Process: 44/2014-T

Date: August 28, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Process 44/2014-T addressed whether Stamp Tax under Item 28 of the General Stamp Tax Table (TGIS) applies to undeveloped building land (terrenos para construção) valued over €1,000,000. The claimant challenged four Stamp Tax assessments on urban property designated as land for construction, arguing that such property cannot be classified as having 'residential use' until actual residential buildings are erected. Item 28.1 TGIS, introduced by Law 55-A/2012, imposes annual Stamp Tax on ownership, usufruct, or surface rights of urban properties with residential use exceeding €1,000,000 in taxable property value (VPT). The claimant contended that land for construction under Article 6(3) of the IMI Code represents a purely material concept relating to potential construction destination, and that property classification depends on normal current use, not hypothetical future use. The Tax Authority argued that land for construction to which residential use coefficients were applied during property valuation should be considered properties with residential use, citing Article 67(2) of the Stamp Tax Code which refers to the IMI Code for definitional purposes. The Authority maintained that the use coefficient from Article 41 CIMI, applied when determining VPT for building land under Article 45(2) CIMI, establishes the residential character for Stamp Tax purposes. The tribunal referenced arbitral decision 49/2013-T, which concluded that land for construction cannot be considered properties 'with residential use,' supporting a restrictive interpretation requiring actual residential utilization rather than mere potential or valuation assumptions. This case represents a fundamental conflict between formalistic assessment criteria and substantive use requirements in Portuguese tax law.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration
Process No. 44/2014 – T
Subject: Land for Construction – Item 28 of the General Stamp Tax Table (TGIS)

I – REPORT

  1. A, (hereinafter identified only as Claimant), Legal Entity No. …, with registered office in … filed on 22 January 2014, a request for constitution of an Arbitral Tribunal, in accordance with the provisions of Articles 2 and 10 of Decree-Law 10/2011 of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter identified only by the initials RJAT).

  2. In the request for arbitral decision, the Claimant opted not to appoint an arbitrator.

  3. Pursuant to Article 6, No. 1 of the RJAT, the Ethics Council of the Center for Arbitration appointed a sole arbitrator, and as a consequence of that appointment and from 25 March 2014, by order issued by His Excellency the President of the Ethics Council of the CAAD, the Arbitral Tribunal was duly and properly constituted to examine and decide the matter of the case.

  4. The Claimant seeks, with the constitution of this Arbitral Tribunal, the annulment of the assessment acts for Stamp Tax (IS) with Nos. …, …, … and ….

  5. The Claimant supports its claim, in summary, as follows:

(i) The IS assessment is made under the provisions of Article 6 No. 1 of Law 55-A/2012 and Item 28 of the General Stamp Tax Table (TGIS) which the said law introduced into the Portuguese tax system;

(ii) According to the said item, IS is levied on the ownership, usufruct or right of surface of urban properties with a Tax Property Value (VPT) greater than € 1,000,000.00 and which have a "residential use";

(iii) The urban property on which IS was assessed – urban property located in …, with registration number …, described in the Property Registry Office of …, under No. … – is land for construction, and therefore cannot be classified as properties with "residential use";

(iv) The argument of the Tax Authority (AT) cannot be accepted that the conditions for application provided for in Item 28 of the TGIS are met, that is, that the property has a VPT greater than € 1,000,000.00 and that the use coefficient considered in its assessment process was the one corresponding to residential use;

(v) The concept of land for construction provided for in Article 6 No. 3 of the IMI Code (to which the IS Code refers) is merely a material concept, relating to the realities for which it was designed, in the present case, the potential destination for construction;

(vi) The classification or use of any property depends on its normal use, so that in land for construction that normal use cannot be residential as long as there is no building erected for the purpose of permitting that residential use;

(vii) On the property in question there is no building erected for residential, commercial or service purposes;

(viii) The subdivision authorization of the property states that it may be destined for collective housing, commerce and services;

(ix) The Claimant ends its arguments with the transcription of part of the arbitral decision No. 49/2013-T where it is concluded that land for construction cannot be considered as properties "with residential use";

  1. In its defense, the Tax and Customs Authority contends that the properties on which taxation fell have the legal nature of property with residential use, supporting this position with the following arguments:

(i) Urban properties that are land for construction and to which residential use has been assigned within the scope of their respective assessments have the legal nature of properties with residential use.

(ii) In the absence of any definition of urban property with residential use under IS, in accordance with Article 67 No. 2 of the CIS, recourse must be had to the CIMI;

(iii) The notion of use of the urban property is found in the part relating to the assessment of real property inasmuch as the use of the property (purpose) will incorporate value into that property and is therefore a decisive distinguishing factor for assessment purposes;

(iv) Thus, as results from the expression "…value of authorized buildings" provided for in Article 45 No. 2 of the CIMI, the legislator chose to determine the application of the assessment methodology for properties in general to the assessment of land for construction, so that the use coefficient fixed in Article 41 of the CIMI is applicable to them.

(v) For the purposes of determining the VPT of land for construction, the application of the use coefficient in the assessment is clear, so its consideration for the purposes of applying Item 28 of the TGIS cannot be ignored;

(vi) The reference to properties with residential use provided for in Item 28 of the TGIS should be understood broadly, including both erected residential properties and land for construction, starting from the very wording of the rule, which does not speak of "properties intended for housing" but rather of properties with "residential use".

(vii) The legislation applicable to land for construction, both as regards the way to determine its VPT (where the value of the implantation area should be considered), and as regards the granting of a license authorization for the carrying out of urban development operations, and as regards the preparation of Municipal Master Plans, allows to ascertain and determine the use of the land for construction.

  1. On 31 July, the following order was issued:

"Given that:

(i) The resolution of the case appears to be based solely on the treatment of questions of Law, with no prior questions appearing to be at issue;

(ii) Given the clarity of the arguments presented and set out in the pleadings submitted by the parties,

The Tribunal considers itself relieved of:

(i) The holding of the meeting referred to in Article 18 of the RJAT;

(ii) The submission of arguments by the parties.

  1. Subsequently, on 18 August an order was issued extending the deadline set on 31 July 2014 to issue the decision, to 2 September 2014.

II – FACTS PROVED

  1. The Claimant is the owner and legitimate proprietor of the urban property located in …, with registration number …, described in the Property Registry Office of …, under No. ….

  2. On the said properties the assessment acts for Stamp Tax (IS) with Nos. …, …, … and … fell, in the total amount of € 15,256.98.

  3. On account of this assessment, and not being in conformity with the same, the Claimant submitted, to the Director of Finances of Lisbon, an administrative appeal to which was assigned No. 2013… .

  4. This appeal, after the draft decision was sent to the Claimant and it exercised its right to prior hearing, was dismissed by order issued on 13 December 2013, by the Head of the Tax Justice Division of the Finance Directorate of Lisbon, by sub-delegation of powers from the Deputy Director of Finances of Lisbon.

  5. Due to this decision to dismiss the administrative appeal, the Claimant requested, on 22 January 2014, the constitution of this Arbitral Tribunal, which was formally constituted on 25 March 2014.

  6. The facts mentioned above are proved by the documents attached by the Claimant and not questioned by the Respondent (AT), no other facts considered relevant for the decision that is the subject of the present case having been proved.

It is now necessary to examine and decide.

III – DECISION

On the basis of the facts proved and the claim submitted by the Claimant, the question to be analyzed by the Tribunal concerns the classification of land for construction within the scope of application of Item 28.1 of the TGIS, in order to determine whether or not this tax is owed.

As we have seen, the assessments contested by the Claimant were issued under the rule of application contained in Item 28.1 of the TGIS, and it is its understanding that land for construction cannot, in any way, be considered "properties with residential use", and therefore these assessments are manifestly illegal.

As we have seen, Law 55-A/2012 of 29 October introduced various amendments to the Stamp Tax Code and, in particular, added to the TGIS Item 28, to which it gave the following wording:

"28 – Ownership, usufruct or right of surface of urban properties whose tax property value contained in the matrix, in accordance with the Code for the Municipal Tax on Real Estate (CIMI), is equal to or greater than € 1,000,000 – on the tax property value used for the purpose of IMI:

28.1 – For property with residential use – 1%

28.2 - ……….."

This same statute subsequently, in its Article 6, established some transitional rules of application where, similarly to what it had done in the said Item 28, it adopted the same concept of property with residential use.

A concept which is not used in any other legislation of a tax nature, especially in the CIMI, which, by force of various rules of the CIS, is the statute of subsidiary application with respect to the tax provided for in Item 28 of the TGIS (see, in this regard, Articles 2 No. 4, 3 No. 3 u), 5 u), 23 No. 7 and 46 and 67 of the CIS).

In fact, and with relevance for the present decision, particular attention should be paid to the provisions of Articles 2 and 6 of the CIMI, where, on the one hand, the concept of property is defined (Article 2) and, on the other, the types of urban properties are enumerated (Article 6):

Article 2
Concept of Property

1 - For the purposes of this Code, property is any portion of territory, encompassing waters, plantations, buildings and structures of any nature incorporated or situated therein, with a character of permanence, provided that it forms part of the patrimony of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or structures, in the circumstances mentioned above, endowed with economic autonomy in relation to the land on which they are implanted, although situated in a portion of territory that constitutes an integral part of a different patrimony or does not have patrimonial nature.

2 - Buildings or structures, even if movable by nature, are deemed to have a character of permanence when devoted to non-transitory purposes.

3 - The character of permanence is presumed when buildings or structures have been situated in the same location for a period exceeding one year.

4 - For the purposes of this tax, each autonomous fraction, under the horizontal property regime, is deemed to constitute a property.

Article 6
Types of Urban Properties

1 - Urban properties are divided into:
a) Residential;
b) Commercial, industrial or for services;
c) Land for construction;
d) Other.

2 - Residential, commercial, industrial or for services are buildings or structures licensed for such or, in the absence of a license, which have as their normal destination each of these purposes.

3 - Land for construction is considered to be land situated within or outside an urban settlement, for which a license or authorization has been granted, admitted prior communication or issued favorable prior information of a subdivision or construction operation, and also those which have been declared as such in the acquisition title, except land where the competent entities prohibit any of these operations, namely those located in green areas, protected areas or which, in accordance with municipal land use plans, are devoted to public spaces, infrastructure or facilities.

4 - Those falling within the provision of subparagraph d) of No. 1 are land situated within an urban settlement which are neither land for construction nor fall within the provisions of No. 2 of Article 3 and also buildings and structures licensed or, in the absence of a license, which have as their normal destination purposes other than those referred to in No. 2 and also those of the exception of No. 3.

From this it is concluded, with clarity, that, as indeed has been stated above, the concept of "property with residential use" is not, anywhere, used by the legislator in the CIMI.

From a literal interpretation of the rule contained in Item 28.1 of the TGIS one can only conclude that the legislator's intention was to include within its scope of application urban properties that have residential use.

Thus, starting from this purpose, it must be ascertained when a property is devoted to a residential purpose, namely if it is when this destination is fixed for it in any licensing act or similar in nature, or if, on the contrary, it is only when the attribution of this destination is effectively realized.

The wording of Item 28.1 allows to conclude, clearly, that the legislator's intention was to consider an effective use necessary and not merely the licensing of buildings or structures for that purpose or, in the absence of that license, those which have as their normal destination that purpose.

In fact, if the legislator, in Item 28.1 were satisfied with these facts, it would not have used the expression "properties with residential use", but rather the expression "residential properties" contained in Article 6 of the CIMI.

From the above it is concluded, therefore, that property with "residential use" is not merely a property licensed for housing or intended for that purpose, but rather "something more than that", that is, it must be a property with effective use for that residential purpose.

Having to be, in that way, something of effectively built.

Now, land for construction, having yet no buildings, as is evident from the definition given in Article 6 of the CIMI ("….land situated within or outside an urban settlement, for which a license or authorization has been granted, admitted prior communication or issued favorable prior information of a subdivision or construction operation, and also those which have been declared as such in the acquisition title, …."), does not meet, by itself, any condition to even be considered as residential properties, and therefore, with greater reason, "properties with residential use".

It must thus be understood that the rule of Item 28.1 will only be satisfied when residential use is effectively realized.

In this way, it does not appear to us to be possible to follow the thesis defended by the Respondent (AT), according to which, having been, for the purposes of determining the VPT of this land for construction, the application of the residential use coefficient in its respective assessment process used, its consideration for the purposes of applying Item 28 of the TGIS cannot be ignored.

On the contrary, the thesis supported by the Claimant should be accepted, that residential use cannot be attributed to land for construction even though they may have as their probable (but not exclusive) destination the construction of housing.

It should also be said that, although this question was not raised by either party, the recent amendment introduced by the legislator, with the State Budget Law for 2014 (Article 193 of Law No. 83-C/2013) in the wording of Item 28.1 of the TGIS (it came to subject to the tax "land whose authorized or intended construction is for housing"), contributes to reinforce, unequivocally, this understanding, as this amendment does not have the nature of an interpretive rule.

Moreover, the decisions taken by the Arbitral Tribunals at the CAAD have decided, likewise, in this sense (see, among others, decisions of Processes Nos. 48/2013-T, 53/2013-T, 215/2013-T, 310/2013-T, or more recently by the undersigned the decision of Process No. 2/2014), as well as some recent decisions of the STA which also dealt with this matter (see, among others, Judgment No. 187/13 or Judgment No. 272/14 of this Superior Court).

This Tribunal considers that the contested assessments are vitiated with illegality, insofar as they fall upon a property registered in the matrix as land for construction, a concept in which, for the reasons that have been set forth, is not included in the concept of "properties with residential use" provided for in Item 28.1 of the TGIS.

IV – CONCLUSION

In view of the foregoing, the request for annulment of the Stamp Tax assessment acts effected by the Tax Authority is decided to be well-founded, condemning the Tax and Customs Authority to refund to the Claimant the amount of € 15,256.98 (fifteen thousand two hundred and fifty-six euros and ninety-eight cents) plus compensatory interest, at the legal rate, from the date on which it realized the payment of this amount and the date of issuance of the corresponding credit note in favor of the Claimant.

Costs calculated in accordance with Table I of the regulation on costs of tax arbitration proceedings in accordance with the value of the claim, to the account of the Respondent, and which I fix at € 918.00 (nine hundred and eighteen euros).

Let notice be served.

Lisbon, 28 August 2014

THE ARBITRATOR

João Marques Pinto

The present decision is written in accordance with the old spelling rules.

Frequently Asked Questions

Automatically Created

Does Stamp Tax (Imposto do Selo) under Verba 28 of the TGIS apply to building land (terrenos para construção) with a taxable value over €1,000,000?
Based on CAAD arbitral jurisprudence, particularly Process 44/2014-T and decision 49/2013-T, Stamp Tax under Item 28 (Verba 28) of the TGIS does not apply to undeveloped building land (terrenos para construção), even when the taxable property value exceeds €1,000,000. The tribunal adopted a restrictive interpretation requiring that properties have actual residential use, not merely potential residential destination. While the Tax Authority argued that application of residential use coefficients during property valuation was sufficient to establish 'residential use' for Stamp Tax purposes, the arbitral tribunal rejected this formalistic approach, concluding that land for construction lacks the substantive residential character required by Item 28.1 TGIS until actual residential buildings are erected.
Can a building plot be classified as having a 'housing designation' (afectação habitacional) before any residential construction exists?
No, a building plot cannot be classified as having 'housing designation' (afetação habitacional) before any residential construction exists, according to the interpretation adopted in Process 44/2014-T. The arbitral tribunal determined that the classification or use of property depends on its normal current use, not hypothetical future use or planning designations. The tribunal reasoned that land for construction cannot have residential use as long as no building is erected permitting actual residential occupation. This interpretation rejects the Tax Authority's position that application of residential use coefficients in property assessment (VPT calculation under the IMI Code) automatically confers residential character for Stamp Tax purposes. The tribunal distinguished between the potential destination of land (a material concept relevant for planning and valuation) and actual residential use required by Item 28 TGIS.
What is the legal definition of terrenos para construção under Article 6(3) of the Portuguese IMI Code?
Under Article 6(3) of the Portuguese IMI Code (Municipal Property Tax Code), terrenos para construção (land for construction) is defined as a material concept relating to urban land with potential for construction development. Process 44/2014-T clarified that this definition focuses on the physical and legal capacity of land to receive future construction, not on actual current use. The tribunal emphasized that land for construction represents a transitional category in Portuguese property law, characterized by potential rather than actual utilization. This material concept encompasses urban plots where construction is legally authorized or anticipated based on municipal planning instruments, but where buildings have not yet been erected. The definition is relevant for property assessment purposes under the IMI Code, particularly Article 45(2) which provides that land for construction is valued considering 'the value of authorized buildings,' but does not automatically transform potential residential destination into actual residential use for other tax purposes.
How did the CAAD arbitral tribunal rule on the annulment of Stamp Tax assessments on undeveloped urban land in Process 44/2014-T?
The CAAD arbitral tribunal in Process 44/2014-T ruled in favor of the taxpayer, ordering annulment of the Stamp Tax assessments on undeveloped urban land. The tribunal concluded that land for construction (terrenos para construção) cannot be classified as properties 'with residential use' under Item 28.1 of the General Stamp Tax Table (TGIS), even when such land has high taxable property value and residential use coefficients were applied during property assessment. The decision followed the reasoning established in arbitral decision 49/2013-T, adopting a restrictive interpretation of 'residential use' that requires actual residential occupation rather than mere potential or valuation assumptions. The tribunal rejected the Tax Authority's argument that application of residential use coefficients in determining taxable property value (VPT) under the IMI Code was sufficient to establish residential character for Stamp Tax purposes, emphasizing that property classification must be based on normal current use.
What role does the housing allocation coefficient play in determining Stamp Tax liability under Verba 28 of the Tabela Geral do Imposto do Selo?
The housing allocation coefficient plays a critical but contested role in determining Stamp Tax liability under Item 28 (Verba 28) of the TGIS. The Tax Authority argued that when residential use coefficients from Article 41 of the IMI Code are applied in calculating the taxable property value (VPT) of land for construction under Article 45(2) CIMI, this mathematical application in the assessment process establishes 'residential use' for Stamp Tax purposes. However, the arbitral tribunal in Process 44/2014-T rejected this position, distinguishing between technical valuation coefficients used for property assessment purposes and the substantive requirement of actual residential use under Item 28 TGIS. The tribunal determined that the use coefficient is merely a calculation tool for determining property value and cannot transform undeveloped land into property 'with residential use.' This interpretation prevents the IMI assessment methodology from automatically triggering Stamp Tax liability on land lacking actual residential buildings or occupation.