Process: 425/2014-T

Date: January 12, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

Process 425/2014-T addresses whether Item 28 of the Portuguese General Table of Stamp Duty (TGIS) applies to construction land (terrenos para construção) or exclusively to residential properties. The taxpayer challenged a €6,234.80 Stamp Duty assessment for 2013 on urban construction land registered in Porto, arguing that Items 28 and 28.1 TGIS specifically refer to 'properties with residential use' (prédios com afectação habitacional), not undeveloped land. The claimant contended that construction land constitutes raw material for productive processes rather than a manifestation of wealth subject to taxation, and that residential use presupposes an existing building meeting residential classification criteria. The Tax Authority countered that construction land qualifies as real property under the Real Property Tax Code (CIMI Articles 2 and 6), with legally mandated use assessment for valuation purposes. Citing jurisprudence from the Central Administrative Court South, the Authority argued that 'property with residential use' under Item 28.1 TGIS should be interpreted broadly beyond the narrow definition in CIMI Article 6(1)(a), encompassing construction land where the determined use is residential. The tribunal addressed a preliminary procedural matter regarding whether it could rule on the entire assessment or only the first installment of the three-installment payment plan. Applying CIMI Articles 113, 119, and 120, the tribunal concluded that Stamp Duty assessment constitutes a single administrative act occurring in February-March, despite installment payments, meaning all installments relate to one contestable assessment dated 17-03-2014. This decision has significant implications for real estate taxation in Portugal, particularly regarding whether undeveloped land with residential construction potential falls within the Stamp Duty regime originally designed for existing residential properties.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Case no. 425/2014 – T

Subject: IS – Item 28 of TGIS

I. REPORT

"A", NIF …, resident at Street …, …, ..-…, …, Vila Nova de Gaia (hereinafter referred to only as Claimant), presented, on 12-06-2014, a request for constitution of a singular arbitral tribunal, pursuant to Articles 2 and 10 of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as RJAT), in conjunction with subparagraph a) of Article 99 of the CPPT, in which the Tax and Customs Authority is Respondent (hereinafter referred to only as Respondent).

The Claimant requests that the Stamp Duty assessment dated 17-03-2014, with reference to the year 2013, relating to the land for construction registered in the urban real property matrix under article … of the parish of …, in the municipality of Porto, in the amount of € 6,234.80 be annulled.

The request for constitution of the arbitral tribunal was accepted by the Honourable President of CAAD on 16-06-2014 and notified to the Tax and Customs Authority on that same date.

Pursuant to the provisions of subparagraph a) of paragraph 2 of Article 6 and subparagraph b) of paragraph 1 of Article 11 of RJAT, the Deontological Council appointed the undersigned as arbitrator of the singular arbitral tribunal, who communicated acceptance of the assignment within the applicable deadline.

On 31-07-2014 the Parties were duly notified of this appointment and did not manifest intent to reject the appointment of arbitrators, pursuant to the combined provisions of Article 11 paragraph 1, subparagraphs a) and b) of RJAT and Articles 6 and 7 of the Deontological Code.

In accordance with the provisions of subparagraph c) of paragraph 1 of Article 11 of RJAT, the singular arbitral tribunal was constituted on 09-09-2014.

By order of 20-10-2014 the meeting provided for in Article 18 of RJAT was dispensed with, and the parties were granted successive time periods for submission of written arguments. Duly notified for this purpose, neither party submitted written arguments. In the meantime, the Claimant had attached to the file the documents evidencing payment of the second and third installments relating to the contested Stamp Duty assessment. Notified to comment on the attachment of these documents, the Respondent said nothing.

The Claimant alleges, in summary, that there has been an error of fact and law in the assessment of the contested tax inasmuch as items 28 and 28.1 of the General Table of Stamp Duty (hereinafter only TGIS) refer to properties with residential use and not to land for construction. In the Claimant's view, according to the explanatory statement presented when the norms in question were introduced, the tax aims to tax manifestations of wealth and not raw materials for a productive process, and there can be no doubt that land for construction is indeed a productive matter. Furthermore, the concept of "property with residential use" presupposes a building or construction that meets the required characteristics to be classified as such, and therefore cannot be included in the category of land for construction even if that land permits the construction of buildings for residential purposes. In the Claimant's view, land for construction does not by itself satisfy any condition to be licensed as such or to have residential use defined as its normal destination. Finally, it concludes that the change in wording introduced by Article 194 of Law no. 83-C/2013, of 31 December, which entered into force on 1 January 2014, is not applicable to taxable facts occurring on an earlier date, under penalty of retroactive application of the law.

In response, the Respondent argues, in summary, that land for construction is qualified as real property, pursuant to Articles 2 and 6 of CIMI, and it is possible and legally mandatory to assess its use for purposes of valuation. Paragraph 2 of Article 45 of CIMI, referring to "(…) the value of authorized buildings (…)", refers to the rules for valuation of buildings provided for in Articles 38 and following of CIMI, thus including the consideration of use and quality and comfort coefficients (invoking here the judgment of the Central Administrative Court South of 14/02/2012, handed down in proc. 04950/11). Accordingly, the concept of "property with residential use" of item 28.1 of TGIS should be interpreted in a broader and more comprehensive manner than the Claimant contends, and should not be restricted to the category of properties intended for residential use referred to in subparagraph a) of paragraph 1 of Article 6 of CIMI; such concept shall thus encompass land for construction provided that its respective use, determined for purposes of valuation, is residential. Accordingly, the tax assessment is valid and the Claimant's request should be rejected. As to the subject matter of the request for arbitral decision, the Respondent understands that this tribunal may only pronounce on the Stamp Duty assessment no. 2014…, in the amount of € 2,078.28, corresponding to the first installment, and no longer on subsequent installments, similarly to what was already decided in proc. no. 180/2013-T of this Arbitration Centre.

III. PRELIMINARY MATTER

The Arbitral Tribunal was regularly constituted and is competent.

The parties enjoy judicial personality and capacity and are entitled to be heard (Articles 4 and 10, paragraph 2, of the same diploma and Article 1 of Order no. 112-A/2011, of 22 March).

The proceedings do not suffer from nullities and there is no obstacle to adjudication of the merits of the case.

With regard to the subject matter of the present proceedings, the Claimant seeks the annulment of the Stamp Duty assessment, in the total amount of € 6,234.80, which for purposes of payment was divided into three installments. In turn, the Respondent understands that this tribunal may only pronounce on the first of the three payment installments, in the amount of € 2,078.28, and subsequent installments should be the subject of autonomous requests, in light of what was already decided in proc. no. 180/2013-T.

However, the Respondent's position is not accepted. Pursuant to paragraph 7 of Article 23 of the Stamp Duty Code, the tax of item 28 of TGIS is assessed annually in relation to each urban property, applying with the necessary adaptations the rules contained in CIMI.

Now, according to paragraphs 1 and 2 of Article 113 of CIMI, the tax assessment should be made with reference to the elements contained in the property register as of 31 December of the year to which it relates, during the months of February and March of the following year. With regard to collection and payment of the tax, the law provides – Articles 119 and 120 of CIMI – that it shall be paid in only one installment (in April), in two installments (in April and November) or in three installments (in April, July and November), depending on the annual amount due, and the services must send the taxpayer the relevant collection document by the end of the month prior to payment.

From this it follows that we are dealing with only one tax assessment act which is carried out in the months of February and March of the year following that to which the tax relates. The law does not therefore provide for various successive or subsequent assessment acts. What CIMI provides for and permits is that payment of the tax may be made in installments; but that installment payment is made on the basis of the collection value fixed in the assessment which takes place in the month of February or March. It is therefore important not to confuse the act of tax assessment with the collection notes sent to the taxpayer for payment of the tax calculated by the competent services.

If we analyze all the collection notices attached by the Claimant together, we find that the assessment date mentioned in all of them is 17-03-2014 and in all of them the tax collection amount is: € 6,234.80, the amount challenged by the Claimant. The notifications sent to the Claimant correspond to the collection document referred to in Article 119 of CIMI, applicable to Stamp Duty of item 28.1 by express cross-reference of paragraph 7 of Article 23 of the Stamp Duty Code, incorporating in itself the essential elements of the assessment act carried out on 17-03-2014.

In light of the foregoing, the Respondent's claim is rejected, and this tribunal establishes that the subject matter of the request for arbitral decision, as presented by the Claimant, refers to the Stamp Duty assessment for the year 2013, in the value of € 6,234.80, and not merely to the first installment of that tax.

IV. MATTERS OF FACT

A. Proven Facts

The following facts are considered proven:

  1. The Claimant is registered as owner of half of the land for construction registered in the urban real property matrix of the parish of …, municipality of Porto, under article … (doc. no. 1);

  2. In March 2014, the Claimant was notified of the assessment of Stamp Duty, item 28.1 of TGIS, for the year 2013, relating to the identified land for construction (doc. no. 2);

  3. The collection amount set amounts to € 6,234.80;

  4. The assessed tax was divided into three installments, corresponding to documents nos. 2014…, 2014… and 2014… (doc. no. 2 of the p.i. and documents 1 and 3 of the petition of 28-11-2014);

  5. The Claimant made payment of the three installments, totaling € 6,234.80 (doc. no. 3 of the p.i. and documents 2 and 4 of the petition of 28-11-2014).

B. Unproven Facts

No other facts with relevance to the arbitral decision were proven.

C. Basis for Matters of Fact

The matters of fact stated as proven are based on documentary evidence presented and not contested.

V. MATTERS OF LAW

In the first place, and because it was raised by the Claimant, it is necessary to decide which version of item 28.1 of TGIS applies to the tax for the year 2013: the original version introduced by Law no. 55-A/2012, of 29 October, or the wording resulting from the amendment introduced by Article 194 of Law no. 83-C/2013, of 31 December.

From the combined application of paragraph 4 of Article 2 of the Stamp Duty Code and paragraph 1 of Article 8 of CIMI, we conclude that the taxable fact to which item 28.1 of TGIS refers occurs on 31 December of each year. Accordingly, the tax legal relationship shall be determined in accordance with the legislation in force on that same date, regardless of subsequent amendments that may be in force on the date of tax assessment (which would be the present case). This position is the only one consistent with the principle of non-retroactivity of tax law provided for in paragraph 3 of Article 103 of the Portuguese Constitution.

Thus, the Stamp Duty of item 28.1 of TGIS for the year 2013, to be assessed in 2014, should be calculated and determined in accordance with the original wording of the norm introduced by Law no. 55-A/2012, of 29 October.

Having established this, it is now necessary to decide on the determination of the taxable base of item 28.1 of TGIS, in particular with regard to the inclusion of land for construction in the concept of "urban property with residential use".

Now, on this question there are already numerous decisions from the Administrative and Tax Arbitration Centre, of which examples are the decisions of 18/09/2013, proc. no. 49/2013-T, of 02/10/2013, proc. no. 53/2013-T, of 09/10/2013, proc. no. 48/2013-T, of 18/10/2013, proc. no. 42/2013 and of 01/11/2013, proc. no. 75/2013-T. There are also numerous decisions of the Supreme Administrative Court on this matter, of which examples are the judgments handed down on 24/9/2014, in procs. nos. 01533/13, 0739/14 and 0825/14; on 10/9/2014, in procs. nos. 0503/14, 0707/14 and 0740/14; on 9/7/2014, in proc. no. 0676/14; on 2/7/2014, in proc. no. 0467/14; on 28/5/2014, in procs. nos. 0425/14, 0396/14, 0395/14; on 14/5/2014, in procs. nos. 055/14, 01871/13 and 0317/14; on 23/4/2014, in procs. nos. 270/14 and 272/14; and on 9/4/2014, in procs. nos. 1870/13 and 48/14.

The undersigned had already had the opportunity to pronounce on the matter in question in this file (arbitral decision of 14-12-2014, handed down in arbitral process no. 388/2014) and therefore, given the identity of the factual question and the identity of the legal matter, what was decided there is reproduced here, accepting the above-mentioned jurisprudence and following what was stated in the cited judgment of the Supreme Administrative Court of 9/4/2014, proc. no. 01870/13, whose reasoning we fully endorse in the following part:

"The concept of '(urban) property with residential use' was not defined by the legislator. Neither in Law no. 55-A/2012, which introduced it, nor in the IMI Code, to which paragraph 2 of Article 67 of the Stamp Duty Code (also introduced by that Law) refers as a subsidiary matter. And it is a concept that, probably due to its imprecision – a fact all the more serious since it is in accordance with it that the scope of the objective incidence of the new taxation is determined – had a short life, since it was 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 incidence through the use of concepts that are legally defined in Article 6 of the IMI Code. This amendment – to which the legislator did not attribute an interpretive character, nor do we think it did – merely makes it unequivocal for the future that land for construction on which the buildings authorized or envisaged are for residential purposes are encompassed within the scope of item 28.1 of the General Table of Stamp Duty (provided that the respective tax property value is of a value equal to or greater than 1 million euros), but clarifies nothing, however, in relation to past situations (assessments of 2012 and 2013), such as the one at issue in the present proceedings. Now, as to these, it does not appear possible to adopt the interpretation of the appellant, since it does not clearly result either from the letter or from the spirit of the law that its intention has been, ab initio, to encompass in its scope of objective incidence land for construction for which the construction of residential buildings has been authorized or envisaged, as clearly results today from item 28.1 of the General Table of Stamp Duty. Nothing unequivocal emerges from the letter of the law, moreover, since it itself, by using a concept it did not define and which was also not defined in the statute to which it referred as a subsidiary matter, unnecessarily lent itself to equivocation on a matter – the scope of tax incidence – in which certainty and legal security should also be paramount concerns of the legislator. And from its "spirit", ascertainable in the explanatory statement of the bill that is the source of Law no. 55-A/2012 (Bill no. 96/XII – 2nd, Diary of the Assembly of the Republic, series A, no. 3, 21/09/2012, p. 44, available at www.parlamento.pt) nothing more emerges than the concern to generate new fiscal revenue from sources of wealth "more spared" in the past from the Fiscal authorities' reach than labor income, particularly capital income, equity gains and property, reasons which contribute nothing relevant to clarifying the concept of "(urban) properties with residential use", since they take it for granted, without any concern to clarify it. Such clarification did, however, emerge – as informed in the Arbitral Decision handed down on 12 December 2013, in process no. 144/2013-T, available in the CAAD database – when the bill was presented and discussed in the Assembly of the Republic, in the words of the State Secretary for Tax Affairs, who expressly stated, as gathered from the Diary 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 tax on high-value urban residential properties. This is the first time in Portugal that a special taxation has been created on high-value properties intended for residential purposes. This tax will be 0.5% to 0.8% in 2012 and 1% in 2013, and will apply to properties with a value equal to or greater than 1 million euros' (underlining in original), from which it is gathered that the reality to be taxed had in view is, after all, and notwithstanding the imprecision of the law's terminology, "the (urban) residential properties", in common language "homes", and not other realities. The fact that it may be considered that in determining the tax property value of urban properties classified as land for construction account should be taken of the use which the building authorized or envisaged for it will have for determination of the respective value of the area of implantation (see paragraphs 1 and 2 of Article 45 of CIMI), does not determine that land for construction may be classified as "property with residential use", since "residential use" is always in the IMI Code referred to "buildings" or "constructions", existing, authorized or envisaged, since only these may be inhabited, which is not the case with land for construction, which does not itself have the conditions for this, not being susceptible of being used for residential purposes unless and until a building authorized and envisaged for it is erected on it (but in that case they would no longer be "land for construction" but another kind of urban real property – "residential", "commercial, industrial or for services" or "other" – Article 6 of CIMI). It would be strange, moreover, if the determination of the scope of the tax incidence norm of item no. 28 of the General Table of Stamp Duty were ultimately found in the norms for determining the tax property value of the IMI Code, and that the legislator's imprecision in the wording of that rule was ultimately clarified and finally explained via an indirect and equivocal cross-reference to the use coefficient established by the legislator in relation to built properties (Article 41 of the IMI Code). Thus, given that a piece of land for construction – whatever the type and purpose of the building that will be, or may be, erected on it – does not of itself satisfy any condition to be licensed as such or to have residential use defined as its normal destination, and given that the incidence norm of stamp duty refers to urban properties with "residential use", without any specific concept being established for this purpose, it cannot be deduced from it that it contains a future potentiality inherent in a distinct property that may perhaps be built on the land.

It is therefore concluded, in accordance with what was decided in the judgment under appeal that, resulting from Article 6 of the IMI Code a clear distinction between urban properties "residential" and "land for construction", these cannot be considered as "property with residential use" for purposes of the provisions of item no. 28.1 of the General Table of Stamp Duty, in its original wording, as conferred by Law no. 55-A/2012, of 29 October" (bold in original).

In light of all the foregoing, it is concluded that the Claimant's petition should be granted, and it is declared that the contested tax assessment act is illegal due to violation of items 28 and 28.1 of TGIS.

VI. DECISION

In accordance with the foregoing, this Arbitral Tribunal decides:

A) To declare illegal the Stamp Duty assessment which is the subject of these proceedings, for lack of legal basis and violation of items 28 and 28.1 of TGIS, in the manner stated, and consequently, finding the Claimant's request to be well-founded on this basis, it annuls the assessment act which is the subject of these proceedings, whose payment was divided into the collection documents nos. 2014…, 2014 … and 2014 …;

B) To condemn the Respondent to reimburse the tax improperly paid, in the amount of € 6,234.80.

Value of the case: In accordance with the provisions of Article 306, paragraph 2, of the CPC and 97-A, paragraph 1, subparagraph a), of the CPPT and 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is set at € 6,234.80.

Costs: Pursuant to paragraph 4 of Article 22 of RJAT, the amount of costs is set at € 612.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

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

Lisbon, 12-01-2015

The Sole Arbitrator

(Maria Forte Vaz)

Text prepared by computer, pursuant to paragraph 5 of Article 131 of the CPC, applicable by cross-reference of subparagraph e) of paragraph 1 of Decree-Law no. 10/2011, of 20/01.

The wording of this decision follows the old orthography.

Frequently Asked Questions

Automatically Created

Does Verba 28 of the TGIS apply Stamp Tax to construction land (terrenos para construção) in Portugal?
According to Process 425/2014-T, the Tax Authority's position is that Item 28 of the TGIS does apply Stamp Duty to construction land (terrenos para construção) when the land's designated use is residential. The Authority argues that construction land qualifies as real property under CIMI Articles 2 and 6, and that 'property with residential use' in Item 28.1 TGIS should be interpreted broadly to include land for construction where the authorized or intended use is residential, not restricted solely to existing buildings. However, the taxpayer disputed this interpretation, arguing Item 28 applies only to actual residential properties with buildings, not undeveloped land. The final ruling on this substantive issue is not fully disclosed in the available excerpt.
What is the legal distinction between residential properties and construction land for Imposto do Selo purposes?
The legal distinction centers on the interpretation of 'prédio com afectação habitacional' (property with residential use) under Item 28 TGIS. The taxpayer argued that residential properties must be actual buildings or constructions meeting residential classification criteria under CIMI Article 6(1)(a), whereas construction land (terrenos para construção) is merely raw material for production lacking residential use characteristics. The Tax Authority contended that CIMI Article 45(2) requires use assessment even for construction land when valuing authorized buildings, and that the residential use concept should not be narrowly restricted to existing residential buildings but should encompass construction land where the determined use or authorized construction purpose is residential. This distinction has significant tax implications, as it determines whether undeveloped land subject to future residential development triggers annual Stamp Duty obligations under Item 28 TGIS.
Can a taxpayer challenge a Stamp Tax assessment on construction land through CAAD tax arbitration?
Yes, taxpayers can challenge Stamp Duty assessments on construction land through CAAD (Centro de Arbitragem Administrativa) tax arbitration. Process 425/2014-T demonstrates this procedural avenue. The taxpayer filed a request for constitution of a singular arbitral tribunal on 12-06-2014 under Articles 2 and 10 of Decree-Law 10/2011 (RJAT - Legal Framework for Arbitration in Tax Matters) in conjunction with Article 99(a) of the Tax Procedure and Process Code (CPPT). The CAAD President accepted the request on 16-06-2014, an arbitrator was appointed, and the tribunal was constituted on 09-09-2014. Tax arbitration provides an alternative to judicial courts for resolving tax disputes, offering a potentially faster resolution mechanism. The tribunal confirmed its regular constitution, competence to hear the matter, and that parties possessed necessary legal standing and capacity under RJAT Articles 4 and 10(2).
How does the CAAD interpret 'prédio com afectação habitacional' under the Portuguese Stamp Tax Code?
In Process 425/2014-T, the CAAD had to address conflicting interpretations of 'prédio com afectação habitacional' (property with residential use/designation). The taxpayer's interpretation was restrictive: this concept requires an actual building or construction meeting the characteristics necessary for residential classification, not merely land with potential for future residential construction. The taxpayer argued that construction land cannot satisfy conditions for residential licensing or have residential use as its normal destination. The Tax Authority's interpretation was expansive: 'prédio com afectação habitacional' should be understood broadly beyond the specific category in CIMI Article 6(1)(a), encompassing construction land where the use determined for valuation purposes is residential. The Authority relied on CIMI Article 45(2) regarding valuation of authorized buildings and jurisprudence from the Central Administrative Court South (judgment 04950/11 from 14-02-2012) supporting consideration of use coefficients for construction land valuation. The tribunal's final interpretation is not fully revealed in the available excerpt.
What procedural steps are required to file a tax arbitration request under the RJAT (Decreto-Lei 10/2011)?
Under the RJAT (Decreto-Lei 10/2011), the procedural steps for filing a tax arbitration request demonstrated in Process 425/2014-T include: (1) Submit a written request for constitution of an arbitral tribunal pursuant to RJAT Articles 2 and 10, identifying the contested tax assessment and legal grounds (filed 12-06-2014 in this case); (2) The CAAD President reviews and accepts the request, then notifies the Tax Authority (occurred 16-06-2014); (3) The Deontological Council appoints an arbitrator under Article 6(2)(a) and Article 11(1)(b) RJAT, who must accept the assignment; (4) Parties are notified of the appointment and may exercise their right to reject under Article 11(1) RJAT and Articles 6-7 of the Deontological Code (notification 31-07-2014); (5) The tribunal is formally constituted per Article 11(1)(c) RJAT (09-09-2014); (6) The tribunal may dispense with the Article 18 RJAT meeting and establish a written procedure, granting deadlines for submission of arguments. Parties must also pay applicable arbitration fees as evidenced by the installment payment documentation mentioned in the decision.