Process: 404/2014-T

Date: December 10, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitral decision concerns a Stamp Tax (Imposto do Selo) dispute under Verba 28 of the General Stamp Tax Table (TGIS), involving assessments totaling €23,799.98 against A... S.A. for tax years 2012-2013. The core issue is whether Stamp Tax under Entry 28.1 of the TGIS applies to urban property classified as 'land for construction' (terreno para construção) with no buildings or infrastructure. The claimant argued that Entry 28.1, introduced by Law 55-A/2012 to tax high-value residential properties (€1M+), does not extend to construction land lacking residential dedication. The claimant contended that under the Municipal Property Tax Code (CIMI), property cannot simultaneously be classified as both residential and construction land, and that residential dedication requires functional habitability, which bare land lacks. The claimant further argued that the 2013 amendment by Law 83-C/2013 clarifying the scope does not justify extensive interpretation of the previous wording to include what the legislature later expressly specified. Additionally, the claimant challenged compensatory interest assessments as ancillary to invalid principal tax, arguing no culpable conduct existed and that the assessment lacked proper reasoning, constituting a formal defect. The Tax Authority (AT) maintained the property legally possesses residential dedication and the assessments correctly interpret Entry 28 TGIS. The case proceeded to CAAD arbitration following tacit rejection of an administrative appeal. The arbitral tribunal was constituted under Decree-Law 10/2011 (RJAT) with a sole arbitrator appointed by CAAD's Deontological Council. This decision illustrates critical interpretive questions regarding the scope of Stamp Tax on high-value properties, the relevance of cadastral classifications versus tax law definitions, and the interplay between property tax codes in determining tax liability.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Case no. 404/2014-T

I. Report

  1. A... –, S.A., a company with registered office at Rua …, Lisbon, tax identification number …, requested from the Administrative Arbitration Centre (CAAD), on 28 May 2014, the constitution of an arbitration tribunal in tax matters, in accordance with the provisions of article 10, paragraphs 1 and 2 of Decree-Law no. 10/2011, of 20 January (Legal Regime for Tax Arbitration "RJAT"), in which the Tax and Customs Authority (AT) is the respondent, with a view to declaring the illegality and consequent annulment of the acts of assessment of Stamp Tax (IS) corresponding to documents no. ..., no. ... and no. ..., in the total amount of €23,799.98 (twenty-three thousand, seven hundred and ninety-nine euros and ninety-eight cents).

  2. The Claimant chose not to appoint an arbitrator.

  3. The request for constitution of an arbitration tribunal was accepted by the President of CAAD on 30 May 2014 and automatically notified to AT on the same date.

  4. The undersigned was appointed by the President of the Deontological Council of CAAD as arbitrator of a sole arbitration tribunal, in accordance with the provisions of article 6 of the RJAT.

  5. The undersigned communicated to the President of the Deontological Council of CAAD her acceptance of the appointment, within the legal deadline, in accordance with the provisions of article 4 of the Deontological Code of CAAD.

  6. The parties were notified of the appointment of the undersigned on 18 July 2014, in accordance with article 11, paragraph 1, subparagraphs a) and b) of the RJAT, and did not object to it.

  7. The sole arbitration tribunal was thus regularly constituted on 4 August 2014, in accordance with the provisions of subparagraph c) of paragraph 1 of article 11 of the RJAT.

  8. AT was notified, by arbitral order of 8 August 2014, to submit a reply within 30 days (such deadline being, in accordance with article 17-A of the RJAT, suspended during judicial holidays).

  9. AT submitted its reply on 30 September 2014, and also requested dispensation from the hearing referred to in article 18 of the RJAT.

  10. By arbitral order of 9 October 2014, the Claimant was notified to pronounce on the dispensation of that hearing, and the Claimant indicated, on 23 October 2014, that it did not object to such dispensation.

  11. On 29 October 2014, the Claimant submitted a subsequent request requesting the amendment of the case, for expansion of the cause of action, for consideration of new grounds, based on receipt, after the request for constitution of the arbitration tribunal, of a decision of express rejection of an administrative appeal.

  12. This request was attached to the case file and notified to the Respondent, who did not pronounce upon it.

  13. The Arbitral Tribunal is materially competent, in accordance with article 2, paragraph 1, subparagraph a) of the RJAT.

  14. The parties have legal personality and capacity and are legitimate (articles 4 and 10, paragraph 2 of the RJAT and article 1 of Order no. 112-A/2011, of 22 March).

  15. The joinder of claims is admissible, as the requirements established in article 3, paragraph 1 of the RJAT are met.

  16. The case does not suffer from defects that would invalidate it.

II. The Claimant's Request

  1. The Claimant submitted a request for an arbitral decision with a view to declaring the illegality and consequent annulment of the acts of assessment of Stamp Tax corresponding to documents no. ..., no. ... and no. ..., in the total amount of €23,799.98 (twenty-three thousand, seven hundred and ninety-nine euros and ninety-eight cents).

For this purpose, and in summary, it presents the following grounds:

  1. The Claimant is the owner of an urban property registered in the urban cadastral register of the parish of ..., municipality of Lisbon, under article U-..., classified as land for construction, with no building or construction thereon.

  2. Documents ... and ... identify the tax year as 2012, which should be an error by the services regarding the last document, which should relate to 2013.

  3. Document ... concerns an assessment of compensatory interest for 2013, and therefore, since compensatory interest is ancillary and related to the tax proper, it can only relate to the corresponding 2013 assessment.

  4. She filed an administrative appeal on 5.11.2013 against the assessments in documents ... and ..., and the Respondent issued no decision on these until the request for constitution of the arbitration tribunal, thus a tacit rejection was formed.

  5. The assessments identified are illegal, insofar as entry 28.2 of the General Table of Stamp Tax (TGIS) is not applicable to it, as it is not a taxpayer resident in a country, territory or region subject to a clearly more favourable tax regime, on the one hand, and entry 28.1 of the TGIS does not cover land for construction, as these do not have residential dedication.

  6. In accordance with article 6, paragraphs 1 and 2 of the Stamp Tax Code (CIS), the concept of property is that defined in the Municipal Property Tax Code (CIMI), and from the provisions of article 6 of the CIMI it is clear that a property such as the one in question cannot be both residential and for construction simultaneously.

  7. And that even if it were not possible to resort to the provisions of the CIMI, there would still be recourse to the general rules of interpretation contained in the General Tax Law (LGT), which, in turn, refer to article 9 of the Civil Code.

  8. The legislator's intention was to specifically tax houses with a value equal to or exceeding 1 million euros;

  9. And that, there being no express reference in the law to land for construction, the interpreter should limit themselves to the definition in the CIMI.

  10. In light of the above, the Tax Administration cannot conclude that the Claimant's property is dedicated to residential use as it is only intended for construction.

  11. The Tax Administration cannot subject to IS urban properties that constitute land for construction and to which residential dedication has been attributed within the scope of their respective valuations.

  12. Residential dedication presupposes a functional approach to the determination or dedication of the land, which is impossible for the land in question, due to the absence of infrastructure or habitability conditions.

  13. Law no. 83-C/2013, of 31 December, which amended the wording of entry no. 28.1 of the TGIS does not legitimise an extensive interpretation of its previous wording, which would allow to include in it what the legislator now expressly intended.

  14. As for document no. ..., it is an act of assessment of compensatory interest, and, as the sum of tax assessed is not due, the assessment of interest also cannot subsist, given its ancillary nature.

  15. There was no culpable conduct on the part of the Claimant to justify the legitimacy of charging compensatory interest.

  16. The Respondent omits from the tax act any justification or proof of the Claimant's fault, which is why it suffers from a defect of form due to lack of reasoning and should consequently be annulled.

  17. Fiscal execution proceedings were instituted, in which the Respondent provided a bank guarantee, which is undue.

  18. Accordingly, the Respondent should be condemned to pay compensation for the value corresponding to the charges incurred with the guarantee, still to be determined.

III. The Respondent's Reply

  1. It is the AT's understanding that the property on which the assessments in question fall is of a legal nature of a property with residential dedication, wherefore the assessment acts subject to this request for arbitral decision should be maintained, as they embody the correct interpretation of Entry 28 of the TGIS, added by Law no. 55-A/2012, of 29 October.

  2. In the absence of any definition of the concepts of urban property, land for construction and residential dedication, under IS, recourse must be had to the CIMI, in search of a definition that allows to ascertain the possible subjection to IS, in accordance with the provisions of article 67, paragraph 2 of the CIS as amended by Law no. 55-A/2012, of 29 October.

  3. According to said legal provision, to matters not regulated in the Code, concerning entry no. 28 of the TGIS, the provisions of the CIMI are applied subsidiarily.

  4. Paragraph 1 of article 2 of the CIMI provides that "property is any portion of territory, comprising waters, plantations, buildings and constructions of any nature incorporated therein or situated therein, with a character of permanence, provided that it forms part of the assets of a natural or legal person and, in normal circumstances has economic value, as well as waters, plantations, buildings or constructions, in the circumstances referred to above, endowed with economic autonomy in relation to the land on which they are situated, although located in a portion of territory that constitutes an integral part of a different asset or does not have a patrimonial nature".

  5. In turn, article 6, paragraph 1 of the CIMI provides on the types of existing urban properties, integrating in this concept land for construction, that is to say "land situated within or outside an urban agglomeration, for which a building permit or authorisation has been granted, preliminary notification admitted or favourable preliminary information issued for a subdivision or building operation, and also those that have been so in the acquisition title, except for land in relation to which the competent entities prohibit any of those operations..."

  6. The notion of dedication of urban property is found in the section relating to the valuation of properties, as the valuation of the property (purpose) incorporates value to the property, constituting a distinguishing fact of determining importance (coefficient) for the purposes of valuation.

  7. As follows from the expression "...value of authorized buildings", contained in article 45, paragraph 2 of the CIMI, the legislator chose to determine the application of the valuation methodology of properties in general, to the valuation of land for construction, and therefore the dedication coefficient provided for in article 41 of the CIMI is applicable to them.

  8. Thus, for the purposes of determining the taxpayer property value of land for construction, it is clear that the dedication coefficient applies in the valuation context, so its consideration for the purposes of applying entry 28 of the TGIS cannot be ignored, since:

a. In the application of law to specific cases, it is necessary to determine the exact meaning and scope of the rule, so that the rule contained therein is revealed, an essential condition for it to be applied, in accordance with the provisions of article 9 of the Civil Code, ex vi article 11 of the General Tax Law;

b. Article 67, paragraph 2 of the CIS mandates the subsidiary application of the provisions of the CIMI;

c. The dedication of the property (suitability or purpose) is a coefficient that contributes to the valuation of the property, in the determination of the taxpayer property value, applicable to land for construction;

d. Entry 28 itself of the TGIS refers to the expression "properties with residential dedication", appealing to a classification that overlaps the types provided for in paragraph 1 of article 6 of the CIMI.

  1. AT understands that the concept of "properties with residential dedication", for the purposes of entry 28 of the TGIS, comprises both built properties and land for construction, starting from the literal element of the rule.

  2. The legislator does not refer to "properties intended for residential use", having opted for the notion "residential dedication" - an expression different and broader, whose meaning is to be found in the need to integrate other realities beyond those identified in article 6, paragraph 1, subparagraph a) of the CIMI.

  3. The mere constitution of a right of potential construction immediately increases the value of the property in question, hence the rule contained in article 45 of the CIMI which mandates the separation of the two parts of the land.

  4. With regard to the legal regime of urbanisation and building, it should be noted that it has as a prerequisite buildings already constructed.

  5. It cannot be overlooked that the building permit for the realisation of urban operations must contain, among other elements, the number of lots and an indication of the location area, purpose, implementation area, building area, number of storeys and number of units of each of the lots, with specification of units intended for housing with controlled costs, when provided for, in accordance with subparagraph a) of article 77 of the Urban Development and Building Legal Regime;

  6. And also that article 77 of the Urban Development and Building Legal Regime contains mandatory specifications, starting from the permits for subdivision operations or urbanisation works, and for building works.

  7. Municipal Master Plans also establish the strategy for municipal development, the municipal policy for territorial planning and urbanism and other urban policies. They integrate and articulate the guidelines established by territorial management instruments of national and regional scope and establish the model of spatial organisation of municipal territory.

  8. In these terms, long before the actual building of the property, it is possible to ascertain and determine the dedication of the land for construction.

  9. The Respondent further advocates for the constitutionality of the rule in question, mentioning, among others, that it is a general and abstract rule, applicable indistinctly to all cases in which the factual and legal requirements are met, and which seeks to obtain maximum effectiveness as to the objective to be achieved, with the minimum of harm to other interests considered relevant.

IV. The Claimant's Subsequent Request

  1. The Claimant submitted a new request, in which she indicated that she had received the act of express rejection of the administrative appeal against the assessments in question.

  2. Requesting the presentation of new arguments in response to what was alleged by the Tax Authority in that act.

  3. The Claimant reiterates her initial arguments and cites various case law that contradicts the Tax Authority's reply contained in the act of rejection of the administrative appeal.

V. Questions to be Decided

  1. Considering the facts and the legal matters contained in the request for arbitral decision submitted by the Claimant, the Respondent's reply, and the subsequent request submitted by the Claimant, the fundamental question to be decided by this Arbitral Tribunal is whether land for construction should be considered, for the purposes of the incidence of IS, regarding entry 28.1 of the TGIS, as amended by Law no. 55-A/2012, of 29 October, as properties with residential dedication.

VI. Factual Matters

  1. With relevance to the assessment of the request, the following facts are taken as proved, based on the documents attached to the case file, and not contested by the Respondent:

a. The Claimant is the owner of the urban property located at …, municipality of Lisbon, registered in the cadastral register under article … of the said parish (formerly … of the parish of ...).

b. The urban property in question is described in the cadastral register as land for construction.

c. The property has a taxpayer property value of €1,298,180.00 (one million, two hundred and ninety-eight thousand, one hundred and eighty euros).

d. In the valuation data contained in the property record, the property is classified with a "location coefficient type" of residential.

e. There is no construction on the identified property.

f. The Claimant was notified of the following collection documents:

i. Document no. ..., of 17.7.2013, (i) which in the field referring to the year of tax assessment refers to "Law 55A/2012", (ii) in the amount of €6,490.90, (iii) for payment by December 2013. (iv) The document also mentions "Article 6/1/f/i";

ii. Document no. ..., of 17.7.2103, (i) relating to the year 2012, (ii) entry 28.1 of the TGIS, (iii) in the amount of €12,981.80, (iv) for payment by December 2013; and

iii. Document no. ..., of 17.3.2104, (i) relating to the year 2013, (ii) entry 28.1 of the TGIS, (iii) 1st instalment, (iv) in the amount of €4,327.28, (v) for payment by April 2014.

g. The Claimant filed an administrative appeal against the document identified in item i. of the previous subparagraph on 5.11.2013;

h. The Claimant filed an administrative appeal against the document identified in item ii. of subparagraph f. above on 5.11.2013;

i. Four months elapsed since the filing of the administrative appeals, without a decision from the Respondent;

j. In the course of this proceeding, the Claimant was notified of the express rejection of the administrative appeal filed with reference to the document indicated in item i. of subparagraph f. above.

  1. There are no other facts with relevance to the proceeding that are not considered as proved.

  2. The conviction regarding the facts taken as proved was based on the documentary evidence indicated, submitted by the Claimant, whose authenticity and correspondence to reality were not questioned by the Respondent.

VII. Legal Matters

A. Preliminary Note

  1. The Claimant indicates that document no. ..., of 17.03.2014, constitutes a notice of assessment of compensatory interest.

  2. However, it is clear from the document in question that it is the 1st instalment of IS concerning entry 28.1 of the TGIS, relating to the year 2013.

  3. This is an erroneous qualification of the subject matter of the assessment (which could not constitute an assessment of interest, as there is no reference to such fact anywhere, the justifying reason is not indicated or its calculation).

  4. It is also verified that there was no filing of an administrative appeal against this act.

  5. However, it is dated 17.3.2014, so that, at the date of submission of the request for arbitral decision, the Claimant was within the deadline to proceed with the filing of a challenge to the act, in accordance with the provisions of article 10, paragraph 1, subparagraph a) of the RJAT.

  6. The Claimant, however, combined the requests for annulment of the 3 assessments identified, having, although, erroneously qualified the document in question, in the understanding of this Tribunal.

  7. The Respondent did not contest such fact.

  8. As the criteria for the joinder of claims contained in article 3 of the RJAT are met and the deadline for challenging the act in question is complied with, this Arbitral Tribunal will assess the legality of the 3 documents challenged.

B. Assessment

  1. The question in issue has already been subject to assessment on various occasions, by the Supreme Administrative Court (STA) (see, for example, the recent Judgments of 24/9 and 9/7 of 2014) and by arbitral case law (namely within the scope of proceedings 42/2013-T, of 18/10/2013; 48/2013-T, of 09/10/2013; 49/2013-T, of 18/09/2013; 53/2013-T, of 02/10/2013; 75/2013-T, of 01/11/2013; 144/2013-T, of 12/12/2013; 158/2013-T, of 10/02/2014; 308/2013-T, of 28/04/2014; 310/2013, of 22/04/2014 and 202/2014-T, of 16/10/2014).

  2. The case law cited decided, in all cases, against the understanding of the Respondent, decisions which, it is stated here, this Arbitral Tribunal supports, as will be detailed.

  3. For the assessment of the matter in question, it is first necessary to analyse article 4 of Law no. 55-A/2012, of 29 October, which added to the TGIS, annexed to the CIS, entry no. 28, with the following wording:

"28 — Ownership, usufruct or right of superficies of urban properties whose taxpayer property value recorded in the cadastral register, in accordance with the Municipal Property Tax Code (CIMI), is equal to or exceeding € 1 000 000 — on the taxpayer property value used for the purposes of IMI:

28.1 — For property with residential dedication — 1 %;

28.2 — For property, when non-natural taxpayers are residents of a country, territory or region subject to a clearly more favourable tax regime, recorded in the list approved by order of the Minister of Finance — 7.5 %."

  1. The legislative text in question introduced a concept not used in any other tax provision – that of property with residential dedication – nor did it define it.

  2. To understand its content, the concepts of property contained in the CIMI (articles 2 to 6) should thus be consulted – under the provisions of article 67, paragraph 2 of the CIS, according to which, to matters not regulated in the CIS concerning entry no. 28 of the TGIS, the provisions of the CIMI are applied subsidiarily.

  3. And such interpretation should always be carried out in accordance with the provisions of article 11 of the General Tax Law (LGT) and article 9 of the Civil Code, to which it refers.

  4. Article 11 of the LGT establishes that:

  5. In determining the meaning of tax provisions and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are observed.

  6. Whenever tax provisions use terms specific to other branches of law, these should be interpreted in the same sense as they have there, unless otherwise derives directly from the law.

  7. If doubt persists about the meaning of the applicable tax rules, regard should be had to the economic substance of the tax facts.

  8. Gaps resulting from tax provisions covered by the reservation of law of the Assembly of the Republic are not susceptible to analogical integration.

  9. In turn, article 9 of the Civil Code states that:

  10. Interpretation should not be limited to the letter of the law, but should reconstruct the legislative thought from the texts, taking particularly into account the unity of the legal system, the circumstances in which the law was enacted and the specific conditions of the time in which it is applied.

  11. However, the interpretation cannot consider the legislative thought that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed.

  12. In fixing the meaning and scope of the law, the interpreter shall presume that the legislator adopted the most correct solutions and knew how to express his or her thought in adequate terms.

  13. From the analysis of the concepts contained in the aforementioned articles of the CIMI (2 to 6), it appears that there is no correspondence between any of them and that established in entry 28.1 of the TGIS (property with residential dedication).

  14. In fact, the CIMI clearly differentiates residential properties from land for construction. The former are classified according to their respective municipal permit or, failing that, their normal use, the latter are defined according to their legal potential.

  15. The licensing or normal use of a property whose intended purpose is residential naturally refers to built properties that meet the requirements necessary for such licensing or use.

  16. Whereas land for construction – regardless of the construction potential, or the moment in which that potential is assessed, contrary to what the Respondent states – will have no suitability to be licensed for residential use, or to define this purpose as its normal destination.

  17. Now, if the tax provision in question does not define, in itself, the concept of residential dedication, it is not possible to extract, under the provisions cited above, and without more, that within its scope there falls any potential future suitability of a building that may be constructed on land for construction – it can only encompass the actual residential building.

  18. And contrary to what the Respondent argues, the provision cannot be interpreted to mean that the legislator's choice with the expression "residential dedication" was to overlap the types contained in article 6 of the CIMI.

  19. The rules under which the interpreter must proceed with the activity of interpreting legal provisions, as detailed above, do not provide any legal support for such interpretation.

  20. If such were the legislator's choice, the legislator would certainly have expressly indicated the same.

  21. Now, presuming that the legislator knew how to express his or her thought adequately, we find, on the contrary, an express referral to the concepts contained in the CIMI (which the Respondent itself recognises), and not to other realities not contained therein.

  22. Additionally, this Tribunal Arbitral also disagrees with the Respondent's understanding, according to which the meaning of residential dedication should be derived from the provisions of article 45 of the CIMI.

  23. Article 45 of the CIMI relates to the rules applicable in determining the taxpayer property value of land for construction, establishing that this is the value resulting from the value of the building implementation area to be constructed added to the land adjacent to the implementation. In fixing the value of that area, a percentage, varying between 15% and 45%, of the value of authorised or planned buildings is considered.

  24. The Respondent states that in that fixing of value, the coefficients applicable in determining the taxpayer property value are used, in particular the "residential" dedication coefficient, and that such should also be a determining element for the purposes of the application of entry 28.1 of the TGIS in question.

  25. As thoroughly clarifying this point, cite the provisions of the STA Judgment of 9 July 2014, with which full agreement is expressed:

"The fact that it can be considered that in determining the taxpayer property value of urban properties classified as land for construction, account should be taken of the dedication that the building authorised or planned for it will have in determining the value of the implementation area (cf. paragraphs 1 and 2 of article 45 of the CIMI) does not determine that land for construction can be classified as "properties with residential dedication", since residential dedication in the Municipal Property Tax Code is always referred to "buildings" or "constructions", existing, authorised or planned, since only these can be inhabited, which is not the case with land for construction, which do not, in themselves, have conditions for such, and cannot be used for residential purposes except if and when the construction authorised and planned for them is built thereon (but in that case they would no longer be "land for construction" but another type of urban property – "residential", "commercial, industrial or service" or "other" – article 6 of the CIMI).

It would be strange, indeed, if the determination of the scope of the rule of tax incidence of entry no. 28 of the General Table of Stamp Tax were to be found, after all, in the rules for determining the taxpayer property value of the Municipal Property Tax Code, and that the terminological imprecision of the legislator in the wording of that rule was, in fact, elucidated and finally clarified by way of an indirect and equivocal referral to the dedication coefficient established by the legislator in relation to built properties (article 41 of the Municipal Property Tax Code)."

  1. It should also be noted that Law no. 83-C/2013, of 31 December, amended the wording of the provision in question, with entry 28.1 of the TGIS now providing: "for residential property or for land for construction whose building, authorised or planned, is for residential purposes".

  2. It is the understanding of this Arbitral Tribunal that the new provision applies only prospectively (from 1 January 2014), and that it could not – if it were the case – be derived therefrom any interpretative character of the wording then in force and now in question.

  3. If there were an intention to give the provision an interpretative nature, this would have been expressly indicated by the legislator.

  4. The jurisprudential practice has been unanimous, constant and settled on the understanding to be given to the provision in question, so that, in truth, there was no provision that needed authentic interpretation.

  5. Thus, the legislator, with the amendment introduced in 2013, merely clearly included a new reality to be subject to entry 28.1 of the TGIS, in addition to properties manifestly intended for residential purposes (land for construction, not contained in the previous wording).

  6. Finally, and in the sense of reinforcing the understanding that has been outlined, further reference is made to the reconstruction of the legislative thought that presided over the approval of the wording of entry 28.1 of the TGIS in 2012:

  7. On the one hand, from the statement of reasons contained in Bill no. 96/XII – 2nd, of 21/09/2012 (which gave rise to the aforementioned Law no. 55-A/2012), there is no element that allows to clarify the concept of property with residential dedication.

  8. On the other hand, and as contained in the Official Journal of the Assembly of the Republic, I Series, no. 9/XII, 2nd legislative session, of 11 October 2012, the Secretary of State for Tax Affairs presented this legislative innovation in the following terms:

"This proposal has three essential pillars: the creation of special taxation on urban properties of value exceeding 1 million euros; the increase of taxation on capital income and on capital gains; and the strengthening of rules to combat tax fraud and tax evasion.

First, the Government proposes the creation of a special rate to tax residential urban properties of higher value. It is the first time that Portugal creates special taxation on high-value properties intended for residential use. This rate will be 0.5% to 0.8%, in 2012, and 1%, in 2013, and will apply to houses with a value equal to or exceeding 1 million euros." (emphasis ours)

  1. From the foregoing, it is not possible, and by force of the cited legal provisions, to infer that in the expression "properties with residential dedication" land for construction can be subsumed. On the contrary.

  2. The Respondent further presents arguments to demonstrate that the provision in question does not violate any constitutional precept. However, considering that such assessment was not the subject of the request for arbitral decision submitted by the Claimant, it will not, therefore, be assessed by the Tribunal, as it goes beyond the scope of the request.

  3. It is concluded that land for construction is not subject to entry 28.1 of the TGIS, the assessments subject to the present case cannot be maintained.

  4. Given the conclusion above, it becomes unnecessary to determine the year to which document ... relates.

  5. Notwithstanding, it should be noted that, if it were 2012, it would be illegal, on the one hand, because it would determine the application of the same tax, to the same taxpayer, for the same fact and, on the other, because it does not comply with the transitional provisions contained in Law no. Law no. 55-A/2012 of 29 October.

  6. In the case where it relates to 2013, the same conclusion would be reached in light of document ....

C. Compensation for Undue Guarantee

  1. The Claimant petitions compensation for charges incurred with the provision of a bank guarantee aimed at suspending fiscal execution proceedings.

  2. In accordance with article 53, paragraph 1 of the LGT, the debtor who, to suspend execution, offers a bank guarantee, shall be compensated in whole or in part for losses resulting from its provision, if it has been maintained for a period exceeding 3 years, in proportion to the allowance in administrative appeal, challenge or opposition to execution which have as their object the debt guaranteed.

  3. However, the losses in question are compensated without dependence on that 3-year period, in the case where there has been error attributable to the services in the assessment of the tax (article 53, paragraph 2 of the LGT).

  4. Pursuant to paragraph 3 of the same article, the amount of compensation is subject to a maximum limit equivalent to that resulting from the application to the guaranteed amount of the rate of compensatory interest defined in article 43, paragraph 4 of the LGT.

  5. In accordance with article 171 of the Code of Tax Procedure, the judicial challenge proceedings in which a decision is made on the legality of the act is the appropriate procedural means to formulate a claim for compensation for undue guarantee.

  6. Now, since in arbitral proceedings the legality of the debt is discussed, the arbitral proceedings are also the appropriate means for assessing this request.

  7. In the case at hand, the error underlying the assessments identified is attributable exclusively to the Tax Authority, so the Claimant has the right to petition such compensation.

  8. However, the Tribunal does not have elements that allow it to determine its exact value, which should be calculated based on the costs actually incurred, from the date of the constitution of the guarantee until the day it is released (always in respect of the maximum limit indicated above).

VIII. Decision

In these terms, and based on the grounds exposed, the Arbitral Tribunal decides:

A. To uphold the request for arbitral decision, with the consequent annulment of the acts of assessment of Stamp Tax corresponding to documents no. ..., no. ... and no. ..., in the total amount of €23,799.98 (twenty-three thousand, seven hundred and ninety-nine euros and ninety-eight cents);

B. To condemn the Respondent to pay compensation for the provision of an undue guarantee, in the amount to be determined in execution of this decision (article 609 of the Code of Civil Procedure).

Value of the case: €23,799.98 (twenty-three thousand, seven hundred and ninety-nine euros and ninety-eight cents).

Court costs: Pursuant to the provisions of article 22, paragraph 4 of the RJAT, and in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, the amount of court costs is set at €1,224.00 (one thousand, two hundred and twenty-four euros), to be borne by the Respondent.

Lisbon, 10 December 2014

The Arbitrator

Ana Pedrosa Augusto

Frequently Asked Questions

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What is the Stamp Tax (Imposto do Selo) under Verba 28 of the TGIS and when does it apply to property?
Stamp Tax under Verba 28 of the TGIS was introduced by Law 55-A/2012, of 29 October, to tax ownership of high-value urban properties. Entry 28.1 applies to urban properties with residential dedication valued at €1 million or more, owned by entities resident in Portugal, with tax calculated on the property's tax value (Valor Patrimonial Tributário - VPT). Entry 28.2 applies higher rates to owners resident in countries with clearly more favorable tax regimes. The central interpretive question in this case is whether 'residential dedication' extends to land for construction without buildings or habitability conditions, or whether it requires actual residential infrastructure. The claimant argued that under the Municipal Property Tax Code (CIMI) definitions incorporated by Article 6 of the Stamp Tax Code (CIS), construction land cannot simultaneously qualify as residential property. Law 83-C/2013 subsequently amended the wording, which the claimant argued demonstrates the original provision did not encompass construction land.
Can taxpayers challenge Stamp Tax assessments through CAAD tax arbitration proceedings?
Yes, taxpayers can challenge Stamp Tax assessments through CAAD (Centro de Arbitragem Administrativa) tax arbitration proceedings. Under Article 2, paragraph 1, subparagraph a) of the Legal Regime for Tax Arbitration (RJAT - Decree-Law 10/2011, of 20 January), CAAD has material competence to resolve disputes concerning the legality of tax acts, including Stamp Tax liquidation acts. This case demonstrates CAAD's jurisdiction to review Stamp Tax assessments under Verba 28 of the TGIS. Taxpayers can request arbitration seeking declaration of illegality and consequent annulment of assessment acts. The arbitration tribunal can be composed of a sole arbitrator or a panel, depending on the parties' choice. Article 10 of the RJAT establishes the procedural requirements for requesting constitution of an arbitration tribunal. CAAD arbitration provides an alternative dispute resolution mechanism to traditional administrative and judicial courts for tax disputes in Portugal.
What is the legal process for requesting a CAAD arbitral tribunal for Stamp Tax disputes in Portugal?
The legal process for requesting a CAAD arbitral tribunal for Stamp Tax disputes follows the procedures established in Decree-Law 10/2011 (RJAT). Under Article 10, paragraphs 1 and 2, the taxpayer submits a request for constitution of an arbitration tribunal to CAAD, designating the Tax and Customs Authority (AT) as respondent and specifying the contested acts and grounds. The taxpayer may choose to appoint an arbitrator or allow CAAD to appoint a sole arbitrator. The CAAD President accepts the request and automatically notifies AT. If no arbitrator is chosen by parties, the President of CAAD's Deontological Council appoints a sole arbitrator under Article 6 RJAT. The appointed arbitrator communicates acceptance within the legal deadline per Article 4 of the Deontological Code. Parties are notified of the appointment under Article 11(1) and may object. The tribunal is constituted when no objections are raised. AT submits a reply within 30 days (Article 17-A RJAT, suspended during judicial holidays). Parties may request dispensation from the hearing under Article 18 RJAT. The entire process from request to tribunal constitution typically takes 2-3 months.
How does the gracious complaint (reclamação graciosa) interact with CAAD arbitration in tax disputes?
The gracious complaint (reclamação graciosa) or administrative appeal interacts with CAAD arbitration as an optional prior administrative remedy before seeking arbitration. In this case, the claimant filed an administrative appeal on 5 November 2013 against Stamp Tax assessments. When the Tax Authority issued no decision within the legal deadline, a tacit rejection (indeferimento tácito) was formed, allowing the claimant to proceed to CAAD arbitration under Article 10(2) of the RJAT. Taxpayers are not required to exhaust administrative remedies before requesting arbitration, but may choose to do so. Interestingly, this case also demonstrates that taxpayers can submit subsequent requests to amend the arbitration case when receiving belated express decisions on administrative appeals after initiating arbitration. The claimant submitted such a request on 29 October 2014 after receiving an express rejection decision post-arbitration commencement, seeking to expand the cause of action with new grounds. This shows the flexibility of CAAD procedures to accommodate administrative developments occurring during arbitration proceedings.
What are the grounds for annulment of Stamp Tax liquidation acts under Portuguese tax law?
Grounds for annulment of Stamp Tax liquidation acts under Portuguese tax law include both substantive and procedural illegalities. Substantive grounds include incorrect legal interpretation or application of tax provisions, such as erroneous determination of taxable persons, taxable events, or tax base, as alleged in this case regarding whether Entry 28.1 TGIS applies to construction land. Under Article 9 of the Civil Code and Article 11 of the General Tax Law (LGT), tax laws must be interpreted according to their letter, legislative intent, and systematic context, prohibiting extensive interpretation beyond clear statutory language. Taxpayers can argue that property classifications under other codes (like CIMI) control tax treatment under CIS pursuant to Article 6 CIS. Procedural grounds include formal defects such as lack of reasoning (falta de fundamentação), which violates Article 77 of the LGT requiring tax authorities to explain factual and legal bases for assessments. The claimant alleged this defect regarding compensatory interest charges. Invalid ancillary charges (like compensatory interest) based on invalid principal tax also constitute grounds for annulment. Additionally, assessments lacking proof of taxpayer fault required for certain charges may be annulled.