual residential use. This decision has significant implications for real estate investment funds and property developers holding construction land portfolios valued above the €1,000,000 threshold, potentially affecting stamp duty liability on substantial land holdings pending development. The case exemplifies how technical tax classifications and valuation methodologies can trigger substantial tax consequences, and demonstrates CAAD's role as an alternative dispute resolution mechanism for complex tax controversies involving statutory interpretation and the intersection of property tax and stamp duty regimes.

Full Decision

ARBITRAL DECISION

I – REPORT

  1. A... – Open Special Real Estate Investment Fund, Special Real Estate Investment Fund, with Tax Identification Number [1] ..., whose managing entity is B... – Real Estate Investment Fund Management Company, SA, with registered office at Street..., ... – ..., ... – ... Lisbon submitted a request for arbitral pronouncement, under the terms of subsection a) of paragraph 1 of article 2, of paragraph 1 of article 3 and of subsection a) of paragraph 1 of article 10, all of the Legal Framework for Tax Arbitration [2], with the Tax Authority [3] being requested, with a view to the annulment of tax acts for the assessment of stamp duty on the ownership of a property registered in the property register under urban article no.... of the Union of Civil Parishes of... and..., municipality of..., concerning a piece of land for construction, according to collection documents 2013..., 2013... and 2013... in the total amount of € 24,000.00, against which it submitted a petition for reconsideration of discretionary tax decisions, which was partially allowed on 16 December 2014, regarding the parts not related to residential use. Not accepting this, it submitted a hierarchical appeal which was also dismissed on 18 March 2016, which led to the filing of the present request.

  2. The request was filed without exercising the option to appoint an arbitrator, and was accepted by His Excellency the President of the Administrative Arbitration Center [4] and automatically notified to the Tax Authority on 13/07/2016.

  3. Pursuant to the terms and for the purposes of paragraph 2 of article 6 of the Legal Framework for Tax Arbitration, by decision of His Excellency the President of the Ethics Council, duly communicated to the parties within the legally applicable periods, on 21/09/2016, Arlindo José Francisco was appointed as arbitrator of the tribunal, who communicated acceptance of the office within the legally stipulated period.

  4. The tribunal was constituted on 04/10/2016 in accordance with the provisions contained in subsection c) of paragraph 1 of article 11 of the Legal Framework for Tax Arbitration, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December.

  5. With its request, the applicant seeks the determination of the illegality of the decision dismissing the hierarchical appeal and the consequent annulment of the stamp duty assessment acts in question, on the grounds that it considers them manifestly illegal, with all legal consequences arising therefrom, namely the return of the amounts unduly paid and any compensation interest that may be due.

  6. It supports its point of view, in summary, on the understanding that the assessments in question are affected by an error due to a misinterpretation of the applicable tax law, specifically item 28.1 of the General Stamp Duty Rate Table [5], since the property in question lacks residential use classification.

  7. In its reply, the respondent considers that item 28 of the General Stamp Duty Rate Table in the wording of Law 55-A/2012 determines the taxation of land for construction to which residential use classification has been attributed in the assessment, as is the case, hence its legal nature as properties with residential use classification, considering that in the determination of its Taxable Patrimonial Value [6] the residential use coefficient provided for in article 41 of the Municipal Property Tax Code [7] is taken into account, citing Decision no. 04950/11 of 14/02/2012 of the Central Administrative Court [8] of the South.

II - PRELIMINARY PROCEEDINGS

The tribunal was regularly constituted and is competent in respect of subject matter, in accordance with article 2 of the Legal Framework for Tax Arbitration.

The parties have legal personality and capacity, show themselves to be legitimate, and are regularly represented in accordance with articles 4 and 10, paragraph 2 of the Legal Framework for Tax Arbitration and article 1 of Ordinance no. 112-A/2011, of 22 March.

In the reply of the Tax Authority, a waiver of the hearing provided for in article 18 of the Legal Framework for Tax Arbitration and of the production of written or oral submissions was raised, and the tribunal granted a 10-day period for the applicant to comment. In the order of 18/11/2016, it was noted that the parties were in agreement regarding the waiver of the hearing referred to in article 18 of the Legal Framework for Tax Arbitration and the non-necessity of production of written or oral submissions.

In view of the coinciding positions and, the proceedings not being affected by any nullities nor having been raised any issues that would prevent appreciation of the merits of the case, the tribunal considers that the conditions are met to render a decision.

III - REASONING

1 – The issues to be decided, with interest for the proceedings, are as follows:

a) Whether land for construction, to which the residential use coefficient was applied in the determination of its Taxable Patrimonial Value and resulted in a value equal to or greater than € 1,000,000.00, fall within the scope of stamp duty taxation provided for in item 28 of the General Stamp Duty Rate Table, as amended by Law no. 55-A/2012, of 29 October.

b) If in the negative, whether the stamp duty assessment in the present proceedings should be annulled as being affected by illegality and, consequently, the amounts unduly paid should be returned with compensation interest.

2 – Statement of Facts

The factual matters considered relevant and proven on the basis of the elements attached to the proceedings are as follows:

a) The applicant was, in the years of 2012, the owner of a piece of land for construction registered in the urban property register of the Union of Civil Parishes of... and..., municipality of..., under article....

b) It was notified to proceed with the payments of the stamp duty in question in 3 installments with the deadline for payment in April, July and November 2013.

c) Against such assessments it submitted a petition for reconsideration of discretionary tax decisions which was partially dismissed by the Tax Authority in accordance with the order of 16 December 2014.

d) Not accepting such order, it submitted a hierarchical appeal which was also dismissed by the Tax Authority in an order of 18 March 2016.

e) The applicant made payment of the installments within the determined periods in the total amount of € 24,000.00.

There is no factual matter given as unproven that is relevant to the decision.

3 – Statement of Law

3.1 - Regarding Stamp Duty:

a) The applicant, in its request for arbitral pronouncement, considers, in the first instance and in summary, the non-applicability of item 28 of the General Stamp Duty Rate Table, in the wording given to it by Law 55-A/2012 of 29 October, to land for construction.

b) It argues that land for construction cannot be considered as properties with residential use classification, availing itself of the respective rule of incidence (item 28 of the General Stamp Duty Rate Table), in the wording of Law 55-A/2012, already mentioned.

c) The fact that the land for construction in question has a Taxable Patrimonial Value equal to or greater than € 1,000,000.00 lacks the essential requirement for taxation: residential use classification.

d) It refers to Decisions of the Supreme Administrative Court [10], namely that rendered in the context of case 048/14 of 09/04/2014, which found there to be a clear distinction between urban residential properties and land for construction, and these cannot be considered as properties with residential use classification.

e) For its part, the respondent considers that land for construction has the legal nature of properties with "residential use classification" since in the determination of its Taxable Patrimonial Value the residential use coefficient provided for in article 41 of the Municipal Property Tax Code is taken into account and cites, in this sense, Decision 04950/11 of 14/02/2012 of the Central Administrative Court of the South which considers that the assessment regime for the taxable value of land for construction is established in article 45 of the Municipal Property Tax Code, being equal to that of constructed buildings, although starting from the building to be constructed, based on the project.

f) It considers that the expression "residential use classification" in item 28 of the General Stamp Duty Rate Table calls for a classification that overlaps with the categories of urban properties provided for in paragraph 1 of article 6 of the Municipal Property Tax Code and that the legislator in using it intended to integrate other realities beyond those mentioned in the provisions of the Municipal Property Tax Code, concluding that the assessments in question should be maintained and the Tax Authority absolved of the claim.

g) Having summarized the positions of the applicant and the respondent, we shall proceed below to an analysis of the rule of incidence of stamp duty on urban properties with residential use classification.

h) Item 28 of the General Stamp Duty Rate Table, amended by Law no. 55-A/2012, subjects to stamp duty urban properties with residential use classification whose Taxable Patrimonial Value, determined in accordance with the Municipal Property Tax Code, is equal to or greater than € 1,000,000.00.

i) The Stamp Duty Code [11] refers to the Municipal Property Tax Code for the regulation of the concept of property and matters not regulated as to item 28 of the General Stamp Duty Rate Table (see paragraph 6 of article 1 and paragraph 2 of article 67, both of the Stamp Duty Code).

j) If we look at article 6 of the Municipal Property Tax Code, it establishes that urban properties are divided into residential, commercial, industrial or service use, land for construction, and others.

k) From paragraph 2 thereof, urban residential properties are "buildings or constructions licensed for such purpose or in the absence of a license, which have such purpose as their destination" and paragraph 3 tells us that land for construction "is that situated within or outside an urban settlement, for which a license or authorization for a subdivision or construction operation has been granted, and also those that have been declared as such in the title of acquisition...".

l) From these definitions we can already conclude that there is autonomy between urban properties "residential" and urban properties "land for construction".

m) The stamp duty legislator, in establishing the taxation of urban properties "with residential use classification", did not specify the concept, and therefore we must, by force of the referral, go to the Municipal Property Tax Code and this, as already seen, separates them with respect to land for construction.

n) The expression "residential use classification" is in no way evident in land for construction, nor can it, as the respondent claims, be understood as an integrating expression of other realities.

o) We agree with the position advocated in case 49/2013 which in part reads: "The expression 'with residential use classification' instills, at a simple reading, an idea of real and present functionality. From the norm in question it is not possible to extract, by interpretation, that, as stated in the respondent's reply, the legislator's choice of that expression was intended to integrate 'other realities beyond those identified in article 6, paragraph 1, subsection a), of the Municipal Property Tax Code.' Such interpretation has no legal support, in light of the principles contained in articles 9 of the Civil Code and 11 of the General Tax Law. Indeed, if the legislator intended to encompass within the scope of tax incidence other realities than those that result from the classification governed by article 6 of the Municipal Property Tax Code, it would have said so expressly. But it does not, instead referring, as a whole, to the concepts and procedures provided for in the said Code. Moreover, neither can the respondent's understanding be accepted that the concept of 'residential use classification' derives from the rule of article 45 of the Municipal Property Tax Code. This article refers to the rules applicable in determining the taxable value of land for construction, establishing that this is what results from the value of the building implantation area to be constructed added to the land adjacent to the implantation. In fixing the value of that area, a variable percentage between 15% and 45% of the value of authorized or projected buildings is considered. According to the respondent, in fixing the values of the authorized or projected buildings on the land to be assessed, the coefficients applicable in determining taxable patrimonial value are used, namely the residential use coefficient provided for in article 1 of that Code. Concluding from this that the consideration of such a coefficient, dependent on the type of use provided for the property to be built on the land, will be determinant for the purposes of applying Item 28 of the General Stamp Duty Rate Table. This conclusion is supported by the assumption that the expression 'properties with residential use classification' calls for a classification that overlaps with the species provided for in paragraph 1 of article 6 of the Municipal Property Tax Code. It is not possible, however, to follow such conclusion. [...]. In these terms, as article 6 of the Municipal Property Tax Code shows a clear distinction between urban properties 'residential' and 'land for construction', these cannot be considered, for the purposes of stamp duty incidence, as 'properties with residential use classification.'"

p) The legislator, in seeking to tax land for construction in stamp duty, revisited item 28 of the General Stamp Duty Rate Table through Law no. 83-C/2013, of 31 December, and introduced them therein, which proves that in the formulation of Law no. 55-A/2012, land for construction were excluded from stamp duty taxation by item 28 of the General Stamp Duty Rate Table and now, through Law no. 83-C/2013, have become taxable, which makes it clear to us that the legislator considers that the expression "residential use classification" did not include land for construction.

q) Nor should it be said that the fact that article 45 of the Municipal Property Tax Code provides for the application of a residential use coefficient in determining the Taxable Patrimonial Value of land for construction would be, by itself alone, a sufficient condition to allow including it in the rule of incidence of item 28 as amended by Law no. 55-A/2012, nor would it alter its nature as land for construction, given that what is at issue here is solely to determine the Taxable Patrimonial Value which will be influenced by the type of buildings to be carried out (which, it must be said, are not always realized).

r) Decision 04950/11 of 14/02/2012 of the Central Administrative Court of the South cited by the Tax Authority, which considers that the assessment regime for the taxable value of land for construction is established in article 45 of the Municipal Property Tax Code, being equal to that of constructed buildings, although starting from the building to be constructed, based on the project, is a finding that is limited to determining the Taxable Patrimonial Value and nothing more than that.

s) Now, as already seen, article 6 of the Municipal Property Tax Code shows an unmistakable distinction between residential properties and land for construction, which prevents the latter from being taxed in stamp duty on the terms sought by the respondent.

t) Several arbitral decisions have already been rendered in this sense, namely cases 42, 48, 49 and 75, all from 2013 and by the Supreme Administrative Court.

u) The taxation here put in question only occurred due to error attributable to the Tax Authority services, since item 28 of the General Stamp Duty Rate Table, in the wording of Law 55-A/2012, did not allow stamp duty taxation of land for construction, and therefore should be annulled with all legal consequences arising therefrom.

3.2 – Regarding the Return of Amounts Unduly Paid, with Compensation Interest

a) Upon declaration of illegality of the debt and the consequent annulment, the Tax Authority is obliged to reconstitute the situation that would have existed if the annulled act had not been performed, in accordance with the provisions contained in article 100 of the General Tax Law [12].

b) In this sense pronounces Diogo Leite Campos/Benjamin Silva Rodrigues/Jorge Lopes de Sousa in annotation to the aforementioned article 100 of the General Tax Law, 2nd edition.

c) Thus, given the illegality of the stamp duty assessment acts attributable to the Tax Authority, given that it performed them without adequate legal support, and in light of the proven payment, the applicant is entitled to the payment of compensation interest in the precise terms of paragraph 1 of article 43 of the General Tax Law and article 61 of the Tax Administration and Procedure Code [13].

IV – DECISION

Given the foregoing, the tribunal decides as follows:

a) To declare that land for construction is excluded from stamp duty taxation provided for in item 28.1 of the General Stamp Duty Rate Table, in the wording given to it by Law 55-A/2012 of 29 October.

b) Consequently to declare the request for arbitral pronouncement well-founded, as there was error attributable to the services of the Tax Authority, declaring illegal the decision dismissing the hierarchical appeal as well as the stamp duty assessment acts relating to the year 2012 here put in question in the total amount of € 24,000.00, which should be annulled with all legal consequences arising therefrom, as they are manifestly in violation of the said rule of incidence, and the obligation of the Tax Authority to reimburse the tax comprovedly paid, plus compensation interest, calculated at the legal rate, from the date on which payment occurred to the date on which reimbursement occurs.

c) To fix the value of the case at € 24,000.00 in accordance with the provisions contained in article 299, paragraph 1, of the Code of Civil Procedure [14], article 97-A of the Tax Administration and Procedure Code, and article 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings [15].

d) To fix the costs, under paragraph 4 of article 22 of the Legal Framework for Tax Arbitration, in the amount of € 1,224.00 in accordance with the provisions in Table I referred to in article 4 of the Regulation of Costs in Tax Arbitration Proceedings, which are charged to the respondent.

Notify.

Lisbon, 12 December 2016

Text prepared by computer, in accordance with article 131, paragraph 5 of the Code of Civil Procedure, applicable by referral of article 29, paragraph 1, subsection e) of the Legal Framework for Tax Arbitration, with blank lines and reviewed by the tribunal.

The arbitrator

Arlindo José Francisco

[1] Acronym for Tax Identification Number
[2] Acronym for Legal Framework for Tax Arbitration
[3] Acronym for Tax Authority and Customs Authority
[4] Acronym for Administrative Arbitration Center
[5] Acronym for General Stamp Duty Rate Table
[6] Acronym for Taxable Patrimonial Value
[7] Acronym for Municipal Property Tax Code
[8] Acronym for Central Administrative Court
[9] Acronym for Stamp Duty
[10] Acronym for Supreme Administrative Court
[11] Acronym for Stamp Duty Code
[12] Acronym for General Tax Law
[13] Acronym for Tax Administration and Procedure Code
[14] Acronym for Code of Civil Procedure
[15] Acronym for Regulation of Costs in Tax Arbitration Proceedings

Frequently Asked Questions

Automatically Created

Is Stamp Tax (Imposto do Selo) due on construction land under Verba 28 of the General Stamp Tax Table (TGIS)?
Whether Stamp Tax is due on construction land under Item 28 TGIS depends on whether the land has 'residential use classification' (afetação habitacional). Item 28, as amended by Law 55-A/2012, applies to properties with residential use and VPT ≥ €1,000,000. The key dispute is whether mere application of a residential use coefficient in VPT calculation under Article 41 CIMI suffices, or whether actual residential use is required. STA jurisprudence (Decision 048/14) distinguishes construction land from urban residential properties, suggesting construction land lacking actual residential use should not fall within Item 28's scope.
Does the housing allocation coefficient in property valuation make construction land subject to Stamp Tax as residential property?
The housing allocation coefficient used in property valuation does not automatically make construction land subject to Stamp Tax as residential property. While the Tax Authority argued that applying the residential use coefficient under Article 41 CIMI in determining Taxable Patrimonial Value gives construction land the legal nature of residential property, this position conflates valuation methodology with actual property use. The coefficient is a technical calculation factor, but construction land remains undeveloped without effective residential allocation, distinguishing it from completed residential properties that Item 28 TGIS targets.
Can a Real Estate Investment Fund challenge Stamp Tax assessments on construction land through arbitration at CAAD?
Yes, a Real Estate Investment Fund can challenge Stamp Tax assessments on construction land through arbitration at CAAD (Centro de Arbitragem Administrativa). The Legal Framework for Tax Arbitration permits taxpayers to request arbitral pronouncement seeking annulment of tax acts. The procedural path involves: (1) filing a reconsideration petition with the Tax Authority, (2) submitting a hierarchical appeal if dismissed, and (3) requesting CAAD arbitration under Article 2(1)(a) and Article 10(1)(a) of the arbitration framework. CAAD provides an alternative to judicial courts for resolving tax disputes efficiently.
What is the legal basis for contesting Stamp Tax levied on land lacking effective housing allocation under Portuguese tax law?
The legal basis for contesting Stamp Tax on land lacking effective housing allocation rests on interpreting Item 28 TGIS's requirement of 'residential use classification' (afetação habitacional). Construction land, being undeveloped, lacks actual residential use despite having a residential coefficient applied in VPT calculation. The challenge argues for substantive interpretation over formalistic application: Item 28 should apply only to properties with genuine residential allocation, not merely those using residential coefficients in valuation formulas. This interpretation aligns with STA precedent distinguishing construction land from urban residential properties, preventing inappropriate tax extension to undeveloped land.
What remedies are available if a hierarchical appeal against Stamp Tax on construction land is denied by the Tax Authority?
If a hierarchical appeal against Stamp Tax on construction land is denied by the Tax Authority, taxpayers have two primary remedies: (1) file a request for arbitral pronouncement at CAAD under the Legal Framework for Tax Arbitration, seeking annulment of the assessment acts and return of amounts paid plus compensatory interest, or (2) initiate judicial proceedings in administrative courts. CAAD arbitration offers advantages including faster resolution, specialized tax arbitrators, and lower costs compared to traditional litigation. Taxpayers can request annulment based on illegality, misinterpretation of tax law, or incorrect application of legal provisions to established facts.