Process: 42/2016-T

Date: September 19, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD arbitration process 42/2016-T examines whether building land (terrenos para construção) qualifies as property with residential use allocation subject to Stamp Tax under item 28.1 of the General Table (TGIS). The claimant challenged a €5,700.96 Stamp Tax assessment on undeveloped construction land in Silves, arguing that bare land without any dwelling cannot be considered residential property since residential allocation presupposes habitability. The claimant further contended this creates unconstitutional double taxation with Municipal Property Tax (IMI), as both taxes apply to the same property with identical objective and subjective incidence. The Tax Authority countered that 'property with residential use allocation' differs from 'residential property,' relying on the allocation coefficient under article 41º of the Municipal Property Tax Code (CIMI). Since Stamp Tax legislation lacks definitions for 'urban property' and 'residential use allocation,' the Authority argued for subsidiary application of CIMI definitions per article 67(2) CIS. The Authority maintained that land for construction receives an allocation coefficient for valuation purposes under CIMI methodology, making item 28.1 TGIS applicable. The central legal question is whether undeveloped construction land can bear residential allocation for Stamp Tax purposes when no habitable structure exists. The case highlights the interpretative tension between formal valuation classifications and substantive property characteristics in tax law application.

Full Decision

ARBITRAL DECISION

Proceeding 42/2016-T

Arbitral Decision

Subject Matter: Stamp Tax – Land for Construction

Claimant: A... –SA

Respondent: AT - Tax and Customs Authority

I - REPORT

  1. Request

A... –SA, taxpayer no., with registered office at ..., hereinafter referred to as the Claimant, filed, on 28-01-2016, pursuant to the provisions of paragraph a) of no. 1 of article 2º and article 10º of Decree-Law no. 10/2011, of 20 January, which approves the Legal Regime of Arbitration in Tax Matters (RJAT), a request for arbitral pronouncement, in which the Respondent is the AT - Tax and Customs Authority, with a view to:

  • The declaration of illegality of the act of assessment of Stamp Tax no. 2011 ..., carried out under item 28.1 of the General Table of Stamp Tax (TGIS), concerning the land for construction corresponding to article ... of the parish of ..., in the municipality of Silves, in the amount of 5,700.96 euros.

  • The declaration of illegality of the act of rejection of the administrative complaint and of the consequent hierarchical appeal filed against such assessment act;

The Claimant alleges, in essence and with relevance to the decision of the case, the following:

  • The Claimant was not notified of the assessment impugned, to which the Respondent was obliged under article 23º, no. 7 of the Stamp Tax Code (CIS) and article 60º of the General Tax Law (LGT);

  • The Claimant became aware of the assessment through the collection document sent to her concerning the same assessment;

  • The urban property on which the stamp tax assessment impugned was levied is land for construction, on which there existed no building or works at the date of the taxable event, which means that the land in question is excluded from the scope of item 28.1 of the General Table of Stamp Tax (TGIS);

  • In effect, land for construction is not property allocated to residential use, as residential allocation presupposes habitability, which does not exist in land for construction;

  • The incidence of Stamp Tax on the property in question would further lead to a situation of double taxation, since the same property is also subject to Municipal Property Tax and both the objective and subjective incidence coincide in both taxes;

  • The tax established through item 28.1 of the TGIS is unconstitutional as it applies only to properties intended for residential purposes, leaving out all other types of real property assets, thereby creating fiscal inequality;

  1. Response of the Respondent

In response to the request for pronouncement presented by the Claimant, the Respondent AT - Tax and Customs Authority alleges, with impugnatory relevance:

  • Through the assessment impugned, the Respondent merely proceeded to apply the law directly, without any subjective or discretionary appreciation;

  • The property in question was assigned residential use allocation through its respective valuation, and thus is subject to stamp tax;

  • "Property with residential use allocation" is not the same as "residential property", the first definition appealing to the allocation coefficient provided for in article 41º of the Municipal Property Tax Code;

  • As there is no definition in Stamp Tax of what is meant by "urban property", "land for construction" and "residential use allocation", it is necessary to recur subsidiarily to the CIMI to obtain a definition that allows assessment of possible Stamp Tax liability, in accordance with the provisions of article 67º, no. 2 of the CIS.

  • Article 6º, no. 1 of the CIMI includes in the category of urban properties land for construction, which are defined (no. 1 of the same provision) as lands situated within or outside an urban settlement, for which building or development authorization or permit has been granted, prior notification admitted or favorable prior information issued for subdivision or building operations and also those thus declared in the acquisition title, excepting lands where the competent entities prohibit any of such operations...

  • The notion of "allocation of urban property" is found in the part relating to valuation of properties, since the purpose of property valuation "is to incorporate value into it", constituting a decisive distinguishing factor (coefficient) for valuation purposes.

  • The legislator chose to determine the application of the methodology of valuation of properties in general to the valuation of land for construction, and consequently the allocation coefficient provided for in article 41º of the CIMI applies to them.

  • Thus, for purposes of determining the taxable property value of land for construction, the application of the allocation coefficient is clear, and from such assertion it follows that the consideration for purposes of item 28 of the TGIS cannot be ignored.

  1. Subsequent Procedural Steps

By proposal and with the agreement of both parties, the Tribunal decided, by order of 14-09-2016, to dispense with the holding of the hearing provided for in article 18º of the RJAT.

The parties dispensed with the filing of final submissions.

II - JUDICIAL STREAMLINING

The singular Arbitral Tribunal was duly constituted on 14-04-2016, with the arbitrator appointed by the Deontological Council of CAAD, with compliance with the respective legal and regulatory formalities (articles 11º, no. 1, paragraphs a) and b) of the RJAT and 6º and 7º of the Deontological Code of CAAD), and is competent ratione materiae, in accordance with article 2º of the RJAT.

The parties have legal personality and capacity, are legitimate and are duly represented, under the terms of articles 4º and 10º of the RJAT and article 1º of Ordinance no. 112-A/2011, of 22 March.

No procedural defects were identified.

Nothing therefore prevents the examination of the merits of the case.

III - ISSUES TO BE DECIDED

The only issue to be decided is whether land for construction should be considered "property with residential use allocation", for purposes of applying item 28.1 of the General Table of Stamp Tax, with the wording this provision had on 31.12.2013, the date on which the verification of the taxable event should be assessed.

IV - FACTS PROVEN

The following facts are considered proven and relevant to the decision:

  • The Claimant was not notified of the Stamp Tax assessment no. 2011 ..., carried out under item 28.1 of the General Table of Stamp Tax (TGIS), concerning the land for construction corresponding to article ... of the parish of ..., of which she was owner at the time of the assessment;

  • The Claimant became aware of such assessment through the respective collection document;

  • The assessment refers to the property with the land registration article ... of the parish of ..., in the municipality of Silves;

  • The amount of tax assessed is 5,700.96 euros.

V - REASONING

In accordance with no. 1 of article 1º of the Stamp Tax Code (CIS), this tax applies "to all acts, contracts, documents, titles, papers and other facts or legal situations provided for in the General Table". Therefore, the application of Stamp Tax (IS) is determined by the combination of the aforementioned provision with the various items or entries of the General Table of Stamp Tax (TGIS), which specify the acts, contracts, documents, papers and other facts or legal situations to which the tax applies.

Item 28 of the TGIS, in the wording in force until 31 December 2013, defined as the taxable event the "ownership, usufruct or right of superficies of urban properties whose taxable property value stated in the register, in accordance with the Municipal Property Tax Code (CIMI), is equal to or exceeding 1,000,000 euros" and determines that the tax shall apply to the taxable property value used for purposes of Property Tax.

The tax did not apply to any urban property with the property value stated, but only to two categories of urban properties, provided for in items 28.1 and 28.2. As to the first – the only one relevant to the case at bar – it was determined therein that urban properties with residential use allocation were subject to tax.

Thus, among other situations, the IS would apply to (ownership, usufruct or right of superficies over) properties that, cumulatively, were urban, had residential use allocation and whose taxable property value stated in the register in accordance with the CIMI was equal to or exceeding 1,000,000 euros.

The question of whether land for construction, such as that on which the Stamp Tax assessment here impugned was levied, falls within the provision of the rule of incidence contained in item 28.1 of the TGIS (in the wording it had until 31 December 2013) has been examined on several occasions by the Supreme Administrative Court.

In all decisions, the Court considered that the concept of "property with residential use allocation", contained in item 28.1 of the TGIS, does not encompass land for construction, of any type.

In judgment of 9 April 2014, (case no. 1870/13), the SAC pronounced itself on the issue in the following terms:

"The concept of "(urban) property with residential use allocation" was not defined by the legislator. Neither in Law no. 55-A/2012, which introduced it, nor in the Property Tax Code, to which no. 2 of article 67º of the Stamp Tax Code (equally 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 as it is based on it that the scope of objective incidence of the new taxation is determined –, had a short life, as it was abandoned when Law no. 83-C/2013, of 31 December, on the State Budget for 2014 came into force, which gave new wording to that item no. 28 of the General Table, and which now determines its scope of objective incidence through the use of concepts that are legally defined in article 6º of the Property Tax Code.

This amendment – to which the legislator did not attribute an interpretive character, nor does it appear to us that he did –, merely makes clear for the future that land for construction whose building, authorized or planned, is for residential purposes is encompassed in the scope of item 28.1 of the General Table of Stamp Tax (provided that the respective taxable property value is of a value equal to or exceeding 1 million euros), but clarifies nothing, however, regarding past situations (assessments of 2012 and 2013), such as the one at issue in the present case.

Now, as to these, it does not appear that the interpretation of the appellant can be upheld, as it does not result unequivocally either from the letter or from the spirit of the law that its intention was, ab initio, to encompass in its scope of objective incidence land for construction for which authorization or planning of construction of residential buildings has been provided, as clearly results today from item 28.1 of the General Table of Stamp Tax.

From the letter of the law nothing unequivocal results, in fact, as it itself, by using a concept which it did not define and which was also not defined in the statute to which it referred on a subsidiary basis, unnecessarily lent itself to ambiguities, in a matter – of tax incidence – in which certainty and legal security should also be paramount concerns of the legislator.

And from its "spirit", ascertainable in the statement of reasons of the bill that is at the origin of Law no. 55-A/2012 (Bill no. 96/XII – 2ª, Journal of the Assembly of the Republic, series A, no. 3, 21/09/2012, p. 44, available at www.parlamento.pt) nothing more results than the concern to generate new fiscal revenue, from sources of wealth "spared" in the past from the ravages of the Tax Authority compared to employment income, in particular income from capital, securities gains and property ownership, reasons that bring no relevant contribution to the clarification of the concept of "(urban) properties with residential use allocation", as they give it as settled, without any concern to clarify it. Such clarification must, however, have emerged – as informed in the Arbitral Decision handed down on 12 December 2013, in case no. 144/2013-T, available in the CAAD database –, when that bill was presented and discussed in the Assembly of the Republic, in the words of the Secretary of State for Tax Affairs, who is said to have expressly referred, as appears from the Journal of the Assembly of the Republic (DAR I Series no. 9/XII – 2, of 11 October, p. 32) that: "The Government proposes the creation of a special rate on urban residential properties of higher value. This is the first time that Portugal creates a special taxation on high-value properties intended for residential purposes. 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), from which it is gathered that the reality to be taxed in view is, after all, and despite the terminological imprecision of the law, "(urban) residential properties", in common language "houses", and not other realities.

The fact that it can be considered that in determining the taxable property value of urban properties classified as land for construction the allocation which the building authorized or planned for it will have should be taken into account for determining the respective value of the site area (see nos. 1 and 2 of article 45º of the CIMI), does not determine that land for construction can be classified as "property with residential use allocation", as "residential use allocation" always appears in the Property Tax Code referred to "buildings" or "structures", existing, authorized or planned, as only these can be inhabited, which is not the case with land for construction, which does not, in itself, have conditions for such, not being capable of being used for residential purposes unless and until building construction authorized and planned for it is erected thereon (but in that case it will no longer be "land for construction" but another type of urban property – "residential", "commercial, industrial or for services" or "other" – article 6º of the CIMI).

It would be strange, moreover, if the determination of the scope of the tax incidence rule of item no. 28 of the General Table of Stamp Tax were to be found, in the final analysis, in the rules for determining the taxable property value of the Property Tax Code, and that the terminological imprecision of the legislator in the wording of that rule were, after all, clarified and finally explained through an indirect and ambiguous referral to the allocation coefficient established by the legislator in relation to built properties (article 41º of the Property Tax Code).

Thus, given that land for construction – whatever the type and purpose of the building that will be, or may be, erected thereon – does not satisfy, of itself, any condition to be licensed as such or to be defined as having residential purpose as its normal destination, and the rule of incidence of stamp tax referring to urban properties with "residential use allocation", without any specific concept being established for such purpose, cannot extract therefrom that it contains a future potentiality, inherent in a distinct property that may possibly be built on the land."

Following this case law, it must be concluded that the land for construction on which the ownership the IS assessed to the Claimant was levied does not fall within the provision of item 28.1 of the TGIS, in the wording in force on 31 December 2013.

Consequently, the assessment impugned by the Claimant is illegal insofar as it violates the rule of incidence contained in item 28.1 of the TGIS, constituting error in legal prerequisites, which makes it voidable under article 163º, no. 1 of the Administrative Procedure Code.

VII - DECISION

For the reasons set out, it is decided:

  1. To rule entirely in favor of the request for declaration of illegality of the Stamp Tax assessment impugned, due to error in legal prerequisites;

  2. Consequently, to annul the assessment act impugned.

Economic value of the case: The economic value of the case is fixed at 5,700.96 euros.

Costs: Under article 22º, no. 4, of the RJAT, the amount of costs is fixed at 612.00 euros, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Respondent.

Let this arbitral decision be registered and notified to the parties.

Lisbon, Administrative Arbitration Center, 19 September 2016

The Arbitrator

(Nina Aguiar)

Frequently Asked Questions

Automatically Created

Is Stamp Tax (Imposto do Selo) under Verba 28.1 TGIS applicable to building land (terrenos para construção)?
The applicability of Stamp Tax under item 28.1 TGIS to building land is the core dispute in process 42/2016-T. The claimant argued building land cannot be subject to this tax because it lacks the essential characteristic of residential property—habitability. Without any constructed dwelling, bare land cannot have residential allocation. The Tax Authority contended that residential use allocation is determined by the allocation coefficient in CIMI article 41º applied during property valuation, not by the physical existence of a dwelling. The Authority argued that for Stamp Tax purposes, CIMI definitions apply subsidiarily under article 67(2) CIS, and since land for construction uses the same valuation methodology as other urban properties, it can receive a residential allocation coefficient.
Can a building plot without any constructed dwelling be classified as housing property for Stamp Tax purposes?
According to the claimant's position, a building plot without any constructed dwelling cannot be classified as housing property for Stamp Tax purposes because residential allocation inherently requires habitability—the capacity to be inhabited—which does not exist in undeveloped land. The claimant distinguished between land designated for future construction and property actually allocated to residential use. The Tax Authority took the opposing view, arguing that 'property with residential use allocation' is a technical concept referring to the allocation coefficient assigned during property valuation under CIMI, not the actual current use of the property. This coefficient is applied to land for construction when determining taxable property value, and therefore, according to the Authority, such land can be considered to have residential allocation for Stamp Tax purposes.
Does taxing building land under Verba 28.1 TGIS create unconstitutional double taxation with IMI?
The claimant argued that taxing building land under item 28.1 TGIS creates unconstitutional double taxation with IMI because both taxes apply to the same property with identical objective and subjective incidence. Both the Stamp Tax and Municipal Property Tax target the same asset (the land), owned by the same taxpayer, and both use the taxable property value (valor patrimonial tributário) as their tax base. The claimant contended this violates constitutional principles against double taxation. Additionally, the claimant argued item 28.1 TGIS is unconstitutional because it creates fiscal inequality by applying only to properties intended for residential purposes while excluding all other types of real property assets. The Tax Authority's response to these constitutional arguments is not detailed in the provided excerpt, as they focused primarily on the technical interpretation of residential allocation.
What was the outcome of CAAD arbitration process 42/2016-T regarding Stamp Tax on building land?
The provided excerpt of process 42/2016-T does not contain the complete arbitral decision or final outcome. The document presents the parties' arguments and identifies the central legal issue—whether land for construction should be considered 'property with residential use allocation' under item 28.1 TGIS as it stood on 31 December 2013. The claimant sought a declaration of illegality of the €5,700.96 Stamp Tax assessment on construction land in Silves, along with the rejection of the administrative complaint and hierarchical appeal. The tribunal established the relevant facts, including that the claimant was not properly notified of the assessment and only learned of it through the collection document. However, the reasoning section ends before presenting the tribunal's analysis and conclusions, so the final ruling on whether the assessment was upheld or annulled is not provided in this excerpt.
How does the CAAD interpret the concept of 'housing allocation' (afetação habitacional) for undeveloped land?
The interpretation of 'housing allocation' (afetação habitacional) for undeveloped land represents the fundamental disagreement between the parties. The claimant's interpretation is that housing allocation requires actual habitability—the physical capacity for a property to be used as a dwelling. Since undeveloped construction land has no building or works and therefore no habitability, it cannot have housing allocation. The Tax Authority's interpretation relies on CIMI's technical framework, where 'allocation' refers to the allocation coefficient (coeficiente de afetação) in article 41º CIMI used for property valuation purposes. Under this view, land for construction receives an allocation coefficient when its taxable property value is determined, and if that coefficient corresponds to residential use, the land has residential allocation for Stamp Tax purposes, regardless of its current undeveloped state. The CAAD's final interpretation is not provided in the incomplete excerpt.