Process: 386/2017-T

Date: November 10, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

In CAAD arbitration case 386/2017-T, a taxpayer challenged a Stamp Tax assessment of €32,365.40 levied under Item 28.1 of the General Table of Stamp Tax (TGIS) for 2013 on an undeveloped plot of land for construction. The central legal issue was whether a mere building plot, without any existing structure, could qualify as a 'property with residential designation' subject to the Stamp Tax on high-value residential properties introduced in 2013. The claimant argued that Item 28.1 applies only to properties with an actual, existing residential use or designation, not to bare land awaiting future development of uncertain type. The taxpayer contended that the term 'designation' refers to concrete, present situations rather than potential future uses. Before the arbitral tribunal could rule on the merits, the Tax Authority responded by agreeing with the claimant's position and granting an official revision request that had been filed separately. By order dated 26 September 2017, the Tax Authority annulled the contested assessment and authorized reimbursement of the €32,365.40 already paid. This development rendered the arbitration proceedings supervenient futile, as the object of the dispute had been extinguished through administrative correction. The Tax Authority invoked Article 277(e) of the Code of Civil Procedure, applicable subsidiarily under Article 29(1) of the Tax Arbitration Regime, which provides for extinction of proceedings due to supervening uselessness. The case illustrates an important principle: when the Tax Authority recognizes the merit of a taxpayer's claim during pending arbitration and voluntarily annuls the contested act, the arbitration becomes moot. This outcome demonstrates the Tax Authority's capacity to concede claims when legal grounds are clear, avoiding unnecessary adjudication and ensuring efficient dispute resolution in the CAAD system.

Full Decision

ARBITRAL DECISION

I – Report

1.1. A…, S.A., a commercial company with the collective person number …, and with its registered office at Rua …, no. …, …, …, …, …-… Lisbon (hereinafter referred to as "claimant"), having been notified of the assessment of Stamp Tax (IS) for the year 2013, in the amount of €32,365.40, submitted, on 23/6/2017, a request for the constitution of an arbitral tribunal and for an arbitral pronouncement, in accordance with the provisions of articles 76, no. 2, 102, no. 1, and 99, all of the CPPT, and article 2, no. 1, subparagraph a), of Decree-Law no. 10/2011, of 20/1 (Legal Regime of Arbitration in Tax Matters, hereinafter referred to as "LRATM"), in which the Tax Authority and Customs Authority ("TA") is the Respondent Entity, with the objective that it be "declared the illegality of the Stamp Tax Assessment 2013…, divided into three installments [to which] correspond[s] [the] collection documents numbers 2014 … (Document 3), 2014… (Document 4) and 2014… (Document 5), and consequently the Claimant be reimbursed of the amount already paid, increased by compensatory interest."

1.2. On 29/8/2017 the present Singular Arbitral Tribunal was constituted.

1.3. On 30/8/2017, the TA was cited, as the respondent party, to submit a response, in accordance with article 17, no. 1, of the LRATM. The TA submitted its response on 29/9/2017, having argued, in summary, in favour of the merits of the Claimant's request.

1.4. By order of 2/11/2017, the Tribunal considered, pursuant to article 16, subparagraph c), of the LRATM, that the hearing provided for in article 18 of the LRATM was dispensable, and that the case was ready for decision. Accordingly, the Tribunal fixed the rendering of the arbitral decision for 10/11/2017.

1.5. The Arbitral Tribunal was regularly constituted, is materially competent, the case does not suffer from defects that invalidate it and the Parties have legal personality and capacity, being legitimate.

II – Allegations of the Parties

2.1. The Claimant argues, in its initial petition, that: a) "the Tax Authority and Customs Authority, hereinafter 'TA', understands that the rule of incidence inherent in Item 28.1 of the TGIS, and in the letter of the law in force at the time of the tax event on 31 December 2013, applies to a mere plot of land for construction, recognizing it as having residential designation, even though nothing has been constructed or built on it"; b) "the thema decidendum of the present request [...] is to determine the susceptibility of plots of land for construction to fall within the normative provision of the rule of incidence inherent in Item 28.1 of the TGIS, according to the letter of the law in force for the fiscal year 2013, that is, whether a mere plot of land for construction can be considered, for the purposes of the application of the said Item, a property with residential designation"; c) "the Claimant understands that it cannot be considered that 'plot of land for construction' falls within the concept of properties 'with residential designation' for the purposes of incidence of Stamp Tax according to the letter of Item 28.1 of the TGIS"; d) "the urban real property of which the Claimant is the owner is a plot of land for construction, as can be verified by the urban property booklet that was attached as Documents 6 and 7, and at the present date there is no construction carried out on it"; e) "plots of land for construction that do not have a defined use cannot be considered, for the purposes of the incidence of stamp tax, properties with residential designation because they do not yet have any actual use nor designation other than construction of unknown type"; f) "the term 'designation' used in Item 28.1 of the TGIS is used to refer to situations already existing and concrete and not merely future situations, even if foreseeable, such as the final destination"; g) "we have [...] to conclude unequivocally that the quality of 'plot of land for construction' is not covered by the scope of the rule of incidence, in the letter of Law no. 55-A/2012"; h) "the assessment of Stamp Tax for the year 2013 at the identified margin is, therefore, tainted with illegality because plots of land for construction do not fall within the concept of 'property with residential designation' provided for in Item 28.1 of the TGIS."

2.2. The Claimant concludes that, in light of the above, should be "declar[ed] the illegality of the Stamp Tax Assessment 2013…, as undue, proceeding[-to] the reimbursement of the amounts already paid, as well as to the payment of the compensatory interest owed from the date of the payment of the tax until the effective and complete reimbursement of the tax, at the legally due rate."

2.3. For its part, the TA alleged and reported, in its response, that: a) "the Claimant petitions the declaration of illegality of the tax act of assessment of Stamp Tax- item 28 – no. 2013…, of the year 2013, concerning the real property – plot of land for construction – registered in the cadastre under article …, of the parish of …, in the amount of €32,365.40. It requests the reimbursement of the amount unduly paid, increased by compensatory interest"; b) "however, the Claimant requested official revision of the act of assessment of Stamp Tax-item 28, no.…, dated 2014-03-17, in the amount of €32,365.40, concerning the urban real property (plot of land for construction) identified above"; c) "according to order of 2017-09-26, of the Head of Service of Tax on Onerous Transfers of Real Property, Stamp Tax, Single Circulation Tax and Special Contributions, the request for official revision registered under no. …, as per Document 1 [attached to the case file]"; d) "in the said official revision it was decided to annul the assessment in question in this case and the return of the amount of tax unduly paid"; e) "thus, given that the subject of the request for arbitral pronouncement has been extinguished, there is a subsequent futility of the dispute, in accordance with article 277, subparagraph e), of the Code of Civil Procedure (CPC), applicable subsidiarily pursuant to article 29, no. 1, of the Tax Arbitration Regime."

2.4. The TA requests, based on the above, "the extinction of the request for arbitral pronouncement, due to subsequent futility of the dispute, in accordance with article 277, subparagraph e), of the CPC, by subsidiary application of article 29, no. 1, of the LRATM."

III – Proven Facts, Unproven Facts and Respective Justification

3.1. The following facts are considered proven:

i) At the date of the events, the Claimant was the owner of the urban real property located at Avenida…, no.…, and Rua …, …-… Lisbon, registered in the urban property cadastre of the parish of …, in Lisbon, under article no. … .

ii) The property in question is a plot of land for construction (see Docs. 6 and 7 attached).

iii) On 31/12/2013, the TPV of the said real property was €3,236,540.00 (see Doc. 6 attached). On 17/3/2014, the assessment of IS – Item 28 – no.…, now in question, was issued, in the amount of €32,365.40 (see Docs. 3 to 5 attached).

iv) The said Stamp Tax was paid in three installments: the first, in the amount of €10,788.48, on 30/4/2014; the second, in the amount of €10,788.46, on 31/7/2014; and the third, also in the amount of €10,788.46, on 28/11/2014 (see Docs. 10 to 12 attached).

v) On 29/12/2016, the Claimant submitted a request for official revision of the assessment identified above (see Doc. 2 attached).

vi) The Claimant submitted the present request for arbitral pronouncement on 23/6/2017.

vii) By order dated 26/9/2017, of the Head of Service of Tax on Onerous Transfers of Real Property, Stamp Tax, Single Circulation Tax and Special Contributions, the request for official revision registered under no.…, as per document attached to the case file, was granted.

3.2. There are no unproven facts relevant to the decision of the case.

3.3. The facts considered pertinent and proven (see 3.1) are based on the analysis of the positions exposed by the parties and the documentary evidence attached to the present case file.

IV – Law

A) On Subsequent Futility of the Dispute

As noted above, in the report section of this decision, the TA communicated in the case file – through its response of 29/9/2017 (and as per order of the Head of Service of Tax on Onerous Transfers of Real Property, Stamp Tax, Single Circulation Tax and Special Contributions dated 26/9/2017) – the annulment of the assessment act challenged in this case, proposing, consequently, the extinction of the present case due to subsequent futility of the dispute.

It is thus necessary, first of all, that this Tribunal verify the utility of the examination of the request formulated by the Claimant in its request for arbitral pronouncement, of declaration of illegality and annulment of the Stamp Tax assessment in question.

Subsequent futility of the dispute occurs when, by a fact occurring during the pendency of the case, the solution to the dispute ceases to have interest and utility, justifying, for that reason, the extinction of the instance (see article 277, subparagraph e), of the CPC).

As noted by Lebre de Freitas, João Rendinha, Rui Pinto (see Código de Processo Civil anotado, vol. 1, 2nd edition, Coimbra Editora, 2008, p. 555), the subsequent futility or impossibility of the dispute "occurs when, by a fact occurring during the pendency of the instance, the claim of the plaintiff cannot be maintained, by virtue of the disappearance of the subjects or the object of the case, or finds satisfaction outside the scheme of the remedy sought. In either case, the solution to the dispute ceases to matter – here, by the impossibility of achieving the intended result; there, by it having already been achieved by other means".

In the same sense, see, for example, the Arbitral Decision of 2/12/2016, in case no. 220/2016-T: "if, by virtue of new facts occurring during the pendency of the case, the objective intended with the claim filed in court has already been achieved by other means, then the decision to be rendered does not involve useful effect, so that, in that scope, subsequent futility of the dispute occurs".

Now, as is clear from the above, it appears that evidence has been brought to the case file that the tax act of assessment of Stamp Tax here challenged was subject to annulment (pursuant to article 79, no. 1, of the LGT), the TA, with the order rendered on 26/9/2017 [see point vii) of the proven facts], having proceeded "to the annulment of the challenged assessment; [and to] the return of the amount of tax unduly paid, in the total amount of €32,365.40".

It follows from the mentioned action of the TA – also confirmed by the response sent by the Respondent to these proceedings – that the claim formulated by the Claimant, which had as its purpose the declaration of illegality and annulment, by this Tribunal, of the Stamp Tax assessment challenged (no. 2013…), has been prejudiced, because the suppression of that act and its effects from the legal order was achieved by another route already after the instance was initiated.

In these terms, and as is also referred to in the Arbitral Decision rendered in case no. 220/2016-T, "the subsequent practice of the express act of revocation of the challenged assessments (cf. article 79, no. 1, of the LGT) implies that the instance relating to the examination of the legality of those assessments is extinguished due to subsequent futility of the dispute, given that, as their effects have been eliminated by the annulling revocation, the examination ceases to be useful, in relation to such assessments, of the vices alleged in order to their invalidity, leaving without object the challenge claim against them".

In light of the above, the present Tribunal verifies the subsequent futility of the dispute with respect to the request for annulment of the tax act subject to this case, which implies the extinction of the corresponding instance, in accordance with the provisions of article 277, subparagraph e), of the CPC, which is applicable by virtue of article 29, no. 1, subparagraph e), of the LRATM.

B) On Compensatory Interest

The Claimant states (and proves) that it proceeded with the payment of the assessment in question in the present case, and requests the reimbursement of the amount paid increased by compensatory interest.

Reading article 43, no. 1, of the LGT, it appears that "compensatory interest is owed when it is determined, in an administrative appeal or judicial challenge, that there was an error attributable to the services from which results payment of the tax debt in an amount higher than legally due" – adding further, article 61, no. 4, of the CPPT that, "if the decision recognizing the right to compensatory interest is judicial, the period for payment is counted from the beginning of the period of its spontaneous execution".

Now, in the present case, the annulment of the act of assessment of Stamp Tax had its origin in the fact that the TA understood that the rule of incidence of the version prior to the State Budget Law for 2014 (Law no. 83-C/2013, of 31/12) did not include plots of land for construction. And that, with the amendment to item 28.1 of the TGIS made by the said Law, plots of land for construction whose construction, authorized or planned, is for residential purposes were expressly included within the incidence of Stamp Tax.

As is stated in the justification of the TA for the approval of the official revision (see document attached to the present case file), "following this amendment [to article 194 of the said State Budget Law for 2014], and in accordance with the understanding contained in service instruction no. 40047 – Series I, of 2017-02-16, issued in compliance with Order no. 6/2017-XXI, of 13 January, of the State Secretary for Tax Affairs, it was determined that [...] 'it should be concluded that plots of land for construction were not subject to stamp tax, so that the Services should follow the present understanding for all cases that are in procedural phase (...).' So that, in compliance with the provisions of the said instruction, the plot of land for construction subject to the disputed assessment is not included, for the year in question (2013), in the rule of incidence of item 28.1 of the TGIS (in the original version given by Law 55-A/2012, of 29 October)."

Thus, the reimbursement of the tax paid appears unquestionable, by virtue of the provisions of no. 1 of article 43, and of article 100, of the LGT, the situation that would have existed if the tax act subject to this decision had not been carried out must be restored (see, in the same sense, and for example, the Arbitral Decision rendered in case no. 153/2016-T).

The illegality of the tax act of assessment of Stamp Tax is attributable to the TA – illegality that was recognized by the same as can be observed in the passage cited above, and which led to the annulment of that act.

In conclusion, we are in the presence of a vice of violation of substantive law, which is embodied in an error in the legal assumptions, attributable to the TA, and the Claimant has the right, in accordance with the provisions of articles 24, no. 1, subparagraph b), of the LRATM, and 100 of the LGT, to the reimbursement of the amount of Stamp Tax unduly paid and to compensatory interest, in accordance with the provisions of articles 43, no. 1, of the LGT, and 61 of the CPPT, calculated from the date of payment of the tax, at the rate resulting from no. 4 of article 43 of the LGT, until the date of the processing of the respective credit note, in which they will be included (in this sense, see also, for example, the Arbitral Decision rendered in case no. 152/2016-T).

V – DECISION

In light of the above, it is decided:

– To judge the instance extinct with regard to the request for declaration of illegality of the act of assessment of Stamp Tax challenged in the present case (no. 2013…), due to subsequent futility of the dispute, in accordance with article 277, subparagraph e), of the CPC, applicable via the provisions of article 29, no. 1, subparagraph e), of the LRATM.

– To judge as meritorious the request for condemnation of the TA to reimburse the Claimant the amount of the tax paid, increased by compensatory interest in accordance with the legal provisions, from the date such payment was made until the date of the complete reimbursement thereof.

The value of the case is set at €32,365.40 (thirty-two thousand three hundred sixty-five euros and forty cents), in accordance with articles 32 of the CPTA and 97-A of the CPPT, applicable by virtue of article 29, no. 1, subparagraphs a) and b), of the LRATM, and article 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

Costs charged to the respondent, in the amount of €1,836.00, 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 LRATM, as well as with the provisions of article 4, no. 4, of the cited Regulation.

Notify.

Lisbon, 10 November 2017.

The Arbitrator,

(Miguel Patrício)

Text prepared on computer, in accordance with the provisions of article 131, no. 5, of the CPC, applicable by referral of article 29, no. 1, subparagraph e), of the LRATM.

The drafting of the present decision is governed by the spelling prior to the 1990 Orthographic Agreement.

Frequently Asked Questions

Automatically Created

Are building plots subject to Stamp Tax under Verba 28.1 of the TGIS as properties with housing allocation?
No, according to the Tax Authority's position in this case, undeveloped building plots should not be subject to Stamp Tax under Item 28.1 of the TGIS as properties with residential designation. Item 28.1 targets properties with actual, existing residential use or designation, not bare land for future construction of uncertain type. The term 'designation' refers to concrete, present situations rather than potential future residential use. The Tax Authority agreed with this interpretation and annulled the assessment on the plot of land for construction.
What does supervening uselessness of proceedings mean in Portuguese tax arbitration?
Supervening uselessness of proceedings (inutilidade superveniente da lide) occurs when the object of a dispute is extinguished during the course of litigation, rendering judicial or arbitral decision unnecessary. Under Article 277(e) of the Code of Civil Procedure, applicable subsidiarily to tax arbitration under Article 29(1) of the LRATM, proceedings must be terminated when their purpose has ceased to exist. In this case, the Tax Authority's voluntary annulment of the contested assessment through official revision eliminated the dispute's subject matter, making the arbitration futile.
Can the Tax Authority agree with the taxpayer and concede the claim in CAAD arbitration?
Yes, the Tax Authority can agree with the taxpayer and concede claims in CAAD arbitration. In its response, the Tax Authority may acknowledge the merit of the taxpayer's arguments and voluntarily annul the contested act. When this occurs through official revision or other administrative procedures that satisfy the taxpayer's claims before the arbitral decision, the proceedings become supervenient futile under Article 277(e) of the CPC. This demonstrates the Tax Authority's willingness to correct unlawful assessments without requiring full adjudication, promoting efficiency in tax dispute resolution.
How is Stamp Tax on high-value residential properties calculated under the 2013 TGIS rules?
Under the 2013 TGIS rules, Stamp Tax on high-value residential properties was calculated under Item 28.1 at a rate of 1% applied annually to the Tax Patrimonial Value (Valor Patrimonial Tributário - VPT) of properties with residential designation exceeding certain thresholds. In this case, the property had a VPT of €3,236,540.00 on 31 December 2013, resulting in an assessment of €32,365.40 (1% of the VPT), divided into three installments. However, the key dispute was whether undeveloped building plots qualified as 'properties with residential designation' for this tax.
What are the grounds for requesting reimbursement and compensatory interest after an unlawful Stamp Tax assessment?
After an unlawful Stamp Tax assessment, taxpayers can request reimbursement of amounts unduly paid plus compensatory interest under Article 43 of the General Tax Law (LGT). Grounds for reimbursement include: assessments on properties incorrectly classified under TGIS items; misapplication of tax rates or exemptions; assessments on non-taxable events; and violations of substantive tax law. Compensatory interest is calculated from the date of payment until effective reimbursement at the legally prescribed rate, compensating taxpayers for the State's unlawful retention of funds. Requests can be made through official revision, hierarchical appeal, or arbitration.