Process: 454/2016-T

Date: April 5, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Process 454/2016-T examines whether Stamp Tax under Verba 28.1 of the General Table (TGIS) applies to urban land classified as construction land (terreno para construção) with taxable asset value (VPT) exceeding one million euros. The applicant company challenged a 2015 Stamp Tax assessment of €10,094.90 on construction land registered with residential designation in Loulé, Faro District, arguing the tax provision is unconstitutional. Verba 28.1 TGIS was introduced by Law 55-A/2012 and amended in 2013 as a budgetary control measure targeting luxury properties. The disputed provision imposes annual Stamp Tax on urban properties with residential use where VPT equals or exceeds €1 million. The core legal question is whether construction land falls within the scope of 'urban properties with residential use' merely because the property register indicates residential type designation, despite no actual residential construction existing. The taxpayer invoked constitutional violations of legality, equality, justice, and fairness principles. The Tax Authority defended the assessment, arguing no arbitrary discrimination exists and the legal interpretation is correct. This case reflects broader challenges to luxury property taxation under Verba 28.1, including disputes over vertical property, construction land classification, and general constitutional validity. The arbitral tribunal was constituted on 19 October 2016 following the taxpayer's July 2016 request under the Legal Regime for Tax Arbitration (RJAT). The property registry confirmed construction land status with residential coefficient designation. The tribunal must determine whether Verba 28.1's residential use requirement encompasses undeveloped construction land based solely on registry classification, and whether such interpretation violates constitutional principles governing tax fairness and equality.

Full Decision

ARBITRAL DECISION

1. Report

A…, LDA, NIPC…, with registered office at …, …, …, … –…, in Vilamoura, filed a request for the constitution of an Arbitral Tribunal in accordance with the corresponding Legal Regime for Tax Arbitration, for examination of the legality of the assessment of Stamp Tax, item 28.1 of the General Table of Stamp Tax (TGIS), dated 5 April 2016, in the amount of €10,094.90 (ten thousand, ninety-four euros and ninety cents), relating to an urban property registered in the corresponding property register under article number…, located in the District of Faro, Municipality of Loulé, parish of … and relating to the year 2015, with payment deadline for the first instalment in April 2016 and payment deadline for the second instalment in July of the same year.

The Tax and Customs Authority is the Respondent.

The request for constitution of the arbitral tribunal was submitted on 28 July 2016, was accepted by the President of CAAD, and was subsequently notified to the Tax and Customs Authority.

Pursuant to the provisions of paragraph a) of number 2 of article 6 and paragraph b) of number 1 of article 11 of the RJAT, the Ethics Council appointed the signing arbitrator, who duly communicated his acceptance of the appointment.

In accordance with the requirements of paragraph c) of number 1 of article 11 of the RJAT, the single arbitral tribunal was constituted on 19 October 2016.

The Tax and Customs Authority filed its response.

By order of 16 February 2017, the holding of the meeting provided for in article 18 of the RJAT was dispensed with, as well as the submissions of the parties.

The arbitral tribunal was duly constituted and is competent.

The parties have legal personality and capacity, are legitimate, and are duly represented. (articles 4 and 10, number 2, of the same law and article 1 of Ordinance no. 112-A/2011, of 22 March).

The proceedings are not affected by nullities.

2. Subject Matter of the Dispute

The issue in the present case concerns the application of the new Stamp Tax (IS) applicable to urban properties with residential use and taxable asset value (VPT) equal to or exceeding one million euros, introduced in 2012 to strengthen budgetary control measures on the revenue side, in a context of financial emergency, with the amendment of 2013, which is applicable to the years 2014 and onwards.

As is well known, this taxation has given rise to serious doubts and significant challenge. This applies not only to specific cases of its application (e.g., vertical property, land for construction, or its application to the year 2012), but also in general terms, due to its possible unconstitutionality (see Luís Menezes Leitão, On the Stamp Tax Taxation of Luxury Properties (item 28.1 TGIS), in Tax Arbitration no. 1, pp. 44 et seq.).

The Applicant now contests the application of such taxation resulting from the application of the new item 28.1 of the TGIS to urban properties corresponding to land for construction, requesting the annulment of such Stamp Tax assessment, on grounds of unconstitutionality.

As mentioned, the assessment was made under the provisions of item 28.1 of the Table attached to the Stamp Tax Code, but with the wording introduced in 2013, which the Applicant contends is unconstitutional.

The Tax and Customs Authority opposed the claim, acknowledging the facts invoked but specifically refuting the defect of unconstitutionality attributed to the tax act, concluding instead that the disputed assessment constitutes a correct interpretation and application of the law to the facts, being free from the alleged unconstitutionality.

In particular, the AT maintains that there is no unconstitutionality in the rule in question, since article 13 of the Constitution of the Portuguese Republic prevents only arbitrary, unreasonable discrimination that lacks justification and sufficient material grounds. Which it considers not to apply to the regulatory provision of the rule applied and the interpretation given to it.

3. Facts

The Stamp Tax assessment in dispute relates to the year 2015, is based on item 28.1 of the TGIS, is dated 05/04/2016, corresponds to the total amount of €10,094.90 (ten thousand, ninety-four euros and ninety cents), was the subject of collection notes nos. 2016 … (1st instalment, in the amount of €3,364.98) and 2016 … (2nd instalment, in the amount of €3,364.96), with reference to the urban property registered in the register under article no. …, of the Parish of …, Municipality of Loulé, in the District of Faro.

3.1. Proven Facts

  1. The Applicant, within the scope of its business, is the owner of a property corresponding to land for construction, located at … (property registry article …), with taxable asset value exceeding one million euros.

  2. The Applicant was notified of the Stamp Tax assessment act issued under article 1, number 1 of the Stamp Tax Code, in conjunction with item 28.1 of the TGIS, and with article 6 of Law no. 55-A/2012, of 29 October, with reference to the year 2015.

  3. The aforementioned assessment relates to the urban property with property registry article …, of the Parish of …, in the Municipality of Loulé and District of Faro, corresponding to Lot …

  4. In 2015, the property in question was registered in the corresponding register as "land for construction", with the mention "Residential" also appearing as the "Type of location coefficient".

  5. The Applicant proceeded to pay the first and second instalments of the assessment in question.

  6. The first instalment was paid in enforcement proceedings on 25 May 2016 and the second within the respective legal deadline.

3.2. Unproven Facts

Relevant to the assessment of the merits of the case, it was not proven that any construction, namely intended for residential purposes, had been authorized, designed, or planned for the property in question, as the Applicant merely alleges that the land was intended for construction and the Respondent that the register shows residential use.

3.3. Additional Facts

No other facts relevant to the assessment of the merits of the case were pleaded by the parties that were not proven.

3.4. Reasoning for Determination of Facts

The proven and unproven facts are based on the submissions of the parties and on the documents offered, whose correspondence to reality is not disputed.

4. Legal Issues

The issue in the present action is whether the rule of incidence invoked is constitutional (in particular, whether it complies with the principles of legality, justice, equality, and fairness) and whether all land for construction, registered in the register as having residential use, fall within the scope of application of item 28.1 of the General Table of Stamp Tax (TGIS), as amended by the legislative amendment of 2013.

With regard to the facts, the Tribunal is not required to rule on everything pleaded by the parties; rather, it is its duty to select the facts that are relevant to the decision and to distinguish between proven and unproven matters - (cf. article 123, number 2, of the Tax Procedure Code and article 607, number 3 of the Civil Procedure Code, applicable ex vi article 29, number 1, paragraphs a) and e), of the RJAT).

Thus, the facts relevant to the judgment of the case should be selected and determined on the basis of their legal relevance, which is established having regard to the various plausible solutions to the legal question(s) (cf. former article 511, number 1, of the Civil Procedure Code, corresponding to the current article 596, applicable ex vi article 29, number 1, paragraph e), of the RJAT).

Therefore, taking into account the positions taken by the parties, in light of article 110/7 of the Tax Procedure Code, the documentary evidence, and the Administrative File attached to the record, the facts listed above were considered proven as relevant to the decision.

4.1. Provisions of Law no. 55-A/2012, of 29 October

Law no. 55-A/2012, of 29 October, made several amendments to the Stamp Tax Code and added item 28 to the TGIS, with the following wording:

28 – Ownership, usufruct, or right of superficies of urban properties whose taxable asset value shown in the register, pursuant to the Municipal Real Estate Tax Code (CIMI), is equal to or exceeding €1,000,000 – on the taxable asset value used for purposes of IMI:

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, listed in a schedule approved by an order of the Minister of Finance – 7.5%.

4.2. Amendment to Item 28.1 of the TGIS Made in 2013

By the amendment contained in the Budget Law for 2014 (Law no. 83-C/2013 of 31 December), item 28 of the TGIS provided, as of the date of the facts, as follows:

28 Ownership, usufruct, or right of superficies of urban properties whose taxable asset value shown in the register, pursuant to the Municipal Real Estate Tax Code (CIMI), is equal to or exceeding €1,000,000 – on the taxable asset value used for purposes of IMI: (Added by article 4 of Law no. 55-A/2012 of 29 October)

28.1 For a residential property or for land for construction whose construction, authorized or planned, is for residential purposes, pursuant to the provisions of the Municipal Real Estate Tax Code (As amended by Law no. 83-C/2013 of 31 December) - 1%

4.3. Scope of Item 28.1 of the TGIS

Pursuant to item 28.1 of the TGIS, in its original wording, the ownership, usufruct, and right of superficies of urban properties with residential use and whose taxable asset value shown in the register, pursuant to the Municipal Real Estate Tax Code, was equal to or exceeding €1,000,000 were thus subject to tax.

Under the previous wording of item 28.1 of the TGIS, it was concluded in various tax arbitration proceedings that the expression "residential use", contained in the text of the rule then in force, referred to "actual" residential use, that is, to urban properties that had an actual use for residential purposes (cf., in particular, proceedings 42/2013-T, 48/2013-T, 49/2013-T, 53/2013-T, 75/2013-T, 144/2013-T, and 158/2013-T).

With the amendment made in 2013, which took effect in 2014 and subsequent years – thus including the year 2015, to which the disputed assessment relates – land for construction whose construction, authorized or planned, is for residential purposes, pursuant to the provisions of the Municipal Real Estate Tax Code, became also subject to taxation at the rate of 1% on the corresponding taxable asset value.

Item 28.1 of the TGIS was thus clarified, so as to include, in addition to residential properties (referred to in paragraph a) of number 1 and number 2 of article 5 of the CIMI), also land for construction (i.e., the type of property provided for in paragraph d) of number 1 of the same article of the CIMI), if construction for residential purposes has been authorized or is planned (remaining controversial whether such construction should be total or merely partial, and in that case, which value should be considered for purposes of subjection to taxation).

However, it was not demonstrated in the record that the land for construction that is the subject of the disputed assessment had authorization, design, or planning for construction intended for residential purposes, so as to be subject to Stamp Tax pursuant to Item no. 28.1 of the TGIS.

The Respondent alleges merely that, being the urban property land for construction to which residential use was attributed in the course of its respective assessment and such use being shown in the respective register, it is subject to Stamp Tax, an understanding and factuality that also results from the administrative file itself. However, this is not necessarily the case. In this sense, the following decisions issued in proceedings that came before arbitral tribunals functioning within the CAAD: Case no. 447/2016-T with decision of 30/11/16; Case no. 415/2016-T with decision of 10/1/17, Case no. 387/2016-T with decision of 21/11/16, Case no. 294/2016-T with decision of 6/2/17 (which also argues for the unconstitutionality of the rule), Case no. 290/2016-T with decision of 26/10/16.

As referred to in the arbitral decision issued in case no. 467/2015-T, of 4/2/2016, and cited in the arbitral decision issued in case 294/2016-T, one should not conclude, immediately and without further ado, that the property in question may, as of the date of the facts, be subject to Stamp Tax, pursuant to item 28.1 of the TGIS (in its current wording), for the reason that: ... "The essential question that, [in the context of the new wording of item 28.1 of the TGIS, given by article 194 of Law no. 83-C/2013, of 31/12,] arises, is whether, ... «without [...] that provision or expectation of 'construction for residential purposes' [...] materialized», the application of the Stamp Tax here under analysis can be accepted [...]. In order to answer the aforementioned question, the following consideration proves to be particularly useful: «With regard to land for construction, whether or not located within an urban agglomeration, as defined in article 3/4 of the present law [CIMI], the following land should, as such, be considered: - land for which a license for subdivision operation has been granted; - building license; - authorization for subdivision operation; - construction authorization; - favorable prior notification of subdivision operation or construction has been admitted; favorable preliminary information of subdivision operation or construction has been issued, as well as; - those that have been so declared in the acquisition title, it being noted that, also for this purpose, only the acquisition title with the form prescribed by civil law should be relevant, that is, the public deed or the authenticated private document referred to in article 875 of the Civil Code.» [cf. António Santos Rocha / Eduardo José Martins Brás – Taxation of Assets. IMI-IMT and Stamp Tax (Annotated and Commented). Coimbra, Almedina, 2015, p. 44]." ...

The fact is that it was not demonstrated that the land for construction in question had authorization, design, or planning for construction intended for residential purposes, for which reason one cannot immediately conclude that it is subject to Stamp Tax pursuant to item no. 28.1 of the TGIS. As already mentioned, both in the administrative file and in the record, it is only alleged and only demonstrated that the "Location coefficient: residential" and the "Use: residential", which according to the terms cited above would be insufficient to support the intended assessment. This is because the burden of proof of those tax-legitimizing requirements lay with the Respondent. However, it does not demonstrate it, by failing to show the authorization or the planning for construction intended for residential purposes, thus not demonstrating that the tax rule of incidence that serves as the basis for the assessment is satisfied. For having been authorized, designed, or planned, a construction for residential purposes constitutes a fact whose proof should fall on the Respondent, as it constitutes an essential fact for the integration of the rule, as an element of real incidence of the tax, and is therefore constitutive of the right to assess it.

As stated, the Applicant requested the annulment or voidability of the assessment, invoking a defect of violation of law, in this case constitutional law, from which would result the unconstitutionality of the rule, in particular through violation of the principle of equality.

However, in the case sub judice, the AT did not concern itself with determining whether the residential use of the property in question is total or partial – it was satisfied with the use shown in the register. From this it follows that the non-residential component that may have influenced the property assessment of the property is not excluded from the incidence of the tax.

However, the inclusion in the scope of incidence and in the tax base of future non-residential components of the building would lead to non-residential elements, if integrated in residential complexes, being subject to the incidence of the new item, and thereby tax-penalized, whereas components of identical nature, if considered for buildings exclusively non-residential, would escape the incidence of the tax and, consequently, would be rewarded compared to the former (which amounts to saying that the former would be penalized, through taxation, compared to the latter).

Now, it would be altogether evident, in that case, the burdening of mixed buildings with residential components, for which no justifying reason can be discerned, and therefore such interpretation does not appear reasonable, but clearly arbitrary (see in this regard the arbitral decision of 6/2/17, in Case no. 294/2016-T). Such an interpretation would thus violate the principle of equality and, to that extent, would be unconstitutional, as the Applicant contends. And, if that is the interpretation to be given to the rule, then the same will suffer from the alleged defect of unconstitutionality, through violation of the principle of equality. In short, the Applicant is correct.

Thus, if the possible uses are not considered there is, at the very least, a defect of reasoning, due to the lack of clarification that the entire property authorized or planned is intended for residential purposes; or if it is understood that such specification is unnecessary, as the AT understands, there is an interpretation of the rule incompatible with the Constitution of the Republic, and if it is understood that this is the proper interpretation, then the rule itself suffers from unconstitutionality, through violation of the principle of equality.

In these terms, the assessment act should therefore be considered voidable, as illegal, given that the interpretation given to item 28.1 of the TGIS (or the rule itself, if that is the case) is in violation of the principle of equality, by not taking into account the specific residential and non-residential uses that may be provided for in the property to be built.

4.8. Compensatory Interest

The Applicant made payment of at least the 1st and 2nd instalments of the tax, nothing being proven as to the third instalment, which had not yet become due at the time of filing the application.

As the application for annulment of the tax act is being granted, the AT should be ordered to refund the Applicant for the tax improperly paid, plus compensatory interest, calculated from the date of payment.

Indeed, in the case at hand, there is no reason not to attribute to the AT the error resulting from the interpretation it itself created. It is therefore clear that compensatory interest is due in the terms stated.

As more than one of the instalments has actually been paid, they should be refunded, plus compensatory interest, to be calculated at the legal rate, on the amounts disbursed and from the date of the respective disbursement, until the processing of the corresponding credit note in which they are included.

5. Operative Part

In accordance with the foregoing, it is hereby decided that the application for annulment is granted, and accordingly, the assessment act identified above is hereby annulled, on the grounds of a defect of violation of law, in casu, constitutional, and it is further declared that the Applicant is entitled to compensatory interest calculated on the amounts disbursed and from the date of the respective disbursement, until the processing of the corresponding credit note in which they are included.

6. Value of the Case

In accordance with the provisions of article 306, numbers 1 and 2, of the Civil Procedure Code and 97-A, number 1, paragraph a), of the Tax Procedure Code and article 3, number 2, of the Costs Regulation in Tax Arbitration Proceedings, the value of the case is hereby set at €10,094.90 (ten thousand, ninety-four euros and ninety cents).

7. Costs

Pursuant to article 22, number 4, of the RJAT, the amount of costs is hereby set at €918.00 (nine hundred and eighteen euros), in accordance with Table I attached to the Costs Regulation in Tax Arbitration Proceedings, entirely to be borne by the Tax and Customs Authority.

Document prepared by computer, in accordance with the Civil Procedure Code (CPC), applicable by reference in article 29, number 1, paragraph e) of the RJAT, with blank lines and reviewed by the signing arbitrator.

Lisbon, 5-4-2017

The Arbitrator

(Jaime Carvalho Esteves)

Frequently Asked Questions

Automatically Created

Is Stamp Tax (Imposto do Selo) under Verba 28.1 TGIS applicable to urban land classified as construction land (terreno para construção)?
The applicability of Stamp Tax under Verba 28.1 TGIS to construction land (terreno para construção) is disputed in this case. The taxpayer argues that construction land should not be subject to this tax, which targets properties with residential use. However, the Tax Authority defends the assessment based on the property registry classification showing 'Residential' as the type of location coefficient. The case highlights uncertainty whether Verba 28.1 applies solely to completed residential properties or extends to undeveloped land designated for future residential construction. The arbitral tribunal must interpret whether 'urban properties with residential use' encompasses construction land based on registry designation alone, absent actual residential structures.
What is the threshold property value (VPT) that triggers Stamp Tax liability under Verba 28.1 of the Tabela Geral do Imposto do Selo?
Verba 28.1 of the Tabela Geral do Imposto do Selo (TGIS) establishes a threshold of one million euros (€1,000,000) in taxable asset value (VPT - Valor Patrimonial Tributável). Properties with VPT equal to or exceeding this threshold become liable for annual Stamp Tax under this provision. In Process 454/2016-T, the disputed property had VPT exceeding one million euros, triggering the €10,094.90 assessment for 2015. This luxury property tax was introduced by Law 55-A/2012 and amended in 2013 as part of budgetary consolidation measures during Portugal's financial emergency period.
How can taxpayers challenge Stamp Tax assessments on high-value urban properties through CAAD arbitration?
Taxpayers can challenge Stamp Tax assessments on high-value properties through the Administrative Arbitration Center (CAAD) under the Legal Regime for Tax Arbitration (RJAT). In this case, the taxpayer filed a request on 28 July 2016 for constitution of an arbitral tribunal to examine the legality of the Stamp Tax assessment. The CAAD President accepted the request and appointed an arbitrator. The single arbitral tribunal was constituted on 19 October 2016. The Tax Authority filed a response defending the assessment. The arbitration process provides an alternative to judicial courts, offering specialized tax dispute resolution. Taxpayers must comply with RJAT procedural requirements including legal personality, capacity, legitimacy, and proper representation.
Does Verba 28.1 TGIS apply only to properties with residential designation or also to construction land plots?
Verba 28.1 TGIS explicitly applies to 'urban properties with residential use' (prédios urbanos com afetação habitacional) where VPT equals or exceeds one million euros. The central dispute in Process 454/2016-T is whether this provision extends to construction land plots (terrenos para construção) based solely on registry classification. The property was registered as 'land for construction' with 'Residential' appearing as the location coefficient type. The Tax Authority argues this registry designation brings the property within Verba 28.1's scope. The taxpayer contests this interpretation, arguing construction land without actual residential structures should not be subject to luxury residential property taxation. This interpretive question has significant implications for landowners holding undeveloped plots designated for future residential development.
What constitutional concerns have been raised regarding the Stamp Tax on luxury real estate under Verba 28.1 TGIS?
The taxpayer raised constitutional concerns challenging Verba 28.1 TGIS on grounds of violating principles of legality, justice, equality, and fairness enshrined in the Portuguese Constitution. Specifically, Article 13 of the Constitution prohibits arbitrary, unreasonable discrimination lacking sufficient justification and material grounds. The taxpayer argues that applying residential property tax to undeveloped construction land constitutes unconstitutional discrimination. More broadly, the luxury property tax under Verba 28.1 has faced significant legal challenges since its 2012 introduction, including questions about its application to vertical property, construction land, and retrospective application. Legal scholars have debated whether this taxation violates constitutional tax principles. The Tax Authority counters that the provision contains no arbitrary discrimination and represents a legitimate policy choice during fiscal emergency, consistent with constitutional requirements.