Process: 490/2016-T

Date: February 15, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD arbitral tribunal process 490/2016-T examined whether Verba 28.1 of the Portuguese Stamp Tax General Table (TGIS) applies to building land (terrenos para construção) for the 2015 tax year. The claimant challenged Stamp Tax assessments totaling €131,971.70 on urban property classified in the land registry as 'land for construction' with a location coefficient type indicating 'housing'. The taxpayer argued that Verba 28.1, which taxes high-value built properties, does not apply to unbuilt land, constituting an erroneous qualification of the taxable event. Subsidiarily, the claimant invoked unconstitutionality based on violations of constitutional principles of justice, equality, and taxpaying capacity. The arbitral tribunal, constituted under the Legal Framework for Arbitration in Tax Matters (RJAT), conducted a thorough examination of the land registry documentation and ordered ex officio the joinder of additional evidence including IMI declaration forms, valuation reports, and expert appraisals. The tribunal's factual investigation revealed a critical discrepancy: while the land registry certificate indicated 'housing' as the location coefficient type, all supporting documentation demonstrated that authorized construction was exclusively for commercial purposes including commerce, services, parking, storage, entertainment facilities, and restaurants/bars. The tribunal determined that the 'housing' classification in the land registry constituted an administrative error, as evidenced by the provisional proof certificate showing calculations based on commercial use rather than residential use. This misclassification had direct implications for the applicability of Verba 28.1 TGIS and the validity of the Stamp Tax assessments. The decision addresses fundamental questions about the scope of Stamp Tax on high-value properties, the distinction between built and unbuilt properties for tax purposes, and the evidentiary standards required to challenge tax assessments based on land registry classifications.

Full Decision

ARBITRAL DECISION

The Arbitrators José Pedro Carvalho (Presiding Arbitrator), Maria do Rosário Anjos and Alberto Amorim Pereira, appointed by the Ethics Council of the Administrative Arbitration Center to form an Arbitral Tribunal, agree as follows:

I – REPORT

On 27 July 2016, A…, NIPC…, with registered office at Av…, no. … … …-… Lisbon, represented by B…, S.A., NIPC…, with registered office at Av…, no. … … …-… Lisbon, filed an application for constitution of an arbitral tribunal, pursuant to the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January, which approved the Legal Framework for Arbitration in Tax Matters, as amended by Article 228 of Law No. 66-B/2012, of 31 December (hereinafter, abbreviated as RJAT), seeking a declaration of illegality of the tax assessment acts for Stamp Tax assessment No. 2016 … No. 2016… and No. 2016…, issued by the Tax and Customs Authority, pursuant to item 28.1 of the General Table of Stamp Tax ("TGIS"), for the year 2015, in the total amount of € 131,971.70.

To substantiate its application, the Claimant alleges, in summary, that the rule of incidence does not apply to the property in question, inasmuch as the same, classified in the land registry as for construction, does not constitute a built property, thus constituting an erroneous qualification of the taxable event, and, subsidiarily, the unconstitutionality, due to violation of the constitutional principles of justice, equality and taxpaying capacity.

On 02-08-2016, the application for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority.

The Claimant did not proceed with the appointment of an arbitrator; therefore, pursuant to the provisions of subparagraph a) of item 2 of Article 6 and subparagraph a) of item 1 of Article 11 of the RJAT, the President of the Ethics Council of CAAD appointed the undersigned as arbitrators of the collective arbitral tribunal, who communicated acceptance of the assignment within the applicable time period.

On 19-10-2016, the parties were notified of these appointments and expressed no intention to refuse any of them.

In accordance with the provision of subparagraph c) of item 1 of Article 11 of the RJAT, the collective Arbitral Tribunal was constituted on 07-11-2016.

On 09-12-2016, the Respondent, duly notified for this purpose, filed its reply defending itself solely by opposition.

By order of 20-12-2016, this arbitral tribunal ordered, ex officio, the joinder of additional documentation, and thereafter the Respondent was afforded proper right to be heard.

The parties waived the holding of the meeting referred to in Article 18 of the RJAT, as well as the submission of arguments, and by order of 23-01-2017, a time limit of 30 days was fixed for the rendering of final decision.

The Arbitral Tribunal is materially competent and is regularly constituted, pursuant to Articles 2, item 1, subparagraph a), 5 and 6, item 1, of the RJAT.

The parties have legal personality and capacity, are legitimate and are legally represented, pursuant to Articles 4 and 10 of the RJAT and Article 1 of Administrative Order No. 112-A/2011, of 22 March.

The case is not vitiated by any nullities.

Thus, there is no obstacle to the examination of the merits of the case.

Having reviewed everything, it is necessary to render

II. DECISION

A. FACTS

A.1. Facts Established as Proven

1. The Claimant, in the scope of its activity, is the owner of various properties, including residential properties, commercial properties and land for construction.

2. In this context, it was notified of the Stamp Tax assessment acts No. 2016…, No. 2016… and No. 2016…, issued pursuant to Article 1, item 1 of the Stamp Tax Code, combined with item 28.1 of the TGIS, and Article 6 of Law No. 55-A/2012, of 29 October, with reference to the year 2015.

3. The aforementioned assessments concern an urban property with land registry article…, of the Union of Parishes of … and …, municipality of... and district of Lisbon, corresponding to Lot …, located at … and …, …, ....

4. In the respective land registry certificate, the aforementioned property, in 2015, was recorded in the matrix as "land for construction", also containing as "Location coefficient type" the entry "Housing".

5. The Claimant proceeded with payment of the assessments within the respective legal time period.

A.2. Facts Established as Not Proven

1. That, with respect to the property referred to in item 3 of the facts established as proven, there existed, at the date of the taxable event, a subdivision authorization certificate or construction license authorization certificate, or approved project, or prior notice, or favorable prior information or document evidencing construction feasibility, which provided for housing as a possible construction.

A.3. Reasoning Regarding Proven and Not Proven Facts

With respect to factual matters, the Tribunal is not required to pronounce on everything that was alleged by the parties; rather, it has the duty to select the facts that matter to the decision and to distinguish the proven facts from the not proven facts - (see Article 123, item 2, of the Tax Procedure Code and Article 607, item 3 of the Code of Civil Procedure, applicable by virtue of Article 29, item 1, subparagraphs a) and e), of the RJAT).

In this manner, the facts pertinent to the judgment of the case are selected and delimited according to their legal relevance, which is established with regard to the various plausible solutions to the legal question(s) (see former Article 511, item 1, of the Code of Civil Procedure, corresponding to the current Article 596, applicable by virtue of Article 29, item 1, subparagraph e), of the RJAT).

Thus, taking into account the positions assumed by the parties, in light of Article 110/7 of the Tax Procedure Code, the documentary evidence and the proceedings joined to the case, the facts listed above were considered proven, with relevance to the decision.

The fact established as not proven is due not only to the lack of evidence regarding it, but also to the existence of circumstantial evidence to the contrary.

Indeed, this arbitral tribunal, ex officio, ordered the joinder to the case, by the Respondent, of the following documents, in original or copy:

- declaration form 1 of the Real Estate Tax (IMI) that was the basis for the fiscal valuation of the property referred to, in effect at the time of the taxable events underlying the assessments at issue in the present arbitration case;

- any attachments referred to in Article 37, item 3 of the Real Estate Tax Code (CIMI), relating to such valuation;

- the corresponding valuation report prepared by the expert appraiser;

- the notification of the result of such valuation;

- information from the tax service, regarding other relevant aspects.

From the documents presented, it does not appear that any construction intended for housing is foreseen or authorized, contradicting the entry in the land registry certificate relating to the "Location coefficient type".

Indeed, from the elements presented, it appears that the construction foreseen is intended for commerce, services, parking and storage, with entertainment support, private facilities and restaurants/bars.

As far as the available elements indicate, the entry referring to "housing" in the land registry certificate, relating to the "Location coefficient type", is attributable to an error, as all elements indicate that the location coefficient type should have been "commerce", including in the provisional proof certificate of 2nd valuation, where, in relation to the previous certificate, the entry for use and location coefficient type was changed from "commerce" to "housing", and it can be seen that the calculations performed did not consider any residential use, as can be seen below:

The same appears from the plan attached, also by the Respondent, entitled "…", where it can be verified that Lot … corresponds to a Leisure and Commerce zone, with Lots 4, 5, 6, 7 and 8 corresponding to Housing.

B. ON THE LAW

The only issue to be resolved in the present arbitration proceedings concerns the application of item 28.1 of the table attached to the Stamp Tax Code to land intended for construction.

At issue in the present case is the determination of the scope of item No. 28.1 of the TGIS, in the wording given by Law No. 83-C/2013, of 31 December, more specifically to determine whether the land for construction at issue in the present case can fall within the concept of "land for construction whose construction, authorized or foreseen, is for housing, pursuant to the provisions of the Real Estate Tax Code" referred to in the aforementioned item, taking into account that its respective patrimonial value is equal to or greater than € 1,000,000.00.

The issue arises on account of taxation under stamp tax of the ownership, usufruct or right of superficies of urban properties whose tax patrimonial value recorded in the matrix is equal to or greater than € 1,000,000, in which case tax is due at the rate of 1% on the tax patrimonial value used for Real Estate Tax purposes, for properties with residential use.

This issue is not new, having been the subject of review both in arbitral jurisdiction and in the jurisprudence of the Supreme Administrative Court, and, within the framework of the wording of the Stamp Tax Code given by Law No. 55-A/2012, of 29 October, the decisions rendered were always in a sense contrary to that claimed by the Tax Administration[1].

The situation sub iudice, however, occurs within a differentiated legal framework, insofar as the facts should be assessed in light of the wording of the Stamp Tax Code given by the State Budget for 2014, Law No. 83-C/2013, of 31 December (Article 194, under the heading - Amendment to the General Table of Stamp Tax), according to which item 28.1 of the General Table of Stamp Tax, attached to the Stamp Tax Code, approved by Law No. 150/99, of 11 September, now has the following wording:

"28.1 — For residential property or for land for construction whose construction, authorized or foreseen, is for housing, pursuant to the provisions of the Real Estate Tax Code — 1%".

Within this new legal framework, decisions have already been rendered in arbitration proceedings, equally in a sense unfavorable to what was sustained by the Tax Authority[2].

The aforementioned jurisprudence is based on the understanding that it should be deemed to meet the requirements of the new item 28.1 of the TGIS:

"with respect to land for construction, whether or not located within an urban agglomeration, as defined in Article 3/4 of this statute [Real Estate Tax Code], should, as such, be considered land in relation to which has been granted: - authorization for subdivision operation; - construction license; - authorization for subdivision operation; - authorization for construction; - deemed favorable prior notice of subdivision operation or construction; issued favorable prior information of subdivision operation or construction, as well as; - those which have been declared as such in the acquisition title, it being necessary to bear in mind 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." [see ANTÓNIO SANTOS ROCHA / EDUARDO JOSÉ MARTINS BRÁS – Taxation of Assets. Real Estate Tax-Real Estate Transfer Tax and Stamp Tax (Annotated and Commented). Coimbra, Almedina, 2015, p. 44]."[3]

Also in the decision rendered in arbitration case 142/2016T, already cited, which also concluded in favor of the merits of the petition, the following may be read:

"There is no indication in these TGIS and Real Estate Tax Code provisions of what should be understood by 'foreseen construction', but, taking into account the documents required for the valuation of land for construction, indicated in Article 37, item 3, of the Real Estate Tax Code, it is concluded that one can only speak of authorized or foreseen construction when the 'building to be constructed', referred to in item 1 of Article 45, is defined in a subdivision authorization certificate or construction license authorization certificate, or approved project, or prior notice, or favorable prior information or document evidencing construction feasibility".

The understanding of the aforementioned decisions is fully subscribed to here, with respect to what, in light of the new wording of the Stamp Tax Code, should be understood by "land for construction whose construction, authorized or foreseen, is for housing, pursuant to the provisions of the Real Estate Tax Code".

Indeed, in accordance with the Real Estate Tax Code, land for construction, which, in accordance with Article 6, item 1, subparagraph c) of such Code, constitutes a type of urban property, may have housing as its use, as follows from Article 41, also of the Real Estate Tax Code, such use which, as results, moreover, expressly from Article 45, item 5 of the Real Estate Tax Code, will be determined on the basis of the elements referred to in Article 37 of the same Code, with item 3 of this article stating that:

"With respect to land for construction, a photocopy of the subdivision authorization certificate must be presented, which must be replaced, if there is no subdivision, by a photocopy of the construction license authorization certificate, approved project, prior notice, favorable prior information or document evidencing construction feasibility".

It is concluded, thus, here, as in the jurisprudence cited above, that it should be considered as "land for construction whose construction, authorized or foreseen, is for housing, pursuant to the provisions of the Real Estate Tax Code", those lands in which the 'building to be constructed' is defined as intended for housing in a subdivision authorization certificate or construction license authorization certificate, or approved project, or prior notice, or favorable prior information or document evidencing construction feasibility.

Now, in the present case, it was not established that there existed, with respect to the land to which the Stamp Tax assessment, object of the present arbitration case, referred, at the date of the taxable event, a subdivision authorization certificate or construction license authorization certificate, or approved project, or prior notice, or favorable prior information or document evidencing construction feasibility, which provided for housing as a possible construction.

Thus, it is not possible to conclude that the 'building to be constructed' on the land in question is defined in any of those documents deemed relevant as having the purpose of housing.

This conclusion is not opposed by the circumstance that in the respective land registry certificate, the property in question, in 2015, is recorded as "Location coefficient type" with the entry "Housing", since, in the present case, such entry is indicated as resulting from an error, and furthermore no elements have been presented that substantially support such entry, notwithstanding the fact that the Respondent was expressly afforded the opportunity to do so.

Given the foregoing, it cannot be considered demonstrated that such land is a "land for construction whose construction, authorized or foreseen, is for housing, pursuant to the provisions of the Real Estate Tax Code", and thus does not meet the provision of item 28.1 of the Table attached to the Stamp Tax Code, in the applicable wording, whereby the challenged tax act is vitiated by error as to the factual premises, and consequent error of law, and should, accordingly, be annulled, the arbitral petition being entirely sustained.

*

With respect to the request for compensatory interest filed by the Claimant, Article 43, item 1, of the General Tax Law establishes that compensatory interest is due when it is determined that there has been error attributable to the services from which results payment of the tax debt in an amount greater than legally due.

In the present case, the error affecting the assessment is attributable to the Tax and Customs Authority, which performed the assessment act on its own initiative, without the necessary factual and legal support.

The Claimant therefore has the right to be reimbursed of the amount it paid (pursuant to the provisions of Articles 100 of the General Tax Law and 24, item 1, of the RJAT) and, further, to be indemnified for the improper payment through payment of compensatory interest by the Respondent, from the date of payment of the amount, until reimbursement, at the legal default rate, pursuant to Articles 43, items 1 and 4, and 35, item 10, of the General Tax Law, Article 559 of the Civil Code and Administrative Order No. 291/2003, of 8 April.

*

C. DECISION

For these reasons, this Arbitral Tribunal decides to judge the arbitral petition filed as well-founded and, in consequence,

a) Annul the tax assessment acts for Stamp Tax No. 2016…, No. 2016… and No. 2016…, issued by the Tax and Customs Authority, pursuant to item 28.1 of the General Table of Stamp Tax ("TGIS"), for the year 2015, in the total amount of € 131,971.70;

b) Condemn the Respondent to reimburse the tax improperly paid by the Claimant;

c) Condemn the Respondent to payment of compensatory interest to the Claimant, due from the date of payment of the improperly assessed tax, until full reimbursement of the amount paid;

d) Condemn the Respondent in the costs of the case, fixed below.

D. Value of the Case

The value of the case is fixed at € 131,971.70, pursuant to Article 97-A, item 1, subparagraph a), of the Tax Procedure and Process Code, applicable by virtue of subparagraphs a) and b) of item 1 of Article 29 of the RJAT and item 2 of Article 3 of the Regulation of Costs in Tax Arbitration Cases.

E. Costs

The arbitration fee is fixed at €3,060.00, pursuant to Table I of the Regulation of Costs in Tax Arbitration Cases, to be paid by the Respondent, since the petition was entirely sustained, pursuant to Articles 12, item 2, and 22, item 4, both of the RJAT, and Article 4, item 4, of the aforementioned Regulation.

Let notification be made.

Lisbon, 15 February 2017

The Presiding Arbitrator

(José Pedro Carvalho)

The Arbitrator Member

(Maria do Rosário Anjos)

The Arbitrator Member

(Alberto Amorim Pereira)

[1] See, for example, Decisions 49/2013-T of 18 September 2013, 53/2013-T of 2 October, 231/2013-T of 3/2/2014, Case No. 7/2014-T, of 3 July, 56/2014-T of 31 July, 210/2014-T of 30 July, Case No. 125/2015-T, of 12 October, all of CAAD (available at www.caad.org.pt) and the Decision of the Supreme Administrative Court of 9 April 2014, P1870/2013, which were followed by several others of similar content, available at http://www.dgsi.pt/jsta.

[2] See, for example, the decisions in arbitration cases 156/2016T, 142/2016T, 524/2015T, 578/2015T, 467/2015T, and 290/2016T, all available at www.caad.org.pt.

[3] See in this sense, the decision rendered in case 156/2016T, already cited.

Frequently Asked Questions

Automatically Created

Does Verba 28.1 of the Portuguese Stamp Tax Table (TGIS) apply to building land (terrenos para construção)?
The applicability of Verba 28.1 TGIS to building land was the central legal issue in process 490/2016-T. The claimant argued that this provision, which imposes Stamp Tax on high-value properties, applies only to built properties (prédios edificados) and not to unbuilt land classified as 'for construction' (terrenos para construção). This distinction is critical because Verba 28.1 was introduced to tax ownership of valuable real estate, and the claimant contended that unbuilt land, lacking the characteristics of completed built property, falls outside the scope of this tax provision. The tribunal examined whether land registry classification as 'land for construction' determines tax treatment under Verba 28.1.
Can Stamp Tax (Imposto do Selo) be levied on unbuilt land classified as building plots under Portuguese law?
Under Portuguese law, the levy of Stamp Tax (Imposto do Selo) on unbuilt land classified as building plots under Verba 28.1 TGIS is disputed. The 2015 assessments in process 490/2016-T were based on the property's land registry classification and assigned location coefficient. However, the taxpayer challenged this application, arguing that unbuilt parcels should not be subject to the same taxation regime as completed built properties. The distinction between 'terrenos para construção' (building land) and 'prédios edificados' (built properties) is fundamental to determining whether the Stamp Tax applies, as Verba 28.1 was designed to tax valuable built real estate holdings rather than undeveloped land.
What constitutional principles were invoked to challenge the Stamp Tax on high-value building land in 2015?
The claimant invoked three constitutional principles to challenge the Stamp Tax on high-value building land: (1) the principle of justice (princípio da justiça), arguing that taxing unbuilt land under provisions designed for built properties violates fundamental fairness; (2) the principle of equality (princípio da igualdade), contending that differential treatment between built and unbuilt properties of similar value lacks rational basis; and (3) the principle of taxpaying capacity (princípio da capacidade contributiva), asserting that taxation must reflect actual economic capacity, and unbuilt land may not demonstrate the same wealth-holding capacity as completed built property. These constitutional challenges were raised subsidiarily to the primary argument regarding erroneous qualification of the taxable event.
How does CAAD arbitral tribunal process 490/2016-T address the taxable event classification for building land?
CAAD arbitral tribunal process 490/2016-T addressed the taxable event classification through rigorous factual investigation. The tribunal exercised its ex officio powers to order joinder of comprehensive documentation including IMI declaration forms, valuation reports, expert appraisals, and notifications. This investigation revealed that while the land registry certificate classified the property with 'housing' as the location coefficient type, all substantive documentation—including construction authorizations, valuation calculations, and architectural plans—demonstrated that authorized construction was exclusively for commercial purposes (commerce, services, parking, storage, entertainment, restaurants). The tribunal determined that the 'housing' classification constituted an administrative error, as evidenced by calculations based on commercial rather than residential use. This factual finding was critical to determining whether the property qualified under Verba 28.1.
What is the procedure for challenging Stamp Tax assessments under Verba 28.1 before Portugal's CAAD arbitration court?
The procedure for challenging Stamp Tax assessments under Verba 28.1 before CAAD involves: (1) filing an application for constitution of an arbitral tribunal under Articles 2 and 10 of the RJAT (Decree-Law 10/2011); (2) automatic notification to the Tax Authority; (3) appointment of arbitrators by the CAAD Ethics Council if parties do not appoint; (4) constitution of the arbitral tribunal; (5) filing of the Tax Authority's reply; (6) optional ex officio investigation and joinder of evidence; (7) optional hearing under Article 18 RJAT (which parties may waive); (8) submission of final arguments (also waivable); and (9) final decision within the prescribed timeframe. In process 490/2016-T, the application was filed on 27 July 2016, the tribunal was constituted on 7 November 2016, and decision was due within 30 days from 23 January 2017. The taxpayer must have paid the contested amount to proceed with arbitration.