Process: 399/2014-T

Date: October 24, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Process 399/2014-T addressed whether building land (terreno para construção) is subject to Stamp Tax under item 28.1 of the General Stamp Tax Table (TGIS), which applies to properties with residential designation valued above €1 million. The claimant, A... S.A., challenged stamp tax assessments totaling €29,410.20 on two urban properties fiscally classified as building land in Loures. The central legal question concerned whether building land possesses the 'residential designation' (afetação habitacional) required for taxation under item 28.1. The claimant argued that building land should not be subject to stamp tax because it lacks concrete residential designation, possessing only potential or projected use based on subdivision authorizations. The claimant contended that residential designation must be assessed concretely based on actual use, not merely potential future use, and that subjecting building land to this tax would violate constitutional and legal norms. The Tax Authority countered that the properties had the legal nature of property with residential designation, arguing that the concept is grounded in property valuation provisions and that the 'value of authorized buildings' supports taxation. The claimant further noted that legislative amendments in 2014 (Law 83-C/2013, article 194) modified item 28.1's wording, suggesting that prior to these changes, building land should not have been subject to the tax. This case represents a significant dispute over the interpretation of stamp tax incidence rules and whether tax liability can be based on potential versus actual property designation, with implications for landowners holding building plots intended for residential development throughout Portugal.

Full Decision

Case 399/2014-T

THE PARTIES

Claimant: A…, S.A. (hereinafter designated as "Claimant"), Tax Number PT …, with registered office at … – …, Lot …, 9th floor, …-… LISBON.

Respondent: Tax and Customs Authority (AT).

DECISION

REPORT

a) On 26-05-2014, the company "A…, S.A.", Tax Number PT …, filed a request for the constitution of a singular arbitral tribunal (SAT), in accordance with the combined provisions of articles 2 and 10 of Decree-Law No. 10/2011 of 20 January (Legal Framework for Arbitration in Tax Matters), hereinafter referred to only as LFATM.

b) The request was presented by counsel.

THE CLAIM

c) The Claimant petitions for the annulment of the Stamp Tax (ST) assessments under item 28.1 of the General Stamp Tax Table, for the year 2012, with identification of documents 2013 … (1st instalment), 2013 … (2nd instalment), 2013 … (3rd instalment) and 2013 … (1st instalment), 2013 … (2nd instalment) and 2013 … (3rd instalment), all dated 22.03.2014, generating a total collection in the amount of (€21,911.60 + €14,637.40) €36,549.00, (amount reduced to (€14,772.80 + €14,637.40) €29,410.20), relating to urban properties of which it is the owner, of the type "building land", registered, at the date of the assessments, the first in the urban property register U-…º and the second in the urban property register U-…º, both in the parish of …, municipality of Loures (current property registration numbers U-… and U-…, respectively, located in the Union of parishes … and …, municipality of Loures).

d) The Stamp Tax assessment on the property registration (former U …º) current U …º, was carried out on the basis of a Patrimonial Tax Value of €2,191,160.00, having subsequently been corrected to an assessment based on a Patrimonial Tax Value of €1,477,280.00 generating a collection of €14,772.80, such that the total amount of the assessment contested herein is (€14,772.80 + €14,637.40) €29,410.20.

e) The Claimant expresses that the tax acts under scrutiny suffer from illegality embodied in an erroneous interpretation of item 28.1 of the General Stamp Tax Table, "… as we are dealing with properties fiscally classified as building land, such that they should not be subject to any taxation".

f) And for the reason that "with respect to building land, at most one could speak of a potential designation, resulting from the respective subdivision authorization, but which offers no guarantees that it will become the actual designation when the corresponding buildings are constructed".

g) But "… the residential designation of urban properties should be assessed concretely, and not be based on a merely potential or projected designation, under penalty of violation of the applicable constitutional and legal norms".

h) The Claimant concludes: "… as building land does not possess residential designation, it cannot fall within the concept of 'property with residential designation' and, consequently, be covered by the tax incidence rule provided in item 28.1 of the General Stamp Tax Table".

i) The Claimant ends by requesting the annulment of the assessments indicated above, in the total amount of €29,410.20, for "lack of grounds and violation of law", as well as the condemnation of the AT to refund the amount of tax already paid and to pay the respective interest calculated from the dates of payment until full reimbursement.

OF THE ARBITRAL TRIBUNAL

j) The request for arbitral pronouncement was accepted by the President of CAAD and promptly notified to the AT on 28.05.2014.

k) By the CAAD Ethics Council, the signatory of this decision was appointed as arbitrator, and the parties were notified thereof on 15.07.2014.

l) Therefore, the Singular Arbitral Tribunal (SAT) has been regularly constituted as of 27.08.2014 to examine and decide on the subject matter of this dispute.

m) All these acts are documented in the SAT constitution communication dated 27.08.2014, which is hereby reproduced.

n) Following the request by the AT in the petition of 30.09.2014 and given that identical issues are raised in this case as have already been raised in many other cases already decided by CAAD, the SAT, by order of 02.10.2014, decided to dispense with the meeting of parties referred to in article 18 of the LFATM and equally with the presentation of pleadings, should the Claimant not object thereto.

o) Both the Claimant and the AT gave their express or tacit consent to the non-holding of the meeting of parties referred to in article 18 of the LFATM and equally, to the dispensation with the presentation of pleadings.

p) Therefore, the meeting provided for in article 18 of the LFATM was not held, nor were pleadings presented by the parties.

PROCEDURAL REQUIREMENTS

q) Capacity, legitimacy and representation – the parties possess legal personality and capacity, are legitimate and are properly represented.

r) Right to be heard – the AT submitted its reply to the Claimant's request for pronouncement on 30.09.2014. All orders of the SAT and all requests and documents submitted by the parties were properly notified to the respective other party.

s) Dilatory exceptions – the proceedings do not suffer from any defects and the request for arbitral pronouncement is timely, as it was submitted within the prescribed period set out in subparagraph a) of article 10, paragraph 1 of the LFATM, taking into account that before filing – on 26.05.2014 – this procedure with CAAD, the Claimant filed a gracious objection against the assessments, which was rejected by the Loures-3 Tax Office on 28.02.2014 (as per article 14 of the request for pronouncement, a fact not disputed by the AT and thus admitted by agreement).

SUMMARY OF THE CLAIMANT'S POSITION

Regarding the illegality embodied in a possible erroneous interpretation of item 28.1 of the General Stamp Tax Table ("lack of grounds and violation of law")

t) The Claimant contends that, "… as we are dealing with properties fiscally classified as building land, they should not be subject to any taxation".

u) And for the reason that "with respect to building land, at most one could speak of a potential designation, resulting from the respective subdivision authorization, but which offers no guarantees that it will become the actual designation when the corresponding buildings are constructed".

v) It states that "… the residential designation of urban properties should be assessed concretely, and not be based on a merely potential or projected designation, under penalty of violation of the applicable constitutional and legal norms".

w) The Claimant concludes: "… as building land does not possess residential designation, it cannot fall within the concept of 'property with residential designation' and, consequently, be covered by the tax incidence rule provided in item 28.1 of the General Stamp Tax Table".

x) And that such subjection could only occur in 2014 given the wording amendment introduced in item 28.1 of the General Stamp Tax Table by article 194 of Law 83-C/2013 of 31.12 (State Budget Law for 2014).

y) The Claimant relies in support of its position on certain Supreme Administrative Court decisions and CAAD decisions adopted in identical cases.

SUMMARY OF THE TAX AND CUSTOMS AUTHORITY'S POSITION

Regarding the illegality embodied in a possible erroneous interpretation of item 28.1 of the General Stamp Tax Table ("lack of grounds and violation of law")

z) The AT maintains that the real property of which the Claimant is the owner "has the legal nature of property with residential designation" in the sense that the "notion of designation of urban property is grounded in the part relating to property valuation, which is well understood since the valuation of the property (purpose) adds value to the property, constituting a determining fact of distinction (coefficient) for valuation purposes".

aa) "As results from the expression 'value of authorized buildings', contained in article 45-2 of the Municipal Property Tax Code, the legislator chose to determine the application of the valuation methodology for urban properties in general, to the valuation of building land, such that the coefficient of designation provided in article 41 of the Municipal Property Tax Code is accordingly applicable thereto".

bb) And it argues that "for the purposes of determining the patrimonial tax value of building land, the application of the designation coefficient in the valuation phase is clear, such that its consideration for purposes of applying item 28-1 of the General Stamp Tax Table cannot be ignored".

cc) It clarifies that "the designation of property (fitness or purpose) is a coefficient that contributes to the valuation of the property, in the determination of patrimonial tax value, applicable to building land".

dd) Summarizing its reasoning, it ultimately expresses that "Item 28 of the General Stamp Tax Table itself refers to the expression 'properties with residential designation', calling for a classification that overlaps with the categories provided in article 6, paragraph 1 of the Municipal Property Tax Code."

ee) The AT contends "that the concept of 'properties with residential designation', for the purposes of the provision in item 28 of the General Stamp Tax Table, encompasses both built properties and building land, precisely considering the literal element of the rule", since "the legislator does not refer to 'properties intended for residential use', having opted for the notion of 'residential designation', an expression that is different and broader whose meaning must be found in the need to integrate other realities beyond those identified in article 6, paragraph 1, subparagraph a), of the Municipal Property Tax Code".

ff) The AT concludes that the assessments are legal in light of the Tax Code and the Constitution, such that they should remain in the legal order as they constitute a correct application of the law to the facts.

II – QUESTIONS FOR THE TRIBUNAL TO RESOLVE

The questions placed before the Tribunal relate solely to the interpretation and application of rules of law.

On this matter, in particular, CAAD has already pronounced itself in several decisions in which the substantive question is the same, as has the Supreme Administrative Court itself, namely, the scope of the tax incidence provision of items 28 and 28-1 of the General Stamp Tax Table is being discussed.

The limit of interpretation is the letter, the text of the rule. What follows is the "task of interconnection and evaluation that escapes the literal domain".

Starting from the principle that every rule has a provision and a disposition, the question here is to ascertain, by delimiting, whether the tax incidence rule, as drafted – in its provision – (urban properties … with residential designation), encompasses or does not encompass the legal-fiscal reality defined in law as "building land".

In this regard, it appears to the SAT that the question it must resolve is the following:

ü Does the tax assessment act for Stamp Tax now contested suffer from any non-conformity with the law, namely "error in the qualification of the taxable event" (or error in the factual assumptions) that affects its maintenance in the tax legal order?

The AT did not file the Assessment Record; in essence, it accepted that the documents submitted by the Claimant with the request for pronouncement constitute what would be its content.

III. ESTABLISHED AND UNESTABLISHED FACTS. GROUNDS

With relevance to the decision to be adopted, these are the facts that are considered proven, indicating the respective documents and/or articles of the Claimant's request and the AT's reply as to facts admitted by agreement, as grounds:

Proven Facts

  1. The Claimant is listed as the full owner of urban properties of the type "building land", registered at the date of the assessments, the first in the urban property register U-…º and the second in the urban property register U-…6º, both in the parish of …, municipality of Loures (current property registration numbers U-… and U-…, respectively, located in the Union of parishes … and …, municipality of Loures) – As per the urban property records submitted with the request for pronouncement.

  2. The description of the urban properties is as follows: "Type of property: building land". – As per the urban property records submitted with the request for pronouncement.

  3. In the urban property records submitted with the request for pronouncement, under "valuation data" it states: "type of location coefficient: residential" and contains a box indicating: "Ca – 1.00" (relating to article …º).

  4. The urban properties in question have a patrimonial value (Municipal Property Tax Code): article …, of €1,477,280.00 determined in 2012; article … of €1,463,740.00 determined in 2012 – As per the urban property records submitted with the request for pronouncement.

  5. And such patrimonial values resulted: article … from "Municipal Property Tax Model 1 No. … filed on 2012.11.09, valuation sheet …, valued on 2013.03.27"; and article …º from Municipal Property Tax Model 1 No. … filed on 2012.11.09, valuation sheet …, valued on 2012.11.25 – As per the urban property records submitted with the request for pronouncement.

  6. The Claimant was notified by notifications dated 22.03.2013, of the Stamp Tax (ST) assessment under item 28.1 of the General Stamp Tax Table, for the year 2012, document identification 2013 … (1st instalment), 2013 … (2nd instalment), 2013 … (3rd instalment) and 2013 … (1st instalment), 2013 … (2nd instalment) and 2013 … (3rd instalment), all dated 22.03.2014, generating a total collection in the amount of (€21,911.60 + €14,637.40) €36,549.00 – Article 9 of the request for pronouncement and Document No. 3 – assessment notices – attached with the request for pronouncement.

  7. This tax was assessed solely on the basis of item 28.1 of the General Stamp Tax Table, as worded by Law 55-A/2012 of 29 October – Document No. 3 – assessment notices – attached with the request for pronouncement and overall position of the AT in its reply.

  8. The Claimant proceeded with payment of the three tax instalments indicated in 6) as per the stamps affixed to document No. 3 – assessment notices – attached with the request for pronouncement – Article 10 of the request for pronouncement, Document No. 3 attached with the request for pronouncement – assessment notices – and lack of contestation by the AT as to the evidentiary value of the document.

  9. The AT proceeded with the reimbursement of the difference of the amount initially assessed for article U …º of €21,911.60, such that, after settlement of accounts, the tax collection in dispute is €14,772.80 for this property – Article 12 of the request for pronouncement and statement of account settlement ID 2014 … attached with the request for pronouncement.

Unestablished Facts

There is no other alleged factuality that is relevant to the proper resolution of the dispute. The evidentiary value of the documents submitted to the proceedings by the Claimant was not challenged.

IV. EXAMINATION OF THE QUESTIONS FOR THE SAT TO RESOLVE

It appears to us that with the creation of a new item in the General Stamp Tax Table, item 28, (by article 4 of Law 55-A/2012 of 29.10), the intention was essentially to broaden the incidence of stamp tax to a new legal-factual reality, but this did not alter the division of the various categories of urban properties that exist.

It was not intended, as appears to us, to create a new classification of urban properties superimposed on the categories provided in article 6, paragraph 1 of the Municipal Property Tax Code.

The tax act in question occurred during the validity of the previous wording of item 28.1 of the General Stamp Tax Table, such that the current wording given to it by article 194 of Law No. 83-C/2013 of 31 December (State Budget Law for 2014) is not applicable here, since it only became effective as of 01 January 2014.

We are thus, as stated above, solely within the scope of the activity of interpretation and application of rules, that is, in the task of delimiting the legal-factual situations that must be understood as encompassed by the tax incidence rule of this new tax and which results from the combination of items 28 and 28-1 of the General Stamp Tax Table.

Nevertheless, the law, in its literal element which is always the limit of any interpretation, in item 28-1 General Stamp Tax Table, refers to "… by property with residential designation".

That is, this concrete tax incidence rule should not then be interpreted, delimited, as if it had the literal meaning of "residential urban properties", because the interpreter, in respect of the command in article 9, paragraph 3 of the Civil Code, cannot proceed from the assumption that the legislator did not know the exact terms of article 6, paragraph 1 of the Municipal Property Tax Code that makes the division of the various categories of urban properties.

But it also does not seem that it can be understood that the tax incidence rule automatically encompasses, in addition to the category of urban properties "residential", the category "building land".

It appears to us, therefore, that given the literal element of the tax incidence rule (revealing the intent of the legislator) chosen by the legislator: "urban properties … with residential designation" it was intended to reach other categories of urban properties, beyond the "urban properties … residential" according to the division in article 6, paragraph 1 of the Municipal Property Tax Code.

We do not wish, however, with this to signify that the category of urban properties "building land" (or another category of urban properties) is clearly and without more (that is, "by operation of law"), encompassed in the tax incidence rule of item 28-1 of the General Stamp Tax Table.

On this point, we transcribe, aiming at simplification and uniformity, what is referred to in the arbitral decision CAAD Case 48/2013-T (by way of example), in the part to which we adhere:

"The subjection to stamp tax of properties with residential designation resulted from the addition of item 28 to the General Stamp Tax Table, made by article 4 of Law 55-A/2012 of 29/10, which typified the following taxable events:

28 – Ownership, usufruct or superficies right of urban properties whose patrimonial tax value contained in the register, in accordance with the Municipal Property Tax Code (MPTC), is equal to or greater than €1,000,000 – on the patrimonial tax value used for purposes of Municipal Property Tax:

28-1 – By property with residential designation – 1%;

28-2 – By property, when the taxpayers who are not natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by ministerial order of the Finance Minister – 7.5%.

…

With respect to the situations typified in item 28.1, only properties with residential designation are subject to tax.

Law No. 55-A/2012 of 29 October, nowhere clarifies what properties with residential designation are. However, in article 67, paragraph 2 of the Stamp Tax Code, added by the said statute, it was stipulated that 'to matters not regulated in this Code relating to item 28 of the General Table, the MPTC applies, subsidiarily'.

The MPTC also does not clarify what properties with residential designation are, but only what are the various types of properties, qualifying in article 6, paragraph 2 as 'residential, commercial, industrial or for services buildings as such licensed or, in the absence of a license, that have as their normal purpose each of these ends'.

That is, for the MPTC, both are considered residential those properties licensed for residential use, even if they are not currently being used for that purpose, as, in the case of absence of a license, that have as their normal purpose that end.

As for building land, which is of interest in the present case, given the assessment carried out and contested on building land, the MPTC, in article 6, paragraph 3, tells us that "they are those located within or outside an urban settlement, for which a license or authorization for subdivision or construction operation has been granted, and also those that have been declared as such in the acquisition title, excepting lands where the competent entities prevent any of those operations, namely those located in green areas, protected areas or that, in accordance with municipal territorial planning plans, are assigned to spaces, infrastructures or public facilities".

From the two rules transcribed above, it is not possible to extract what the legislator intended to say when referring to properties with residential designation.

Law No. 55-A/2012 of 29/10 has no preamble, therefore from it, it is not possible to discern the legislator's intention.

This Law of the National Assembly originated from a bill No. 96/XII (2nd), which, in its explanatory memorandum refers to the introduction of fiscal measures inserted in a broader set of measures to combat budget deficit.

In the explanatory memorandum of said bill, it is stated that, "these measures are fundamental to strengthen the principle of social equity in austerity, ensuring an effective distribution of the sacrifices necessary to fulfill the adjustment program. The Government is strongly committed to ensuring that the distribution of these sacrifices will be made by all and not only by those who live off the income of their work. In accordance with this goal, this statute broadens the taxation of capital and property, equitably encompassing a broad set of sectors of Portuguese society".

In that explanatory memorandum it is also stated that, in addition to the increase in taxation of capital income and securities gains, a tax is created under stamp tax applying to urban properties of residential designation whose patrimonial tax value is equal to or greater than one million euros.

That is, in such explanatory memorandum, it is also not clarified what is understood by urban properties with residential designation.

…

In his intervention in the National Assembly, in the presentation and discussion of said bill, the Secretary of State for Tax Affairs stated the following: "The Government has chosen social equity as the priority principle of its fiscal policy. This is even more important in times of rigor as a way to ensure the fair distribution of fiscal effort.

In the demanding period the country is going through, during which it is obliged to comply with the economic and financial assistance program, it becomes even more pressing to affirm the principle of equity. It cannot always be the same – employees and pensioners – who bear the fiscal burden.

For the fiscal system to be more just, it is decisive to promote the broadening of the tax base by demanding increased effort from taxpayers with higher incomes and thereby protecting Portuguese families with lower incomes.

For the fiscal system to promote greater equality, it is fundamental that the effort of budgetary consolidation be distributed among all types of income, encompassing with special emphasis capital income and high-value properties. This matter, it should be recalled, was extensively addressed in a Constitutional Court decision.

Finally, for the fiscal system to be more equitable, it is crucial that everyone be called to contribute according to their contributive capacity, granting the tax administration reinforced powers to control and supervise situations of tax fraud and evasion.

In this sense, the Government presents today a set of measures that effectively strengthen a fair and equitable distribution of adjustment effort by a broad and comprehensive set of sectors of Portuguese society.

This proposal has three essential pillars: the creation of special taxation on urban properties worth more than 1 million euros; the increase of taxation on capital income and securities gains and the strengthening of anti-fraud and anti-evasion rules.

First, the Government proposes the creation of a special tax on the highest value residential urban properties. It is the first time in Portugal that special taxation has been created 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 homes worth equal to or greater than 1 million euros. With the creation of this additional tax, the fiscal effort required from these owners will be significantly increased in 2012 and 2013".

"In their interventions, in the discussion of such a bill, deputies Pedro Filipe Soares, of the Left Bloc, and Paulo Sá, of the Communist Party, speak about the taxation of luxury real estate property, with allusions even being made to previous bills on the same subject that were not approved."

First, it must be noted that there is no doubt that the category of urban properties considered "residential" (subparagraph a) of article 6, paragraph 1 of the Municipal Property Tax Code) which are "… buildings or structures licensed for that purpose or, in the absence of a license, that have as their normal purpose that end", automatically fall within the provision of the tax incidence rule of items 28 and 28-1 of the General Stamp Tax Table.

But from the mere consideration of the literal element of the law it will result that it was intended to encompass more than what this legal-fiscal reality encompasses.

Precisely because, as already noted, by force of the command in article 9, paragraph 3 of the Civil Code, it does not seem possible for the interpreter to understand that the expression "urban properties … with residential designation" has the same practical scope (field of application) as if it said "residential urban properties", proceeding from the assumption that it was intended to encompass more than would be encompassed by this latter literal element.

In the case at hand, the AT defends that "the notion of designation of urban property is grounded in the part relating to property valuation, which is well understood since the valuation of the property (purpose) adds value to the property, constituting a determining fact of distinction (coefficient) for valuation purposes" and therefore one should resort to article 41 (designation coefficient) of the Municipal Property Tax Code.

And it further states: "the fiscal law considers as an element integral to valuation purposes of building land the value of the area of implantation, which varies between 15% and 45% of the value of authorized or foreseen buildings based on the urban planning and construction project."

But then does the expression "urban properties … with residential designation", encompass or can it encompass "building land" as unbuilt urban properties but with construction capacity for residential properties?

Well, only with the elements contained in the property register, as is the case, where only a mere construction or building potential is demonstrated, it appears to us that without additional grounds for the tax act, without demonstration that the category of urban property "building land" already has some economic utility at the level of residential designation, it will not be possible to consider it encompassed in the tax incidence rule of items 28 and 28-1 of the General Stamp Tax Table.

Does this mean that the expression "urban properties … with residential designation", cannot encompass "building land" as unbuilt urban properties but with construction capacity for residential properties?

It appears to us that in the vast complexity of the economy, of economic utility, even informal, situations of subjection can occur, given the commands placed on the interpreter contained in article 9, paragraph 3 of the Civil Code and article 11, paragraph 3 of the General Tax Law.

Only that as for "building land" as unbuilt urban properties but with construction capacity for residential properties, it appears to us that it is not sufficient to demonstrate "residential designation" the elements contained in the register. It will be necessary another ground, another factual matter, beyond what is contained in the register, that evidences the economic utility with that specific purpose.

It does not seem possible to us through extensive interpretation, using reasoning by analogy with buildings considered residential urban properties, to conclude, without more, that the category of urban properties considered "building land" falls "by operation of law" in the tax incidence rule, sufficing to allege the legal-formal qualification and the elements of the register, since, we stress, one will have to demonstrate its "residential designation" in concreto.

The Claimant alleges the non-conformity of the tax act with the law due to erroneous qualification of the taxable event, in addition to lack of grounds.

In truth, even if it is understood, as it seems right to us to understand, in general and abstract terms, that "building land" as well as any other urban property beyond the category of urban properties "residential" (because these always have residential designation by definition) can have, in terms of practical, economic and functional utility a "residential designation" in concreto (even in the informal economy), the fact is that its consideration "by operation of law" as having "residential designation" starting only from the elements in the register and from the fact that its valuation is made with reference to the coefficients applicable to residential urban properties, constitutes non-conformity with the tax incidence rule of items 28 and 28-1 of the General Stamp Tax Table, occurring, in this case, the illegality provided for in subparagraph a) of article 99 of the Tax Procedural Code and the one provided for in subparagraph c) of article 99 of the Tax Procedural Code is also verified as it occurs an absence of grounds that the law, in the reading that above was expressed, requires.

The contested acts contain no grounds in the sense referred to above, beyond the consideration that they are urban properties of the category "building land" "with construction capacity for residential properties" in hypothetical terms, which is configured to be insufficient.

As a consequence of the above, the request formulated by the Claimant must be judged as well-founded, since the Stamp Tax assessments carried out by the AT are not in conformity with the law.

ü Request for Interest

In the legislative authorization on which the Government based itself to approve the Legal Framework for Tax Arbitration, granted by article 124 of Law No. 3-B/2010, it is stated that "the tax arbitral process must constitute an alternative procedural means to the judicial challenge procedure and to the action for the recognition of a right or legitimate interest in tax matters".

Although subparagraphs a) and b) of article 2, paragraph 1 of the Legal Framework for Tax Arbitration use the expression "declaration of illegality" to define the competence of the arbitral tribunals functioning at CAAD and do not refer to constitutive (annulment) and condemning decisions, it should be understood, in harmony with the said legislative authorization, that their competences include the powers that in challenge proceedings are attributed to tax tribunals in relation to acts whose examination of legality falls within their competences.

Therefore, a condemnation of the tax administration for payment of indemnity interest can be rendered here.

Article 43 of the General Tax Law "merely establishes an expeditious and, so to speak, automatic means of indemnifying the injured party. Independently of any allegation and proof of damages suffered, the party has the right to the indemnity established therein, expressed in indemnity interest in the cases included in the provision (…)" Supreme Administrative Court decision of 2-11-2006, case 604/06, available at www.dgsi.pt"

In the case at hand, the Claimant proved that it paid the total amount of the assessments that were assessed to it (in three instalments) as per item 8) of the established factual matter, such that it has the right to indemnity interest calculated from the date of payment, total or partial, of the stamp tax assessments now annulled until the date of issue of the respective credit notes, with the deadline for this payment counting from the beginning of the deadline for spontaneous execution of this decision (article 61, paragraphs 2 to 5, of the Tax Procedural Code), at the rate determined in accordance with the provision in paragraph 4 of article 43 of the General Tax Law.

V. DECISION

On the grounds and based on the foregoing,

ü The Claimant's request for the annulment of the Stamp Tax (ST) assessments under item 28.1 of the General Stamp Tax Table, for the year 2012, with document identification

a) U-… (former U-…º) - 2013 … (1st instalment), 2013 … (2nd instalment), 2013 … (3rd instalment);

b) U-…, (former U-…º) - 2013 … (1st instalment), 2013 … (2nd instalment) and 2013 … (3rd instalment), all dated 22.03.2014;

generating a total collection in the amount of (€21,911.60 + €14,637.40) €36,549.00, this amount reduced to (€14,772.80 + €14,637.40) €29,410.20, relating to urban properties of the type "building land", registered, at the date of the assessments, the first in the urban property register U-…º and the second in the urban property register U-…º, both in the parish of … (current property registration numbers U-… and U-…, respectively, located in the Union of parishes … and …, municipality of Loures), is upheld, annulling the tax acts expressed in these documents, for being in non-conformity with the tax incidence rule for Stamp Tax contained in items 28 and 28-1 of the General Stamp Tax Table.

ü The AT is further condemned to proceed with the refund of what has been paid.

ü The Claimant's request for condemnation of the AT to pay indemnity interest to the Claimant is further upheld, calculated from the date of payment of the Stamp Tax installments, wholly or in part, until the date of issue of the respective credit note, with the deadline for this payment counting from the beginning of the deadline for spontaneous execution of this decision (article 61, paragraphs 2 to 5, of the Tax Procedural Code), at the rate determined in accordance with the provision in paragraph 4 of article 43 of the General Tax Law.

Case value: in accordance with the provision in article 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings (and subparagraph a) of paragraph 1 of article 97A of the Tax Procedural Code), the case value is fixed at €29,410.20.

Costs: in accordance with the provision in article 22, paragraph 4, of the Legal Framework for Tax Arbitration, the amount of costs is fixed at €1,530.00, according to Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Respondent.

Notify.

Lisbon, 24 October 2014

Singular Arbitral Tribunal,

Text prepared by computer in accordance with the provision in article 131, paragraph 5, of the Code of Civil Procedure, applicable by reference to article 29 of the Legal Framework for Tax Arbitration.

The wording of this decision is governed by the spelling prior to the 1990 Orthographic Agreement.

Frequently Asked Questions

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Is building land (terreno para construção) subject to Stamp Tax under Verba 28.1 of the TGIS in Portugal?
Building land (terreno para construção) was disputed as subject to Stamp Tax under item 28.1 of the TGIS for properties valued above €1 million. The claimant argued that building land lacks the concrete 'residential designation' (afetação habitacional) required by the statute, possessing only potential use based on subdivision authorizations. The Tax Authority maintained that such properties have residential designation based on property valuation provisions. The case challenged assessments made in 2012, with the claimant noting that legislative amendments in 2014 (Law 83-C/2013) modified the provision's wording, suggesting building land taxation required explicit statutory authorization that was only introduced later.
What did CAAD Process 399/2014-T decide regarding the housing allocation of building land for Stamp Tax purposes?
CAAD Process 399/2014-T examined whether building land fiscally classified as 'terreno para construção' possesses residential designation for Stamp Tax purposes. The claimant petitioned for annulment of €29,410.20 in stamp tax assessments, arguing that building land does not have concrete residential designation and should not fall within item 28.1's scope. The case centered on whether designation should be assessed based on actual, concrete use or merely potential/projected use from subdivision authorizations. The tribunal was constituted on 27.08.2014 to decide this dispute, with both parties consenting to dispense with the oral hearing under article 18 of the LFATM given that identical issues had been addressed in previous CAAD decisions.
Can potential or projected housing use justify Stamp Tax liability on undeveloped land under Portuguese tax law?
The central dispute in Process 399/2014-T was whether potential or projected housing use can justify Stamp Tax liability on undeveloped building land under Portuguese tax law. The claimant argued that residential designation must be assessed concretely based on actual use, not merely on potential designation resulting from subdivision authorizations, which 'offer no guarantees that it will become the actual designation when the corresponding buildings are constructed.' The claimant contended that taxation based on potential use would violate applicable constitutional and legal norms. The Tax Authority argued that the concept of designation is grounded in property valuation provisions, including the 'value of authorized buildings,' supporting taxation based on planned use rather than requiring completed construction.
How is the concept of 'prédio com afectação habitacional' interpreted for Stamp Tax on building plots?
The concept of 'prédio com afetação habitacional' (property with residential designation) under item 28.1 of the TGIS was interpreted differently by the parties. The claimant argued it requires concrete, actual residential use and cannot be satisfied by building land that only has potential designation from subdivision authorizations. The claimant maintained that building land fiscally classified as 'terreno para construção' cannot fall within the concept of property with residential designation merely because it may be developed for housing in the future. The Tax Authority interpreted the concept more broadly, arguing that designation is grounded in property valuation provisions and that the legal nature of the property establishes residential designation even before actual construction, based on authorized buildings and valuation coefficients.
What are the grounds for annulling Stamp Tax (Imposto de Selo) assessments on building land valued above €1 million?
The grounds for annulling Stamp Tax assessments on building land valued above €1 million in Process 399/2014-T were 'lack of grounds and violation of law' (falta de fundamento e violação de lei). The claimant argued that the assessments suffered from illegality based on erroneous interpretation of item 28.1 of the TGIS. Specifically, the claimant contended that building land fiscally classified as 'terreno para construção' lacks the residential designation required for taxation under item 28.1, and that taxing such properties based on potential rather than concrete designation violates constitutional and legal norms. The claimant also argued that explicit authorization for taxing building land only came with the 2014 legislative amendment (Law 83-C/2013), making the 2012 assessments unlawful. The request sought full refund of €29,410.20 plus interest from payment dates until full reimbursement.