Process: 387/2016-T

Date: November 21, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

In Process 387/2016-T, the CAAD (Administrative Arbitration Center) addressed whether Portuguese Stamp Tax under clause 28.1 of the General Table of Stamp Tax (TGIS) applies to building land (terrenos para construção). A real estate investment fund challenged the tax assessment on property valued at €1,404,152.50, described in the property registry as 'parcel of land for urban construction' with a housing coefficient applied in its valuation. The Tax Authority levied €14,041.53 in Stamp Tax for 2013 under item 28.1 of TGIS, which taxes urban properties with residential allocation and tax asset values exceeding €1,000,000. The Applicant argued that the property lacked actual residential allocation (afetação habitacional) since it was unconstructed land incapable of being inhabited, and that the housing reference in the property registry related solely to the utilization coefficient, not actual residential use. The Tax Authority contended that building land with residential allocation attributed during valuation, as reflected in property registry data, falls within the scope of item 28.1 TGIS, applying article 41 of the Real Estate Tax Code (CIMI) indiscriminately to all urban properties. After the gracious complaint and hierarchical appeal were dismissed, the case proceeded to CAAD arbitration. The central legal question concerned interpreting 'residential allocation' under the pre-2014 version of item 28.1 TGIS—specifically whether a valuation coefficient suffices or whether actual residential use or concrete designation is required. The 2014 amendment to Law 83-C/2013 later clarified that Stamp Tax applies to 'residential property or land for construction whose building, authorized or envisaged, is for housing,' which the Tax Authority characterized as merely interpretative. This decision has significant implications for real estate investment funds and property owners regarding Stamp Tax liability on undeveloped building land with housing coefficients.

Full Decision

ARBITRATION DECISION

1. REPORT

1.1 A…– SPECIAL OPEN REAL ESTATE INVESTMENT FUND, Special Real Estate Investment Fund, with TIN…, whose managing entity is B…– REAL ESTATE INVESTMENT FUND MANAGEMENT COMPANY, S.A., with headquarters at Rua…, Torre … –…, …- … Lisbon, filed on 13.07.2016, under article 10, number 1, paragraph a) and number 2, paragraph c) of the Legal Regime for Tax Arbitration (Decree-Law no. 10/2011, of 20 January, as subsequently amended), a petition for the constitution of the arbitral tribunal.

1.2 The respondent in these proceedings is the TAX AND CUSTOMS AUTHORITY – TAX SERVICES.

1.3 The Ethics Council of the Administrative Arbitration Center (CAAD) designated the undersigned to form the Singular Arbitral Tribunal, notifying the parties thereof, and the Tribunal was constituted on 4 October 2016.

1.4 The request for arbitral decision concerns the illegality of the dismissal order that fell upon Hierarchical Appeal no. …2014…, of 18-03-2016, and, consequently, the annulment of three installments of the Stamp Tax levy of item 28.1 of the General Table of Stamp Tax, relating to the current urban property registration article ….º, of the Union of Parishes of …, … and…, municipality of Barreiro, former urban property registration article….º of the parish of…, municipality of Barreiro, effected in 2014, for the year 2013, pursuant to article 99 of the Tax Procedure and Process Code (hereinafter "CPPT"), in assessment of the question of whether item 28.1 of the General Table of Stamp Tax (TGIS) applies to properties without residential allocation, namely land for construction.

The Applicant manifests its disagreement with the dismissal order and with the tax levy at issue, considering fundamentally that the property on which the tax falls is not a residential property, but rather land for construction, incapable of being inhabited, not constructed and, therefore, without any "allocation", in particular, to "residential" which is required by the tax base rule, and therefore does not fall within item no. 28.1 of the TGIS.

It therefore objects to the decision and to the levy act at issue insofar as they are sustained on the erroneous relevance of the "residential allocation" of the property, when the reference to housing that appears in the property valuation data in the property registry relates only to the utilization coefficient.

Therefore, it concludes that the decision and the levy act at issue are voidable, as illegal, also requesting the reimbursement of the amounts already paid plus compensatory interest calculated to the date of reimbursement.

1.5 The TAX AND CUSTOMS AUTHORITY filed on 04.11.2016 the administrative file and responded, defending itself by objection, arguing for the maintenance in the legal order of the challenged act as it understands that the property has residential allocation, revealed by the data contained in the property registry, and that, therefore, the levy act corresponded to a correct application of the law to the disputed material reality.

It alleges, in summary, that by consulting the Certificate of the Contents of the urban property that underlies the present levy, it is verified that the land for construction is allocated to housing and that urban properties, which are land for construction and to which residential allocation has been attributed within the scope of their respective valuations, appearing such allocation in their respective registers, are subject to Stamp Tax.

It understands that the fact that, in the tax base rule – item 28.1 of the TGIS – property has been positively defined with residential allocation in preference to residential property, appeals to the allocation coefficient, according to article 41 of the CIMI, which applies, indiscriminately, to all urban properties.

It concludes, advancing arguments to the effect that the amendment introduced with the State Budget for 2014, Law no. 83-C/2013, of 31 December, to item 28.1 of the General Table of Stamp Tax, which now reads as follows: "28.1 — For residential property or for land for construction whose building, authorized or envisaged, is for housing, in accordance with the provisions of the Real Estate Tax Code — 1%" is merely an interpretation or definition of the logical element underlying the explanatory memorandum that served as the basis for Bill no. 96/XII and which has been difficult to comprehend, as appears to be the case here.

Petitioning for the waiver of the meeting provided for in article 18 of the RJAT, as well as for the submission of memoranda, considering that only the interpretation of item 28 of the TGIS is at issue, it concludes arguing for the dismissal of the request.

1.6 The Tribunal issued, on 07.11.2016, an order to the effect that it appeared to be dispensable to convene the meeting of the arbitral tribunal provided for in article 18 of the RJAT, as well as memoranda.

Once notified, the parties did not object.

2. PROCEDURAL MATTERS

The Tribunal was regularly constituted.

The parties have legal personality and capacity, shown to be legitimate and are regularly represented.

The proceedings do not suffer from any defects that would invalidate them.

3. FACTS

With relevance to the merits decision, the Tribunal considers the following facts to be proved:

1. The Applicant is the owner of the urban property located in…, …, …, registered in the urban property matrix of the Union of Parishes of…, … and …, municipality of Barreiro under number…, which came from article …º of the extinct parish of…;

2. The property is described in the matrix as "parcel of land for urban construction";

3. In the valuation of the property, the "location coefficient type: housing" was applied;

4. The property had, in 2013, the tax asset value, determined in the year 2011, of 1,404,152.50€;

5. On 18.03.2014, the Tax Authority proceeded to levy Stamp Tax of item 28.1 of the TGIS as amended by Law no. 55-A/2012, with reference to the property described in 1., which received number 2013…, in the total amount of 14,041.53€;

6. The Applicant paid the three installments of tax resulting from that levy act, in the amount of 4,680.51€ each, respectively, on 12.05.2014, 30.07.2014 and 27.11.2014;

7. The Applicant filed a gracious complaint against the levy act;

8. From the order dismissing the gracious complaint, dated 6 October 2014, the Applicant filed a hierarchical appeal;

9. The hierarchical appeal was dismissed by order of 19.03.2016, of which the Applicant was notified through office … of 12.04.2016 which was sent to it on that date by registered letter with acknowledgment of receipt, received on 13.04.2015.

Facts Not Proved

No other facts were alleged by the parties with relevance to the assessment of the merits of the case that were not proved.

Reasoning of the Decision on the Facts

The conviction as to the facts was based on the allegations of the Applicant and the Respondent not contradicted by the opposing party, sustained in the administrative file and in the documentary evidence joined, respectively, by the Respondent and by the Applicant, whose authenticity and correspondence to reality were also not questioned.

4. LEGAL MATTERS - ISSUES FOR DECISION

In the eyes of the Tribunal, the sole issue to be decided is this: for purposes of applying item 28.1 of the TGIS, in the version in force at the date of the facts, is the property at issue, a parcel of land for construction, covered by the tax base rule?

It is therefore necessary to decide:

The subjection to Stamp Tax of properties with residential allocation resulted from the addition of item no. 28 to the TGIS, carried out by article 4 of Law 55-A/2012, of 29 October, which typified the following taxable events:

"28 – Ownership, usufruct or surface right of urban properties whose tax asset value contained in the matrix, according to the Real Estate Tax Code (CIMI), is equal to or greater than € 1,000,000.00 – on the tax asset value used for purposes of the Real Estate Tax:

28.1 – For property with residential allocation – 1%

28.2 – For property, when the passive subjects that are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by regulation of the Minister of Finance – 7.5%".

The Law also added to the Stamp Tax Code number 7 of article 23, regarding the levy of Stamp Tax: "in the case of tax due for the situations provided for in item no. 28 of the General Table, the tax is levied annually, in relation to each urban property, by the central services of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in the CIMI", and article 67, number 2 which provides that "to matters not regulated in the present Code concerning item 28 of the General Table, the CIMI applies, subsidiarily".

As the Respondent correctly points out, given the difficulty in interpreting the rule with regard to properties, such as those in the case at hand, without buildings, Law no. 83-C/2013, of 31 December, amended the wording of the rule, which now reads as follows: "28.1 For residential property or for land for construction whose building, authorized or envisaged, is for housing, in accordance with the provisions of the Real Estate Tax Code".

In articles 2 to 6 of the Real Estate Tax Code, the types of properties are enumerated as follows:

"Article 2 - Concept of property

1 – For purposes of the present Code, property is any portion of land, including waters, plantations, buildings and constructions of any nature incorporated or founded therein, with a character of permanence, provided that it forms part of the patrimony of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the circumstances above, endowed with economic autonomy in relation to the land where they are located, although situated on a portion of land that constitutes an integral part of a different patrimony or does not have a patrimonial nature.

2 – Buildings or constructions, even if movable by nature, are considered as having a character of permanence when used for non-transitory purposes.

3 – The character of permanence is presumed when buildings or constructions are situated in the same location for a period exceeding one year.

4 – For purposes of this tax, each autonomous fraction, in the horizontal property regime, is considered as constituting a property."

"Article 3 - Rural properties

1 – Rural properties are lands situated outside an urban agglomeration that are not to be classified as land for construction, according to number 3 of article 6, provided that:

a) They are allocated or, in the absence of concrete allocation, have as their normal destination a use generating agricultural income, such as are considered for purposes of the income tax on natural persons (IRS);

b) Not having the allocation indicated in the preceding subparagraph, they are not constructed or have only buildings or constructions of an accessory character, without economic autonomy and of reduced value.

2 – Rural properties are also lands situated within an urban agglomeration, provided that, by force of a legally approved provision, they cannot have a use generating any income or can only have a use generating agricultural income and are actually having this allocation.

3 – There are also rural properties:

a) Buildings and constructions directly allocated to the production of agricultural income, when situated on the lands referred to in the preceding numbers;

b) Waters and plantations in the situations referred to in number 1 of article 2.

4 – For purposes of the present Code, urban agglomerations are considered, in addition to those situated within legally fixed perimeters, nuclei with a minimum of 10 dwellings served by public use roads, with their perimeter delimited by points distanced 50 m from the axis of the roads, in the transversal direction, and 20 m from the last building, in the direction of the roads.

"Article 4 - Urban properties

Urban properties are all those that should not be classified as rural, without prejudice to the provisions of the following article."

"Article 5 - Mixed properties

1 – Whenever a property has rural and urban parts it is classified, entirely, according to the main part.

2– If neither of the parts can be classified as main, the property is considered mixed."

"Article 6 - Types of urban properties

1 – Urban properties are divided into:

a) Residential;

b) Commercial, industrial or for services;

c) Land for construction;

d) Others.

2 – Residential, commercial, industrial or for services are buildings or constructions licensed for such purpose or, in the absence of license, which have as their normal destination each of these purposes.

3 – Land for construction is considered to be land situated within or outside an urban agglomeration for which a license or authorization has been granted, admitted prior notification or issued a favorable prior information of a subdivision or construction operation, and also those that have been declared as such in the acquisition title, except for land in which the competent authorities prohibit any of those operations, in particular those located in green zones, protected areas or which, in accordance with the municipal land planning plans, are allocated to spaces, infrastructures or public facilities.

4 – Framed in the provision of subparagraph d) of number 1 are lands situated within an urban agglomeration that are not land for construction nor are covered by the provisions of number 2 of article 3 and also buildings and constructions licensed or, in the absence of license, which have as their normal destination other purposes than those referred to in number 2 and also those of the exception in number 3."

It is within this present legal framework that the legal classification of the property on which the tax at issue fell must be assessed.

There is no doubt that the property is "land for construction". It is a qualification that was not called into question by either party and which results from the contents of the respective property registry and from the comparison of the cited articles 2, 4 and 6 of the CIMI applicable by express reference of the applicable tax base rule.

That rule is item 28.1 of the TGIS which, let us recall, provided, before the amendment introduced by the State Budget for 2014: "28 - Ownership, usufruct or surface right of urban properties whose tax asset value contained in the matrix, according to the Real Estate Tax Code (CIMI), is equal to or greater than (euro) 1,000,000 - on the tax asset value used for purposes of the Real Estate Tax: 28.1 - For property with residential allocation - 1%". After that amendment, item 28.1 now reads as follows: 28.1 For residential property or for land for construction whose building, authorized or envisaged, is for housing, in accordance with the provisions of the Real Estate Tax Code".

It is therefore necessary, for fulfillment of the tax base rule, that the property be urban and have "residential allocation", clarifying, nowadays, the rule that they have the unbuilt urban properties, land for construction, when a building authorized or envisaged for housing has been constructed.

It will always be said that, in that case, the wording adopted by the legislator before the amendment introduced by the State Budget for 2013 was, with regard to land for construction, very difficult to understand. Even after this amendment, which was necessary, the wording of the rule is unfortunate in that it does not make clear whether the construction will have to be exclusively for housing and, if not being, whether it intends that the basis of the tax corresponds to the tax value of the property, or only to the part that is intended for housing (whereby the respective determination does not appear viable to us).

The Tribunal does not ignore the context in which the rule was produced, but not even in a context of urgency is the legislator relieved of the obligation to observe the Constitutional provisions, in particular, the principle of legality in the sense of clearly typifying the taxable events that are subject to tax.

Number 2 of article 5 of the CIMI clarifies what it understands by "residential" properties for purposes of subparagraph a) of number 1, classifying as such buildings licensed for housing or which, in the absence of license, have that normal use. It is not, in this latter part, referring to land for construction, but to buildings already constructed that will be residential when that is the use licensed by the building authority or when, in the absence of license, that is its normal use. The criterion of "normal use" in the absence of a license cannot be extrapolated with the objective of guessing at the buildings that may be erected on land for construction, species of property provided for in subparagraph d) of number 1 of the same article, as the Respondent appears to intend.

It is true that in the valuation of the land the Tax Authority used the location coefficient "of the housing type". However, that is not the criterion adopted by the legislator either in the CIMI or in the Stamp Tax Code. The legislator did not attribute to the use of that coefficient any relevance in the qualification of the property.

From item 28.1 of the TGIS, in the wording prior to that introduced by the State Budget for 2014, and by conjugation with the provisions of the CIMI, it results that properties with residential allocation are subject to tax (those of subparagraph a) of number 1 and of number 2 of article 5 of the CIMI) and, after that amendment, that unbuilt properties, land for construction (i.e., the species of property provided for in subparagraph d) of number 1 of the same article of the CIMI), may have this "residential allocation" provided that a building has been authorized or is envisaged for housing.

Now, it was not alleged by either party - in particular, it does not appear in the reasoning of the levy act nor was it at any time referred to by the Respondent, nor was it in any other way demonstrated - that the land for construction in question had authorization, project or envisaged building for housing.

The Respondent, moreover, came to file the administrative file and from it does not appear the reasoning of the levy act, which may indicate that it does not exist. The defect arising therefrom was not, however, alleged.

It therefore appears evident to us that the property, land for construction without any building, residential or otherwise, does not meet the tax base rule of the tax that served as the basis for the levy, of the wording in force before the amendment introduced by the State Budget for 2014. And, even in light of that amendment, which, it appears the Applicant argues has an interpretative character, neither party having alleged nor having in any other way demonstrated that on the parcel of land at issue is authorized or envisaged any residential building, nor is the tax base rule met.

Therefore, without necessity of further considerations and on this basis, the levy act is considered voidable, as illegal, as item 28.1 of the TGIS is not applicable to the property on which it fell.

5. DECISION

In these terms and with the reasoning above, it is decided:

To declare the Applicant's request wholly well-founded and, in consequence, to annul the levy act at issue, the Respondent being, by effect of the annulment, to return to the Applicant the amounts already paid by it plus the respective compensatory interest, in accordance with article 43, number 1, of the General Tax Law, from the date of payment of each of the installments and until complete and full reimbursement.

* * *

The value of the case is fixed at 14,041.53€ (fourteen thousand and forty-one euros and fifty-three cents) in accordance with the provisions of articles 3, number 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), 97-A, number 1, subparagraph a) of the CPPT and 306 of the Civil Procedure Code.

The amount of costs is fixed at 918.00€ (nine hundred and eighteen euros) under article 22, number 4 of the RJAT and Table I attached to the RCPAT, to be borne by the Respondent, in accordance with the provisions of articles 12, number 2 of the RJAT and 4, number 4 of the RCPAT and 527 of the Civil Procedure Code.

Notify accordingly.

Lisbon, 21 November 2016

The Arbitrator,

(Eva Dias Costa)

Text prepared by computer, according to article 131, number 5 of the Code of Civil Procedure, applicable by reference of article 29, number 1, subparagraph e) of the RJAT.

Frequently Asked Questions

Automatically Created

Does the Portuguese Stamp Tax (Imposto do Selo) under clause 28.1 of the TGIS apply to building land (terrenos para construção)?
Under the pre-2014 version of clause 28.1 TGIS, the application of Stamp Tax to building land depends on whether the property has genuine residential allocation (afetação habitacional). The central dispute concerns whether a housing coefficient applied during property valuation suffices to establish residential allocation, or whether actual residential use or concrete building authorization for housing is required. The 2014 amendment to Law 83-C/2013 clarified that Stamp Tax applies to 'land for construction whose building, authorized or envisaged, is for housing,' suggesting that mere valuation coefficients without concrete housing designation may be insufficient under the original provision.
Can a property without actual housing use (afetação habitacional) be subject to Stamp Tax under clause 28.1?
The key issue is distinguishing between a property valuation coefficient and actual residential allocation. Building land without constructed housing that is incapable of being inhabited typically lacks the 'afetação habitacional' required by item 28.1 TGIS. While the Tax Authority argues that residential allocation appears in property registry data through the housing coefficient (article 41 CIMI), property owners contend that unconstructed land without concrete housing designation or authorization cannot have residential use. The restrictive interpretation of tax rules suggests that actual allocation, not merely a valuation parameter, is necessary for Stamp Tax liability.
How does the property valuation coefficient for housing use affect Stamp Tax liability on building land?
The housing coefficient (coeficiente de localização tipo: habitação) applied during property valuation under article 41 of the Real Estate Tax Code (CIMI) affects the calculation of tax asset value but does not necessarily establish residential allocation for Stamp Tax purposes. The Tax Authority interprets this coefficient as demonstrating residential allocation, making the property subject to item 28.1 TGIS. However, taxpayers argue that valuation coefficients are technical parameters for assessment purposes and should not determine substantive tax liability under provisions requiring actual residential use. The distinction between valuation methodology and functional allocation is central to determining Stamp Tax applicability on building land.
What is the procedure for challenging a Stamp Tax assessment through hierarchical appeal and CAAD arbitration in Portugal?
Challenging a Stamp Tax assessment in Portugal follows a multi-stage process: (1) File a gracious complaint (reclamação graciosa) with the Tax Authority within the statutory deadline; (2) If dismissed, file a hierarchical appeal (recurso hierárquico) to a superior tax authority; (3) If the hierarchical appeal is dismissed, file a petition for arbitration with CAAD under article 10 of Decree-Law 10/2011. The CAAD petition must be filed within the applicable time limit after notification of the hierarchical appeal decision. The CAAD Ethics Council designates an arbitrator to form the arbitral tribunal, which reviews the administrative file, hears arguments from both parties, and issues a binding arbitration decision on the legality of the tax assessment.
Are real estate investment funds (fundos de investimento imobiliário) entitled to reimbursement and compensatory interest when a Stamp Tax assessment is annulled?
Yes, when a Stamp Tax assessment is annulled by CAAD arbitration, real estate investment funds (fundos de investimento imobiliário) are entitled to reimbursement of amounts paid plus compensatory interest (juros indemnizatórios) calculated from the payment date to the reimbursement date, pursuant to article 43 of the General Tax Law (Lei Geral Tributária) and article 61 of the CPPT. The compensatory interest compensates taxpayers for the State's use of funds that were unlawfully collected. The reimbursement includes all installments paid under the annulled assessment, and the Tax Authority must execute the reimbursement within the legally prescribed timeframe after the arbitration decision becomes final.