Process: 403/2015-T

Date: November 5, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

Process 403/2015-T addressed whether Stamp Tax under Item 28.1 of the General Stamp Duty Table (TGIS) applies to building land (terrenos para construção) for tax years 2012 and 2013. The claimant challenged assessments totaling €60,500.50, arguing that the legislative amendment by Law 83-C/2013 only applied prospectively from January 1, 2014, per Article 260 of that law. Before this amendment, Item 28.1's wording excluded building land from taxation, as the Property Tax Code (Article 6) clearly distinguishes between 'residential urban property' and 'plots of land for construction.' The claimant contended that retroactive application would violate Article 103(3) of the Portuguese Constitution, which prohibits retroactive taxation. The Tax Authority countered that 'residential use' is broader than 'property intended for housing' and that building land should be taxed based on valuation coefficients in the Property Tax Code. The claimant sought annulment of the assessments and refund with compensatory interest (juros indemnizatórios) from payment date. This case exemplifies how taxpayers can challenge allegedly illegal Stamp Tax assessments through CAAD arbitration under the Legal Framework for Arbitration in Tax Matters (RJAT). The arbitral tribunal, constituted under Article 11 of RJAT, deemed a hearing dispensable as only legal questions were at issue. The case reflects widespread jurisprudential consensus supporting the distinction between building land and completed residential property for Stamp Tax purposes prior to the 2014 legislative change.

Full Decision

Arbitral Decision

I – Report

On 29 June 2015, A..., with tax domicile at Rua ... n.º ... A, ...-... Lisbon and Tax Identification Number n.º..., in representation of the estate of B... (hereinafter the Claimant) requested arbitral pronouncement, in accordance with the terms and for the purposes established in articles 2, paragraph 1, a) and 10, paragraph 1 a) of the Legal Framework for Arbitration in Tax Matters, approved by Decree-Law n.º 10/2011, of 20 January (hereinafter the LFATM) and in articles 1 and 2 of Administrative Order n.º 112-A/2011, of 22 March, with a view to requesting a declaration of illegality of the tax acts concerning assessments of stamp duty (item 28 of the General Table) for 2012 and 2013 (embodied in the following documents: 2015..., in the amount of €12,100.10; 2015..., in the amount of €24,200.20 and 2015..., also in the amount of €24,200.20, all totalling €60,500.50), with all the consequences resulting from such declaration, namely the annulment of the assessments and the refund of the amounts improperly paid, plus compensatory interest calculated from the date of payment until the date of its refund.

  1. In the request for arbitral pronouncement, the Claimant chose not to appoint an arbitrator.

The request for constitution of the arbitral tribunal was accepted on 1 July 2015 and automatically notified to the Tax and Customs Authority (hereinafter the Respondent or TA) on the same date.

In accordance with paragraph 2, letter a) of article 6 and paragraph 1, letter b) of article 11 of the LFATM, the following were appointed as arbitrators: Judge Manuel Luís Macaísta Malheiros (President), Dr. Maria Manuela do Nascimento Roseira and Professor Francisco José Nicolau Domingos.

The Arbitral Tribunal was constituted on 11 September 2015, in compliance with the provision in paragraph 1, letter c) of article 11 of the LFATM.

The Tax and Customs Authority (hereinafter the Respondent) submitted its response on 9 October 2015.

By order of 21 October 2015, the Tribunal considered dispensable the hearing referred to in article 18 of the LFATM, by virtue of the case file containing the necessary and sufficient elements for the issuance of a decision, as only questions of law were at issue.

II – Position of the Parties

  1. The Claimant argues, in summary, as follows:

1.1. It is the owner of a plot of land for construction situated in the parish and municipality of Portimão, registered in the respective real property register under n.º ...(corresponding to the former article ... of the same parish and municipality).

1.2. The TA proceeded, in January 2015, regarding the above-identified property, to assess Stamp Duty (Item 28.1) for the years 2012 and 2013.

1.3. The Claimant made timely payment of all notifications sent to it by the TA, but considers the assessments made by the TA to be illegal, due to violation of the law.

1.4. The Claimant argues that the wording given to item 28.1 of the General Table of Stamp Duty by Law n.º 83-C/2013, of 31 December is applicable only, in accordance with article 260 of that same Law, to facts occurring after 1 January 2014.

1.5. Therefore, until that date, the previous wording of the aforementioned Item 28.1 of the General Table applied, which excluded plots of land for construction from its scope of application.

1.6. Indeed, the Claimant alleges that the legislator, before 31 December 2013, did not define the concept of "real property with residential use", and therefore, as a subsidiary matter, it was necessary to resort to the provisions of article 6 of the Property Tax Code, which contains a clear distinction between "residential urban property" and "plots of land for construction", which could not have been considered for the purposes of the incidence of Stamp Duty as "urban real property with residential use".

1.7. The Claimant concludes that the interpretation advocated by the TA is unconstitutional, since it implies the creation of a tax with retroactive effect, which is unconstitutional as it contradicts article 103, paragraph 3 of the Constitution of the Portuguese Republic.

1.8. The Claimant invokes, in support of its position, the unanimity of tax justice, both judicial and arbitral, with identification of the respective court decisions and awards.

  1. The Respondent argues, in summary, as follows:

2.1. The assessments made are legal because they concern real property with residential use and, consequently, embody the correct interpretation of Item 28 of the General Table, added by Law n.º 55-A/2012, of 29 December.

2.2. In the absence of a definition of land with residential use in the Stamp Duty Code, it is necessary to resort to the Property Tax Code, in accordance with the provision in article 67, paragraph 2 of the Stamp Duty Code as amended by Law n.º 55-A/2012, of 29 October.

2.3. Based on the combination of articles 1 and 6 of the aforementioned Code, the Respondent argues that "The notion of use of urban property is grounded in the section relating to the valuation of real property, which is understandable inasmuch as the valuation of the real property (purpose) incorporates value to the real property, constituting a determining fact of distinction (coefficient) for valuation purposes."

2.4. And further states: "As results from the expression '…value of authorized buildings', contained in article 45, paragraph 2 of the Property Tax Code, the legislator chose to determine the application of the valuation methodology for real property in general to the valuation of plots of land for construction, and consequently the use coefficient provided for in article 41 of the Property Tax Code is applicable to them."

2.5. It concludes by stating: "Thus, for the purpose of determining the taxable asset value of plots of land for construction, the application of the use coefficient in the valuation process is clear, such that its consideration for the purposes of applying item 28 of the General Stamp Duty Table cannot be ignored".

2.6. Emphasizing that "the legislator does not refer to 'real property intended for housing', having opted for the notion of 'residential use' - an expression that is different and broader, whose meaning must be found in the need to integrate other situations beyond those identified in article 6, paragraph 1, letter a) of the Property Tax Code" and that "The mere establishment of a right of potential construction immediately increases the value of the real property in question, hence the rule contained in article 45 of the Property Tax Code which requires separation of the two parts of the land."

2.7. In defence of its position, it invokes the legal norms in force concerning urban planning and construction to conclude that "well before the actual building of the real property, it is possible to determine and establish the use of the land for construction".

2.8. Regarding the alleged unconstitutionality of the interpretation of the application of Item 28.1 of the General Table of Stamp Duty, the TA considers that this would only exist in relation to the principle of proportionality if it resulted in being manifestly indefensible, which is not the case because the measure is applied indistinguishably to all holders of real property with residential use with a value exceeding €1,000,000.

III – Procedural Preliminary Issues

  1. The Tribunal was regularly constituted and is competent ratione materiae, in accordance with article 2 of the LFATM.

  2. The Parties have legal personality and capacity, are legitimated and are regularly represented, in accordance with articles 4 and 10, paragraph 2 of the LFATM and article 1 of Administrative Order n.º 112-A/2011, of 22 March.

  3. No procedural defects were raised or identified.

  4. There are no preliminary issues to decide.

IV – Reasoning

  1. Findings of Fact

The Tribunal finds proven the following facts:

1.1. The Claimant is the owner of a plot of land situated in the parish and municipality of Portimão, registered in the respective urban real property register under n.º ...(corresponding to the former article ... of the same parish and municipality).

1.2. The said plot of land is described as "land for construction".

1.3. In January 2015, the TA proceeded to assess Stamp Duty, item 28.1, on the said plot of land, for the years 2012 and 2013, embodied in the following documents: 2015..., in the amount of €12,100.10; 2015 001121206, in the amount of €24,200.20 and 2015..., also in the amount of €24,200.20, all totalling €60,500.50).

1.4. The Claimant made payment of all assessments within the time periods indicated to it by the TA.

  1. The facts are considered proven by analysis of the documentation submitted by the parties.

  2. There are no unproven facts with relevance to the present matter.

V – THE LAW

1.1. Illegality of the Acts in Question

The first issue to be examined by the Tribunal consists of defining the scope of application of item n.º 28.1 of the General Table of Stamp Duty (GSTD), in its wording at the date of the tax facts. That is, it must be determined whether plots of land for construction fall within the scope of the tax rule, as the Respondent argues, or whether, on the contrary, they are excluded from it.

To accomplish this task, it is necessary first to search for the rule on which the parties differ in their interpretation.

Thus, item n.º 28 of the GSTD provides that the following are subject to taxation: "Ownership, usufruct or right of superficies of urban real property whose taxable asset value contained in the register, in accordance with the Property Tax Code (PTC), is equal to or greater than €1,000,000 – on the taxable asset value used for Property Tax purposes:

28.1 - For real property with residential use – 1%..."[1].

Accordingly, it is necessary to define the concept of "real property (urban) with residential use" to which the rule under interpretation refers. Since it is not possible to resolve the matter by recourse to the Stamp Duty Code (SDC), it is by virtue of the provision of article 67, paragraph 2 of the same statute necessary to apply the norms of the PTC concerning the concept and types of urban real property.

Consequently, article 4 of the PTC provides on the concept of urban property: "...those that should not be classified as rural...". And article 6, paragraph 1 of such statute continues: "Urban real property is divided into: a) Residential; b) Commercial, industrial or for services; c) Land for construction; d) Other". Paragraph 2 provides: "Residential, commercial, industrial or for services are buildings or constructions licensed for such purpose or, in the absence of a license, which have as their normal destination each of these purposes".

Thus, for the subsumption of a real property in each of the listed categories, the nature of use is relevant, that is, the purpose to which it is intended.

Now, the stamp duty item under analysis applies to real property that is already bound to residential purposes, that is, those to which such a destination has been given[2]. But it is legitimate to ask the following question: regarding those real properties (plots of land for construction) with such intended use or those in which the intended use is unknown, do they come within "real property with residential use"?

The answer to this question cannot but be negative. Indeed, the literal wording of the item under analysis permits the exclusion from the scope of application of those plots of land for construction that have not realized any type of use, insofar as they are not yet applied or intended for residential purposes. In other words, it is not possible to subsume them as "real property with residential use", since they do not yet have any use or other intended purpose, except construction of an unknown type[3].

Still, one may again ask: do plots of land for construction not yet applied to residential purposes but already having a determined right, as in the case of a subdivision license, fall within the scope of application of item n.º 28.1 of the GSTD? We believe not. In fact, article 6, paragraph 2 of the PTC, subsidiarily applicable, points in the direction of requiring an actual use.

In truth, the legislator did not use the expression "residential real property", but rather "real property with (our emphasis) residential use", that is, the real property must already have the use for that purpose effectively realized.

Now, this interpretative meaning becomes clear with the mobilization of a summary of the words of the Honorable Secretary of State for Tax Affairs, during the presentation and discussion in the National Assembly of the draft law[4], insofar as he advocated that the latter: i) aimed to create a special tax on urban residential real property of higher value; ii) created special taxation on high-value properties intended for housing; and iii) the tax would apply to houses with a value equal to or greater than 1 million euros. Or, in other words, the category to which the legislator refers with the expression "real property with residential use" are "houses".

This meaning is maintained, even if it is considered that in the determination of the taxable asset value of urban real property, classified as plots of land for construction, account should be taken of the intended use that the building authorized or foreseen for them will have, with a view to determining the value of the implantation area. In fact, the norm provided in article 45, paragraph 2 of the PTC does not require that plots of land for construction should be classified as "real property with residential use", since this intended use refers, in the economy of the PTC, to real property and constructions that may be inhabited[5].

Consequently, if this is the case, the assessments in question must, in their entirety, be annulled.

It is also important to note that one of the assessments in question refers to that contained in article 6 of Law n.º 55-A/2012, of 29 October. More specifically, this norm provides that: "1 - In 2012, the following rules must be observed with reference to the assessment of stamp duty provided for in item n.º 28 of the respective General Table: a) The tax fact occurs on 31 October 2012; b) The taxpayer is the one mentioned in paragraph 4 of article 2 of the Stamp Duty Code on the date mentioned in the preceding letter; (...)".

Thus, it must be stated that the plot of land for construction that is the subject of the present proceedings does not come within the category of "real property with residential use" and, as such, the stamp duty assessments made under Law n.º 55-A/2012, of 29 October and those relating to the years 2012 and 2013 must be declared illegal.

Nevertheless, one might think this interpretation was undermined by the entry into force of Law n.º 83-C/2013, of 31 December (State Budget Law for 2014) in the segment in which it gave new wording to item 28.1 of the GSTD, which now refers to the categories described in article 6 of the PTC, that is, i) residential property and ii) land for construction. However, we do not believe so, because, as the counselor ISABEL MARQUES DA SILVA sustains[6]: "...the legislator did not give it an interpretative character (...), it merely makes it unequivocal for the future that plots of land for construction whose building, authorized or foreseen, is intended for housing are covered within the scope of item 28.1 of the General Table of Stamp Duty...". That is, nothing is concretized regarding the acts practiced under the previous wording and another legislative choice is demonstrated with the reference to the types of urban real property, i) residential and ii) land for construction. Consequently, such legislative amendment does not in any way modify the decision stated in the preceding paragraph.

For all these reasons, if the Claimant's real property was registered as land for construction at the date of the tax facts, the rule under scrutiny cannot be applied to the case sub judice, under penalty of illegality. For which reason, the stamp duty assessments in question must be annulled, with all legal consequences.

1.2. Compensatory Interest

Article 43, paragraph 1 of the General Tax Law provides: "Compensatory interest is due when it is determined, in gracious reclamation or judicial review, that there was an error attributable to the tax administration resulting in payment of tax debt in an amount exceeding that legally due". In other words, there are three requirements for entitlement to said interest: i) the existence of an error in a tax assessment attributable to the tax administration; ii) the determination of such error in a process of gracious reclamation or judicial review; and iii) payment of tax debt in an amount exceeding that legally due.

In this way, it is immediately possible to pose the following question: is it admissible to determine the payment of compensatory interest in tax arbitral proceedings? The answer to the question is in the affirmative. Indeed, article 24, paragraph 5 of the LFATM provides: "The payment of interest is due, regardless of its nature, in accordance with the terms provided for in the General Tax Law and in the Tax Procedure and Process Code".

Examining the matter, the illegality of the acts in question is attributable to the Respondent, given the lack of normative support when they were executed. Consequently, the request for compensatory interest is justified, calculated at the rate determined in accordance with the provision in article 43, paragraph 4 of the General Tax Law, from the date on which the undue payment was made until full reimbursement.

VI – Decision

In these terms and with the reasoning described above, the Tribunal decides:

a) to allow the claim, with the consequent annulment of the acts that are the subject of the arbitral pronouncement;

b) to order the restitution to the Claimant of the amounts of stamp duty paid in advance;

c) to condemn the TA to the payment of compensatory interest calculated from the date of the payments made by the Respondent until the effective and complete refund of said payments.

VII – Value of the Case

The value of the case is fixed at €60,500.50 (sixty thousand five hundred euros and fifty cents) in accordance with article 97-A of the Tax Procedure and Process Code, applicable by virtue of the provision in article 29, paragraph 1, letter a) of the LFATM and article 3, paragraph 2 of the Regulation on Costs in Tax Arbitration Proceedings (RCPAT).

VIII – Costs

Costs to be borne entirely by the Respondent, in the amount of €2,448.00 (two thousand four hundred and forty-eight euros) in accordance with article 22, paragraph 4 of the LFATM and Table I attached to the RCPAT.

Notify.

Lisbon, 5 November 2015

The Arbitrators,

(Manuel Macaísta Malheiros)

(Manuela Roseiro)

(Francisco Nicolau Domingos)

[1] In the wording in force at the date of the tax facts.

[2] See in this sense, in particular, the judgment of the Supreme Administrative Court, handed down in appeal 048/14, of 09/04/2014, in which counselor ISABEL MARQUES DA SILVA was the reporting judge; the judgment of the Supreme Administrative Court, handed down in appeal 046/14, of 14/05/2014, in which counselor ASCENSÃO LOPES was the reporting judge; and the arbitral award handed down in proceeding 53/2013-T, of 02/10/2013, in which counselor JORGE LOPES DE SOUSA acted as president-arbitrator.

[3] See judgment handed down in proceeding 53/2013-T, of 02/10/2013, in which counselor JORGE LOPES DE SOUSA acted as president-arbitrator.

[4] Journal of the National Assembly, Series I, n.º 9/XII – 2, of 11 October, p. 32.

[5] Judgment of the Supreme Administrative Court, handed down in appeal 048/14, of 09/04/2014, in which counselor ISABEL MARQUES DA SILVA was the reporting judge.

[6] Judgment of the Supreme Administrative Court, handed down in appeal 048/14, of 09/04/2014.

Frequently Asked Questions

Automatically Created

Is Stamp Tax (Imposto do Selo) under Verba 28.1 applicable to building land (terrenos para construção) in Portugal?
Before January 1, 2014, Stamp Tax under Verba 28.1 of the General Table (TGIS) did not apply to building land (terrenos para construção). The Property Tax Code (Article 6) distinguishes between 'residential urban property' and 'plots of land for construction,' and the original wording of Item 28.1 excluded building land. Law 83-C/2013 amended this provision, but Article 260 of that law stipulated the amendment only applied to facts occurring after January 1, 2014. Retroactive application to 2012-2013 would violate constitutional prohibitions against retroactive taxation under Article 103(3) of the Portuguese Constitution. Tax courts and arbitral tribunals have consistently recognized this distinction.
What was the CAAD arbitration ruling in Process 403/2015-T regarding Stamp Tax on building land?
In Process 403/2015-T, the CAAD (Centro de Arbitragem Administrativa) arbitral tribunal was constituted on September 11, 2015, to decide whether Stamp Tax assessments under Item 28.1 for 2012 and 2013 (totaling €60,500.50) were lawfully applied to building land. The claimant argued these assessments were illegal because the legislative amendment by Law 83-C/2013 only applied prospectively from 2014, and prior law excluded building land from the definition of 'property with residential use.' The tribunal found only legal questions at issue and dispensed with a hearing under Article 18 of RJAT. The claimant invoked unanimous jurisprudential support for the position that building land could not be taxed under Item 28.1 before the 2014 amendment took effect.
Can taxpayers challenge illegal Stamp Tax assessments through CAAD tax arbitration in Portugal?
Yes, taxpayers can challenge illegal Stamp Tax assessments through CAAD tax arbitration in Portugal. Process 403/2015-T demonstrates this right under the Legal Framework for Arbitration in Tax Matters (RJAT - Decree-Law 10/2011). Taxpayers can request arbitral pronouncement under Articles 2(1)(a) and 10(1)(a) of RJAT to seek declarations of illegality of tax acts, annulment of assessments, refunds of amounts improperly paid, and compensatory interest. The process involves filing a request for arbitration, constitution of an arbitral tribunal with qualified arbitrators, submission of responses by the Tax Authority, and issuance of a binding decision. CAAD arbitration provides an efficient alternative to judicial courts for resolving tax disputes.
Are property owners entitled to compensatory interest (juros indemnizatórios) when Stamp Tax is unlawfully charged?
Yes, property owners are entitled to compensatory interest (juros indemnizatórios) when Stamp Tax is unlawfully charged. In Process 403/2015-T, the claimant specifically requested 'refund of the amounts improperly paid, plus compensatory interest calculated from the date of payment until the date of its refund.' This right derives from the principle that taxpayers should be compensated for loss of use of money wrongfully collected by tax authorities. Compensatory interest runs from the date of improper payment until actual refund, ensuring taxpayers are made whole for the financial prejudice suffered. This remedy is routinely granted alongside annulment of illegal tax assessments and refund orders in Portuguese tax arbitration and judicial proceedings.
How did the 2013 amendment (Lei 83-C/2013) affect Verba 28.1 of the General Stamp Tax Table?
Law 83-C/2013 of December 31, 2013, significantly amended Verba 28.1 of the General Stamp Tax Table by expanding its scope to explicitly include building land (terrenos para construção) within taxable 'property with residential use.' However, Article 260 of Law 83-C/2013 established that this amendment applied only prospectively to facts occurring on or after January 1, 2014. Before this amendment, the previous wording of Item 28.1 excluded building land, as the Property Tax Code distinguished between completed 'residential urban property' and undeveloped 'plots of land for construction.' The 2013 amendment clarified that 'residential use' encompasses building land intended for residential construction, but constitutional prohibitions against retroactive taxation prevent application to prior years (2012-2013), protecting taxpayers from unexpected tax liabilities on past property ownership.