Process: 41/2016-T

Date: September 21, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitral decision addresses whether Item 28.1 of the Portuguese Stamp Tax General Table (TGIS), introduced by Law 55-A/2012, applies to building land (terrenos para construção) valued over €1 million. The taxpayer, owner of construction land in Lisbon, challenged a €15,218.85 stamp duty assessment for 2012, arguing that Item 28.1 only applies to buildings with residential use, not undeveloped land for construction. The taxpayer raised several grounds: (1) erroneous application of Item 28.1 since construction land does not constitute 'urban property with residential allocation'; (2) unconstitutionality for violating principles of non-retroactivity, equality, proportionality, legality and legitimate expectations; (3) double taxation due to conflicting references to 2011 and 2012 tax years in assessment notices; and (4) nullity for lack of signature on collection notices. The Tax Authority defended that 'property with residential allocation' is broader than residential buildings per se and encompasses construction land intended for residential development. The arbitral tribunal, constituted under CAAD (Administrative Arbitration Centre), rejected the nullity claim, finding that lack of signature on collection notices does not invalidate the underlying assessment act itself. The central legal question remains whether the legislative intent of Item 28.1 TGIS extends to undeveloped building land or is limited to existing residential properties, with significant implications for real estate taxation on high-value development land in Portugal.

Full Decision

ARBITRAL DECISION

I – Report

  1. On 28.01.2016, the Claimant, A…, Lda., legal entity no. …, with registered office at Rua…, no. …, … left side, Lisbon, notified of the decision dismissing the hierarchical appeal lodged against the decision that dismissed the administrative complaint filed against the stamp duty assessment levied by the Respondent pursuant to Item 28.1 of the respective General Table, relating to the year 2012, with the Claimant as taxpayer, in the amount of 15,218.85 €, referred to in document number 2012…, requested the CAAD to establish an arbitral tribunal, pursuant to art. 10 of Decree-Law no. 10/2011, of 20 January (Legal Regime of Arbitration in Tax Matters, hereinafter referred to only as "LRAT"), in which the Tax and Customs Authority is Respondent, with a view to the declaration of nullity or, subsidiarily, to the annulment of the identified assessment.

  2. The request to establish the arbitral tribunal was accepted by the Honourable President of CAAD and notified to the Tax and Customs Authority.

Pursuant to the provisions of no. 1, art. 6, of LRAT, by decision of the President of the Ethics Council, duly communicated to the parties within the legally applicable periods, the undersigned was appointed arbitrator, who communicated acceptance of the appointment to the Ethics Council and to the Administrative Arbitration Centre within the regularly applicable period.

The Arbitral Tribunal was constituted on 13-04-2016.

  1. Verifying the absence of any situation provided for in art. 18, no. 1, of LRAT, which would necessitate the arbitral hearing provided therein, the holding thereof was dispensed with, on the basis of the prohibition against performing useless acts.

The holding of submissions was also dispensed with, pursuant to art. 18, no. 2, of LRAT, "a contrario".

  1. The grounds presented by the Claimant in support of its claim were, in summary, the following:

• Erroneous application of item no. 28.1 of the General Table of Stamp Tax, as amended by Law no. 55-A/2012, of 29 October, given that the property in question is land for construction and not a building intended for residential use, such that one is not dealing with an urban property with residential allocation, but rather with land for construction, such item 28.1 not being applicable thereto, in the wording applicable at the date of the taxable event.

• Failing such understanding, unconstitutionality of the norm of Item 28.1 of the General Stamp Tax Table applied to the Petitioner's construction land, for violation of the principles of non-retroactivity, equality, proportionality, legality and legitimate expectations.

• Illegality and unconstitutionality due to double taxation, given that the Tax Authority reported the tax to 2011 as the tax year, making mention in the Collection Notice "Tax Year Law 55A/2012", followed immediately by the presentation of the corresponding three Collection Notices, which expressly contain "Tax Year 2012", which constitutes a violation of law and of the Constitution of the Republic and constitutes manifest duplication of the 2012 assessment.

• Breach of letter a), no. 1, art. 123, of the Code of Administrative Procedure, in the wording in force at the date of the facts, from which it followed that administrative acts must always indicate the authority that carried them out, which did not occur in the present case, in which no signature appears on the collection notices, whether typewritten or electronic, which entails the nullity of the assessment act.

  1. The ATA – Tax and Customs Authority, called upon to comment, contested the Claimant's claim. From its response it appears that its position is, in summary, the following:

a) The property on which the challenged assessment falls has the nature of a property with residential allocation, an expression different and broader than the realities identified in art. 6, no. 1, paragraph a), of the Code of Municipal Property Tax, such that the assessment act that is the subject of this request for arbitral ruling should be maintained, as it embodies a correct interpretation of Item 28.1 of the General Table, as amended by Law 55-A/2012, of 29/12.

b) On the other hand, the norm in question does not violate any constitutional principle.

  1. The tribunal is materially competent and is properly constituted pursuant to LRAT.

The parties have standing and capacity, are legitimate, and are legally represented.

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

  1. The following issues must be resolved:

a) Whether the stamp duty assessment act that is the subject of these proceedings is null for breach of art. 123, no. 1, paragraph a), of the Code of Administrative Procedure, in the wording in force at the date of the assessment act at issue.

b) Whether the act in question is tainted by the defect of breach of law, leading to its annulment, for infraction of the norm contained in item 28.1 of the General Table of Stamp Tax.

c) Failing such understanding, whether item 28.1 of the General Table of Stamp Tax violates the Constitution of the Portuguese Republic, with the resulting non-application and consequent declaration of illegality of the tax act.

II – The Relevant Facts

a) The Petitioner is registered in the property register as owner of land for construction, located in the parish of …, in Lisbon, registered in the register under art. …

b) The Respondent carried out, on 7.11.2012, an assessment of Stamp Duty pursuant to Item 28.1 of its General Table, relating to the year 2012, on the identified construction land, with the Claimant as taxpayer, in the amount of 15,218.85 €, referred to in document number 2012…, issued by the Respondent.

c) The Petitioner filed an administrative complaint regarding the assessment, which proceeded under no. …2013…, which was dismissed by decision, having lodged a hierarchical appeal therefrom, which proceeded under no. …2013…, also dismissed by the Respondent on 20.11.2015.

With regard to the resolution of the case, there are no unproven material facts.

  1. The Tribunal's conviction regarding the resolution of the factual matters was based on the documents contained in the case file, as well as on the submissions presented, it being noteworthy that there is complete agreement between the parties regarding the factual matters, the disagreement being confined to legal matters.

III – The Applicable Law

  1. As the Claimant has attributed various defects to the contested tax acts, it is necessary to determine the order of consideration thereof, which must follow that provided for in art. 124 of the Code of Tax Procedural Law, applicable by virtue of art. 29, no. 1, letter a) of LRAT [1].

  2. The Claimant alleges the nullity of the assessment due to lack of signature on the collection notices, invoking art. 123, no. 1, paragraph a) of the Code of Administrative Procedure, in the wording at the date of the tax act, according to which administrative acts must always indicate the authority that carried them out, which it alleges did not occur in the present case, as no signature appears on the collection notices.

However, the alleged nullity is manifestly lacking in merit, since it occurs with the lack of indication of the authority in the act itself, which is not alleged by the Claimant, which only invokes such lack of indication on the collection notices which, clearly, are not to be confused with the assessment act itself.

Accordingly, the invoked defect cannot fail to lack merit, such that consideration proceeds to the assessment of the defect of breach of law, based on the alleged infraction of item 28.1 of the General Table of Stamp Tax.

  1. Item 28 of the General Table of Stamp Tax, in the wording at the date of the facts, provided that ownership of properties with residential allocation with a taxable patrimonial value equal to or exceeding 1,000,000 euros was subject to stamp duty, in the following terms:

"28 – Ownership, usufruct or right of superficies of urban properties whose taxable patrimonial value recorded in the register, pursuant to the Code of Municipal Property Tax (CMPT), is equal to or exceeding 1,000,000 euros – on the taxable patrimonial value used for purposes of Municipal Property Tax:

28.1 – For property with residential allocation – 1%;

28.2 – For property, when the taxpayers who are not natural persons are resident in a country, territory or region subject to a clearly more favourable tax regime, contained in the list approved by order of the Minister of Finance – 7.5%".

  1. It has been abundantly emphasized in various arbitral decisions [3] (namely in proceedings 42/2013-T, 48/2013-T, 49/2013-T, 51/2013-T, 53/2013-T, 144/2013-T and 202/2014-T) that the concept of "property with residential allocation" (which is not the subject of any specific definition in the Code of Stamp Tax) is not used by the CMPT [4], nor in any other legislative instrument.

All these arbitral decisions, whose reasoning is endorsed herein, go essentially in the sense that such concept requires for its satisfaction, at minimum, the actual possibility of the existing property being used for residential purposes, and in all of them it was held that land for construction, even if intended for the construction of residential buildings, does not fall within the concept of "property with residential allocation", as results from the following passages of the mentioned proceedings:

Proceeding 42/2013-T:

"The expression 'residential allocation' does not seem to be able to have any meaning other than 'residential use', that is, urban properties that have an actual use for residential purposes, either because they are licensed for such, or because they have such normal purpose.

And we cannot confuse a 'residential allocation' that implies an actual allocation of an urban property to such purpose, with the expectation, or potentiality, of an urban property being able to have a 'residential allocation'."

Proceeding 49/2013-T:

"The expression 'with residential allocation' conveys, on simple reading, an idea of actual and present functionality. From the norm in question it is not possible to extract, by interpretation, that, as is stated in the respondent's response, the legislator's choice of such expression was intended to encompass 'other realities beyond those identified in article 6, no. 1, paragraph a), of the CMPT.' Such interpretation has no legal basis, in light of the principles contained in articles 9 of the Civil Code and 11 of the General Tax Law.

Indeed, if the legislator intended to encompass within the scope of application of the tax other realities than those resulting from the classification governed by article 6 of the CMPT, it would have said so expressly. But it does not do so, rather referring, as a block, to the concepts and procedures provided for in the said Code."

Proceeding 51/2013-T:

"The point that matters to decide is this: is there a difference between the expression that the CMPT uses of 'urban residential property' and the expression used by article 4 of Law no. 55-A/2012, when alluding to 'property with residential allocation'?

We believe there is not, since the same fundamental meaning prevails, even though using somewhat different words, of taxing the ownership of properties with the same destination, the actuality or the possibility of use being for purposes of human residence, with all the consequences that legislation in general and the CMPT in particular gives to it."

Proceeding 53/2013-T:

"(...) it must be presumed that the use of a different expression is intended to signify a distinct reality, such that, in good hermeneutics, 'property with residential allocation' cannot be a property merely licensed for residence or intended for that purpose (that is, it will not suffice that it be a 'residential property'), it having to be a property that already has actual allocation for that purpose."

Proceeding 144/2013-T:

"(...) we believe that it is necessary, in the interpretation of the provision in item 28.1 of the General Stamp Tax Table, to understand that the residential allocation of an urban property suggests that one gives it such actual purpose, or that one can directly give it such purpose."

Proceeding 202/2014-T

"The expression 'with residential allocation' conveys, on simple reading, an idea of actual and present functionality. From the norm in question it is not possible to extract, by interpretation, that, as is stated in the Respondent's response, the legislator's choice of such expression was intended to encompass 'other realities beyond those identified in article 6, no. 1, paragraph a), of the CMPT.' Such interpretation has no legal basis, in light of the principles contained in articles 9 of the Civil Code and 11 of the General Tax Law."

  1. Likewise, in the judgment of the Supreme Administrative Court, of 09-04-2014, appeal no. 048/14 [5] it was held that:

"The concept of 'property (urban) with residential allocation' was not defined by the legislator. Neither in Law no. 55-A/2012, which introduced it, nor in the Code of Municipal Property Tax, to which no. 2 of article 67 of the Code of Stamp Tax (also introduced by that Law) refers on a subsidiary basis. And it is a concept that, probably due to its imprecision – a fact all the more serious since it is on the basis of it that the scope of the new taxation is determined – had a short life, having been abandoned upon the entry into force of the State Budget Law for 2014 (Law no. 83-C/2013, of 31 December), which gave new wording to that item no. 28 of the General Table, and which now determines its scope of objective application through the use of concepts that are legally defined in article 6 of the Code of Municipal Property Tax.

This amendment – to which the legislator did not attribute an interpretative character, nor does it seem to us that it did – merely makes clear for the future that land for construction on which construction, authorized or foreseen, is for residential purposes is encompassed within the scope of item 28.1 of the General Table of Stamp Tax (provided its taxable patrimonial value is equal to or exceeding 1 million euros), but clarifies nothing, however, with respect to past situations (assessments of 2012 and 2013), such as the one at issue in these proceedings.

Now, as to these, it does not seem possible to follow the interpretation of the appellant, since, contrary to what is alleged, it does not result unequivocally either from the letter or from the spirit of the law that its intention was, ab initio, to encompass within its objective scope of application land for construction for which construction of residential buildings was authorized or foreseen, as now results unequivocally from item 28.1 of the General Table of Stamp Tax."

(...)

"It is concluded, therefore, with the respondent and in accordance with what was decided in the judgment under appeal, that, resulting from article 6 of the Code of Municipal Property Tax a clear distinction between 'residential' urban properties and 'land for construction', the latter cannot be considered (...) as 'properties with residential allocation' for purposes of the provision in item no. 28.1 of the General Table of Stamp Tax, in its original wording, as conferred by Law no. 55-A/2012, of 29 October."

  1. This understanding continued to be followed by the Supreme Administrative Court, uniformly, in the other proceedings in which it was called upon to rule. As can be read in the judgment delivered in proceeding 0707/14, of 10.09.2014 [6]:

"The matter was already decided by this Section of Tax Contentious Proceedings of the Supreme Administrative Court on 9 April 2014, in proceedings nos. 1870/13 (Not yet published in the official gazette, available at http://www.dgsi.pt/jsta.nsf/35fbbbf22e1bb1e680256f8e003ea931/f6fd29ac6d6ebaf380257cc30030891a?OpenDocument.) and 48/14 (Not yet published in the official gazette, available at http://www.dgsi.pt/jsta.nsf/35fbbbf22e1bb1e680256f8e003ea931/0e28073928824e5080257cc3003a0cbd?OpenDocument.), and, since then, reiterated uniformly in numerous judgments, such that it may be considered established case law to the effect that land for construction cannot be considered for purposes of the scope of application of Stamp Tax provided in Item 28.1 (in the wording of Law no. 55-A/2012, of 29 October) as urban properties with residential allocation. This is case law that is also accepted here, as we are in full agreement with it and in light of the provision in no. 3 of article 8 of the Civil Code (CC) (...)."

  1. Thus, a point unequivocally common to all these decisions, which we follow, is the understanding that land for construction, even if intended for residential construction, are not properties with residential allocation. We consider that the application of item no. 28.1 of the General Table of Stamp Tax, in the wording as amended by Law no. 55-A/2012, requires, at minimum, the actuality of the property's allocation for residential purposes, the mere potentiality of construction for residential purposes not being sufficient.

In truth, we consider that, regardless of the reasons that may have led Law no. 55-A/2012 to use the expression "property with residential allocation", instead of "residential property" contained in article 6, no. 1, paragraph a) of the Code of Municipal Property Tax, for the purpose of subsuming a matter within item 28.1 of the Code of Stamp Tax, it cannot be dispensed with requiring, at minimum, the real and actual potential (relative to the taxable event) of the property in question being used for residential purposes.

Land for construction cannot, therefore, be considered a property with "residential allocation", since it consists of a reality not suited to human residence. To achieve such suitability it is necessary for an occurrence of a reality external to it – the construction of the building suited to residence – to take place, following which a construction land ceases to exist and a new reality comes into being: the building. And it is this that can have residential allocation.

Accordingly, land for construction does not fall within the concept of "property with residential allocation" and item 28.1 of the General Table of Stamp Tax is not applicable thereto.

  1. In view of the foregoing, since item 28.1 of the Code of Stamp Tax is inapplicable to the Claimant's property, the Claimant's request for annulment cannot fail to succeed, since the tax act is tainted by the defect of breach of law due to error in legal assumptions, such that the consideration of the other issues capable of substantiating the annulment of the assessment in question is moot.

IV – Decision

Accordingly, the arbitral tribunal decides, ruling on the merits of the request for arbitral ruling:

a) Declare the non-application of item 28.1 of the General Table of Stamp Tax to the property of which the Claimant is registered owner in the urban property register and on which the assessment that is the subject of these proceedings fell.

b) Declare the illegality and the consequent annulment of the tax act at issue.

Amount in controversy: 15,218.85 € (fifteen thousand two hundred eighteen euros and eighty-five cents) pursuant to the provision in article 306, no. 2, of the Code of Civil Procedure and 97-A, no. 1, paragraph a), of the Code of Tax Procedural Law and 3, no. 2, of the Regulation of Costs in Arbitration Proceedings.

Costs to be borne by the Respondent, in the amount of 918.00 € (nine hundred eighteen euros) pursuant to no. 4 of article 22 of LRAT.

Notification to be made.

Lisbon, CAAD, 21.09.2016

The Arbitrator

Marcolino Pisão Pedreiro

[1] See Jorge Lopes de Sousa, Commentary on the Legal Regime of Tax Arbitration, in GUIDE TO TAX ARBITRATION, Coord. Nuno Villa-Lobos and Mónica Brito Vieira, 2013, Almedina, page 202.

[2] This norm was amended upon the entry into force of the State Budget Law for 2014 – Law no. 83-C/2013, of 31 December, expressly broadening the tax base, now including land for construction.

[3] Which can be consulted at the website "https://caad.org.pt/tributario/decisoes/"

[4] Article 67, no. 2, of the Code of Stamp Tax provides that "To matters not regulated in the present Code regarding item no. 28 of the General Table, the provision in the Code of Municipal Property Tax shall apply, on a subsidiary basis." In turn, the Code of Municipal Property Tax uses the concept of urban residential property, being considered as such buildings/constructions licensed for such purpose or those having such normal purpose as their destination, pursuant to article 6, no. 1, paragraphs a) and no. 2. This same article clearly differentiates the concept of land for construction, in its no. 1, paragraph c) and in no. 3.

[5] Available at http://www.dgsi.pt/.

[6] Also available at http://www.dgsi.pt/.

Frequently Asked Questions

Automatically Created

Does Verba 28.1 of the Portuguese Stamp Tax General Table apply to building land (terrenos para construção)?
The application of Verba 28.1 TGIS to building land (terrenos para construção) is the central disputed issue in this case. The taxpayer argues that Item 28.1 applies only to buildings intended for residential use, not to undeveloped construction land, since construction land does not constitute 'urban property with residential allocation' under the provision's wording. The Tax Authority counters that 'property with residential allocation' is a broader concept than those defined in Article 6(1)(a) of the Municipal Property Tax Code and encompasses construction land designated for residential development. The resolution of this interpretative question determines whether high-value building land (over €1 million patrimonial value) falls within the scope of the stamp duty introduced by Law 55-A/2012 of October 29.
Can a taxpayer challenge a Stamp Tax assessment on building land valued over €1 million through CAAD arbitration?
Yes, taxpayers can challenge Stamp Tax assessments on building land valued over €1 million through CAAD (Centro de Arbitragem Administrativa) arbitration. This case demonstrates the procedure: after the Tax Authority issued a stamp duty assessment under Item 28.1 TGIS, the taxpayer first filed an administrative complaint (reclamação graciosa), which was dismissed. The taxpayer then lodged a hierarchical appeal (recurso hierárquico), which was also dismissed on November 20, 2015. Following exhaustion of administrative remedies, the taxpayer requested establishment of an arbitral tribunal under Article 10 of Decree-Law 10/2011 (RJAT - Legal Regime of Tax Arbitration). The CAAD President accepted the request, appointed an arbitrator, and the tribunal was constituted on April 13, 2016, demonstrating that CAAD provides an effective alternative dispute resolution mechanism for challenging such assessments.
Is the application of Verba 28.1 TGIS to building land unconstitutional under principles of equality and proportionality?
The taxpayer raised several constitutional challenges to the application of Verba 28.1 TGIS to building land. The grounds included: (1) violation of the principle of non-retroactivity, as Law 55-A/2012 was applied to property already owned; (2) breach of the equality principle, potentially treating construction land differently from other property types without objective justification; (3) violation of proportionality, as the tax burden may be excessive relative to the legitimate aims; (4) infringement of the legality principle; and (5) breach of legitimate expectations, as property owners could not foresee this tax when acquiring the land. The Tax Authority defended the constitutionality of the norm. However, the decision text as provided does not contain the tribunal's final ruling on these constitutional questions, which would require analysis of whether the legislative distinction is objectively justified and proportionate to the fiscal policy objectives underlying the stamp duty on high-value properties.
What constitutes double taxation when Stamp Tax is assessed on building land for both 2011 and 2012 under Lei 55-A/2012?
The taxpayer alleged double taxation based on inconsistencies in the assessment notices. According to the complaint, the Tax Authority initially reported the tax to 2011 as the tax year, with the collection notice mentioning 'Tax Year Law 55A/2012', but then immediately issued three separate collection notices expressly stating 'Tax Year 2012'. The taxpayer argues this constitutes both a violation of law and the Portuguese Constitution, representing manifest duplication of the 2012 assessment. This raises the question of whether the same property was taxed twice for overlapping periods, which would constitute prohibited double taxation. The confusion appears to stem from the transitional application of Law 55-A/2012, which introduced Item 28.1 TGIS in late 2012, creating potential ambiguity about which tax year(s) should be charged for properties owned during the law's implementation period.
What is the procedure for filing a hierarchical appeal after a rejected gracious complaint against a Stamp Tax liquidation in Portugal?
The procedure for challenging a Stamp Tax liquidation in Portugal follows a structured administrative and judicial path. First, the taxpayer must file a gracious complaint (reclamação graciosa) with the Tax Authority against the assessment act. If this administrative complaint is dismissed, the taxpayer can lodge a hierarchical appeal (recurso hierárquico) to a superior administrative authority within the Tax and Customs Authority. In this case, both the administrative complaint (proceeding under number ...2013...) and the hierarchical appeal (proceeding under number ...2013...) were dismissed, with the final administrative decision issued on November 20, 2015. After exhausting these administrative remedies, the taxpayer can seek judicial review through regular tax courts or, alternatively, request arbitration through CAAD under the Legal Regime of Tax Arbitration (RJAT - Decree-Law 10/2011). The arbitration request must be filed within the statutory deadline following notification of the hierarchical appeal decision, as occurred here when the taxpayer filed on January 28, 2016.