Process: 490/2014-T

Date: March 13, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitration case (Process 490/2014-T) before CAAD addresses whether Stamp Duty under item 28.1 of the General Table of Stamp Duty (TGIS) applies to undeveloped building land. The taxpayer, a real estate development company, challenged Stamp Duty assessments totaling €61,265.76 for 2013 on five properties classified as 'land for construction' with no buildings erected, despite having subdivision licenses. Item 28.1 TGIS, introduced by Law 55-A/2012, imposes an additional 1% rate on properties with residential use valued at €1 million or more, functioning as a supplementary Municipal Property Tax (IMI) targeting luxury residences. The company argued this provision should only apply to properties with actual residential use demonstrating high contributive capacity, not vacant land with merely potential or virtual residential use. Through teleological interpretation of Article 6(3) of the IMI Code and legislative intent analysis, the claimant contended the tax was designed exclusively for luxury homes currently enjoyed by wealthy owners, not undeveloped plots where residential use remains unrealized and might never materialize or could become commercial property. The taxpayer also raised formal defects regarding lack of proper assessment identification in payment notices and constitutional concerns, alleging the Tax Authority's interpretation violated the separation of powers principle by enforcing taxation beyond legislative intent. The Tax Authority defended the assessments' legality, requesting dismissal of all claims. The collective arbitral tribunal was properly constituted under the Legal Framework for Arbitration in Tax Matters (RJAT), with the final decision scheduled for March 16, 2015. This case exemplifies fundamental questions about the scope of real property taxation based on actual versus potential use classifications.

Full Decision

ARBITRAL DECISION

I – Report

  1. The taxpayer "A – Empreendimentos Imobiliários, S.A.", Tax Identification Number …, filed, on 15 July 2014, a request for establishment of a Collective Arbitral Tribunal, in accordance with the combined provisions of Articles 2, 5 and 6 of Decree-Law No. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter "LFATM"), in which the Tax and Customs Authority (hereinafter "TCA") is the Respondent.

  2. The Claimant requests an arbitral pronouncement on the illegality of various assessments of Stamp Duty ("SD") (item 28.1 of the General Table of Stamp Duty ["GTSD"]) relating to the year 2013 and all dated 17 March 2014: in a first instalment with payment deadline at the end of April 2014, notes No. 2014 …, in the amount of €4,371.44, No. 2014 …, in the amount of €3,512.98, No. 2014 …, in the amount of €4,750.74, No. 2014 …, in the amount of €3,926.44 and No. 2014 …, in the amount of €3,860.34, totalling €20,421.94; in a second instalment with payment deadline at the end of July 2014, notes No. 2014 …, in the amount of €4,371.43, No. 2014 …, in the amount of €3,512.96, No. 2014 …, in the amount of €4,750.73, No. 2014 …, in the amount of €3,926.43 and No. 2014 …, in the amount of €3,860.33, totalling €20,421.88.

  3. At the time of filing the request for establishment of the Arbitral Tribunal, the Claimant was awaiting notification for payment of a third instalment, which together with the previous ones would total a global amount of €61,265.76.

  4. The Claimant requests, through the cumulation of claims, the annulment of all such assessments, for violation of Article 1 of the Stamp Duty Code ("SDC") and item 28.1 of the GTSD, and for unconstitutionality of the interpretation given to these provisions.

  5. The request for establishment of the arbitral tribunal was accepted by His Excellency the President of CAAD and automatically notified to the TCA on 18 July 2014.

  6. In accordance with the provisions of paragraph a) of Article 6(2) and paragraph b) of Article 11(1) of Decree-Law No. 10/2011, of 20 January, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council appointed the arbitrators of the Collective Arbitral Tribunal, who communicated acceptance of the appointment within the applicable time limit, and notified the parties of such appointment.

  7. The Collective Arbitral Tribunal was established on 17 September 2014; it was properly established and is materially competent, in accordance with Articles 2(1)(a), 5, 6(1), and 11(1) of the LFATM (as amended by Article 228 of Law No. 66-B/2012, of 31 December).

  8. In accordance with Articles 17(1) and (2) of the LFATM, the TCA was notified, on 24 September 2014, to submit its response.

  9. The TCA submitted its response on 22 October 2014, and therein alleges, in summary, the total unfoundedness of the Claimant's request, requesting the dismissal of all claims.

  10. Together with the response, and on the same date, the TCA submitted a motion requesting exemption from the meeting provided for in Article 18 of the LFATM, on the grounds that there are no obstacles to the examination of the merits of the case, and that it is, in this matter, a strictly legal question, requiring no oral evidence.

  11. The Arbitral Order of 5 February 2015 determined exemption from the meeting referred to in Article 18 of the LFATM; and set the date of 16 March 2015 for the rendering of the final decision.

  12. The Parties have legal personality and capacity and have standing, in accordance with Articles 4 and 10(2) of the LFATM, and Article 1 of Ordinance No. 112-A/2011, of 22 March.

  13. The Parties are duly represented.

  14. The proceedings contain no vices and no preliminary or subsequent questions, whether prejudicial or of exception, have been raised that would prevent examination of the merits of the case, with all conditions being met for the rendering of a final decision.

II – Legal Reasoning: Matters of Fact

II.A. Facts Deemed Proven

a) The Claimant received, in April, July and November 2014, notices of payment of SD relating to the year 2013, totalling, in the sum of the 3 instalments, a total amount of €61,265.76.

b) The Claimant is the owner of the properties subject to the SD assessment, which are land for construction, being thus identified in the Registry (Articles …, …, …, …, and … of the urban property matrix, Nos. … to … of the Property Registry Office of Maia).

c) The properties have no building on their land, notwithstanding the fact that there exists, with respect to them, a subdivision licence issued in favour of the Claimant.

d) All assessments are based on item No. 28.1 of the GTSD, annexed to the SDC, as amended by Law No. 55-A/2012, of 29 October, which provides for an additional rate of 1% on properties with residential use with taxable asset value equal to or exceeding one million euros.

II.B. Facts Deemed Not Proven

a) The evidence presented is of a documentary basis and was incorporated into the proceedings.

b) No matter proven in the case files had its authenticity or correspondence with the facts questioned.

c) There are no unproven facts that have interest for the decision of the case.

III – Legal Reasoning: Matters of Law

III.A. Position of the Claimant

a) The Claimant begins by invoking a formal defect in the documents presented to it for payment of SD: the lack of reference to the number of the assessment underlying the various documents that constitute the 3 instalments into which the SD payment is divided would correspond to a defect, namely the absence of the required legal basis – which would amount to saying, absence of express legal basis, implying illegality for the purposes of Article 99 of the Code of Tax Procedure and Process.

b) The Claimant concentrates its arguments on errors of law which, in its view, would taint the assessments in question, ranging from illegality to unconstitutionality of the interpretation of item No. 28.1 of the GTSD subscribed by the TCA.

c) The Claimant schematically reconstructs the legislative process that led to Law No. 55-A/2012, of 29 October and the regime established in item No. 28.1 of the GTSD, with the objective of demonstrating that the legislative intent was exclusively to increase the taxation of properties with residential use whose taxable asset value was in excess of one million euros, on the assumption that such properties would reveal a particularly high contributive capacity – because, it was understood, the intention was, with this "additional to the Municipal Tax on Real Estate ("MTRE")", to tax luxury homes, residences enjoyed by those with one million euros to invest in their acquisition.

d) Being so, alleges the Claimant, seeking support in doctrine and even in judicial and arbitral decisions, the legislative intention, ascertainable through teleological interpretation of the applicable provisions, particularly Article 6(3) of the MTRE Code, would exclude from taxation mere land "for construction", since in these there would not yet be manifested, in current and effective terms, the "residential use" – or it might never manifest itself, remaining only on the potential or merely virtual plane, or deriving toward commercial use.

e) There being nothing built on the properties subject to the assessment in question, there is, it is concluded, no coefficient of use to be taken into account – more specifically, no coefficient that, in the legislator's intention, would reflect a market value corresponding to the scope of taxation (the imposition of contributive capacity associable with "luxury housing").

f) The Claimant adds that the insistence of the TCA in applying, in those terms, the regime established in item No. 28.1 of the GTSD will constitute not only an illegality, but also a violation of the principle of separation of powers, seeking to make enforceable a taxation that the legislative power did not even authorize.

g) Accessorily, the Claimant further points out that the application of SD to the situation in question distorts the relevant legal framework, since we are dealing, with SD, either with a "tax on operations", and here it is a matter of incidence on a purely "static" context; or with residual taxation, of overlay, which bears on manifestations of contributive capacity not covered by other taxes, and here taxation is already entirely covered by MTRE.

h) It follows, in the view of the Claimant, a duplication of taxes and a violation of the principles of legality and equality, which in turn invoke the value of unconstitutionality.

i) Finally, the Claimant rejects any implication in terms of retroactivity that could be associated with the amendment to item 28.1 of the GTSD carried out by Article 194 of Law No. 83-C/2013, of 31 December – since, not being an interpretative provision, it will only apply to future situations, and namely to those of the years 2014 and onwards – not to that of the year 2013 to which the assessments in question refer.

III.B. Position of the Respondent

a) In response, the TCA maintains that the Claimant has no basis for its claims, and that, on the contrary, the basis for the assessments rests on the correct interpretation and application of the relevant regulatory framework.

b) The Respondent submits that the wording of item No. 28.1 of the GTSD is unequivocal in its meaning and scope, both in the generality with which it covers the ownership of urban properties whose taxable asset value is equal to or exceeding one million euros, and in the reference it makes to the concepts and criteria of the MTRE Code.

c) Being that, thus, the impugned assessments rest on the correct interpretation of item No. 28.1 of the GTSD, not constituting any illegality or unconstitutionality.

d) The Respondent draws attention to the fact that such reference makes clear that land for construction is integrated into the category "urban property" (Article 6(1) MTRE Code), and that its taxable asset value cannot fail to be assessed taking into account its use, residential or non-residential (in accordance with Article 45(2), and for the purposes of Article 41, both of the MTRE Code).

e) In other words, the "residential use" would not be a characteristic to be considered autonomously, but an element inherent in the very qualification of the immovable property, something already reflected in the calculation of its taxable asset value (as would result from Article 45 of the MTRE Code). This "use" would, therefore, be determined at a moment prior to that in which other rules (such as Article 77 of the Legal Regime for Urban Development and Building, for example, or Municipal Master Plans) specify the concrete uses of the properties.

f) In conclusion, the TCA insists that such regime of item No. 28.1 of the GTSD does not violate any constitutional principle or rule, and in particular does not violate equality: given that it discriminates only what is different, doing so by application of general and abstract criteria.

III.C. Questions to be Decided

As to the alleged defect of lack of legal basis, it should be noted that the Stamp Duty Code does not provide for rules and procedures specific to the assessment of the tax due under item 28 of the GTSD, the legislator having opted to make a direct reference to the rules and procedures for assessment provided for in the MTRE Code. This itself results from Article 23(7) of the Stamp Duty Code.

To this extent, Articles 113 et seq. of the MTRE Code will be applicable in this connection, with necessary adaptations. In accordance with these rules, the tax under item 28 of the GTSD is assessed annually, during the months of February and March, by the central services of the Tax and Customs Authority, on the basis of the taxable asset values of the properties and in relation to the taxpayers who appear in the matrix as at 31 December of the previous year. The Tax and Customs Authority is only required to send to the taxpayer the competent notice of collection – and not notice of assessment – by the end of the month preceding that of payment, with details of the properties, their parts capable of independent use and respective taxable asset value, in accordance with Article 119 of the MTRE Code. Should the taxpayer not receive the document in question, he should request a duplicate thereof.

It is today, therefore, commonly accepted and recognized that the assessment of MTRE carried out within the normal period does not require notification, it being sufficient to send to the taxpayer the notice of collection.

Thus, considering that the collection documents sent to the Claimant contain the elements legally required by Article 119 of the MTRE Code, the allegation of their incompleteness does not stand.

Furthermore, the duty of general legal basis to which the Claimant refers, provided for in Article 77 of the General Tax Law in implementation of the constitutional normative principle of Article 268(3) of the Constitution of the Portuguese Republic, requires that tax acts always contain, albeit in summary form, "(…) the legal provisions applicable, the qualification and quantification of the tax facts and the operations for determining the taxable amount and the tax" – Article 77(2) of the General Tax Law.

Now, the collection documents attached to the case files – although not being true assessment acts and complying with the formal requirements provided for in Article 119 of the MTRE Code – contain the legal basis required, and thus do not suffer from a defect of lack of legal basis. In this matter, the Claimant's allegation does not stand.

Secondly, and because it was also raised by the Claimant, it is necessary to decide which version of item 28.1 of the GTSD applies to the tax for the year 2013: the original version, introduced by Law No. 55-A/2012, of 29 October, or the wording resulting from the amendment introduced by Article 194 of Law No. 83-C/2013, of 31 December.

From the joint application of Article 2(4) of the Stamp Duty Code and Article 8(1) of the MTRE Code, we conclude that the tax fact referred to in item 28.1 of the GTSD occurs on 31 December of each year. To this extent, the tax legal relationship will be fixed in accordance with the legislation in force on that same date, regardless of subsequent amendments that may be in force on the date of assessment of the tax (which would be the present case). This position is the only one consistent with the principle of non-retroactivity of tax law provided for in Article 103(3) of the Constitution of the Portuguese Republic.

Thus, the Stamp Duty under item 28.1 of the GTSD relating to the year 2013, to be assessed in 2014, should be calculated and fixed in accordance with the original wording of the provision, introduced by Law No. 55-A/2012, of 29 October, as the Claimant requests.

Given this, it is necessary to decide on the determination of the tax base of item 28.1 of the GTSD, in particular with regard to the inclusion of land for construction in the concept of "urban property with residential use".

Now, on this question there are already numerous decisions of the Administrative and Tax Arbitration Centre as well as of the Supreme Administrative Court. There being identity of the question of fact and identity of the matter of law, here is reproduced the holding of the judgment of the Supreme Administrative Court of 9 April 2014, case No. 01870/13, whose jurisprudence we adopt and whose reasoning we fully endorse in the following part:

"The concept of 'property (urban) with residential use' was not defined by the legislator. Neither in Law No. 55-A/2012, which introduced it, nor in the MTRE Code, to which Article 67(2) of the Stamp Duty Code (equally introduced by that Law) refers by way of subsidiary. And it is a concept that, probably due to its imprecision – a fact all the more serious given that it is in function of it that the scope of objective incidence of the new taxation is determined – had a short life, as it was abandoned when Law No. 83-C/2013, of 31 December (Law of the State Budget for 2014), came into force, which gave new wording to item No. 28 of the General Table, and which now determines its objective scope of incidence through the use of concepts that are legally defined in Article 6 of the MTRE Code. This amendment – to which the legislator did not attribute an interpretative character, nor do we believe it did –, merely makes unequivocal for the future that land for construction whose authorized or envisaged building is for residential purposes is encompassed within the scope of item 28.1 of the General Table of Stamp Duty (provided its taxable asset value is equal to or exceeding 1 million euros), but clarifies nothing, however, with respect to past situations (assessments for 2012 and 2013), such as that which is the subject of the present proceedings. Now, as to these, it does not seem possible to adopt the interpretation of the recurrent, as it does not unequivocally result either from the letter or from the spirit of the law that its intention was, ab initio, to encompass within its objective scope of incidence land for construction for which construction of residential buildings was authorized or envisaged, as now unequivocally results from item 28.1 of the General Table of Stamp Duty. From the letter of the law nothing unequivocal results, moreover, as it itself, in using a concept that it did not define and which was also not defined in the instrument to which it referred by way of subsidiary, unnecessarily lent itself to ambiguities, in a matter – of tax incidence – in which certainty and legal security should also be paramount concerns of the legislator. And from its "spirit", ascertainable in the explanatory memorandum of the bill that is the origin of Law No. 55-A/2012 (Bill No. 96/XII – 2nd, Journal of the Assembly of the Republic, series A, No. 3, 21/09/2012, p. 44, available at www.parlamento.pt) nothing more results than the concern to raise new tax revenue, on sources of wealth "less subjected" in the past to the voracity of the Fiscal Authority than labour income, in particular capital income, securities gains and property, reasons which bring no relevant contribution to the clarification of the concept of "properties (urban) with residential use", as they take it as established, without any concern to clarify it. Such clarification will, however, have arisen – as reported in the Arbitral Decision rendered on 12 December 2013, in case No. 144/2013-T, available in the CAAD database –, upon the presentation and discussion in the Assembly of the Republic of that bill, in the words of the Secretary of State for Tax Affairs, who reportedly stated expressly, as is gathered from the Journal of the Assembly of the Republic (Journal I Series No. 9/XII – 2, of 11 October, p. 32) that: 'The Government proposes the creation of a special tax on urban residential properties of higher value. This is the first time in Portugal that a special taxation has been created on high-value properties intended for housing. This tax will be 0.5% to 0.8% in 2012 and 1% in 2013, and will apply to homes with a value equal to or exceeding 1 million euros' (underlined in the original), from which it is gathered that the reality intended to be taxed is, after all, and notwithstanding the imprecision of the terminology of the law, 'properties (urban) residential', in common language 'homes', and not other realities. The fact that it can be considered that in determining the taxable asset value of urban properties classified as land for construction, account should be taken of the use which the building authorized or envisaged for it will have for determining the value of the area of implantation (cf. Articles 45(1) and (2) of the MTRE Code), does not determine that land for construction can be classified as 'property with residential use', as 'residential use' always appears in the MTRE Code referred to as being of 'buildings' or 'constructions', existing, authorized or envisaged, as only these can be inhabited, which is not the case with land for construction, which does not, in itself, have the conditions for that, not being capable of being used for housing except if and when the construction authorized and envisaged for it is built on it (but in that case they will no longer be 'land for construction' but another type of urban property – 'residential', 'commercial, industrial or for services' or 'other' – Article 6 of the MTRE Code). It would be strange, moreover, if the determination of the scope of the tax incidence provision of item No. 28 of the General Table of Stamp Duty were to be found, after all, in the provisions for determining the taxable asset value of the MTRE Code, and that the imprecision of terminology by the legislator in the wording of that rule were, in effect, clarified and finally explained by way of an indirect and ambiguous reference, to the use coefficient established by the legislator in relation to built properties (Article 41 of the MTRE Code). Thus, given that land for construction – whatever the type and purpose of the building that will be, or may be, erected on it – does not, by itself, satisfy any condition for it to be so licensed or for it to be defined as having habitation as its normal destination, and the tax incidence provision of stamp duty referring to urban properties with 'residential use', without any specific concept being established for that purpose, cannot from it be extracted that it contains a future potentiality, inherent in a distinct property that might possibly be built on the land.

It is thus concluded, in accordance with the holding of the judgment under appeal, that, as there results from Article 6 of the MTRE Code a clear distinction between urban properties "residential" and "land for construction", these cannot be considered as "properties with residential use" for the purposes of item No. 28.1 of the General Table of Stamp Duty, in its original wording, as given to it by Law No. 55-A/2012, of 29 October" (emphasis in the original).

Given all that has been stated above, it is concluded that the petition of the Claimant should be upheld, and it is hereby declared that the Stamp Duty assessments impugned are illegal for violation of item 28.1 of the GTSD.

Concluding that the assessments should be annulled on these grounds, consideration of the defects of double taxation and unconstitutionality alleged by the Claimant is rendered moot, as it is unnecessary.

IV. Decision

In light of all the foregoing, it is decided to declare the illegality of the assessments that are the subject of these proceedings, for lack of legal basis and violation, as set forth above, of item 28.1 of the GTSD, as worded by Law No. 55-A/2012, of 29 October, and, consequently, finding the claim well-founded on this ground, it is decided to annul the assessment acts that are the subject of these proceedings.

V. Value of the Proceedings

In accordance with the provisions of Article 306(2) of the Code of Civil Procedure and Article 97-A(1)(a) of the Code of Tax Procedure and Process and Article 3(2) of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is set at €61,265.76.

VI. Costs

In accordance with Article 22(4) of the LFATM, the amount of costs is set at €2,448.00, in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Let this arbitral decision be registered and notified to the parties.

Lisbon, 13 March 2015

The Arbitrators

José Poças Falcão

(President)

Fernando Borges Araújo

Maria Forte Vaz

Frequently Asked Questions

Automatically Created

Does Stamp Tax under Verba 28.1 of the TGIS apply to building land (terrenos para construção)?
The central issue is whether item 28.1 of the TGIS applies to undeveloped building land. The taxpayer argues it does not, contending the 1% stamp duty rate should only apply to properties with actual residential use valued over €1 million—specifically luxury homes demonstrating high contributive capacity. Building land without constructed residences has only potential or virtual residential use that may never materialize or could become commercial property. The legislative intent behind Law 55-A/2012 was to tax luxury housing, not vacant plots. The Tax Authority maintains the assessments are legal, though the tribunal's final determination is not provided in this excerpt.
Can properties intended for housing be subject to Imposto do Selo under Verba 28.1 of the Tabela Geral?
According to the taxpayer's position, properties merely 'intended for housing' should not be subject to Stamp Duty under item 28.1 of the TGIS if no residential building exists. The provision requires actual 'residential use' (afectação habitacional), not potential future use. While the properties were classified as building land in the property registry and had subdivision licenses, without constructed residences demonstrating current residential enjoyment, the coefficient of use reflecting market value corresponding to luxury housing taxation would not apply. The taxpayer argues teleological interpretation of Article 6(3) of the IMI Code and legislative intent supports excluding undeveloped land from this additional taxation regime.
How can taxpayers challenge Stamp Tax assessments on real estate through CAAD arbitration?
Taxpayers can challenge Stamp Tax assessments through CAAD (Administrative Arbitration Center) by filing a request for establishment of an arbitral tribunal under the Legal Framework for Arbitration in Tax Matters (RJAT - Decree-Law 10/2011). The process includes: (1) filing the request identifying the contested assessments and legal grounds within applicable deadlines; (2) automatic notification to the Tax Authority; (3) appointment of arbitrators by the Deontological Council; (4) tribunal establishment; (5) Tax Authority response submission; (6) optional hearing under Article 18 RJAT; and (7) final decision. This case demonstrates the procedure, with the tribunal established September 17, 2014, the Tax Authority responding October 22, 2014, and a decision deadline set for March 16, 2015.
What are the grounds for unconstitutionality in the application of Verba 28.1 TGIS to building land?
The taxpayer raised constitutional grounds arguing that applying item 28.1 TGIS to building land violates the principle of separation of powers. The claim asserts the Tax Authority's interpretation enforces taxation beyond what the legislature intended, effectively creating new taxable events not contemplated in the law. The legislative intent was to tax luxury residences with actual residential use exceeding €1 million in value, targeting demonstrated contributive capacity. Extending this to vacant building land with merely potential residential use would constitute administrative overreach, usurping legislative functions by expanding the tax base beyond constitutional limits. Additionally, taxing unrealized property values may raise equality and contributive capacity principles under the Portuguese Constitution.
What is the procedure for filing a collective arbitral tribunal request against the Autoridade Tributária for Imposto do Selo disputes?
The procedure involves filing a request for establishment of a collective arbitral tribunal under Articles 2, 5, and 6 of the RJAT (Legal Framework for Arbitration in Tax Matters - Decree-Law 10/2011). The request must identify: the taxpayer with tax identification number; the Tax and Customs Authority as respondent; specific contested assessments with dates, reference numbers, and amounts; legal grounds for illegality or unconstitutionality; and cumulation of claims if seeking annulment of multiple assessments. After acceptance by CAAD's President and notification to the Tax Authority, arbitrators are appointed, the tribunal is established (verifying material competence under Article 2(1)(a) RJAT), the Tax Authority submits a response within prescribed timelines, and the tribunal may exempt the Article 18 hearing if no factual disputes exist, proceeding to a final decision on the merits.