Process: 388/2014-T

Date: December 14, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

Process 388/2014-T addresses a central controversy in Portuguese Stamp Duty law: whether Item 28.1 of the General Schedule of Stamp Duty (TGIS) applies to building land (terrenos para construção). The taxpayer challenged a €5,969.78 Stamp Duty assessment on building land, arguing that 'urban property with residential use' requires an actual building or construction under article 6(2) of the Real Estate Tax Code, and cannot include building land as defined in article 6(3). The claimant cited Supreme Administrative Court precedent stating that building land valuation under article 45 does not apply destination or quality coefficients, thus building land cannot have 'residential use.' The Tax Authority countered that building land qualifies as property under the Real Estate Tax Code and its destination must be determined for valuation purposes. The Authority argued for a broad interpretation of 'property with residential use' to include building land with residential destination for valuation. The case was properly brought before CAAD under the arbitration regime (LRATM), demonstrating that Stamp Tax assessments are subject to arbitral review. The taxpayer sought annulment based on legal error in interpreting Item 28.1, plus reimbursement with compensatory interest. The decision references multiple CAAD precedents from 2013 and Supreme Administrative Court rulings from 2014, indicating this interpretative dispute was widespread and generated significant jurisprudence on whether building land falls within the Stamp Duty regime applicable to residential properties.

Full Decision

Case No. 388/2014-T

Claimant: A

Respondent: Tax and Customs Authority

I. REPORT

A, legal entity no. ..., with registered office at ... (hereinafter referred to only as the Claimant), filed, on 22-05-2014, a request for constitution of a sole arbitral tribunal, pursuant to articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Regime of Arbitration in Tax Matters, hereinafter referred to only as LRATM), in conjunction with paragraph a) of article 99 of the Code of Tax Procedure, in which the Tax and Customs Authority is named as Respondent (hereinafter referred to only as the Respondent).

The Claimant requests that Stamp Duty Assessment No. 2014 ..., of 17-03-2014, relating to building land registered in the urban property register under article ... of the parish of ..., in the municipality of ..., with a value due of € 5,969.78, be annulled or declared null.

The Claimant further requests the condemnation of the Respondent to reimburse the tax paid, plus compensatory interest.

The request for constitution of the arbitral tribunal was accepted by the President of the Administrative and Tax Arbitration Centre on 26-05-2014 and notified to the Tax and Customs Authority on that same date.

Pursuant to the provisions of paragraph a) of paragraph 2 of article 6 and paragraph b) of paragraph 1 of article 11 of the LRATM, the Deontological Council appointed the undersigned as arbitrator of the sole arbitral tribunal, who communicated acceptance of the office within the applicable period.

On 11-07-2014, the Parties were duly notified of this appointment, and did not manifest any intention to refuse the appointment of the arbitrators, pursuant to the joint provisions of article 11, paragraph 1, paragraphs a) and b) of the LRATM and articles 6 and 7 of the Deontological Code.

In accordance with the provisions of paragraph c) of paragraph 1 of article 11 of the LRATM, the sole arbitral tribunal was constituted on 28-07-2014.

On 27-10-2014, the hearing provided for in article 18 of the LRATM took place, at which the witness called by the Claimant, Mr. ..., was examined, in the presence of the Claimant's esteemed legal representatives and in the absence of the Respondent's esteemed representative. A successive period was granted for the filing of submissions by the Claimant and by the Respondent. Given the matters under discussion in the case, the Claimant declared that it waived its request for notification of the Municipality of ... which it had made in the initial petition, considering such evidence unnecessary. The minutes drawn up and signed by those present were timely notified to the Respondent, which made no response, request or allegation, nor requested the repetition of the examination or the performance of any other act, which this tribunal could have ordered, under paragraph 2 of article 19 of the LRATM.

Within the period granted, only the Claimant filed its submissions.

The Claimant alleges, in brief, that there was an error of fact and law in the assessment of the disputed tax, in that items 28 and 28.1 of the General Schedule of Stamp Duty (hereinafter referred to only as GSSD) refer to properties with residential use and not to building land. In the Claimant's view, the concept of "property with residential use" presupposes a building or construction, pursuant to paragraph 2 of article 6 of the Code of Real Estate Tax, and therefore cannot be included in the category of building land, as defined in paragraph 3 of article 6 of the Code of Real Estate Tax. Additionally, the Claimant further states – based on the judgment of the Supreme Administrative Court of 18/11/2009, delivered in case no. 765/09 – that, in accordance with the rules of article 45 of the Code of Real Estate Tax, in the valuation of building land there is no need to apply any weighting of the destination and quality and comfort coefficients, and therefore it can never be concluded that building land has residential use. Consequently, the disputed assessment is unlawful due to an error of fact and law in the interpretation and application of item 28.1 of the GSSD. Upon conclusion that the assessment act is unlawful, the Claimant must be reimbursed for the tax improperly paid, plus compensatory interest in accordance with applicable law.

In response, the Respondent contends, in brief, that building land is classified as property, pursuant to articles 2 and 6 of the Code of Real Estate Tax, and it is possible and legally mandatory to determine its destination for valuation purposes. Paragraph 2 of article 45 of the Code of Real Estate Tax, in referring to "(…) the value of authorized buildings (…)", refers to the valuation rules for buildings, provided for in articles 38 et seq. of the Code of Real Estate Tax, and thus includes the application of destination and quality and comfort coefficients (citing here the judgment of the South Central Administrative Court of 14/02/2012, delivered in case 04950/11). Accordingly, the concept of "property with residential use" in item 28.1 of the GSSD should be interpreted in a broader and more comprehensive manner than advocated by the Claimant, and should not be restricted to the category of properties intended for residential purposes referred to in paragraph a) of paragraph 1 of article 6 of the Code of Real Estate Tax; this concept shall thus include building land provided that its destination, determined for valuation purposes, is residential. Accordingly, the tax assessment is valid and therefore the Claimant's request should be dismissed.

III. PRELIMINARY RULING

The Arbitral Tribunal was regularly constituted and is competent.

The parties have legal standing and capacity and are properly parties to the proceedings (articles 4 and 10, paragraph 2, of the same statute and article 1 of Order No. 112-A/2011, of 22 March).

The case does not suffer from any defects or procedural vices and there is no obstacle to the examination of the merits of the case.

IV. FACTUAL MATTERS

A. Proven Facts

The following facts are considered proven:

  1. The Claimant is registered as owner of the building land registered in the urban property register of the parish of ..., municipality of ..., under article ..., with a tax property value of € 1,790,934.00 (document no. 1 of initial petition);

  2. In March 2014, the Claimant was notified of the assessment of Stamp Duty, item 28.1 of the GSSD, for the year 2013, relating to the identified building land (document 2 of initial petition);

  3. The total amount of the first installment of Stamp Duty, due during the month of April 2014, was € 5,969.78;

  4. The first installment of the tax was paid on 29 April 2014 (document no. 3).

B. Unproven Facts

No other facts with relevance to the arbitral decision were proven, in that the testimony of the witness called was not considered, as the matter to which such witness was examined does not have relevance to the subject matter of the present request for arbitral determination, as delimited by the Claimant.

C. Basis of the Factual Matters

The factual matters established as proven are based on documentary evidence presented and not contested.

V. MATTERS OF LAW

A. Regarding the Tax Assessment

The essential question to be decided concerns the determination of the tax base of item 28.1 of the GSSD, in particular with regard to the inclusion of building land in the concept of "urban property with residential use."

On this question, there are already numerous decisions from the Administrative and Tax Arbitration Centre, examples being the decisions of 18/09/2013, case no. 49/2013-T, of 02/10/2013, case no. 53/2013-T, of 09/10/2013, case no. 48/2013-T, of 18/10/2013, case no. 42/2013, and of 01/11/2013, case no. 75/2013-T. There are also numerous decisions from the Supreme Administrative Court on this matter, examples being the judgments delivered on 24/9/2014, in cases nos. 01533/13, 0739/14 and 0825/14; on 10/9/2014, in cases nos. 0503/14, 0707/14 and 0740/14; on 9/7/2014, in case no. 0676/14; on 2/7/2014, in case no. 0467/14; on 28/5/2014, in cases nos. 0425/14, 0396/14, 0395/14; on 14/5/2014, in cases nos. 055/14, 01871/13 and 0317/14; on 23/4/2014, in cases nos. 270/14 and 272/14; and on 9/4/2014, in cases nos. 1870/13 and 48/14.

Given the identity of the factual question and identity of the legal matter, this jurisprudence is also adopted here, and thus, following what was stated in the cited judgment of 9/4/2014, case no. 01870/13, it is stated, subscribing entirely to the reasoning presented:

"The concept of 'property (urban) with residential use' was not defined by the legislator. Neither in Law No. 55-A/2012, which introduced it, nor in the Code of Real Estate Tax, to which paragraph 2 of article 67 of the Code of Stamp Duty (likewise introduced by that Law) refers on a subsidiary basis. And it is a concept that, probably due to its imprecision – a fact all the more serious given that it is in function of this concept that the scope of the objective scope of the new taxation is defined – had a short life, as it was abandoned upon the entry into force of the State Budget Law for 2014 (Law No. 83-C/2013, of 31 December), which gave new wording to that item no. 28 of the General Schedule, and which now defines its objective scope through the use of concepts that are legally defined in article 6 of the Code of Real Estate Tax. This change – to which the legislator did not attribute an interpretative character, nor do we believe it did – merely makes it unequivocal for the future that building land for which the authorized or contemplated building is for residential purposes is covered by the scope of item 28.1 of the General Schedule of Stamp Duty (provided that its tax property value is equal to or greater than 1 million euros), but sheds no light whatsoever on past situations (assessments for 2012 and 2013), such as that in the present case. Now, as regards these, it does not appear possible to adopt the interpretation of the claimant, since it does not result unequivocally from either the letter or the spirit of the law that the intention of the latter was, ab initio, to cover within its objective scope building land for which authorization or provision has been made for the construction of residential buildings, as is now unequivocally clear from item 28.1 of the General Schedule of Stamp Duty. From the letter of the law nothing unequivocal follows, moreover, as it itself, in using a concept that it did not define and which was also not defined in the statute to which it referred on a subsidiary basis, lent itself, unnecessarily, to ambiguities, in a matter – of tax scope – in which certainty and legal security should also be paramount concerns of the legislator. And from its 'spirit,' discernible in the statement of reasons of the legislative proposal that gave rise to Law No. 55-A/2012 (Legislative Proposal No. 96/XII – 2nd, Parliamentary Gazette, Series A, no. 3, 21/09/2012, p. 44, available at www.parlamento.pt) nothing more follows than the concern to generate new tax revenues from sources of wealth 'more spared' in the past from the Tax Authority's reach than labor income, in particular capital income, capital gains and property, reasons which bring no relevant contribution to the clarification of the concept of 'properties (urban) with residential use,' as they take it for granted without any concern to clarify it. Such clarification appears to have arisen – as stated in the Arbitral Decision delivered on 12 December 2013, in case no. 144/2013-T, available in the CAAD database – upon the presentation and discussion in Parliament of that legislative proposal, in the words of the Secretary of State for Tax Affairs, who apparently made express reference, as found in the Parliamentary Gazette (DAR I Series no. 9/XII – 2, of 11 October, p. 32) to: 'The Government proposes the creation of a special tax on urban residential properties of higher value. It is the first time that Portugal has created a special taxation on high-value properties intended for residential use. This tax will be 0.5% to 0.8% in 2012 and 1% in 2013, and will apply to properties valued at equal to or greater than 1 million euros' (emphasis ours), from which it appears that the reality to be taxed with an eye to is, after all, and notwithstanding the terminological imprecision of the law, 'properties (urban) residential,' in common parlance 'homes,' and not other realities. The fact that it may be considered that in determining the tax property value of urban properties classified as building land one should take into account the use that the building authorized or contemplated for it will have in determining its respective value of the implantation area (see paragraphs 1 and 2 of article 45 of the Code of Real Estate Tax), does not mean that building land may be classified as 'property with residential use,' since residential use appears in the Code of Real Estate Tax always referred to 'buildings' or 'constructions,' existing, authorized or contemplated, since only these can be inhabited, which is not the case with building land, which does not, in itself, have conditions for such use, and cannot be used for residential purposes unless and when the construction authorized and contemplated for it is erected on it (but in that case they would no longer be 'building land' but another type of urban property – 'residential,' 'commercial, industrial or for services' or 'other' – article 6 of the Code of Real Estate Tax). It would indeed be strange if the determination of the scope of the tax rule of item no. 28 of the General Schedule of Stamp Duty were to be found, ultimately, in the rules for determining the tax property value of the Code of Real Estate Tax, and that the terminological imprecision of the legislator in drafting that rule were, after all, clarified and finally explained by means of an indirect and ambiguous reference to the destination coefficient established by the legislator in relation to built properties (article 41 of the Code of Real Estate Tax). Thus, considering that building land – whatever the type and purpose of the building that will be, or may be, erected on it – does not, of itself, satisfy any condition to be licensed as such or for its destination as residential use to be defined as its normal purpose, and since the tax rule of stamp duty refers to urban properties with 'residential use,' without any specific concept being established for such purpose, it cannot be extracted from it that it contains a future potentiality, inherent in a different property that may possibly be built on the land.

It is concluded, accordingly, consistent with the decision of the judgment under review, that, resulting from article 6 of the Code of Real Estate Tax a clear distinction between 'residential' and 'building land' urban properties, these cannot be considered as 'property with residential use' for the purposes of item no. 28.1 of the General Schedule of Stamp Duty, in its original wording, as conferred by Law no. 55-A/2012, of 29 October" (bold in original).

In light of all that has been set out above, it is concluded that the Claimant's petition should be granted, and accordingly the illegality of the disputed assessment act is declared due to violation of items 28 and 28.1 of the GSSD.

B. Regarding Compensatory Interest

It follows from the proven facts that the first installment of Stamp Duty assessed, in the total amount of € 5,969.78, was paid on 29 April 2014.

Pursuant to paragraph 1 of article 43 of the General Tax Law, "Compensatory interest is due when it is determined, in a gracious claim or judicial impugnation, that there was an error attributable to the services that resulted in the payment of the tax debt in an amount greater than that legally due."

As stated by Diogo Leite de Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa, General Tax Law - Annotated and Commented, Editora Encontro da Escrita, 4th Edition, 2012, page 342, note 2: "The error attributable to the services that performed the assessment is demonstrated when a gracious claim or impugnation of that same assessment is made and the error is not attributable to the taxpayer (for example, there will be annulment due to error attributable to the taxpayer when the assessment is based on erroneous assumptions of fact, but the error is based on an incorrect indication in the declaration that the taxpayer submitted)."

Now, in the present case, the Claimant's request for payment of compensatory interest is unequivocally justified since the disputed tax assessment is unlawful and accordingly should be annulled. In addition to reimbursement, the Claimant is also entitled to the payment of compensatory interest, at the legal rate in force, on the amount of € 5,969.78, calculated from the date of payment until the date of processing of the respective credit note, in which are included – see article 43 of the General Tax Law and paragraph 4 of article 61 of the Code of Tax Procedure.

VI. DECISION

In harmony with what has been set out, this Arbitral Tribunal agrees to:

• Decide that the petition for arbitral determination is granted as regards the request for annulment of Stamp Duty Assessment No. 2014 ..., with reference to the year 2013 impugned by the Claimant;

• Condemn the Respondent to payment of compensatory interest, on the amount of € 5,969.78, at the legal rate in force, calculated from the date of payment (29 April 2014) until the date of processing of the respective credit note, in which they will be included, pursuant to articles 43 of the General Tax Law and 61 of the Code of Tax Procedure.

Value of the case: In harmony with the provisions of article 306, paragraph 2, of the Code of Civil Procedure and article 97-A, paragraph 1, paragraph a), of the Code of Tax Procedure and article 3, paragraph 2, of the Regulation on Costs in Tax Arbitration Proceedings, the value of the case is set at € 5,969.78.

Costs: Pursuant to paragraph 4 of article 22 of the LRATM, the amount of costs is set at € 612.00, in accordance with Table I attached to the Regulation on Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Let this arbitral decision be registered and notified to the parties.

Lisbon, 14-12-2014

The Sole Arbitrator

(Maria Forte Vaz)

Frequently Asked Questions

Automatically Created

Does Verba 28.1 of the Tabela Geral do Imposto do Selo apply to terrenos para construção (construction land)?
Whether Verba 28.1 of the TGIS applies to terrenos para construção is the core legal dispute in this case. The taxpayer argued that 'urban property with residential use' requires an actual building or construction per article 6(2) of the Real Estate Tax Code, and cannot include building land defined in article 6(3). The claimant cited Supreme Administrative Court precedent stating that building land valuation does not apply destination and quality coefficients under article 45, so building land cannot have 'residential use.' The Tax Authority contended that building land qualifies as property and its destination must be determined for valuation, advocating a broad interpretation of Verba 28.1 to include building land with residential destination. The case references numerous CAAD decisions from 2013 and Supreme Administrative Court rulings from 2014 on this recurring interpretative controversy.
Can a taxpayer request arbitration at CAAD to challenge a Stamp Tax (Imposto do Selo) assessment on urban property?
Yes, taxpayers can request arbitration at CAAD to challenge Stamp Tax assessments on urban property. This case was properly filed under articles 2 and 10 of Decree-Law 10/2011 (LRATM - Legal Regime of Arbitration in Tax Matters), in conjunction with article 99(a) of the Code of Tax Procedure. The CAAD President accepted the request on 26-05-2014, appointed a sole arbitrator, and the tribunal was constituted on 28-07-2014. The procedural regularity confirms that Stamp Duty assessments under Verba 28.1 of the TGIS fall within CAAD's jurisdiction, allowing taxpayers to seek annulment or declaration of nullity of such tax assessments through the tax arbitration system.
What are the legal grounds for annulling a Stamp Tax liquidation under Verba 28 of the TGIS?
The legal grounds for annulling a Stamp Tax liquidation under Verba 28 of the TGIS include error of fact and law in the interpretation and application of the tax provision. In this case, the taxpayer argued that the Tax Authority incorrectly classified building land as 'urban property with residential use' subject to Stamp Duty under Item 28.1. The claimant contended this constituted legal error because the statutory concept of 'property with residential use' presupposes an actual building or construction per article 6(2) of the Real Estate Tax Code, not building land as defined in article 6(3). Additional grounds included that building land valuation under article 45 does not apply destination coefficients, making the residential use classification legally impossible. Such substantive legal errors in tax base determination provide grounds for annulment under Portuguese tax procedure law.
Is a taxpayer entitled to a refund with compensatory interest after a successful CAAD arbitration on Imposto do Selo?
Yes, a taxpayer is entitled to a refund with compensatory interest after successful CAAD arbitration on Imposto do Selo. In this case, the claimant explicitly requested 'condemnation of the Respondent to reimburse the tax paid, plus compensatory interest.' The taxpayer paid €5,969.78 on 29 April 2014 and sought full reimbursement with interest as part of the arbitration request. This follows established Portuguese tax law principles that when a tax assessment is annulled or declared null, the taxpayer must be made whole through reimbursement of amounts improperly collected, plus compensatory interest calculated according to applicable legal provisions to compensate for the State's use of funds to which it was not entitled during the period between payment and refund.
How does the CAAD distinguish between prédios urbanos with residential use and terrenos para construção for Stamp Tax purposes?
The CAAD case reveals two competing approaches to distinguishing between prédios urbanos with residential use and terrenos para construção for Stamp Tax purposes. The narrow interpretation holds that 'urban property with residential use' under Verba 28.1 requires an actual building or construction as defined in article 6(2) of the Real Estate Tax Code, excluding building land defined in article 6(3). This view emphasizes that building land valuation under article 45 does not apply destination and quality coefficients, making residential use classification inapplicable. The broad interpretation advocated by the Tax Authority argues that building land qualifies as property whose destination must be determined for valuation purposes, and 'property with residential use' should encompass building land with residential destination. The case cites multiple CAAD decisions from 2013 and Supreme Administrative Court rulings from 2014, indicating this distinction generated significant jurisprudential debate.