Process: 444/2014-T

Date: November 22, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Case 444/2014-T addressed whether Stamp Duty under Item 28.1 of the General Table (TGIS) applies to construction land (terrenos para construção) valued over €1,000,000. A real estate investment company challenged two 2013 Stamp Duty assessments totaling €78,184.88 on two Lisbon properties classified as 'land for construction' with tax property values of €3,295,514.62 and €4,522,972.95. Item 28.1 TGIS imposes Stamp Duty on 'urban properties with residential use' valued at or above €1,000,000, with tax liability falling on owners, usufructuaries, or surface rights holders as of December 31st. The claimant argued that construction land constitutes an autonomous category under Article 6 of the Property Tax Code, distinct from 'residential' urban properties. The company contended that the three cumulative requirements for taxation—ownership rights, minimum valuation, and residential use—were not satisfied because land for construction lacks any building structure permitting classification of use. The claimant further argued that use classification only applies after construction, and that undeveloped land held as a productive instrument reveals nothing about contributive capacity, making such taxation potentially unconstitutional. The Tax Authority countered that definitions derive from the Property Tax Code by reference from the Stamp Duty Code. The arbitration proceeding followed standard RJAT procedures, with parties waiving the first arbitral meeting given the stability of factual matters and absence of procedural exceptions.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Case no. 444/2014-T

Subject Matter: Stamp Duty - Land for Construction - Item 28 of the GGST

THE PARTIES

Claimant: "A - Sociedade de Investimentos Imobiliários, S.A.", NIPC …, with registered office at R. … Lisbon

Respondent: Tax and Customs Authority

Subject Matter: Land for Construction - Stamp Duty - Item 28 of the GGST

ARBITRAL DECISION

I - Object of the Request and Procedural Conduct

On 24 June 2014, the Claimant filed a request for arbitral pronouncement, requesting:

i) A declaration of illegality of two tax assessment acts for Stamp Duty relating to the year 2013 (no. 2014… and no. 2014…); and

ii) Compensation for costs arising from the issuance of a bank guarantee, which was presented for purposes of suspending the tax enforcement proceedings.

The aforementioned tax assessment notes relate to two urban properties, described in their respective property cards as "land for construction" (… and …, both from the parish of …, Lisbon).

The Stamp Duty applies, pursuant to item 28.1 of the respective General Table, to "urban properties with residential use" whose "tax property value appearing in the matrix, in accordance with the Property Tax Code, is equal to or greater than €1,000,000". The rule of subjective incidence places the tax on the owner, usufructuary or surface rights holder (as of 31 December of the year to which the tax relates).

By decision of the President of the Deontological Council (no. 1 of article 6 of the RJAT) the undersigned was appointed as sole arbitrator. The arbitral tribunal was constituted on 27 August 2014.

The Tax and Customs Authority (hereinafter referred to, in abbreviated form, as TA) filed its Response on 17 October. Additionally, the TA requested a waiver of the first arbitral meeting provided for in article 18 of the RJAT, given the absence of exceptions and the stability of the factual matter and its respective evidentiary elements.

Notified for this purpose, the Claimant expressed its agreement with the waiver of the arbitral meeting.

Taking into account the position expressed by the Parties, the tribunal decided to dispense with any other formalities and deliver a decision by 21 November.

The parties have legal capacity and standing.

The Arbitral Tribunal was duly constituted and is competent.

The proceedings do not suffer from any nullity. No exceptions were raised by the parties that would prevent consideration of the merits of the case.

II - Factual Background and Summary of Legal Grounds Alleged by the Parties

a) The Claimant is the owner of two properties for construction (located in Lisbon, in the parish of …), which constitute urban properties within the meaning of the Property Tax Code;

b) In September 2006 the urban properties were assessed in accordance with the assessment system provided for in the Property Tax Code. In both cases a tax property value greater than €1,000,000 was determined;

c) The triennial updating of tax property values resulted in them being, as of 31 December 2013, fixed at €3,295,514.62 (…) and €4,522,972.95 (…);

d) The TA issued Stamp Duty assessment notes, pursuant to item 28.1 of the corresponding General Table, in the amounts of €32,955.15 (…) and €45,229.73 (…);

e) The payment of the tax is, by reference to the Property Tax Code, divided into 3 installments, to be made in the months of April, July and November;

f) The Claimant attached copies of the property cards (issued in March 2014) and the Stamp Duty assessment, which includes the payment document for the first installment (April 2014);

g) The Claimant did not make the payment of the said assessment notes;

h) To suspend coercive collection of the debt in tax enforcement proceedings, the Claimant presented a bank guarantee on first demand, in the amount of €32,577.64.

These facts are proven, as evidenced by the documentation attached to the request for arbitral pronouncement. The TA did not contest the factual matter. No disputed or unproven facts remain.

The Claimant contends that:

· The Stamp Duty assessments issued in 2014 (relating to the year 2013) suffer from the defect of violation of law, given their incompatibility with item 28 of the GGST;

· Item 28 makes the taxability of Stamp Duty (the tax event) conditional upon the cumulative satisfaction of 3 requirements: ownership, usufruct or surface rights of an urban property, whose tax property value is equal to or greater than €1,000,000 and which has "residential use";

· This latter requirement is not satisfied, and therefore no tax event exists;

· Neither the Stamp Duty Code nor its respective General Table define the concept of urban property with "residential use". Therefore this concept should be sought in the Property Tax Code, which constitutes subsidiary law (no. 2 of article 67 of the Stamp Duty Code);

· Article 6 of the Property Tax Code classifies urban properties as "residential", "commercial, industrial or for services", "land for construction" and "others";

· Therefore, land for construction constitutes an autonomous category of urban property. It does not constitute a "residential" urban property;

· The reference to the use of an urban property appears in a restricted manner, as one of the variables in determining the tax property value of a given property. In other words, the use coefficient arises - as a rule for quantifying the taxable base of the Property Tax - after the categorization of the property;

· In sum, the category of urban property precedes the subsequent application of the rules for determining its tax property value, and these, being located downstream, in no way alter the prior categorization of the urban property;

· An urban residential property is one that was built as such. Or for which a license has been granted in accordance with the Legal Framework of Urban Construction;

· A given building structure may include different categories of urban properties, which will be relevant within the scope of the subsequent determination of the tax property value;

· A property for construction, as its own name and concept indicate, does not possess any building structure that would permit assessment of its respective use (real, as evidenced by a license, or by reference to normal intended use);

· Therefore, there is no use without a building;

· A significant part of a property for construction (which may lead to exceeding the €1,000,000 limit) results from the land adjacent to the construction. Which, once construction is completed, will not have the same residential use;

· The intent of the legislature is consistent with the letter of the law, in not permitting that land for construction be subject to any residential use or otherwise;

· Arbitral decisions of the CAAD and sentences from the Supreme Administrative Court are cited, which converge on the understanding that land for construction should be excluded from the rule of incidence contained in item 28 of the GGST;

· Finally, Stamp Duty constitutes a tax on the patrimonial wealth of a given taxpayer. A company holding an urban property intends its transfer or construction;

· Mere holding of land for construction reveals nothing as to the contributive capacity of that taxpayer. Insofar as the land is held as a mere productive instrument. Therefore, its taxation under Stamp Duty would violate the Constitution, by disrespecting the nature of the tax;

· And it would again violate the principle of equality contained in the constitutional provision, insofar as Stamp Duty would not apply to productive instruments held by other companies.

In its Response, the TA alleges that:

· The definition of the concepts of urban property, land for construction and residential use is found in the Property Tax Code, by reference from the Stamp Duty Code. The same applies to matters not regulated in the Stamp Duty Code and relating to item 28;

· The notion of use of the urban property is found in the rules for assessment of real property. To the assessment of land for construction the use coefficient provided for in article 41 of the Property Tax Code is applicable;

· The assessment model for land for construction is analogous to that of constructed buildings. It cites a judgment of the Administrative Court of the South, in which it is concluded that the legislature intended to extend to land for construction the methodology for assessment of urban properties in general. This includes the application of the use coefficient;

· There is hermeneutical harmony in the literal tenor of item 28 of the General Table, insofar as the scope and meaning of this rule should be sought in the Property Tax Code. Which subsumes under the concept of residential use the different categories of urban property. A category which includes both constructed properties and land for construction with construction potential;

· Moreover, when the building license for the performance of urban operations necessarily includes the elements that permit determination of the intended use for the property being constructed;

· And also municipal master plans establish the rules for territorial organization and other building rules;

· Reason for which the use of a given property can be determined prior to the existence of any building;

· On the constitutionality of item 28, it identifies no disrespect of fundamental law. Insofar as the Tax Constitution permits differentiation of rules of objective and subjective incidence. Eliminating, indeed, arbitrary or unreasonable discriminations in accordance with the principle of proportionality;

· The different aptitude or purpose of a property (residential, industrial or for commerce and services) objectively justifies that the tax legislature confer on them a distinct regime.

III - Legal Grounds

The request for arbitral pronouncement summarizes (in its article 15) the contested issue upon which a decision must be made: "should land for construction be considered as a property with residential use for purposes of applying item 28.1 of the General Table of Stamp Duty?"

Item 28 of the GGST - in the wording in effect in 2013 to which the contested Stamp Duty assessments relate - has the following tenor:

"28 - Ownership, usufruct or surface rights of urban properties whose tax property value appearing in the matrix, in accordance with the Property Tax Code (CIMI), is equal to or greater than €1,000,000 - on the tax property value used for purposes of Property Tax:

28.1 - For a property with residential use - 1%";

28.2 - For a property, when the taxpayers that are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by order of the Minister of Finance - 7.5%."

The Stamp Duty Code completes the rule of incidence by defining territoriality (properties located in Portuguese territory) and subjective incidence (the owner, usufructuary or surface rights holder).

And it establishes the rules for assessment and payment (single or installment) of the tax.

Returning to the concept of "property with residential use", the Claimant and Respondent differ as to the categories of property. As well as to the scope and extent of the rules for determining the tax property value of an urban property.

For the Claimant, the rules for quantifying the tax obligation should not be confused with the typology of urban property. The categorization of urban properties is located upstream of the determination of tax property value. Therefore the latter cannot influence this prior categorization. The semantics (residential use) should not be confused with the letter of the law (land for construction).

For the Respondent, the concepts of land for construction and the respective rules for determining tax property value are indissociable. Inasmuch as any urban property must, regardless of its categorization, have a residential, industrial, or commercial or services use.

This issue has been the subject of various decisions. Both from the Supreme Administrative Court [[i]] and from the CAAD [[ii]].

These decisions are uniform in their content, allowing the conclusion of the existence of a clear line of case law. To the effect that land for construction cannot be subsumed under the rule of incidence of Stamp Duty, as it appears in item 28 of the respective General Table.

It is this line of case law that the present arbitral decision adopts.

And because it is a matter extensively discussed in the case law, the present arbitral decision follows closely the recent judgment of the Supreme Administrative Court (Case no. 0739/14). From which various excerpts are transcribed.

First of all, "the concept of 'property (urban) with residential use' was not defined by the legislature. Neither in Law no. 55-A/2012, which introduced it, nor in the Property Tax Code, to which no. 2 of article 67 of the Stamp Duty Code (equally introduced by that Law) refers as subsidiary law".

From the letter of the law "(…) nothing unequivocal follows, indeed, as it itself [uses] a concept that it did not define and which was also not defined in the statute to which it referred as subsidiary law (…)".

From the legislative intent "nothing more follows than the concern to generate new tax revenue (…) reasons which contribute nothing of relevance to the clarification of the concept of 'properties (urban) with residential use', because they take it as established, without any concern to clarify it".

It is particularly concerning that this imprecision affects the scope of the rule of incidence of this new Stamp Duty tax provision. Leaving the TA and taxpayers at the mercy of the uncertainty of the literal scope and legislative meaning of that same rule of incidence.

Which explains the particular litigation of this new tax, measured by the significant number of judicial challenges and requests for arbitral pronouncement. As well as the subsequent amendment of item 28 in the framework of the State Budget for 2014 (Law no. 83-C/2013, of 31 December), which is not unrelated to the line of case law that had been established regarding the present contested issue.

Specifically, Stamp Duty whose tax event occurs after 1 January 2004 will apply to "residential property or land for construction whose building, authorized or intended, is for residential purposes".

In this manner, the ambiguity that surrounded the expression "use" was removed. Furthermore, there is a reference to authorized or intended constructions, thus contemplating land for construction that do not present any buildings.

But this new law did not have the nature of an interpretative law, "(…) clarifying nothing (…) with respect to previous situations (2012 and 2013 assessments)".

In any event, even if the new law were given such scope, it would always be necessary to determine whether it would or would not be innovative. Since we are dealing with a rule of objective incidence, which has the function of circumscribing the tax event, without which the tax legal relationship is non-existent.

The truth is that the legislature did not even care to characterize the new law as interpretative. What permits the affirmation of the general principle of law, in accordance with which a new law only provides for the future. Encompassing, in this case, tax events arising after 1 January 2014.

It is also settled that the new law does not show that the intention or will of the legislature "(…) was, ab initio, to encompass within its scope of objective incidence land for construction for which building construction has been authorized or intended for residential buildings (…)".

And what is to be said of the use coefficient used as a variable in determining the tax property value of the generality of urban properties?

"The fact that it can be considered that in determining the tax property value of urban properties classified as land for construction account must be taken of the use that will have the building authorized or intended for it for determination of the respective value of the area of implantation (cf. nos. 1 and 2 of article 45 of the CIMI), does not determine that land for construction can be classified as 'properties with residential use' (…)".

Indeed, "(…) 'residential use' is always referred in the Property Tax Code to 'buildings' or 'constructions', existing, authorized or intended, because only these can be inhabited, which is not the case with land for construction, which do not have, in themselves, conditions for such, being not capable of being used for residence unless and when the building authorized and intended for it is erected on them (…)".

And after completion of the works, the land for construction will give rise to a new urban property among the other typologies provided for in article 6 of the Property Tax Code (residential property, industrial, commercial, for services or other).

In truth, every and any urban property has a tax property value, the rules for quantifying which could not be confused with the prior categorization of the properties themselves. Under the penalty of the tax event (subjection of a given economic and legal reality, in this case an urban property, to Stamp Duty) being confused with the tax obligation (the quantification of an obligation as a consequence of the tax event).

In other words, the rule of incidence of a tax always precedes the subsequent rules for quantifying the tax obligation.

If a particular urban property does not fall under the rule of incidence of a particular tax, the birth of a tax event cannot be deemed to have occurred and, therefore, neither can a subsequent tax obligation capable of being quantified. Under the penalty of the rules for quantifying that tax obligation being valued as true rules of incidence.

And, as the Supreme Administrative Court states, "it would be strange, indeed, if the determination of the scope of the rule of incidence of Stamp Duty of item no. 28 of the General Table were to be found, after all, in the rules for determining the tax property value of the Property Tax Code, and if the terminological imprecision of the legislature in the drafting of that rule were, after all, to be elucidated and finally clarified by means of an indirect and equivocal reference to the use coefficient established by the legislature with respect to constructed properties (article 41 of the Property Tax Code)".

An interpretation to the contrary would imply accepting that any rule for quantifying the tax obligation (tax property value) could be used in interpreting the meaning and scope of a rule of incidence (the subjection to Stamp Duty of properties classified as urban).

"Given that land for construction - whatever the type and purpose of the building that will be, or may be, erected on it - does not satisfy, by itself alone, any condition to be licensed as such or for it to be possible to define as being its normal intended use residence, and given that the rule of incidence of Stamp Duty refers to urban properties with 'residential use', without any specific concept being established for that purpose, cannot from it be extracted that within it is contained a future potentiality, inherent in a distinct property that may eventually be built on the land".

Thus concluding by "the (…) clear distinction between urban properties that are 'residential' and 'land for construction'". These latter cannot be qualified as 'properties with residential use' for purposes of the provision in item no. 28.1 of the General Table of Stamp Duty (in the wording in effect in 2013, to which the Stamp Duty assessments issued in 2014 refer).

In conclusion, the urban properties held by the Claimant are classified, in the year 2013, as land for construction. They do not constitute an urban property with residential use. Being, consequently, excluded from the incidence of Stamp Duty provided for in item 28.1 of the respective General Table.

Reason for which the assessment notes violate the principle of legality. They must be annulled.

Finally, the Claimant provided a bank guarantee. Having incurred costs charged by the issuing credit institution (which will have included the impact of Stamp Duty contained in item 10, together with Stamp Duty provided for in item 17 for commissions).

Such costs were incurred in direct proportion to the prior commission of a taxable act affected by illegality. Therefore the Claimant is entitled to reimbursement for such costs, in compliance with the provision of article 53 of the General Tax Law.

Insofar as the voluntary execution of this arbitral decision cannot, obviously, be immediately realized by the TA, the bank guarantee will remain valid after the closure of the case.

Therefore it will be up to the Claimant the subsequent determination (and documentation) of the costs incurred in the time period that elapsed between the issuance and return of the bank guarantee.

IV - Issue of Suspended Consideration

Consideration of the question of unconstitutionality of the aforementioned item 28.1 of the General Table of Stamp Duty, when interpreted in the sense of taxing land for construction held by commercial companies, is suspended.

V - Decision

Based on the above grounds and considerations, the arbitral tribunal decides:

i) To uphold the request for arbitral pronouncement, with the consequent annulment of the Stamp Duty assessment notes relating to the year 2013; and

ii) To uphold the request for compensation for the provision of an undue guarantee, in the amount to be determined in execution of the present arbitral decision.

The economic value of the request is fixed at €48,301.74.

Costs assessed against the Respondent.

Let the parties be notified.

Lisbon, 22 November 2014

Single Arbitral Tribunal

José Luís Ferreira

[i] Supreme Administrative Court decisions of 9 April (cases no. 1870/13 and no. 48/14), 23 April (cases no. 270/14 and no. 272/14), 14 May (cases no. 055/14, no. 01871/13 and no. 0317/14), 28 May (cases no. 425/14, no. 0396/14 and no. 0395/14), 2 July (case no. 0467/14), 9 July (case no. 0676/14), 10 September (case no. 0740/14) and 24 September (case no. 739/14).

[ii] Arbitral decisions of the CAAD in cases no. 42/2013-T, no. 48/2013-T, no. 49/2013-T, no. 53/2013-T, no. 75/2013-T, no. 144/2013-T, no. 158/2013-T, no. 180/2013-T, no. 189/2013-T, no. 191/2013-T, no. 215/2013-T, no. 231/2013-T, no. 288/2013-T and no. 310/2013-T.

Frequently Asked Questions

Automatically Created

Does Stamp Tax (Imposto do Selo) under Verba 28 of the TGIS apply to construction land (terrenos para construção) classified as having housing allocation?
The central legal question in Process 444/2014-T was whether Stamp Tax under Verba 28 TGIS applies to terrenos para construção (construction land). The claimant argued that Item 28.1 requires 'residential use' (afetação habitacional) as a cumulative requirement alongside minimum valuation of €1,000,000. Since construction land is classified as an autonomous category under Article 6 of the Property Tax Code—distinct from 'residential,' 'commercial/industrial,' or 'other' urban properties—and lacks any building structure that would permit use classification, it cannot satisfy the 'residential use' requirement. The taxpayer contended that use classification only applies to built properties, not undeveloped land awaiting construction.
What are the legal requirements for Stamp Tax liability on urban properties valued at or above €1,000,000 under Portuguese tax law?
Under Verba 28.1 of the TGIS, Stamp Tax liability on urban properties requires three cumulative legal elements: (1) ownership, usufruct, or surface rights (direito de superfície) over an urban property; (2) tax property value (valor patrimonial tributário) equal to or greater than €1,000,000 as registered in the property matrix under the Property Tax Code (CIMI); and (3) 'residential use' (afetação habitacional) of the property. The tax rate is 1% annually. Subjective liability falls on the owner, usufructuary, or surface rights holder as of December 31st of the tax year. Payment is divided into three installments in April, July, and November, following Property Tax Code payment schedules.
How did CAAD Process 444/2014-T address the classification of construction land for purposes of Imposto do Selo incidence?
In CAAD Process 444/2014-T, the arbitral tribunal examined whether construction land (terrenos para construção) falls within the incidence rule of Item 28 TGIS. The claimant presented two key arguments: (1) Article 6 of the Property Tax Code establishes construction land as an autonomous urban property category, separate from residential properties; and (2) the concept of 'use' (afetação) presupposes existence of a building structure, which construction land lacks by definition. The claimant cited supporting arbitral precedents from CAAD and Supreme Administrative Court decisions concluding that construction land should be excluded from Item 28 taxation. The tribunal followed standard RJAT procedures, dispensing with the first arbitral meeting due to factual stability and absence of exceptions.
Can a taxpayer challenge Stamp Tax assessments on construction land through tax arbitration at CAAD?
Yes, taxpayers can challenge Stamp Tax assessments on construction land through tax arbitration at CAAD (Centro de Arbitragem Administrativa). Process 444/2014-T demonstrates this procedural avenue. The claimant, a real estate investment company, filed an arbitration request on June 24, 2014, seeking: (i) declaration of illegality of two Stamp Duty assessment acts for 2013; and (ii) compensation for costs of a bank guarantee presented to suspend tax enforcement proceedings. The case followed the RJAT (Legal Regime for Tax Arbitration) procedure, with a sole arbitrator appointed by the President of the Deontological Council. The Tax Authority filed a response, and both parties waived the first arbitral meeting, allowing expedited decision-making on the merits.
Who bears subjective Stamp Tax liability under Verba 28.1 TGIS — the owner, usufructuary, or superficiary — and as of what reference date?
Under Verba 28.1 TGIS, subjective Stamp Tax liability falls on three categories of rights holders: (1) the owner (proprietário), (2) the usufructuary (usufrutuário), or (3) the surface rights holder (titular do direito de superfície) of the urban property. The critical reference date is December 31st of the year to which the tax relates (31 de dezembro do ano a que o imposto respeita). This means tax liability is determined based on who holds these property rights on that specific date. In Process 444/2014-T, the company held ownership rights to the construction land as of December 31, 2013, which formed the basis for the Tax Authority's assessment, though the company contested whether the substantive requirements for taxation were satisfied.