Process: 425/2016-T

Date: April 3, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD arbitral decision 425/2016-T addresses whether Stamp Tax under Item 28.1 of the General Table (TGIS) applies to building land valued at €5,185,640 when the construction project lacks final municipal authorization. The taxpayers co-owned land classified for housing construction in Lisbon, triggering a €51,856.40 Stamp Tax assessment for 2015. The core dispute centers on whether 'land for construction' subject to Item 28.1 requires completed administrative authorization or merely approved architectural plans. The applicants argued that since the Lisbon Municipal Chamber approved the architectural project but did not issue a deferment order (final authorization pending fulfillment of conditions), the land cannot be considered as having an 'authorized or planned building for housing' under Verba 28.1. Additionally, they contended that only the implementation area for buildings (€3,266,985.55) should be taxed, excluding the 3,830m² area designated for cession to public domain. They also raised constitutional challenges based on equality principles. The Tax Authority countered that the taxpayers themselves classified the property as construction land with housing allocation in their IMI Model 1 declaration, and this self-declared classification cannot be ignored for Stamp Tax purposes. The Authority emphasized that land valuation inherently considers the characteristics of properties intended for construction, and the evidence submitted by the applicants confirms proper application of Item 28.1. The case illustrates critical interpretative issues regarding Verba 28.1 TGIS implementation following Law 83-C/2013 amendments, particularly the administrative authorization threshold for triggering Stamp Tax on high-value building plots and the calculation methodology for taxable value when land includes areas for public domain cession.

Full Decision

ARBITRAL DECISION

The Arbitrator Dr. Maria Antónia Torres, designated by the Deontological Council of the Centre for Administrative Arbitration ("CAAD") to form a Single Arbitral Tribunal, constituted on 18 October 2016, hereby decides as follows:

1. REPORT

1.1. A… and B…, taxpayers no. … and no. …, respectively, hereinafter referred to as "Applicants", with residence at Rua …, no. …, … and ..., respectively, Lisbon, have requested the constitution of an arbitral tribunal, under article 2, no. 1, paragraph a), and article 10, both of Decree-Law no. 10/2011, of 20 January (hereinafter "RJAT"[1]).

1.2. The request for arbitral pronouncement concerns the declaration of illegality, and consequent annulment, of the tax act assessing Stamp Tax (IS), in the total amount of €51,856.40, relating to the year 2015, as shown in the assessment note attached by the Applicants in their request for arbitral pronouncement, which is hereby considered as articulated and reproduced for all legal purposes, which concerns a plot of land for construction, of which the Applicants are co-owners, and registered in the urban property matrix under no. …, located in the parish of …, Lisbon, such assessment having been carried out under Item 28.1 of the General Table of Stamp Tax, with the wording introduced by Law no. 83-C/2013, of 31 December.

1.3. To substantiate their request, the Applicants allege that the urban development operation proposed for the land of which they are co-owners was not subject to deferment by the Lisbon Municipal Chamber ("CML").

They therefore consider that it cannot be said that the land has an authorized or planned building for housing, nor can it be affirmed that any building may come to exist, for whatever purpose.

The Applicants further allege that from the total area of the land, "the implementation area of the buildings is only 5,180m2", according to the assessment sheet, project submitted to the CML, etc., and that "as a condition for approval of the project that determined the valuation, it would always be necessary to cede an area of 3,830m2 for allocation to the public domain of the municipality". And that in the valuation of the property this was decisive, "having been attributed a value of €3,266,985.55 to the part of the land intended for housing", whereby they consider that only on this value could the assessment in any case be levied.

The Applicants further allege unconstitutionality of the rule by violation of the principle of equality.

1.4. The Tax and Customs Authority defends that the request for declaration of illegality, and consequent annulment, of the contested assessment should be judged as unwarranted. Firstly, the Respondent states that on its own initiative the Applicants presented Declaration Model 1 of the IMI, from which resulted the classification of the property as land for construction with the location coefficient: Housing. This allocation resulted from the request and documents presented by the Applicants and could have been and was not contested by the Applicants.

Thus, it considers that this allocation cannot be ignored for the application of Item 28.1 of the TGIS. Furthermore, it is clear from the process of valuation of the land for construction that regard is had to the characteristics of the urban properties that will be built on it, the value of the land for construction also always depending on the value of the property that is envisaged to be built on it.

Now, the Respondent considers that the very evidence presented by the Applicants confirms the correct subsumption of the tax fact to the rule sub judice.

As to the violation of the principles of equality and tax capacity, the TA considers that the legislator used legitimate criteria with regard to Item 28.1, and therefore sees no grounds to support the aforementioned violation, considering the constitutional rule, in line moreover with already known decisions of the Constitutional Court.

1.5. The holding of the arbitral tribunal meeting provided for in article 18 of the RJAT was dispensed with, as no further clarifications or evidence was deemed necessary given what had already been provided.

1.6. For the same reason, final pleadings were not deemed necessary, but the Applicants, via petition, decided to attach to the case file a Certificate from the CML, with there subsequently being due contradiction by the Respondent. Although, as will be seen below, they did not alter the position of this Court, the petitions of both parties were given due consideration.

2. PRELIMINARY EXAMINATION

The Tribunal was regularly constituted and is competent ratione materiae, in accordance with article 2 of the RJAT.

The parties have legal personality and capacity, show themselves to be legitimate and are regularly represented (cf. articles 4 and 10, no. 2 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March).

No defects in procedure were identified.

3. QUESTIONS TO BE DECIDED

It constitutes a question to be decided in the present proceedings whether the property that was subject to the stamp tax assessment referred to above, being land for construction, is or is not subject to Item 28.1 of the General Table of Stamp Tax (TGIS), as it read on the date to which the assessment relates, with the amendments introduced by Law no. 83-C/2013, of 31 December. And if so, whether the assessment should be levied on the entirety of its tax-assessed value or only on "the part of the land intended for housing".

4. ESTABLISHED FACTS

With relevance for the consideration and decision on the merits, the following facts are established:

4.1 The Applicants are co-owners of the urban property registered in the urban property matrix under no. …, located in the Parish of …, Lisbon;

4.2 The property is land for construction and has a tax-assessed value of €5,185,640, with no building existing on the land at the relevant date;

4.3 According to the property certificate attached by the Applicants, it is concluded to be land for construction with housing allocation. The Applicants presented Declaration Model 1 of the IMI, from which it results that the property is classified as land for construction with the location coefficient: Housing. This allocation resulted from the request and documents presented by the Applicants and was not contested by them.

4.4 From a document attached to the proceedings, the certificate issued by the CML on 4 February 2016, it can be inferred that a request for authorization of an urban development operation relating to the land in question was submitted to the Chamber, and that "the architectural project contained therein was approved", "the urban development operation in question not having been, to the present date, subject to a deferment order" (emphasis ours).

4.5 The Applicants attach a new CML certificate, dated 23 March, which consists in a request for certification that the urban development operation in question was not subject to deferment, the proposed certificate being to the effect that "it attest that the proceeding... is not deferred by reason of not yet being met all the conditions agreed between the requester of the aforesaid proceeding and the C… ..." (emphasis ours).

4.6 The Applicants were notified of the aforesaid Stamp Tax assessment, relating to the year 2015, and concerning the property referred to above;

4.7 All as per documents attached with the arbitral request and in the response presented by the Respondent;

4.8 On 22 July 2016 the Applicants presented a request for constitution of the Arbitral Tribunal – cf. electronic petition in the CAAD system.

5. UNESTABLISHED FACTS

There are no facts with relevance for the decision on the merits that have not been established, the factual position being agreed upon by both parties.

6. ON THE LAW

Applicable Rule

Law no. 55-A/2012, of 29 October, added Item 28 to the General Table of Stamp Tax (TGIS), with the following wording:

28 – Ownership, usufruct or surface right of urban properties whose tax-assessed value recorded in the matrix, in accordance with the Code of Municipal Tax on Real Property (CIMI), is equal to or greater than €1,000,000 – on the tax-assessed value used for the purposes of IMI:

28.1 – For property with housing allocation – 1% (…);

In the transitional provisions contained in article 6 of that Law no. 55-A/2012, the following rules were established:

c) The tax-assessed value to be used in the assessment of the tax corresponds to that resulting from the rules provided for in the Code of Municipal Tax on Real Property by reference to the year 2011; (…)

f) The applicable rates are as follows:

i) Properties with housing allocation assessed in accordance with the Code of IMI: 0.5%;

ii) Properties with housing allocation not yet assessed in accordance with the Code of IMI: 0.8%;

With the State Budget Law for 2014, Item 28.1 of the TGIS was expressly amended, so as to include, from 01.01.2014, land for construction, as follows:

28.1 For residential property or for land for construction whose building, authorized or planned, is for housing, in accordance with the provisions of the Code of IMI – 1%

With the State Budget for 2017, Item 28.1 of the TGIS was repealed, with the AIMI being created (Supplementary Municipal Tax on Real Property), in accordance with which:

"The passive subjects of the supplementary municipal tax on real property are individuals or legal entities who are owners, usufructuaries or surface right holders of urban properties located in Portuguese territory.

The supplementary municipal tax on real property is assessed on the sum of the tax-assessed values of the urban properties located in Portuguese territory of which the passive subject is the holder.

Excluded from the supplementary municipal tax on real property are urban properties classified as "commercial, industrial or for services" and "other" in accordance with paragraphs b) and d) of no. 1 of article 6 of this Code."

Now, in the case at issue, the wording introduced by the State Budget Law for 2014 in Item 28.1 of the TGIS is applicable:

"… for land for construction whose building, authorized or planned, is for housing, in accordance with the provisions of the Code of IMI – 1%"

On the Constitutionality of the Rule

The Applicants allege that the rule sub judice violates the principle of equality and of tax capacity, whereby it should be considered unconstitutional.

Now, the Constitutional Court has already pronounced on Item 28.1 of the TGIS, including with the wording given to it by the State Budget Law for 2014, applicable to the situation sub judice. And this court can only agree with the decision of the Constitutional Court. To wit:

The Constitutional Principle of Equality is expressed in the principle of generality and in the principle of tax capacity. Now, the principle of equality does not prevent the legislator from freely choosing and treating the situations it considers as taxable facts, provided that they reveal the tax capacity of the passive subject.

As well decided in the Decision of the Constitutional Court no. 590/2015, of 11 November, the taxation of the ownership of residential urban properties (and of land for construction whose building, authorized or planned, is for housing), with a tax-assessed value equal to or greater than 1,000,000.00, "while a fiscal measure aimed at more intensely affecting the holders of real estate rights over urban properties with residential vocation and of higher value, within the reach only of those with high economic force", reveals an unequivocal tax capacity, as it relates to properties of value considerably higher than that of the generality of urban properties with housing allocation, even if potential, "capable of founding the imposition of increased contribution for the sanitation of public accounts to their holders, in implementation of the aforesaid 'principle of social equity in austerity.'"

"What the Constitution of the Republic requires is that what is necessarily equal be treated equally and what is essentially different be treated differently, not preventing differentiation of treatment, but only arbitrary, unreasonable discriminations, that is, distinctions of treatment that do not have justification and sufficient material foundation".

As has been the uniform understanding of the Constitutional Court, the principle of equality, as a limit to the discretion of the legislator, does not prohibit choices from being made, rather it prohibits the promotion of distinctions lacking objective and rational justification.

"Only those choices of regime made by the ordinary legislator in those cases where it can be proven that they result in differences of treatment between persons that do not find justification in reasonable grounds can be censured on the ground of breach of the principle of equality, which is not the case in the situation sub judice…".

That is, from the principle of tax equality there does not result the prohibition of freedom on the part of the legislator which may choose to tax certain facts and not others, but rather the prohibition of arbitrariness.

By which, we conclude for the constitutionality of the rule in question.

On the Application of the Rule to the Situation Sub Judice

Now, having ruled out the illegality of the tax act by considering the rule sub judice to be constitutional, we must decide on the applicability of Item 28.1 of the TGIS to the land for construction of which the Applicants are co-owners.

To wit. Item 28.1 of the TGIS establishes the application of a rate of 1% to "land for construction whose building, authorized or planned, is for housing, in accordance with the provisions of the Code of IMI", with a tax-assessed value equal to or greater than €1,000,000.

In the case at issue it is established, and assumed by the Applicants in their petition, to be land for construction, whose tax-assessed value exceeds €1,000,000.

It remains for us thus to verify whether it is land for construction "whose building, authorized or planned, is for housing, in accordance with the provisions of the Code of IMI".

We assume that the legislator said what it intended to say. In the wording given to Item 28.1 by the State Budget Law for 2014, it clearly distinguishes two realities: (i) residential property and (ii) land for construction whose building, authorized or planned, is for housing. Now, the legislator intended in this wording to tax two distinct realities that cannot be reduced to only one. It intended to tax residential properties and it intended to tax land for construction. In the latter case, limiting that taxation to those that had planned or authorized building for housing.

We thus agree with the jurisprudence that understands that, with the new wording of Item 28.1 of the TGIS, given by Law no. 83-C/2013, of 31/12 (and applicable to the present proceedings), the scope of the objective scope of the rule was widened, by explicitly including land for construction for which authorization or planning for building for housing had been granted.

That is, we understand that the legislator's intention is not to tax future residential properties (for which it could be relevant to know, namely, the tax-assessed value of the part of the land intended for housing construction, the tax-assessed value of such future properties or to verify, effectively, their construction) but rather to tax the land for construction itself, with a tax-assessed value greater than €1,000,000, whose planned or authorized building is for housing.

Above we mentioned the wording of the AIMI rule, which is considered to "replace" Item 28.1 of the TGIS, because precisely in it the legislator maintains the clear option for taxation of land for construction, as such.

Furthermore, the rule in question does not refer to the need for the land to be intended "uniquely" or "exclusively" for housing. It is therefore necessary to see how to ascertain that there is a building predominantly for housing purposes, planned or authorized, which results from the valuation performed on the property through the documentation presented.

In fact, the allocation of the property constitutes a determining factor of distinction for the purposes of valuation of urban properties, as established by article 41 of the CIMI, influencing the formula for determination of the tax-assessed value, defined in article 38 of the CIMI and the area adjustment coefficient provided for in article 40-A of the CIMI, which in its no. 5 expressly refers to land for construction.

It being provided, in article 450 of the CIMI, that in determining the tax-assessed value of land for construction one should have regard to "the value of authorized or planned constructions". Note that using this rule precisely the expression used in Item 28.1 of the TGIS.

Thus, the valuation model for land for construction is the same as that for constructed buildings, although starting from the building to be constructed, taking as a basis the respective project. "The value of land for construction corresponds, fundamentally, to a legal expectation, embodied in a right to build a property thereon with certain characteristics and with a certain value. It is this expectation of production of wealth materialized in a property to be built that causes the value of the patrimony and the wealth of the owner of the land for construction to increase, once the property in question comes to be considered as land for construction. For that reason, the greater the value of the property to be built, the greater is the value of the land for construction that underlies it (cfr. art. 6, no. 3, of the C.I.M.I.)".

That is, in ascertaining the tax-assessed value of the land for construction of the Applicants, the housing allocation was taken into account, considering in that valuation the value of the buildings authorized or planned on the same land for construction.

It is thus not necessary to distinguish also the part of the tax-assessed value related to the properties to be built and the part corresponding to passage areas, grounds, gardens, etc. In the valuation of the property, in order to calculate its respective tax-assessed value, the buildable portion for housing and the portion intended for other allocations were already taken into consideration.

In light of this, it remains for us to ascertain whether the land for construction sub judice has or does not have such "building, authorized or planned, for housing".

In the case at issue, the Applicants (i) did not contest the valuation of the property which was based on its housing allocation and the buildings for housing authorized or planned (ii) nor did they contest that there exists an effective potential for building for housing, having presented documentation that attests to this very thing, it being clear that the project they have for the land precisely involves the construction of housing. Furthermore, what the CML comes to certify is that the architectural project for the property was approved and that the urban development operation in question was not deferred or, as they state, has not yet been deferred. We cannot see how there could be approval of an architectural project that stipulated the construction of buildings for housing on the property in question, if it were not possible/permitted/feasible to construct buildings for housing on the land in question. The architectural project in question, in accordance with the documentation attached to the case file, provides for the construction of 98 units (3 underground floors and 8 above ground) of housing, storage units, parking (218 spaces), swimming pool and support areas. Here, and based on the documentary evidence presented, there is no doubt that there is an effective potential for housing construction. And the CML certificate does not say that the urban development operation was rejected; it states that "it is not deferred by reason of not yet being met all the conditions agreed between the requester of the aforesaid proceeding and the C… ...".

7. DECISION

In light of the foregoing, the request of the Applicants is judged to be unwarranted, all with the legal consequences thereof.

The case value is fixed at €51,856.40 in accordance with the provisions of articles 3, no. 2 of the Regulations on Costs in Tax Arbitration Proceedings ("RCPAT"), 97-A, no. 1, paragraph a) of the CPPT and 306, no. 2 of the Code of Civil Procedure.

The amount of costs is fixed at €2,142 to be borne by the Applicants, in accordance with the provisions of articles 12, no. 2 of the RJAT and 4, no. 4 of the RCPAT.

Notification is ordered.

Lisbon, 3 April 2017

Text prepared by computer, in accordance with article 131, no. 5 of the Code of Civil Procedure (CPC), applicable by reference from article 29, no. 1, paragraph e) of the RJAT, with blank lines. The drafting of the present arbitral decision follows the old spelling rules.

The Arbitrator,

Maria Antónia Torres

[1] Acronym for Regime of Tax Arbitration Law.

Frequently Asked Questions

Automatically Created

What is Verba 28.1 of the Tabela Geral do Imposto do Selo and how does it apply to building land?
Verba 28.1 of the TGIS (General Table of Stamp Tax), introduced by Law 55-A/2012 and amended by Law 83-C/2013, imposes annual Stamp Tax on ownership, usufruct, or surface rights over urban properties above certain thresholds. For building land (terrenos para construção), it applies when the land has authorized or planned construction for housing purposes. The tax rate is progressive based on the property's taxable value (valor patrimonial tributário). The critical issue is whether approved architectural projects without final municipal deferment qualify as 'authorized or planned' construction triggering the tax obligation.
Can Stamp Tax (Imposto do Selo) be levied on a building plot if the construction project was not approved by the municipality?
The central dispute in CAAD case 425/2016-T concerns whether Stamp Tax applies when architectural plans are approved but final administrative authorization (deferment) is pending. The Tax Authority argues that self-classification in IMI declarations as 'land for construction with housing allocation' is determinative, regardless of administrative authorization status. The taxpayers contend that without completed deferment, no 'authorized or planned building' exists under Verba 28.1. Portuguese arbitral tribunals have examined whether mere approval of architectural projects suffices or whether complete administrative authorization is required to trigger Item 28.1 taxation.
How is the taxable value determined for Stamp Tax on building land intended partly for housing?
For building land partially designated for public domain cession, taxpayers argue that only the implementation area retaining private ownership should constitute the taxable base under Verba 28.1 TGIS. In case 425/2016-T, from total land valued at €5,185,640, the taxpayers contended that 3,830m² destined for municipal public domain should be excluded, leaving only €3,266,985.55 as taxable. The Tax Authority typically counters that the overall taxable value (valor patrimonial tributário) established for IMI purposes applies integrally to Stamp Tax assessments, as land valuation methodologies already consider all relevant characteristics including implementation areas and future constructions.
Is the Imposto do Selo on high-value building land subject to constitutional equality principle challenges?
Taxpayers frequently challenge Verba 28.1 TGIS on constitutional grounds, arguing it violates equality principles (Article 13 of the Portuguese Constitution) by discriminating against owners of high-value building land compared to completed buildings or lower-value properties. However, the Tax Authority and Constitutional Court decisions generally uphold the provision, considering that the legislator employed legitimate policy criteria to tax ownership of valuable urban assets capable of generating housing. The progressive rate structure based on property value is viewed as consistent with tax capacity principles under Article 104 of the Constitution.
What is the CAAD arbitral procedure for contesting Stamp Tax assessments under Decreto-Lei 10/2011 (RJAT)?
Under the RJAT (Decree-Law 10/2011 of 20 January), taxpayers may contest Stamp Tax assessments through CAAD (Centro de Arbitragem Administrativa) arbitration. The request must be filed electronically via the CAAD system within the legal deadline (typically within 90 days of notification under Article 10 RJAT). The process includes: (1) arbitral request submission identifying the contested act and legal grounds; (2) designation of arbitrator(s) by the Deontological Council; (3) Tax Authority response; (4) optional preliminary hearing under Article 18 RJAT (which may be dispensed with); (5) written decision declaring the contested act legal or illegal. CAAD arbitration offers an alternative to judicial courts for administrative tax disputes.