Process: 418/2016-T

Date: April 17, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

Process 418/2016-T examines whether Verba 28.1 of the TGIS (Stamp Tax General Table) applies to urban land classified as construction land (terreno para construção) with a property tax value (VPT) exceeding one million euros. The taxpayer, A... LDA, challenged a 2015 Stamp Tax assessment of €16,511.70 on building land in Coimbra registered with a 'residential' location coefficient but lacking approved feasibility requests, subdivision permits, or building licenses. The case centers on interpreting 'urban properties with residential use' under Law 55-A/2012, which introduced a 1% annual stamp duty on high-value residential properties as a budgetary control measure during Portugal's financial emergency. The taxpayer argued that construction land without approved residential projects should not qualify as property 'with residential use' under Verba 28.1, challenging the assessment on grounds of illegality and, subsidiarily, unconstitutionality. The Tax Authority defended the assessment, asserting correct legal interpretation. The arbitral tribunal, constituted under CAAD (Administrative Arbitration Center) jurisdiction pursuant to RJAT (Legal Regime of Tax Arbitration), examined two core issues: whether the incidence provision encompasses building land without approved residential development, and whether such application violates constitutional principles. The decision acknowledges widespread controversy surrounding this taxation, including doubts about its constitutional validity regarding property rights, equality principles, and retroactive effect concerns. The case exemplifies interpretive challenges in applying Verba 28.1 to properties with potential rather than actual residential use, with significant implications for landowners holding high-value undeveloped urban parcels.

Full Decision

ARBITRAL DECISION

1. Report

A…, LDA, NIPC…, with registered office at …, …, …, …-…, came to request the establishment of an Arbitral Tribunal pursuant to the corresponding Legal Regime of Tax Arbitration, for examination of the legality of the assessment of Stamp Duty, item 28.1 of the TGIS with number 2016…, relating to the year 2015, in the amount of €16,511.70 (sixteen thousand, five hundred and eleven euros and seventy cents), relating to an urban property registered in the corresponding property register under article no. U-…, situated in the District and Municipality of Coimbra, Union of the parishes of … and …, with final payment date for the first installment in April 2016.

The Tax and Customs Authority is the respondent.

The application for establishment of the arbitral tribunal was submitted on 21 July 2016, was accepted by the President of CAAD and was subsequently notified to the Tax and Customs Authority.

Pursuant to the provisions of subparagraph a) of section 2 of article 6 and subparagraph b) of section 1 of article 11 of the RJAT, the Ethics Council designated the undersigned arbitrator, who duly communicated acceptance of the appointment.

In accordance with the requirements set out in subparagraph c) of section 1 of article 11 of the RJAT, the single arbitral tribunal was established on 18 October 2016.

The Tax and Customs Authority submitted a response.

By order of 16 February 2017, the hearing provided for in article 18 of the RJAT was dispensed with and a time limit was set for the parties' submissions, which they proceeded to make, maintaining their initial positions.

The arbitral tribunal was duly constituted and has jurisdiction.

The parties have legal personality and capacity, are legitimate and are duly represented. (articles 4 and 10, section 2, of the same statute and article 1 of Ordinance no. 112-A/2011, of 22 March).

The proceedings are not affected by nullities.

2. Subject Matter of the Dispute

The issue in the case concerns the application of the new taxation in Stamp Duty imposed on urban properties with residential use and property patrimonial value equal to or greater than one million euros, introduced in 2012 to strengthen budgetary control measures from the revenue side, within a framework of financial emergency, with the amendment of 2013, which applies to the years 2014 and following.

As is well known, this taxation has raised strong doubts and considerable challenge. This is not only for specific cases of its application (e.g., vertical property, building land, now of mixed use, or the application of the item to the year 2012), but also in general terms, due to its possible unconstitutionality (see Luís Menezes Leitão, On the Taxation in Stamp Duty of Luxury Real Property (item 28.1 TGIS), in Tax Arbitration no. 1, p. 44 et seq).

The applicant comes, precisely, to challenge the application of the taxation resulting from the application of the new item 28.1 of the TGIS to urban properties corresponding to building land, requesting the annulment of the corresponding Stamp Duty assessment, on the grounds of illegality and, subsidiarily, of unconstitutionality.

As mentioned, the assessment was made under the provisions of item 28.1 of the Table attached to the Stamp Duty Code, with the wording introduced in 2013.

The Tax and Customs Authority contested this, acknowledging the facts invoked, but specifically refuting the defects of violation of law and unconstitutionality attributed to the tax act, concluding instead that the assessment in question constitutes a correct interpretation and application of the law to the facts.

3. Factual Matters

The Stamp Duty assessment in question relates to the year 2015, is based on item 28.1 of the TGIS, amounts to a total of €16,511.70 (sixteen thousand, five hundred and eleven euros and seventy cents), bears the number 2016…, relating to the year 2015, in the amount of €16,511.70 (sixteen thousand, five hundred and eleven euros and seventy cents), relates to an urban property registered in the corresponding property register under article no. U-…, situated in the District and Municipality of Coimbra, Union of the parishes of … and …, with final payment date (for the first installment) in April 2016.

3.1. Proven Facts

  1. The applicant is the owner of the property corresponding to building land, situated in the Union of Parishes of … and … (property article U-…), with a property patrimonial value exceeding one million euros.

  2. The applicant was notified of the Stamp Duty assessment act number 2016…, corresponding to the assessment of stamp duty, with reference to the year 2015.

  3. The final date for payment of the first installment was April 2016.

  4. In 2015 the aforementioned property was registered in the corresponding property register as "building land", with still listed as "Type of location coefficient" the reference "Residential".

  5. The land in question may have as its intended use construction for residential purposes, among others, but there is no approved feasibility request, subdivision permit, or building license.

3.2. Unproven Facts

Relevant to the assessment of the merits of the case, there are no unproven facts.

3.3. Additional Factual Matters

No other facts with relevance to the assessment of the merits of the case were alleged by the parties that were not proven.

3.4. Justification for the Determination of Factual Matters

The proven and unproven facts are based on the parties' submissions and on the documents offered, whose correspondence to reality is not disputed.

4. Matters of Law

The issue in question in the present action is whether the provision of incidence invoked includes building land in relation to which there is no approved feasibility request, no subdivision permit, nor any building license and, if the answer is affirmative, whether such provision of incidence is in accordance with the Constitution.

The respondent claims lack of jurisdiction of the tribunal and non-arbitrability of the claim, without justification however, since the application for annulment is based on the intended verification of defects of violation of law and unconstitutionality in the specific case, and not on an alleged abstract review of the legality or constitutionality of the rule.

Regarding the factual matters, the Tribunal is not required to pronounce itself on everything alleged by the parties; rather, it is its duty to select the facts that are relevant to the decision and to distinguish the proven from the unproven matters - (cf. article 123, section 2, of the CPPT and article 607, section 3 of the CPC, applicable by virtue of article 29, section 1, subparagraphs a) and e), of the RJAT).

Thus, the facts relevant to the judgment of the case should be chosen and selected based on their legal relevance, which is established with regard to the various plausible solutions of the legal question(s) (cf. former article 511, section 1, of the CPC, corresponding to current article 596, applicable by virtue of article 29, section 1, subparagraph e), of the RJAT).

Taking into account the positions taken by the parties, in light of article 110/7 of the CPPT, the documentary evidence and the Administrative Process attached to the records, the facts listed above were considered proven and relevant to the decision.

4.1. Regime of Law no. 55-A/2012, of 29 October

Law no. 55-A/2012, of 29 October, made various amendments to the Stamp Duty Code and added to the TGIS item 28, with the following wording:

28 – Ownership, usufruct or right of surface of urban properties whose property patrimonial value shown in the register, pursuant to the Municipal Property Tax Code (CIMI), is equal to or greater than €1,000,000 – on the property patrimonial value used for the purposes of IMI:

28.1 – For property with residential use – 1%;

28.2 – For property, when the taxpayers who are not individuals are residents in a country, territory or region subject to a clearly more favorable tax regime, included in the list approved by ordinance of the Minister of Finance – 7.5%.

4.2. Amendment to the Wording of Item 28.1 of the TGIS Occurring in 2013

By the amendment contained in the Budget Law for 2014 (Law no. 83-C/2013 of 31 December), item 28 of the TGIS provided, at the date of the facts, the following:

28 Ownership, usufruct or right of surface of urban properties whose property patrimonial value shown in the register, pursuant to the Municipal Property Tax Code (CIMI), is equal to or greater than €1,000,000 - on the property patrimonial value used for the purposes of IMI: (Added by article 4 of Law no. 55-A/2012 of 29 October)

28.1 For residential property or for building land whose construction, authorized or planned, is for residential purposes, pursuant to the provisions of the Municipal Property Tax Code (Amended by article 194 of Law no. 83-C/2013 of 31 December) - 1%

4.3. Scope of Item 28.1 of the TGIS

In accordance with item 28.1 of the TGIS, in its initial wording, ownership, usufruct and right of surface over urban properties with residential use and whose property patrimonial value shown in the register, pursuant to the Municipal Property Tax Code, equal to or greater than €1,000,000, were thus subject to tax.

Within the period of validity of that previous wording of item 28.1 of the TGIS, it was concluded in various tax arbitration proceedings that the expression "residential use", contained in the text of the rule then in force, referred to "use" for residential purposes, that is, to urban properties that had actual use for residential purposes (cf., in particular, proceedings 42/2013-T, 48/2013-T, 49/2013-T, 53/2013-T, 75/2013-T, 144/2013-T and 158/2013-T).

With the amendment that occurred in 2013 and which extended to the years 2014 and following – thus including the year 2015, to which the disputed assessment relates - building land whose construction, authorized or planned, is for residential purposes, pursuant to the provisions of the Municipal Property Tax Code, also became subject to taxation at the rate of 1% on the corresponding property patrimonial value.

Item 28.1 of the TGIS was thus clarified, to the effect of including, in addition to residential properties (referred to in subparagraph a) of section 1 and section 2 of article 5 of the CIMI), also building land (i.e., the type of property provided for in subparagraph d) of section 1 of the same article of the CIMI), provided that construction for residential purposes has been authorized or is planned (it remaining controversial how the authorization or planning is materialized, whether such construction should be total or merely partial and, in this case, what value should be considered for the purposes of subjection to taxation).

It must not fail to be considered that such use must be total. It is this taxable capacity that the legislator intends to tax ("luxury homes"). If the use, authorized or planned, is mixed (commerce, residential, parking and facilities), the taxable capacity that the legislator deemed relevant cannot be considered verified (cf. statements of the transferor, Municipal Council of …, in the deed of transfer).

4.4. The Authorization, Project or Planning of Residential Purpose

Furthermore, from the records it appears that there is not yet authorization, project or planning of construction intended for residential purposes, in order to be subject to Stamp Duty pursuant to item no. 28.1 of the TGIS.

The respondent merely alleges that, being the urban property building land to which residential use was attributed within the scope of its respective valuation and such use being recorded in the respective property register, it is subject to Stamp Duty, an understanding and factuality that also results from the administrative process itself. Now this is not necessarily so. In this sense, the following decisions were issued in proceedings conducted before the arbitral tribunals that operated within the CAAD: Proceeding no. 447/2016-T with decision of 30/11/16; Proceeding no. 415/2016-T with decision of 10/1/17, Proceeding no. 387/2016-T with decision of 21/11/16, Proceeding no. 294/2016-T with decision of 6/2/17 (where unconstitutionality of the rule is also claimed), Proceeding no. 290/2016-T with decision of 26/10/16.

As is stated in the arbitral decision issued in proceeding no. 467/2015-T, of 4/2/2016 and cited in the arbitral decision issued in proceeding 294/2016/T, there is incidence if the residential use results from a subdivision operation license, building license, authorization for subdivision operation, authorization for construction, admitted favorable prior notification of subdivision operation or construction, issued favorable prior information of subdivision operation or construction or has thus been declared in the acquisition title. One should not, therefore, conclude immediately and without further ado, that in 2015 building land (even if residential, in accordance with the property register) can be subject to Stamp Duty, pursuant to item 28.1 of the TGIS (in its current wording), for this reason: … "The essential question that, [in the context of the new wording of item 28.1 of the TGIS, given by art. 194 of Law no. 83-C/2013, of 31/12,] arises, is to determine whether, … «without [...] that prediction or expectation of 'construction for residential purposes' [...] materialized», the application of the Stamp Duty here under analysis can be accepted [...]. To answer the aforementioned question, the consideration of the following appears to be particularly useful: «With regard to building land, whether or not located within an urban agglomeration, as defined in art. 3/4 of this statute [CIMI], must, as such, be considered the land in relation to which the following have been granted: - license for subdivision operation; - building license; - authorization for subdivision operation; - authorization for construction; - admitted favorable prior notification of subdivision operation or construction; issued favorable prior information of subdivision operation or construction, as well as; - those which have thus been declared in the acquisition title, it being understood that, also for that purpose, only the acquisition title with the form prescribed by civil law should be relevant, that is, the public deed or the authenticated private document referred to in art. 875 CC.» [see. António Santos Rocha / Eduardo José Martins Brás – Taxation of Patrimonial Property. IMI-IMT and Stamp Duty (Annotated and Commented). Coimbra, Almedina, 2015, p. 44]." ….

It happens, as mentioned, that it is not demonstrated that the building land in question had authorization, project or planning of construction for residential purposes. Moreover, the reference that is found (deed of purchase and sale) is to mixed use.

For which reason it must be concluded that it is not subject to Stamp Duty pursuant to item no. 28.1 of the TGIS.

As was already mentioned, both in the administrative process and in the records, only the "Location coefficient: residential" and "Use: residential" are alleged and only proven to be so, which under the terms cited above is insufficient to justify the intended assessment. This is because the burden of proving those presuppositions legitimating taxation lay with the respondent. It happens that it does not demonstrate them, by not evidencing the authorization or the planning of construction intended for residential purposes, thus not proving the satisfaction of the scope of taxation of the tax that serves as the basis for the assessment. For construction having been authorized, projected or planned for residential purposes constitutes a fact whose proof is incumbent upon the respondent, because it constitutes an essential fact in the application of the rule, as an element of real tax incidence and is, therefore, constitutive of the right to assess it.

4.5. Total or Partial Use

As was stated, the applicant came to request the nullity or voidability of the assessment, invoking defect of violation of law and only subsidiarily, defect of unconstitutionality.

As was seen, in addition to there being no basis for the assessment, it further happens that in the case sub judice the respondent did not attempt to purge from the tax base the non-residential use of the property in question, limiting itself to the use mentioned in the property register. From this it follows that the non-residential component that influenced the property valuation of the property concurs for the purposes of the incidence of the tax, thus taxing a taxable capacity that the legislator did not intend to tax.

On the other hand, it would be far too evident the burden on mixed-use buildings with a residential component, for which no justifying reason is apparent. Thus, such interpretation does not appear reasonable, being instead clearly arbitrary (see in this regard the arbitral decision of 6/2/17, in Proceeding no. 294/2016-T). Such an interpretation would thus violate the principle of equality and, to that extent, would be unconstitutional, as the applicant (subsidiarily) claims. And, if that were the interpretation to be given to the rule, then, it would be affected by the same subsidiarily invoked defect of unconstitutionality, by violation of the principle of equality (cf. Arbitral Decision in proceeding 454/2016-T).

4.7. Conclusion

In these terms, the tax assessment should be considered voidable, by defect of violation of law, given that the interpretation given to item 28.1 of the TGIS in the concrete tax act here in question is illegal, by applying to land for which there was no approved feasibility request, subdivision permit or building license and whose construction mentioned in the acquisition title even presupposed mixed use.

5. Operative Clause

In accordance with the foregoing, it is decided to judge the application for annulment as well-founded and, consequently, to annul the above-identified tax assessment, on the ground of defect of violation of law.

6. Value of the Case

In accordance with the provisions of article 306, sections 1 and 2, of the CPC and 97-A, section 1, subparagraph a), of the CPPT and 3, section 2, of the Costs Regulation in Tax Arbitration Proceedings, the value of the case is fixed at €16,511.70 (sixteen thousand, five hundred and eleven euros and seventy cents).

7. Costs

Pursuant to article 22, section 4, of the RJAT, the amount of costs is fixed at €1,224.00 (one thousand, two hundred and twenty-four euros), pursuant to Table I attached to the Costs Regulation in Tax Arbitration Proceedings, entirely at the charge of the Tax and Customs Authority.

Text prepared by computer, in accordance with the Civil Procedure Code (CPC), applicable by reference from article 29, section 1, subparagraph e) of the RJAT, with blank lines and revised by the undersigned arbitrator.

Lisbon, 17-4-2017

The Arbitrator

(Jaime Carvalho Esteves)

Frequently Asked Questions

Automatically Created

Does Verba 28.1 of the TGIS apply to urban land classified as construction land (terreno para construção) with a VPT above one million euros?
The application of Verba 28.1 of the TGIS to construction land (terreno para construção) with VPT above one million euros is the central controversy in Process 418/2016-T. The provision targets 'urban properties with residential use,' but its extension to building land without approved residential projects, subdivision permits, or building licenses raises interpretive questions. While the land may be registered with a 'residential' location coefficient and have potential residential use, the taxpayer argues this differs from actual 'residential use' contemplated by the law. The Tax Authority maintains the assessment is legally correct. This dispute reflects broader uncertainty about Verba 28.1's scope, particularly regarding properties with potential versus actual residential character.
What is the legal basis for challenging Stamp Tax (Imposto do Selo) assessments on high-value urban properties before the CAAD?
The legal basis for challenging Stamp Tax assessments on high-value urban properties before CAAD is established in the Regime Jurídico da Arbitragem Tributária (RJAT - Legal Regime of Tax Arbitration). Taxpayers may request establishment of an arbitral tribunal pursuant to articles 2(a) and 11(1)(b) of RJAT to examine the legality of tax assessments, including claims of violation of law and unconstitutionality in specific cases. The application must be accepted by the CAAD President, who then designates an arbitrator. CAAD tribunals have jurisdiction over tax disputes as specified in RJAT article 4, with single-arbitrator tribunals constituted per article 11(1)(c). This system provides an alternative to judicial courts for resolving tax controversies through binding arbitration.
How does the CAAD arbitration procedure work for disputes involving Stamp Tax on urban real estate in Portugal?
The CAAD arbitration procedure for Stamp Tax disputes on urban real estate follows RJAT provisions. The taxpayer submits an application requesting establishment of an arbitral tribunal, which the CAAD President reviews and accepts if procedurally proper. The President designates an arbitrator per RJAT articles 6(2)(a) and 11(1)(b), who communicates acceptance. Once constituted per article 11(1)(c), the tribunal notifies the Tax Authority to submit a response. The tribunal may dispense with hearings under article 18 if appropriate, setting deadlines for written submissions. Parties maintain their positions through memorial briefs. The arbitrator examines factual matters based on documentary evidence and parties' admissions, selects legally relevant facts per article 29(1) RJAT (incorporating CPPT article 123(2) and CPC article 607(3)), and issues a binding arbitral decision on legality and constitutional questions.
Can a taxpayer contest the 2015 Stamp Tax assessment on construction land under the Regime Jurídico da Arbitragem Tributária (RJAT)?
Yes, a taxpayer can contest the 2015 Stamp Tax assessment on construction land under RJAT. Process 418/2016-T demonstrates this: the taxpayer filed an application in July 2016 challenging the 2015 assessment (number 2016…) for €16,511.70 based on Verba 28.1 TGIS. The arbitral tribunal was properly constituted in October 2016 under RJAT articles 4 and 10(2), confirming jurisdiction, legal personality, capacity, and legitimacy of parties. The tribunal explicitly rejected the Tax Authority's preliminary objections regarding jurisdiction and arbitrability, clarifying that challenges based on violation of law and unconstitutionality in specific cases (not abstract review) fall within CAAD competence. The 2015 assessment, with first installment due April 2016, was timely challenged within RJAT statutory deadlines.
What are the constitutional concerns regarding the application of Verba 28.1 of the TGIS to construction land for residential purposes?
Constitutional concerns regarding Verba 28.1 application to construction land include potential violations of equality principles (treating undeveloped land with merely potential residential use identically to actual residential properties), property rights protections (imposing annual wealth taxation on unrealized development potential), and legal certainty (ambiguous scope of 'residential use'). The decision notes 'strong doubts and considerable challenge' to this taxation generally, citing scholarly criticism by Luís Menezes Leitão regarding possible unconstitutionality of luxury real property taxation. Specific concerns for construction land involve: whether taxing based solely on a 'residential' location coefficient without approved projects constitutes arbitrary classification; whether annual recurring taxation on undeveloped assets exceeds proportionality limits; and whether retroactive application (law introduced 2012, amended 2013, applied to subsequent years) violates legitimate expectations. The tribunal acknowledges these systematic constitutional questions while examining the specific case application.