Process: 490/2015-T

Date: February 29, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Process 490/2015-T addressed a critical question in Portuguese tax law: whether Verba 28.1 of the Stamp Tax General Table (Tabela Geral do Imposto do Selo - TGIS) applies to construction land (terreno para construção) lacking approved residential building permits. The taxpayer, A... S.A., challenged a €16,511.70 Stamp Tax assessment for 2014 on property in Coimbra with a Tax Property Value (Valor Patrimonial Tributário - VPT) of €1,651,170. The company argued that since no construction license, subdivision permit, or approved housing project existed, the land should not be subject to the 1% annual Stamp Tax on high-value properties. The Municipal Chamber certified that no such authorizations were in place as of May 2014. The Tax Authority countered that the property possessed residential legal nature, warranting taxation under Verba 28.1. The case also raised constitutional concerns regarding potential violation of the principle of tax capacity (capacidade contributiva) if the provision were interpreted to include undeveloped construction land. The legal framework evolved significantly between 2012-2014. Law 55-A/2012 originally introduced Verba 28, creating Stamp Tax on urban properties with VPT ≥ €1,000,000, while Law 83-C/2013 amended the wording specifically for construction land, effective for the 2014 tax year. These measures were implemented during Portugal's financial crisis as budgetary control mechanisms. The arbitration process followed RJAT (Regime Jurídico da Arbitragem em Matéria Tributária) procedures, with the sole arbitral tribunal constituted on October 12, 2015. The case demonstrates how taxpayers can challenge Imposto do Selo assessments through CAAD (Centro de Arbitragem Administrativa), providing an alternative to traditional administrative litigation. The decision carries significant implications for owners of high-value construction land regarding when residential allocation exists for Stamp Tax purposes, particularly absent explicit municipal approvals designating residential use.

Full Decision

ARBITRAL DECISION

1. Report

A…, S.A., with registered office at…, …, …, …-… Lisbon, legal entity number…, has applied for the establishment of an Arbitral Tribunal under the terms of the corresponding Legal Framework for Tax Arbitration (RJAT), for examination of the legality of the assessment of Stamp Tax no. 2015…, relating to the year 2014, in the total amount of € 16,511.70 (sixteen thousand, five hundred and eleven euros and seventy cents), with a view to declaring its illegality.

The respondent is the Tax and Customs Authority.

The application for establishment of the arbitral tribunal was submitted on 28-07-2015, was accepted by the President of CAAD, being duly communicated and notified to the Tax and Customs Authority (AT).

Under the terms of paragraph (a) of section 2 of article 6 and paragraph (b) of section 1 of article 11 of the RJAT, the Deontological Council appointed the undersigned arbitrator as sole arbitrator, who communicated acceptance of the office, which was notified to the parties.

In accordance with the provision of paragraph (c) of section 1 of article 11 of the RJAT, the sole arbitral tribunal was constituted on 12-10-2015, which was equally notified to the parties, and an arbitral order was issued under the terms and for the purposes of article 17 of the RJAT, also duly notified to the parties.

AT submitted its response in a timely manner and subsequently requested the attachment to the records of a copy of the Judgment of the Constitutional Court no. 590/2015 of 11 November 2015.

With no exceptions existing and the position of the parties being fully defined in the records and duly supported by the evidence attached, and based on the principles of cooperation, procedural good faith and free conduct of the proceedings set out, respectively, in paragraph (f) of article 16 and in article 19 of the RJAT, as well as the principle of limitation of useless acts of article 130 of the CPC, the holding of the meeting provided for in article 18 of the RJAT was dispensed with, as well as the submission of arguments, without objection from the parties.

The date for issuing the decision was set, and by a subsequent arbitral order the date thereof was postponed.

The arbitral tribunal was regularly constituted and is competent.

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

As mentioned, no exceptions were raised and the present proceedings do not suffer from any nullities.

2. Subject Matter of the Dispute

The application for arbitral pronouncement has as its object the annulment of the Stamp Tax assessment under Item 28 of the General Table of Stamp Tax (TGIS), relating to the year 2014, on the grounds that the assessment is illegal, since the property in question consists of land for construction for which there is no authorization or provision for building intended for housing.

The Applicant further contends that if the new wording of that item is interpreted as applying to land for construction such as that in the records, it would be unconstitutional, as it would violate the principle of tax capacity.

For its part, the Respondent advocates for the stability of the tax act, on the grounds that the property on which the assessment in issue is levied has the legal nature of a property with residential allocation. In its view, the assessment act that is the subject of the present application for arbitral pronouncement embodies the correct interpretation of the aforementioned item 28 of the General Table, which does not merit any constitutional censure.

3. Factual Matter

3.1. Proven Facts

  1. The Applicant was notified of the Stamp Tax assessment relating to the year 2014, under the terms of Item 28.1 of the TGIS.

  2. The assessment bears number 2015…, amounting to € 16,511.70.

  3. The deadline for payment of the 1st instalment of the Stamp Tax assessment was 30 April 2015.

  4. That first instalment amounted to € 5,503.90.

  5. That assessment concerns land for construction, which is owned by the Applicant.

  6. That land for construction, located in the Municipality of Coimbra, Union of Parishes of … and …, Place …, corresponds to the land registry entry no. …

  7. The land registry entry does not indicate the purpose of potential building considered for purposes of calculating the Tax Property Value (VPT).

  8. The corresponding VPT is greater than €1,000,000.00 (one million euros).

  9. On 31.12.14 its VPT amounted, specifically, to € 1,651,170.00.

  10. The Municipal Chamber of … certified on 15-5-14 that there was no subdivision permit, construction licence, approved project or favourable preliminary information for that land.

3.2. Unproven Facts

It was not proven that the building planned for the property in question has any residential purpose.

There are no other facts relevant to the proper decision of the case.

3.3. Grounds

The facts found proven derive from documents attached to the records whose truthfulness was not contested and from the statements of the parties, which are not contested by the other party.

4. Law

Summary of Controversial Issues

In summary, in the present case, there are thus two controversial legal issues:

  1. What is the concept of land for construction relevant for purposes of item 28 of the TGIS;

  2. Possible compliance of the rule, or its interpretation, with constitutional principles.

More specifically, and as the Applicant states, the legal issues that are the subject of the present application are as follows:

a) Is land for construction, in relation to which there is no approved feasibility request, subdivision permit or construction licence issued, subject to Stamp Tax under the terms of item 28.1 of the General Table of Stamp Tax?

b) If the answer to the first question is affirmative, is the rule of incidence contained in item 28.1 of the General Table of Stamp Tax unconstitutional?

Land for Construction

The issue in the records thus corresponds to the application of item 28 of the TGIS to urban properties and land for construction with residential allocation and a tax property value equal to or greater than one million euros. This new item was introduced in 2012 to strengthen budgetary control measures on the revenue side, in a context of financial (or economic-financial) necessity, (see Sustainability and Solidarity in Times of Crisis, Suzana Tavares da Silva, in Fiscal Sustainability in Times of Crisis, Coord. José Casalta Nabais and Suzana Tavares da Silva, pages 61 et seq.).

As is well known, that new taxation in Stamp Tax has raised strong doubts and considerable opposition. This is not only for specific cases of its application (e.g., vertical ownership, co-ownership, land for construction or its application to the year 2012), but also in general terms, due to its possible unconstitutionality, whether of its general regime or of its transitional regime (see Luís Menezes Leitão, On the Taxation in Stamp Tax of Luxury Properties (item 28.1 TGIS), in Tax Arbitration no.1, pages 44 et seq.).

In the present case and with relevance to the cause, it is important to note that the initial wording of that item, resulting from Law no. 55-A/2012, of 29/10, was amended by Law no. 83-C/2013, of 31/12, precisely with regard to land for construction. Thus Law no. 55-A/2012 added item 28 to the General Table of Stamp Tax (TGIS), providing for the taxation of "ownership, usufruct or surface right of urban properties whose tax property value contained in the land registry, under the terms of the Code of Municipal Property Tax (CIMI) is equal to or greater than €1,000,000". It also added to the TGIS item 28.1, determining the taxation of the situations provided for in item no. 28, at the rate of 1%, in relation to "property with residential allocation". For its part, Law no. 83-C/2013 gave new wording to item 28.1 of the TGIS, providing for taxation in such tax not only of residential properties, but also of land for construction, if the building, authorized or planned, is intended for housing, under the terms of the Code of IMI.

That is, Law no. 83-C/2013, of 31/12 thus gave new wording to item 28.1 of the TGIS, providing for taxation in Stamp Tax also of land for construction, provided that the building, authorized or planned for it, is intended for housing, under the terms of the CIMI.

Now, section 1 of article 6 of the CIMI includes in the concept of urban properties land for construction. And section 3 of the same article defines them as "lands situated within or outside an urban agglomeration, for which a licence or authorization has been granted, preliminary notice admitted or favourable preliminary information issued for a subdivision or construction operation, and also those declared as such in the acquisition document, excepting lands in which the competent entities prohibit any of those operations...".

For its part, article 45 of the CIMI determines the method of calculating the VPT of land for construction, considering for this purpose, in particular, the areas of implantation authorized or planned (section 2) or a mere estimate of the construction area (section 4), if the document proving construction feasibility only makes reference to the indices of the PDM. In this context, article 37 of the CIMI establishes that, for purposes of the first assessment of land for construction (section 3), a copy of the subdivision permit, construction licence, approved project, preliminary notice, favourable preliminary information or document proving construction feasibility should be submitted.

It is indisputable that the taxable event relevant for purposes of item 28 corresponds to the ownership of properties intended for housing and of high value, as it is understood that such ownership is demonstrative of increased tax capacity (the said "luxury homes"). It was in that context that it came to be considered that, in that concept, should also be included land intended for the construction of properties with residential purpose. Now, as land, by itself, cannot be considered luxurious (it could, in fact, be intended for social housing or non-residential purposes), it must be concluded that the authorized or planned building must, in some way, correspond to such luxury homes.

In fact, both in the initial version of item 28.1 of the TGIS (urban properties with residential allocation) and in the version in force from 2014 onwards (residential properties or land for construction whose subsequent building is intended for housing), the legislator elects housing as the characteristic element of relevant tax capacity (because it is increased). Properties classified as rustic and urban properties intended for industry, commerce or services are thus excluded from taxation from the outset. It is thus clear that land for construction in which the future construction, authorized or planned, is not intended for residential purposes are excluded from the rule of incidence.

But that conclusion does not allow the scope of the incidence of item 28 of the TGIS as regards land for construction to be fully clarified. It is still fundamental to know whether it is necessary that the future construction be intended exclusively for housing or even that it should have the characteristic of luxury housing. That is, not only the land, but also the one or more land registry entries after construction, may have a VPT equal to or greater than the value provided for in the item in question. In fact, the VPT of the land could be particularly high, but the buildings to be erected could be intended, wholly or partially, for commerce or services (or even for industry) or, being intended for housing, may not have the character of luxury or may even correspond to social housing.

And the interpretive elements, literal and teleological, are necessarily coincident in the exclusion of these cases, and these should not be considered as included in the rule of incidence. If it were otherwise, economic development would be limited (in the case of industry, commerce or services), or property would be taxed that does not reveal increased tax capacity (in the case where authorized or planned buildings do not have the characteristic of luxury housing). That is, the authorized or planned building must necessarily include a luxury home.

On the other hand, it is still necessary to know whether the property to be built, being intended for housing, should have this purpose as the sole purpose or whether it is sufficient that it be merely a partial purpose. And in the latter case, what magnitude is required for that partial purpose, in particular, whether it should be the main purpose.

For these reasons, the reference to the CIMI in item 28 must have the effect of requiring that the land in question already has a concrete residential allocation resulting, precisely, from the facts provided for in article 6, section 3 (licence, authorization or preliminary notice or favourable preliminary information for subdivision or construction). The demonstration of the existence of one of these facts shall therefore be determinative for the application of the land to the rule of incidence.

Moreover, from the tax act and any records resulting from it, it should be possible to conclude whether or not the factuality referred to as essential for delimiting the incidence of the tax in question has been verified.

The Land in the Records

Thus, in the case of the records, taxation will be due only if there is already authorized or planned for the land, in a licence, authorization or preliminary notice or favourable preliminary information for subdivision or construction, at least one or more buildings intended, at least also, for housing.

Now, with reference to the Applicant's land, it is noted that:

  • The land registry does not show what the purposes of the construction considered are;

  • The tax act does not clarify this question;

  • The Respondent also did not clarify it in the records;

  • During 2014 the competent Municipal Chamber declared that there was no subdivision permit, construction licence, approved project or favourable preliminary information relating to the land in question.

This is therefore land for construction, but with respect to which the provision of building intended for housing is not demonstrated. Now, being one of the requirements for the completion of the rule of incidence, the grounds of the tax act should have mentioned, in adherence to reality, that this is the purpose of the planned or authorized construction or, at least, the Respondent should have demonstrated in the records the verification of this requirement. In the first case, we would have a defect in grounds and in the second non-compliance with the burden of proof due (cf. article 74, section 1 of the LGT) and verification of well-founded doubt about the existence of the taxable event (article 100 of the CPPT).

In fact, being the planned or authorized purpose an essential element of the taxable event, its concrete identification (and demonstration) constitutes a burden that rests upon the Respondent for the sufficiency of the grounds of the act or, at least, of the evidence produced by it. And such burden is not met.

In consequence, it should be concluded that the property does not have building authorized or planned intended for housing under the terms of the TGIS, which is reinforced by the certificate issued by the Municipal Chamber, from which it appears that there is no provision for construction intended for housing, being this a prerequisite of taxation. That is, contrary to what has already been considered essential, neither the tax act in issue nor the present records allow the conclusion that the factuality referred to as essential for delimiting the incidence of the tax in question has been verified.

Thus, there is no building relevant as required by the rule of incidence inherent in item 28 of the TGIS, and for this reason there is a defect of violation of law due to error in the factual and legal assumptions.

Unconstitutionality

The analysis of the unconstitutionality of the rule is thus rendered moot, whether based on the principle of equality or also based on the principle of legality (grounds that would lead to opposite conclusions), because the interpretation advocated derives, precisely, from the text of the law, and not from an application divergent from its immediate normative command, by mediate and subsequent intervention of any constitutional principle, or by innovative intervention of the interpreter.

The analysis of the possible violation of the principle of separation of powers is also thus rendered moot, for, contrary to what the Respondent appears to anticipate, the decision is not based on recourse to equity, prohibited by article 4 of the Civil Code, nor censures the act performed taking into account criteria other than that of legality. There is therefore no violation of the constitutional principle of separation of powers.

Conclusion

In these terms, the application should be judged as well-founded, for the property in question, although corresponding to land for construction, does not possess any authorization or provision for building intended for housing, and therefore does not possess, at least not yet, residential purpose, under the terms required by item 28.1 of the TGIS.

For that reason, the tax act in question suffers from defective grounds and a defect of violation of law due to error in the legal and factual assumptions, which makes it voidable.

The analysis of the constitutionality of the rule is therefore rendered moot.

5. Operative Part

In accordance with the foregoing, it is decided to judge the application wholly well-founded and, in consequence, to annul the assessment act in issue, on the grounds of defective grounds and violation of law, arising from error in the assumptions.

6. Value of the Case

In accordance with the provisions of article 306, sections 1 and 2, of the CPC and 97-A, section 1, paragraph a), of the CPPT and 3, section 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 16,511.70 (sixteen thousand, five hundred and eleven euros and seventy cents).

7. Costs

Under the terms of article 22, section 4, of the RJAT, the amount of costs is fixed at € 1,224.00 (one thousand, two hundred and twenty-four euros), under the terms of Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, entirely at the charge of the Respondent.

Text prepared by computer, under the terms of the Code of Civil Procedure (CPC), applicable by reference to article 29, section 1, paragraph e) of the RJAT, with blank verses.

Lisbon, 29-02-2016

The Sole Arbitrator

(Jaime Carvalho Esteves)

Frequently Asked Questions

Automatically Created

Does Verba 28 of the Stamp Tax General Table apply to construction land not designated for housing?
The central legal issue in Process 490/2015-T was whether Verba 28.1 of the TGIS applies to construction land (terreno para construção) when no approved construction license, subdivision permit, or building project designates residential use. The taxpayer argued that without authorization or residential allocation, the land should not be subject to the 1% Stamp Tax on properties with VPT ≥ €1,000,000. The Tax Authority maintained the property had residential legal nature. The application of Verba 28 to construction land was specifically modified by Law 83-C/2013, amending the original 2012 framework (Law 55-A/2012). The arbitral tribunal had to determine whether 'residential allocation' requires explicit municipal approval or can be inferred from the property's urban classification and construction potential.
Can a taxpayer challenge a Stamp Tax (Imposto do Selo) assessment through CAAD tax arbitration?
Yes, taxpayers can challenge Stamp Tax (Imposto do Selo) assessments through CAAD (Centro de Arbitragem Administrativa) arbitration under the RJAT (Regime Jurídico da Arbitragem em Matéria Tributária). In Process 490/2015-T, the taxpayer filed the arbitration request on July 28, 2015, which was accepted by the CAAD President and communicated to the Tax Authority. A sole arbitrator was appointed under articles 6(2)(a) and 11(1)(b) of RJAT, and the arbitral tribunal was formally constituted on October 12, 2015. The Tax Authority submitted its response, and the case proceeded under RJAT procedural rules. This demonstrates that tax arbitration is a viable legal mechanism for contesting Stamp Tax liquidations on high-value properties, providing an alternative to traditional administrative litigation with potentially faster resolution.
What changes did the 2014 regime introduce for Stamp Tax on high-value properties under Verba 28?
The 2014 regime for Stamp Tax on high-value properties evolved through key legislative amendments. Law 55-A/2012 (October 29, 2012) originally introduced Verba 28 to the TGIS, creating annual Stamp Tax on ownership, usufruct, or surface rights of urban properties with VPT ≥ €1,000,000. Verba 28.1 imposed a 1% rate on properties with 'residential allocation' (afetação habitacional). Subsequently, Law 83-C/2013 (December 31, 2013) gave new wording specifically regarding 'land for construction' (terrenos para construção), effective for the 2014 tax year. These changes were implemented as budgetary consolidation measures during Portugal's financial crisis, strengthening revenue collection from luxury real estate. The amendments to the construction land provisions aimed to clarify the scope of taxation, though as Process 490/2015-T demonstrates, ambiguities remained regarding when construction land qualifies as having residential allocation.
How is Imposto do Selo calculated on construction land (terrenos para construção) under Portuguese tax law?
Under Verba 28.1 of the TGIS, Stamp Tax on construction land is calculated at a 1% annual rate applied to the Tax Property Value (VPT - Valor Patrimonial Tributário) determined under the Municipal Property Tax Code (CIMI), when the VPT equals or exceeds €1,000,000. In Process 490/2015-T, the property had a VPT of €1,651,170 as of December 31, 2014, resulting in an assessment of €16,511.70 (1% × €1,651,170). The tax applies to ownership (propriedade), usufruct (usufruto), or surface rights (direito de superfície). Payment is made in instalments, with the first instalment of €5,503.90 due by April 30, 2015 in this case. The critical interpretative question is whether construction land without approved residential building projects or municipal licenses qualifies as property with 'residential allocation' subject to this taxation regime.
What is the legal procedure for requesting arbitration at CAAD to annul a Stamp Tax liquidation?
The CAAD arbitration procedure for challenging Stamp Tax liquidations follows the RJAT (Legal Framework for Tax Arbitration). First, the taxpayer files an application (pedido de constituição de tribunal arbitral) with CAAD, specifying the contested tax assessment and legal grounds. The CAAD President evaluates and accepts the application, then communicates it to the Tax Authority (Autoridade Tributária e Aduaneira), which becomes the respondent. The CAAD Deontological Council appoints an arbitrator (sole or panel) under articles 6(2)(a) and 11(1)(b) of RJAT. After the arbitrator accepts the appointment, the arbitral tribunal is formally constituted per article 11(1)(c) of RJAT, with notification to both parties. An arbitral order is issued under article 17 of RJAT. The Tax Authority submits its response (resposta). Based on principles of cooperation, procedural good faith, and efficiency (articles 16(f) and 19 of RJAT, and article 130 of CPC), the tribunal may dispense with oral hearings (article 18 of RJAT) if the parties' positions are sufficiently clear from written submissions and documentary evidence, as occurred in Process 490/2015-T.