Process: 447/2016-T

Date: November 30, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration decision (Process 447/2016-T) addresses whether Stamp Tax under Verba 28.1 of the General Stamp Tax Table (TGIS) applies to building land valued over €1 million. The taxpayer, a Portuguese company, challenged a €18,989.80 stamp duty assessment for 2015 on property registered as "land for construction" with a tax patrimonial value of €1,898,980.00.

The company argued that Verba 28.1 TGIS, introduced by Law 83-C/2013, applies only to residential properties capable of immediate habitation, not construction land. They contended the property represents productive business investment rather than high-value residential holdings demonstrating tax-paying capacity. The company raised constitutional challenges, arguing the provision violates equality and ability-to-pay principles under Articles 13 and 204 of the Portuguese Constitution.

The Tax Authority defended the assessment, asserting that property with "residential allocation" in the registry qualifies under Verba 28.1 regardless of current use. They emphasized the extraordinary fiscal context when the measure was enacted and noted the Constitutional Court had previously rejected unconstitutionality claims.

A critical procedural issue arose when the Tax Authority challenged the arbitral tribunal's competence to determine constitutional questions. The tribunal rejected this exception, citing Article 204 of the Portuguese Constitution, which establishes diffuse constitutional review empowering all courts, including arbitral tribunals recognized under Article 209(2), to refuse applying unconstitutional norms.

The tribunal found proven that the property was registered as "land for construction" and that a "habitation" location coefficient was applied in valuation. Crucially, the tribunal found NOT PROVEN that any construction was authorized, designed, or planned for the property, particularly for residential purposes. This burden of proof rested with the Tax Authority as the party asserting the taxable event. This decision has significant implications for stamp tax assessments on development land, clarifying that mere registry classification or valuation methodology does not automatically trigger residential property taxation under Verba 28.1 TGIS.

Full Decision

ARBITRAL DECISION

1. REPORT

1.1 A…, LDA., personal collective identification number and registration number …, with registered address at Rua …, …, in Lisbon, came on 29.07.2016, under Article 2, No. 1, subsection a), and Article 10, Nos. 1 and 2, of Decree-Law No. 10/2011, of 20 January (hereinafter RJAT) and Articles 1 and 2 of Regulation No. 112-A/2011, of 22 March, to request the constitution of the arbitral tribunal.

1.2 The Tax and Customs Authority is the Respondent in these proceedings.

1.3 The Deontological Council of the Administrative Arbitration Centre (CAAD) designated the undersigned to form the Singular Arbitral Tribunal, notifying the parties accordingly, and the Tribunal was constituted on 19.10.2016.

1.4 The request for arbitral determination has as its object the annulment of the stamp duty assessment for the year 2015, in the amount of €18,989.80, relating to the property registered in the urban property register of the parish of …, municipality of Lisbon, under Article …, assessment and property which are better identified in the Claimant's request and in the documents attached thereto, to which reference is made herein.

1.5 The Claimant expresses its disagreement with the tax assessment act in question, fundamentally on the ground that the property on which the tax is levied is not a residential property, but rather land for construction, incapable of being inhabited, and in relation to which there is no provision or authorization for the construction of only properties – or autonomous fractions of property – intended for habitation, and therefore does not fall within the provision of item No. 28.1 of the TGIS in the wording introduced by Article 194 of Law 83-C/2013, of 31.12.

It alleges, in summary, that the ownership of this property is, given its commercial activity, productive investment and not property with residential vocation of high economic significance and, therefore, does not reveal the taxpaying capacity that such item in the Table considers.

It understands, therefore, that items Nos. 28 and 28.1 of the TGIS, in their original wording, had and must be interpreted as applying only to properties immediately intended for habitation and, furthermore, that the amendment introduced by Article 194 of Law 83-C/2013, of 31.12, is unconstitutional, because it violates the principle of tax equality and taxpaying capacity emanating from Article 13 and Article 204 of the CRP. It further considers that its application generates a situation of double taxation.

Wherefore it concludes that the application of the rule must be refused and that the assessment act in question is illegal, petitioning its respective annulment and the reimbursement of the amounts paid, plus indemnity interest at the legal rate, from the date of payment of each instalment until full and effective reimbursement.

1.6 The Tax and Customs Authority responded, defending itself by exception and by opposition.

By exception, it alleged the incompetence of the Arbitral Tribunal to determine the constitutionality invoked by the Claimant.

By opposition, it sought the maintenance in the legal order of the contested act as it understands that "the property in question has the legal nature of a property with residential allocation, and therefore the assessment act which is the subject of this request for arbitral determination must be maintained as it embodies a correct interpretation of Item 28 of the General Table, added by Law 55-A/2012, of 29/12".

It alleges, in summary, that item 28 of the TGIS is levied on the ownership, usufruct or surface right of urban properties with residential allocation, whose tax patrimonial value contained in the register, in accordance with the CIMI, is equal to or greater than €1,000,000.00, that is, it is levied on the value of the property, being a general and abstract rule, applicable indiscriminately to all cases in which the factual and legal requirements are met.

It further invokes the exceptional context and evident difficulties that the Country, in particular its public accounts, faced when item 28.1 of the TGIS arose, which required extraordinary measures of collection and increased tax revenue, reasons for which the measure implemented seeks to achieve maximum effectiveness as to the objective to be achieved, with minimum harm to other interests considered relevant.

As regards the alleged unconstitutionality of the rule, the Respondent recalls that this has already been subject to negative judgment by the Constitutional Court.

It concludes by seeking the legality of the assessment and the dismissal of the request for arbitral determination.

1.7 The Tribunal issued, on 21.11.2016, an order to the effect that it seemed dispensable to hold the arbitral tribunal meeting provided for in Article 18 of the RJAT, and inviting the parties to produce and present their pleadings (with which the Claimant, if it so wished, could respond to the matter of exception).

The parties, notified, came, both on 23.11.2016, to declare that they did not intend to present pleadings.

1.8 The Respondent did not submit the administrative file to the record, alleging "non-existence thereof".

2. CASE MANAGEMENT

The Tribunal was regularly constituted.

The parties have legal personality and capacity, show themselves to be legitimate and are regularly represented.

The case does not suffer from any defects that would invalidate it.

However, the Respondent has alleged the incompetence of the Tribunal for the "determination of the request for material unconstitutionality of Item 28 of the TGIS", which, if verified, will lead to dismissal of the instance.

It is a procedural question of priority determination, in accordance with No. 1 of Article 608 of the Code of Civil Procedure, of subsidiary application to the tax arbitral process, by virtue of the provision in Article 29, No. 1, subsection e) of the RJAT.

Let us examine this, then.

Under the heading "Determination of Unconstitutionality", Article 204 of the CRP provides that "In disputes submitted to judgment, the courts may not apply rules that infringe the provisions of the Constitution or the principles contained therein".

Thus, this rule imposes the duty to examine the normative acts possibly applicable to a specific case, which translates into the guarantee of a court decision in accordance with the Constitution. Thus, a system of diffuse review of the constitutionality of rules is established, within the competence of the courts (of all courts – including arbitral tribunals, which have in Article 209, No. 2 of the CRP, explicit constitutional support) [1].

Wherefore, without need for other considerations, the alleged exception of incompetence of the Arbitral Tribunal is judged to be without merit.

4. FACTS

With relevance to the merit of the decision, the Tribunal considers the following facts to be proven:

1. The Claimant is the owner of the urban property located at Rua …, parish of … in the municipality of Lisbon, registered in the urban property register of the said parish under Article ...;

2. The property is described in the register as "land for construction";

3. In the assessment of the property, the "location coefficient type: habitation" was applied;

4. The property had, at the date of assessment, the tax patrimonial value of €1,898,980.00;

5. On 05.04.2016 the Tax Authority proceeded to assess the Stamp Duty of item 28.1 of the TGIS with reference to the property described in point 2, in the total amount of €18,989.80 and issued the collection notices relating to the three instalments.

Facts Not Proven

With relevance to the determination of the merit of the case, it was not proven that on the property in question any construction had been authorized, designed or provided for, in particular, intended for habitation, a fact whose proof was incumbent on the Respondent, as it constitutes a fact essential to the integration within the rule of taxable scope and is, therefore, constitutive of the right to assess it.

No other facts with relevance to the determination of the merit of the case were alleged by the parties which were not proven.

Reasoning of the Decision on the Facts

The conviction concerning the facts was founded on the allegations of the Claimant and Respondent not contradicted by the opposing party, supported by the documentary evidence submitted by both the Claimant and the Respondent, whose authenticity and correspondence to reality were also not questioned.

4. MATTERS OF LAW – QUESTIONS TO BE DECIDED

In the Tribunal's view, the following are the questions on which it is incumbent to decide:

A) For the purpose of applying the aforementioned item, whether the property in question, land for construction, without authorized or planned construction, falls within the scope of taxable base;

B) Whether item 28.1 of the TGIS, in the wording introduced by Law No. 83-C/2013, of 13 December, is unconstitutional for violation of the constitutional principles of tax equality and taxpaying capacity, and, if so, whether its application should be refused, which will remove legal basis from the assessment act which, being illegal, must be annulled.

It is necessary to decide:

A) Whether the property falls within the scope of taxable base:

The subjection to Stamp Duty of properties with residential allocation resulted from the addition of Item No. 28 to the TGIS, effected by Article 4 of Law 55-A/2012, of 29 October, which typified the following taxable facts:

"28 – Ownership, usufruct or surface right of urban properties whose tax patrimonial value contained in the register, in accordance with the Code of Municipal Property Tax (CIMI), is equal to or greater than €1,000,000.00 – on the tax patrimonial value used for the purpose of IMI:

28.1 – For property with residential allocation – 1%

28.2 – For property, where the taxpayers who are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, listed in the list approved by regulation of the Minister of Finance – 7.5%".

The Law also added to the Stamp Duty Code No. 7 of Article 23, relating to the assessment of Stamp Duty: "where the tax is owed for the situations provided for in item No. 28 of the General Table, the tax is assessed annually, in relation to each urban property, by the central services of the Tax and Customs Authority, applying, with necessary adaptations, the rules contained in the CIMI", and Article 67, No. 2 which provides that "on matters not regulated in the present Code relating to item 28 of the General Table, the CIMI applies, subsidiarily".

Law No. 83-C/2013, of 31 December amended the wording of the rule, which became as follows: "28.1 For residential property or land for construction whose construction, authorized or planned, is for habitation, in accordance with the provisions of the Municipal Property Tax Code".

In Articles 2 to 6 of the Municipal Property Tax Code the types of properties are enumerated as follows:

"Article 2 - Concept of Property

1 – For the purposes of this Code, property is any portion of territory, encompassing waters, plantations, buildings and constructions of any nature incorporated therein or based thereon, with a character of permanence, provided that it forms part of the assets of a natural or legal person and, under normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the circumstances aforesaid, endowed with economic autonomy in relation to the land on which they are situated, although located in a portion of territory which constitutes an integral part of other assets or has no patrimonial nature.

2 – Buildings or constructions, 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 the buildings or constructions are based on the same location for a period exceeding one year.

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

"Article 3 - Rural Properties

1 – Rural properties are lands situated outside an urban agglomeration which are not to be classified as building land, in accordance with No. 3 of Article 6, provided that:

a) they are devoted or, in the absence of concrete allocation, have as their normal destination a use generating agricultural income, such as are considered for the purposes of personal income tax (IRS);

b) Not having the allocation indicated in the preceding subsection, they are not built upon or have only buildings or constructions of an accessory character, without economic autonomy and of reduced value.

2 – Rural properties are also lands situated within an urban agglomeration, provided that, by virtue of a legally approved provision, they cannot have a use generating any income or can only have a use generating agricultural income and are actually having this allocation.

3 – Rural properties also include:

a) Buildings and constructions directly devoted to the production of agricultural income, when situated on the lands referred to in the preceding numbers;

b) Waters and plantations in the situations referred to in No. 1 of Article 2.

4 – For the purposes of this Code, urban agglomerations are considered, in addition to those situated within legally fixed perimeters, nuclei with a minimum of 10 dwellings served by streets of public use, with their perimeter delimited by points distant 50 m from the axis of the streets, in the transverse direction, and 20 m from the last building, in the direction of the streets.

"Article 4 - Urban Properties

Urban properties are all those which are not to be classified as rural, without prejudice to the provision of the following article."

"Article 5 - Mixed Properties

1 – Whenever a property has rural and urban parts it is classified, in its entirety, in accordance with the main part.

2 – If neither of the parts can be classified as main, the property is deemed mixed."

"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 constructions licensed for such purpose or, in the absence of a license, which have as their normal destination each of these purposes.

3 – Building land is considered to be land situated within or outside an urban agglomeration for which a license or authorization has been granted, prior notification admitted or favorable preliminary information issued for subdivision or construction operations, and also those which have been so declared in the acquisition deed, except for lands where the competent entities prohibit any such operations, in particular those located in green areas, protected areas or which, in accordance with municipal planning plans, are devoted to spaces, infrastructure or public facilities.

4 – Lands situated within an urban agglomeration which are not building land nor are encompassed by the provision of No. 2 of Article 3, and also buildings and constructions licensed or, in the absence of a license, which have as their normal destination other purposes than those referred to in No. 2 and also those of the exception of No. 3, fall within the provision of subsection d) of No. 1."

It is within this legal framework that it is important to determine the legal qualification of the property on which the tax in question was levied.

There is no doubt that the property is "land for construction". It is a qualification that was not challenged by either party and which results from the content of the respective property card and the comparison of the cited Articles 2, 4 and 6 of the CIMI applicable by express cross-reference of the applicable rule of taxable scope.

That rule is item 28.1 of the TGIS which, let us recall, provides as follows: "28.1 For residential property or land for construction whose construction, authorized or planned, is for habitation, in accordance with the provisions of the Municipal Property Tax Code".

It is necessary, therefore, for compliance with the rule of taxable scope, that the property be residential or, if not, be building land and that construction intended for habitation has been authorized or is planned.

It must be said that in this respect the wording adopted by the legislator was unfortunate and does not make clear whether the construction must be exclusively for habitation and, if not, whether it is intended that the tax base corresponds to the tax patrimonial value of the property, or only to the part intended for habitation (the respective determination not appearing viable to us). The Tribunal does not ignore the context in which the rule was enacted, but neither in a context of urgency is the legislator exempt from observing Constitutional precepts, in particular the principle of legality in the sense of clearly typifying the taxable facts that are subject to tax.

No. 2 of Article 5 of the CIMI clarifies what is meant by "residential" properties for the purposes of subsection a) of No. 1, classifying as such constructions licensed for habitation or which, in the absence of a license, have that normal use, not referring to building land, but to buildings already constructed which will be residential when that is the use licensed by the municipal authority or when, in the absence of a license, that is its normal use. The criterion of "normal use" in the absence of a license cannot be extrapolated for the purpose of guessing what buildings might be made on building land, the type of property provided for in subsection d) of No. 1 of the same Article, as the Respondent seems to intend.

It is true that in the assessment of the land the Tax Authority used the location coefficient for the habitation type, and the taxpayer could, in fact, have protested against the application of this coefficient, it not having been demonstrated that it did so.

That is not, however, the criterion adopted by the legislator either in the CIMI or in the Stamp Duty Code. The legislator did not attribute to the use of that coefficient any relevance in the qualification of the property, only in its assessment. Let it be said in passing, and without consequences for the decision of the case, that we believe there is an error by the Tax Authority in the use of such a coefficient.

Item 28.1 of the TGIS appears to us – in that part, at least – perfectly clear: subject to tax are, in addition to residential properties (those of subsection a) of Number 1 and No. 2 of Article 5 of the CIMI), building land (i.e., the type of property provided for in subsection d) of No. 1 of the same Article of the CIMI), provided that construction intended for habitation has been authorized or is planned (leaving only to be defined whether it is total or partial and, in the latter case, what is the value considered for the purposes of subjection to taxation).

Now, it was not proven that the building land in question had authorization, design or planning for construction intended for habitation, such as to be subject to Stamp Duty in accordance with Item No. 28.1 of the TGIS.

Proof which was incumbent on the Respondent and should moreover have been contained in the reasoning of the assessment act, which was not submitted to the record. The Respondent, moreover, did not submit the administrative file alleging it does not exist, which can suggest that the very reasoning of the assessment does not exist. The defect resulting therefrom was not, however, alleged.

It thus appears evident to us that the property, building land in relation to which it was not proven to have authorization or planning for construction intended for habitation, meets the rule of taxable scope of the tax which served as the basis for the assessment.

Wherefore, without need for further considerations and on this ground, the assessment act is deemed voidable, being illegal, as item 28.1 of the TGIS is not applicable to the property on which it was levied.

It is rendered unnecessary, therefore, to determine the other defects pointed out by the Claimant, in particular the alleged unconstitutionality of the rule.

5. DECISION

In these terms and with the reasoning above, it is decided:

To judge the Claimant's request to be well-founded in its entirety and, in consequence, to annul the assessment act in question, and the Respondent must, as a result of the annulment, refund to the Claimant the amounts which the latter has paid on this account, plus the respective indemnity interest, in accordance with Article 43, No. 1 of the LGT, from the date of payment until full and effective reimbursement.

* * *

The value of the case is fixed at €18,989.80 (eighteen thousand, nine hundred and eighty-nine euros and eighty cents) in accordance with the provisions of Article 3, No. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), Article 97-A, No. 1, subsection a) of the Tax Procedure Code and Article 306 of the Civil Procedure Code.

The amount of costs is fixed at €1,224.00 (one thousand two hundred and twenty-four euros) under Article 22, No. 4 of the RJAT and Table I attached to the RCPAT, to be borne by the Respondent, in accordance with the provisions of Article 12, No. 2 of the RJAT and Article 4, No. 4 of the RCPAT and Article 527 of the Civil Procedure Code.

Let notification be made.

Lisbon, 30 November 2016

The Arbitrator,

(Eva Dias Costa)

Document prepared by computer, in accordance with Article 131, No. 5 of the Civil Procedure Code, applicable by cross-reference of Article 29, No. 1, subsection e) of the RJAT.

[1] See GOMES CANOTILHO and VITAL MOREIRA, Annotated Constitution of the Portuguese Republic, 3rd ed., Coimbra Editora, Coimbra, 1993, p. 797) and, to the same effect, JORGE MIRANDA, Manual of Constitutional Law, Volume VI, 4th ed., Coimbra Editora, Coimbra, 2013, p. 246.

Frequently Asked Questions

Automatically Created

Does the Stamp Tax (Imposto de Selo) under Verba 28.1 of the TGIS apply to building land (terrenos para construção) valued over €1 million?
No, based on this arbitration decision, Stamp Tax under Verba 28.1 TGIS does not automatically apply to building land merely because it exceeds €1 million in tax patrimonial value. The tribunal found that property registered as "land for construction" without proven authorization or plans for residential development does not qualify as "urban property with residential allocation" under Verba 28.1. The Tax Authority failed to prove that residential construction was authorized, designed, or intended for the land, which was essential to establish the taxable event. The decision emphasizes that productive business investment in development land differs fundamentally from ownership of high-value residential properties that Verba 28.1 was designed to tax based on tax-paying capacity.
Can a taxpayer challenge a Stamp Tax assessment on construction land through CAAD tax arbitration in Portugal?
Yes, taxpayers can challenge Stamp Tax assessments on construction land through CAAD tax arbitration under Article 2(1)(a) and Article 10 of Decree-Law 10/2011 (RJAT). This case demonstrates that CAAD has full jurisdiction over stamp duty disputes involving construction land classifications. The tribunal confirmed that arbitral tribunals possess competence to review constitutional questions under Article 204 of the Portuguese Constitution, which establishes diffuse constitutional review. The Tax Authority's exception challenging the tribunal's competence to determine constitutional issues was expressly rejected, affirming that arbitral tribunals, as courts with explicit constitutional recognition under Article 209(2) CRP, can refuse to apply norms that violate constitutional provisions or principles.
Is the application of Verba 28.1 TGIS to building land unconstitutional under the Portuguese Constitution's equality and ability-to-pay principles?
The taxpayer argued that applying Verba 28.1 TGIS to building land violates Articles 13 (equality) and 204 (ability-to-pay principle) of the Portuguese Constitution. The company contended that construction land held for productive business purposes does not demonstrate the same tax-paying capacity as high-value residential properties, creating unconstitutional discrimination and double taxation. The Tax Authority countered that the Constitutional Court had previously rejected unconstitutionality challenges to Verba 28.1 and emphasized the extraordinary fiscal context requiring increased tax revenue when the measure was enacted. The tribunal confirmed its competence to perform constitutional review under the diffuse system established by Article 204 CRP, though the decision focuses primarily on whether the property legally qualifies as having "residential allocation" under the statute's proper interpretation.
What is the difference between residential property and building land for purposes of Stamp Tax under the General Stamp Tax Table?
The fundamental difference lies in the property's classification, physical condition, and intended use. Residential property under Verba 28.1 TGIS refers to urban buildings or autonomous fractions designed, authorized, or capable of immediate habitation. Building land (terrenos para construção) is property registered for future construction without existing habitable structures or authorized residential development. This decision establishes that mere registration as "land for construction" with a "habitation" location coefficient applied in tax valuation is insufficient to classify property as having "residential allocation" under Verba 28.1. The tribunal required affirmative proof that construction was authorized, designed, or planned—particularly for residential purposes—to establish the taxable event. The burden of proving residential allocation rests with the Tax Authority.
Can a company claim a refund with compensatory interest after an unlawful Stamp Tax assessment on construction plots is annulled?
Yes, when an unlawful Stamp Tax assessment is annulled through CAAD arbitration, the taxpayer is entitled to full reimbursement of amounts paid plus compensatory interest (juros indemnizatórios) at the legal rate. In this case, the company specifically requested refund of the €18,989.80 paid in instalments, plus compensatory interest calculated from each payment date until full and effective reimbursement. Portuguese tax law mandates that when tax assessments are determined illegal and annulled, the taxpayer must be restored to their prior financial position, which includes both principal and time-value compensation through interest. The compensatory interest runs from the date each instalment was paid until actual reimbursement, compensating the taxpayer for the State's wrongful retention of funds throughout the dispute period.