Process: 479/2016-T

Date: January 12, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Process 479/2016-T addresses the legality of Stamp Tax (Imposto do Selo) imposed under Schedule 28.1 of the General Stamp Tax Table (TGIS) on building land (terrenos para construção) with Tax Property Value (VPT) exceeding €1,000,000. A Closed Real Estate Investment Fund challenged €35,016.30 in stamp duty assessments for 2015 on two Lisbon plots designated for residential construction. The applicant argued that Verba 28.1 TGIS violates constitutional principles of equality, justice, and legality by discriminating against building land as a mere production factor compared to completed buildings for services, industry, or commerce. The Fund contended that once residential units are constructed with individual VPT below €1,000,000, taxation ceases, creating arbitrary differentiation. Additionally, the applicant claimed double taxation (duplicação de coleta) since both Stamp Tax and Municipal Property Tax (IMI) burden the same VPT. The Tax Authority defended the levy as a lawful wealth tax enacted during Portugal's fiscal crisis, targeting high-value patrimony. The AT maintained that Stamp Tax and IMI are distinct taxes without constitutional conflict, citing Constitutional Court precedents that equality principles permit differentiation based on objective wealth criteria. The case illustrates critical issues regarding extraordinary taxation measures on real estate investment vehicles, the boundaries of constitutional tax equality, and whether production assets merit differential treatment in Portugal's patrimony tax framework.

Full Decision

ARBITRAL DECISION

I – REPORT

  1. Closed Real Estate Investment Fund A... [Tax ID number]..., registered with the CMVM [Portuguese Securities Market Commission] under number..., managed and administered by managing company B..., SA, also registered with the CMVM under number..., with headquarters at Street... number..., [postal code] - Lisbon, area of the ... Tax Service, filed a request for arbitral ruling, pursuant to the provisions of paragraph a) of section 1 of article 2, section 1 of article 3 and paragraph a) of section 1 of article 10, all of the Legal Framework for Tax Arbitration (RJAT), with the Tax Authority (AT) being required, with a view to assessing the legality of the tax acts imposing stamp duty, relating to the year 2015, affecting the ownership of two properties (land for construction) registered in the urban property register of the parish of... under articles... and... area of the... Tax Service of the municipality of Lisbon, in accordance with collection documents 2016..., in the amount of €16,771.30 and 2016... in the amount of €18,245.00, respectively, for a total amount of €35,016.30.

  2. The request was made without exercising the option to designate an arbitrator, and was accepted by the esteemed President of the CAAD [Administrative Arbitration Center] and automatically notified to the Tax Authority on 01/08/2016.

  3. In accordance with section 2 of article 6 of the Legal Framework for Tax Arbitration, by decision of the esteemed President of the Ethics Council, duly communicated to the parties within the legally applicable time periods, on 19/10/2016, Arlindo José Francisco was appointed as arbitrator of the court, who communicated acceptance of the assignment within the legally stipulated time period.

  4. The court was constituted on 14/11/2016 in accordance with the provisions contained in paragraph c) of section 1 of article 11 of the Legal Framework for Tax Arbitration, as amended by article 228 of Law no. 66-B/2012, of December 31.

  5. With its request, the applicant seeks the annulment of stamp duty, relating to the year 2015, as per the collection notices already mentioned, relating to the properties already identified whose Tax Property Value (TPV) of each is greater than €1,000,000.00, provided for in item 28.1 of the General Table of Stamp Duty (GTSD).

  6. It supports its point of view, in summary, on the unconstitutionality of the norm of item 28.1 of the General Table of Stamp Duty, as amended by law 83-C/2013 of December 31, due to violation of the constitutional principles of legality, justice, equality and impartiality and also due to double taxation.

  7. Notwithstanding the property registration of the plots as land for construction, from their building potential one cannot infer a greater tax-paying capacity of their holder, given that one is in the presence of a mere factor of production which, when taxed, discriminates negatively with respect to other companies engaged in other economic activities.

  8. Consider the case of a company that owns land for construction with a Tax Property Value equal to or greater than €1,000,000.00, whose construction is destined for buildings for services, industry or commerce, these would not be taxed by the aforementioned item 28.1 of the General Table of Stamp Duty.

  9. Even in the case of land for residential construction with a Tax Property Value equal to or greater than €1,000,000.00, but whose building units to be constructed would have a Tax Property Value below that amount, once the buildings were completed, the land would cease to be taxed.

  10. It considers it to be quite evident that the stamp duty levied on the applicant under item 28.1 of the General Table of Stamp Duty violates not only the principle of equality but treats differently taxpayers who find themselves in identical economic situations, being an arbitrary legal solution.

  11. Concluding furthermore that there is double taxation since on the same Tax Property Value both stamp duty and property tax (IMI) are levied, taxes of identical nature, relating to the same period and to the same taxpayer, requesting the reimbursement of taxes paid unduly plus indemnity interest.

  12. In its response, the Tax Authority, also in summary, states that the stamp duty levies here challenged result from the direct application of the legal norm that imposes the tax on land for construction destined for residential building, as long as the Tax Property Value is equal to or greater than €1,000,000.00, as is the case.

  13. It understands that the levies do not violate the constitutional principle of equality, with patrimony taxation being one of the means of its realization, and should, in that sense, be observed in its various dimensions such as the prohibition of arbitrariness, discrimination and differentiation.

  14. In its view, the legislative solution embodied in item 28.1 of the General Table of Stamp Duty is in accordance with the Portuguese Constitution, and from its application no differentiated treatment of taxpayers who meet the factual and legal prerequisites contained in its provision results.

  15. The appearance of the norm occurred in a situation of great difficulties for the Country, in particular the public accounts, which led the legislator to take extraordinary measures, calling upon collective effort sectors of society that revealed patrimonial wealth with Tax Property Value equal to or greater than €1,000,000.00.

  16. The Constitutional Court, in its most recent decisions, proclaims that the principle of equality requires that what is equal be treated equally and what is different be treated differently, only preventing arbitrary and unreasonable discriminations.

  17. It considers there is no double taxation, given that taxation under the property tax system and taxation under the stamp duty system are different taxes.

  18. Concluding that, in the event of the grant of the request, indemnity interest shall not be due, since the Tax Authority, at the time of the facts, made the application of the law in force, and one cannot speak of error attributable to the services.

II – PRELIMINARY EXAMINATION

The court was regularly constituted, the parties have procedural standing and capacity, show themselves to be legitimate and are regularly represented in accordance with articles 4 and 10, section 2 of the Legal Framework for Tax Arbitration and article 1 of Administrative Regulation no. 112-A/2011, of March 22.

In its response, the Tax Authority raised the exemption from the hearing provided for in article 18 of the Legal Framework for Tax Arbitration, and, on 13/12/2016, the court issued the following order: "In the response, the exemption from the hearing provided for in article 18 of the Legal Framework for Tax Arbitration is raised, as well as from the submission of pleadings, thus, notify the applicant to, within 10 days, if it wishes, pronounce itself regarding the claims made by the respondent."

On 16/12/2016, the applicant came to agree with the proposal in the conditions set forth in its request, and the court, in an order of 17/12/2016, considered the conditions met to render a decision.

Thus, the case being free from defects of nullity, it is necessary to decide.

III – GROUNDS

1 – Questions to be Resolved

a) To determine whether item 28.1 of the General Table of Stamp Duty, as worded at the date of the facts, is in compliance with the constitutional principles of legality, equality, justice and impartiality.

b) If so, whether or not there is double taxation.

c) If the request is granted, whether or not the Tax Authority shall be liable to pay indemnity interest.

2 – Factual Matters

a) The applicant, on 31/12/2015, was the owner of two urban plots "land for construction, registered in the urban property register of the parish of..., area of the... tax service of the municipality of Lisbon, under articles... and...

b) Both have property values greater than €1,000,000.00, with the Tax Property Value of article... being €1,677,130.00 and the Tax Property Value of article 2818 being €1,824,500.00.

c) In the lot corresponding to article... construction was authorized by the Lisbon City Council of a building with an area of 4,683 m2 intended for residential use.

d) In the lot corresponding to article... construction was authorized by the same council of a building with 5,339 m2 intended for residential use.

e) It was on the basis of these facts that the plots were evaluated and registered in their respective property register and that on 31/12/2015 they were intended for construction with residential use.

f) The levies imposed by the Tax Authority were based on their respective Tax Property Values and were duly notified for payment in 3 installments, with the applicant, at the time of the request, having paid the first two installments.

g) On the Tax Property Value of the aforementioned plots, property tax (IMI) was also levied in the year 2015.

h) The facts described are proven by documents attached to the case file and are considered relevant to the assessment of the merits of the case.

3 – Legal Matters

3.1 – On the Unconstitutionality of Item 28.1 of the General Table of Stamp Duty

In light of the proven facts, the first question to be decided is whether the norm contained in item 28.1 of the General Table of Stamp Duty, as amended by Law 83-C/2013, is or is not in accordance with the constitutional principles of legality, justice, equality and impartiality, invoked by the applicant and set forth in section 2 of article 266, as well as articles 13 and 104, section 3, all of the Portuguese Constitution.

The constitutional provisions invoked are transcribed as follows:

"Article 266, section 2 – The bodies and agents of public administration are subordinate to the Constitution and the law and must act, in the exercise of their functions, with respect for the principles of equality, proportionality, justice, impartiality and good faith."

"Article 13: 1 – All citizens have the same social dignity and are equal before the law.

2 – No one may be privileged, benefited, prejudiced, deprived of any right or exempted from any duty on the grounds of ancestry, sex, race, language, territory of origin, religion, political or ideological beliefs, education, economic situation or social condition."

"Article 104, section 3 – The taxation of patrimony must contribute to equality among citizens"

In light of these provisions, we shall assess whether item 28, 28.1 of the General Table of Stamp Duty, as amended by Law 83-C/2013, is or is not in compliance with the Portuguese Constitution, which is transcribed as follows: "28 – Ownership, usufruct or right of surface of urban properties whose tax property value recorded in the register, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than €1,000,000.00 – on the tax property value used for purposes of property tax:

28.1 – For residential property or for land for construction whose construction, authorized or planned, is for residential purposes, in accordance with the provisions of the Municipal Property Tax Code...1%".

The applicant supports its point of view, regarding the matter of constitutionality in four points, namely:

"The negative fiscal discrimination dispensed to companies that regularly carry out the activity of purchasing land for construction and resale.

The negative fiscal discrimination of land with residential use relative to land with different use (commercial, industrial, services or other).

The negative fiscal discrimination of land for residential construction whose Tax Property Value is equal to or greater than €1,000,000.00, but with respect to which the construction is only envisaged with residential units of value below €1,000,000.00.

The negative fiscal discrimination of land with residential use relative to properties devoted to accommodation services for guests."

In all of them, greater emphasis is placed on the principle of equality.

The rationale for the appearance of item 28 of the General Table of Stamp Duty, according to the explanatory memorandum of the respective bill, was the pursuit of the public interest, in light of the economic-financial situation of the Country, which required a reduction in spending and the introduction of tax measures aimed at combating the deficit. It was sought that these tax measures would cover the various types of income, so as to ensure a fair distribution of burdens. One of these measures was the creation of item 28 of the General Table of Stamp Duty, whose constitutional compliance, in its original wording, was affirmed by the Constitutional Court in Decision no. 590/2015 of November 11, where it was concluded that the legislator intended to tax the ownership of luxury homes as it revealed adequate tax-paying capacity. The new wording aimed at the taxation of land for construction intended for residential use whose Tax Property Value is equal to or greater than €1,000,000.00, calculated according to the rules of the Municipal Property Tax Code.

The legislator, as already stated, sought a fair distribution of burdens in order to comply with the adjustment program, extending taxation to incomes and sectors of society that had greater tax-paying capacity, such as the increase in taxation of capital income and movable gains as well as income obtained or transferred to tax havens. The creation of item 28 of the General Table of Stamp Duty on land for construction with residential use must be understood within this adjustment framework and fair distribution of burdens among different sectors of the population.

The principle of fiscal equality requires equal taxation of what is equal and unequal taxation of what is unequal and does not result in inhibiting the legislator from determining which facts it wishes to tax to the detriment of others; rather it is forbidden from acting arbitrarily. In the case at hand, the legislator considered it necessary to tax urban residential properties and land for construction with residential use, within the framework of budgetary consolidation efforts, inasmuch as being the owner of properties with a Tax Property Value greater than €1,000,000.00 intended for residential use reveals a greater indicator of wealth, capable of founding an increased contribution with a view to the goal of budgetary consolidation. At the same time, it allowed the distribution of burdens with those who live from labor income or pensions. Not taxing other land for construction whose use is not residential, such as for example (commercial, industrial, services or other) must be understood as an option of economic policy which, in the legislator's view, would lead not to consolidation but to budgetary aggravation.

Constitutional rights and principles all have the same dignity and value, but, in order for the constitution to be complied with, in certain circumstances, there are rights and principles that yield so that the constitution may be complied with. This occurred with the taxation of land for construction with residential use with a Tax Property Value equal to or greater than €1,000,000.00, which, as already mentioned, arose in a context of serious economic crisis and public finances, with the legislator understanding that its ownership reveals adequate tax-paying capacity to increase the State's tax revenue.

The compliance of item 28.1, in its original wording, with the Portuguese Constitution was already affirmed by the Constitutional Court in its Decision 590/2015 and it is not apparent that the new wording, given by Law 83-C/2013 of December 31, could have altered that compliance.

The applicant refers to two CAAD proceedings in which the unconstitutionality of the norm was upheld, namely with regard to situations in which land for construction has a Tax Property Value equal to or greater than €1,000,000.00, but the planned constructions' Tax Property Value comes to be less; we do not share this position which, from the perspective of this court, is nothing more than a hypothetical situation which, if it were to occur, would not meet the provision of the norm and, therefore, would not be taxed.

Concluding therefore that the taxable facts contained in item 28.1 of the General Table of Stamp Duty were not chosen arbitrarily, they respect the principles of legality, justice, equality and impartiality, and the legislative choice is perfectly justified and in compliance with the Portuguese Constitution.

3.2 – Double Taxation

Section 1 of article 205 of the Code of Tax Procedure and Process (CPPT) tells us that there is double taxation when, with one tax having been paid in full, another of equal nature is required from the same or a different person, relating to the same taxable fact and to the same period of time. As the applicant correctly points out, the taxable fact on which both the property tax and stamp duty were imposed was exactly the same and was taxed by different taxes and different values; therefore we are not in the presence of double taxation, at best we are in the presence of dual taxation, a phenomenon that different tax legislations have always admitted and still admit, the same taxable fact being able to give rise to more than one tax. In this perspective, the request for double taxation is without merit.

3.3 – Request for Payment of Indemnity Interest

Given what has been stated in points 3.1 and 3.2, it becomes unnecessary to address this matter.

IV – DECISION

In light of the foregoing, the court decides as follows:

a) Declare the request for arbitral ruling without merit, maintaining the stamp duty levies here challenged.

b) Fix the value of the case at €35,016.30 in accordance with the provisions contained in article 299, section 1 of the Code of Civil Procedure, article 97-A of the Code of Tax Procedure and Process, and article 3, section 2 of the Regulations for Costs in Tax Arbitration Proceedings.

c) Fix the court costs, pursuant to section 4 of article 22 of the Legal Framework for Tax Arbitration, in the amount of €1,836.00 in accordance with the provisions of Table I referred to in article 4 of the Regulations for Costs in Tax Arbitration Proceedings, which shall be charged to the applicant.

Notify.

Lisbon, January 12, 2017

Text drawn up by computer, in accordance with article 131, section 5 of the Code of Civil Procedure, applicable by reference of article 29, section 1, paragraph e) of the Legal Framework for Tax Arbitration, with blank verses and reviewed by the court.

The Arbitrator

Arlindo José Francisco

Frequently Asked Questions

Automatically Created

What is the Stamp Tax (Imposto do Selo) under Schedule 28.1 of the TGIS on properties valued over €1,000,000?
Stamp Tax under Schedule 28.1 of the TGIS is an annual tax on properties with Tax Property Value (VPT) equal to or exceeding €1,000,000. Introduced by Law 83-C/2013 during Portugal's fiscal crisis, it targets high-value patrimony as an extraordinary revenue measure, charging rates based on VPT thresholds.
Can building land (terrenos para construção) be subject to Stamp Tax under Verba 28.1 of the General Stamp Tax Table?
Yes, building land (terrenos para construção) designated for residential construction can be subject to Stamp Tax under Verba 28.1 TGIS if the VPT equals or exceeds €1,000,000. However, land destined for services, industry, or commercial buildings is not covered by this specific provision, creating potential differential treatment.
Is the taxation of building land under TGIS Schedule 28.1 unconstitutional due to violation of equality and fairness principles?
The constitutionality of taxing building land under TGIS Schedule 28.1 is disputed. Taxpayers argue it violates equality principles by discriminating against production factors and treating economically identical situations differently. The Tax Authority counters that wealth-based differentiation is constitutionally permissible under equality doctrine, as patrimony taxation legitimately targets high-value assets during fiscal emergencies.
How does CAAD arbitration work for challenging Stamp Tax assessments on real estate investment funds in Portugal?
CAAD arbitration for challenging Stamp Tax assessments involves filing a request identifying the contested tax acts, followed by automatic notification to the Tax Authority. An arbitrator is appointed by the CAAD President, the arbitral court is constituted, and parties submit written arguments. The process offers an alternative to judicial courts for resolving tax disputes, with specific procedures under the Legal Framework for Tax Arbitration (RJAT).
Does Stamp Tax on building land with high VPT constitute double taxation (duplicação de coleta) alongside IMI?
Whether Stamp Tax on high-VPT building land constitutes double taxation alongside IMI is contentious. Taxpayers claim both taxes burden the same VPT base for identical periods, violating prohibitions against duplicate levies. The Tax Authority argues they are distinct taxes with different legal natures—IMI as municipal property tax and Stamp Tax as a state-level wealth charge—precluding double taxation characterization under Portuguese law.