Process: 498/2016-T

Date: December 15, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD arbitral case 498/2016-T addressed whether Stamp Tax under Item 28.1 of the General Stamp Tax Table (TGIS) applies to building land with planned housing construction. The claimant, a company holding land for construction with mixed-use authorization (housing, commerce, services, parking), challenged 2014-2015 Stamp Tax assessments totaling €41,458.80. The core dispute centered on whether building land qualifies as 'urban property with housing use' under Verba 28.1, which taxes properties valued at €1 million or more. The claimant argued that (1) the original legislation targeted completed houses, not construction land; (2) the 2014 State Budget amendment clarified prospectively that building land with authorized/planned housing falls within scope; (3) without a specific Tax Patrimonial Value (VPT) allocated to the housing portion of mixed-use land, the tax cannot be calculated. The Tax Authority countered that building land with housing designation in property records qualifies under Verba 28.1, noting that VPT determination for construction land inherently considers planned building uses. The case highlights interpretation challenges regarding when construction land becomes taxable under Stamp Tax provisions, the temporal application of legislative clarifications, and technical VPT calculation requirements for mixed-use development properties.

Full Decision

ARBITRAL DECISION

I – Report

1.1. A…, S.A. (hereinafter referred to as "Claimant"), with Tax ID… and headquarters in …, ..., …-… Lisbon, disagreeing with the assessment acts for Stamp Duty (IS), relating to the years 2014 and 2015, filed, on 5/8/2016, a request for establishment of an arbitral tribunal and for arbitral ruling, in accordance with art. 10, no. 2, of Decree-Law no. 10/2011, of 20/1 (Legal Regime for Arbitration in Tax Matters, hereinafter referred to as "RJAT"), and arts. 1 and 2 of Ordinance no. 112-A/2011, of 22/3, in which the Tax and Customs Authority (AT) is requested, with a view to the "declaration of illegality of the stamp duty assessment acts referred to with the consequent annulment of the Stamp Duty assessments under analysis; the restitution of tax improperly paid; [and the payment of] compensatory interest [...] on the amounts improperly assessed and paid."

1.2. On 4/11/2016, the present Singular Arbitral Tribunal was constituted.

1.3. The AT was summoned, as the respondent party, to file a reply, in accordance with art. 17, no. 1, of the RJAT. The AT filed its reply on 6/12/2016, having argued, in summary, in the direction of the total lack of merit of the Claimant's request.

1.4. By order of 9/12/2016, the Tribunal considered, under art. 16, letter c), of the RJAT, that the meeting provided for in art. 18 of the RJAT was unnecessary, and that the proceedings were ready for decision. Accordingly, the Tribunal set the delivery of the arbitral decision for 15/12/2016.

1.5. The Arbitral Tribunal was duly constituted, is materially competent, the proceedings do not suffer from defects that would invalidate it, and the Parties have legal personality and capacity, being legitimate.

II – Allegations of the Parties

2.1. The Claimant alleges, in its initial petition, that: a) "the principal issue under analysis concerns the interpretation of the [...] Item 28 [of the TGIS] which, according to the [Claimant], cannot be applied to the land for construction in question, notwithstanding that it has construction foreseen (but not yet authorized) for housing. In this sense, the parcel of land in question is not subject to IS, in accordance with Item no. 28 of the TGIS, since it is impossible to determine, at the relevant date of the facts, the VPT corresponding to the part of said land allocated to housing"; b) "the grounds that led to the project for dismissal lack legal sustainability [given that] [...] this tax should only [be applied] to urban properties with housing use [if not so], the legislator would not have had the need to specify the use"; c) "the amendment introduced by the State Budget Law for 2014, to which the legislator did not attribute an interpretive character, merely makes clear, for the future, that land for construction whose building, authorized or foreseen, is for housing, are within the scope of item 28.1 of the TGIS (provided that the respective tax property value is equal to or greater than 1 million Euros)"; d) "it does not result unequivocally, neither from the letter nor from the spirit of the law, that the intention thereof was, ab initio, to encompass, within its objective scope of application, land for construction (for which construction of residential buildings has been authorized or foreseen), as now results from the text of item 28.1 of the TGIS. The reality that was intended to be taxed was, in fact, and in ordinary language (notwithstanding the terminological imprecision of the law with the expression 'residential (urban) properties'), that of 'houses' and not any other realities"; e) "the land under analysis has no authorized or foreseen construction, consisting only in the subdivision authorization in the subdivision authorization deed for various purposes, including residential, and there is still no, for that purpose, a VPT allocated to the areas intended for each of the aforesaid purposes, not being, thus, subject to IS, in accordance with Item no. 28 of the TGIS, since it is impossible to determine, at the relevant date of the facts, the VPT corresponding to the part of said land allocated to housing"; f) "a parcel of land for construction [...] does not, by itself, satisfy any condition for, as such, to be licensed or for it to be possible to define housing as its normal destination [...], and it cannot be inferred that within it is contained a future potentiality, inherent to a property that may possibly be built on such land"; g) "although there is already a total VPT defined, there is, however, no VPT assigned to each of the purposes for which it has authorization foreseen for construction, namely a VPT for the area intended for housing, a VPT for the area intended for commerce and services, and a VPT for the area intended for parking"; h) "if it is not possible [...] to determine the amount corresponding to the specific VPT of the part that, in accordance with Item no. 28 of the TGIS, would possibly be subject to IS, the acts of IS assessment mentioned above will be illegal, by reference to 2014 and 2015, from which resulted tax to pay in the amount of €41,458.80"; i) "the land for construction has only an authorization foreseen for various purposes, namely housing, and there is still no, for that purpose, a VPT allocated to the areas intended for each of the aforesaid purposes, [reasons for which] the said land is not subject to IS, in accordance with Item no. 28 of the TGIS".

2.2. The Claimant requests, "in accordance with and based on the grounds set forth [...]: 1 – The declaration of illegality of the stamp duty assessment acts referred to with the consequent annulment of the Stamp Duty assessments under analysis; 2 – The restitution of tax improperly paid; 3 – Compensatory interest (nos. 1 and 2 of article 43 of the LGT and article 61 of the CPPT) on the amounts improperly assessed and paid."

2.3. For its part, the AT alleges, in its answer, that: a) "urban properties that are land for construction and to which housing use has been assigned within the scope of their respective assessment, with such use appearing in their respective property records, are subject to Stamp Duty"; b) "since there is no definition in IS of what is meant by 'urban property', 'land for construction' and 'housing use', it is necessary to resort subsidiarily to the IMI Code to obtain a definition that allows determining the possible subjection to IS, in accordance with what is provided in article 67, no. 2, of the IS Code, as amended by Law no. 55-A/2012, of 29/10"; c) "in the property record card of the property, the type of property is 'land for construction'"; d) "we cannot doubt that we are facing 'land for construction', more specifically, before a parcel of land for urban construction, with the building footprint areas and construction areas perfectly defined and identified in urban property record cards, as indeed described above"; e) "fiscally the property is land for construction, in that capacity it was acquired and thus is recorded in the property registry and, for that reason, it is without doubt, a parcel of land for construction, more exactly an urban property with housing vocation. The Claimant cannot be unaware that the property record card is very clear in defining, for the land for construction in question, the respective building footprint and construction area, thus perfectly defined and identified. It is, therefore, clear the housing use of the building"; f) "the determination of the VPT of land for construction has as its prerequisite the determination of the value of the buildings authorized or foreseen, for which purpose one must, in accordance with what is provided in art. 38 of the IMI Code, pay attention to the use of such buildings. In keeping with this, given that the application of the use coefficient is clear for the purposes of determining the VPT of land for construction, it is symptomatic that its consideration for the purposes of applying item 28.1 of the TGIS (in the previous wording) cannot be ignored"; g) "in an interpretation very strictly limited to the letter of the law, one could draw from the text the meaning that the claimant seeks to give it, but as our jurisprudence has declared, this is not the best interpretation of the law, and in the hermeneutic task, the literal element, constituting the starting point and limit to extract the meaning of the norm, is not the decisive element, nor even the most important, a role that is reserved for 'the unity of the system', in accordance with no. 2 of article 9 of the CC. In fact, in the interpretation of law, beyond the aforementioned grammatical element, there must also be consideration of the logical element, which requires, in particular, that consideration be given to the purpose pursued by the legislator in preparing the norm (teleological element), namely in order to ascertain its nature and its temporal scope of relevance, and to pay attention to the place that the interpreted norm occupies therein (systematic element), and only from the combination of all these interpretive elements will the true meaning of that norm emerge, cf. Baptista Machado, Introdução ao Discurso Legitimador, Almedina 1983, pages 182 and 189"; h) "the assessments now contested remain entirely valid and legal, concluding to the legality thereof."

2.4. The AT concludes, from the above, that "the request for declaration of illegality of the contested assessment should be judged to lack merit, absolving the AT from the request."

III – Proven Facts, Unproven Facts and Respective Grounds

3.1. The following facts are considered proven:

i) The property in question is classified as "land for construction" and was assessed as of December 2012, with a VPT of €2,072,940.00, as per Doc. 2 attached to the case file.

ii) The aforementioned "land for construction" has construction authorized for various purposes, in addition to housing, but there is no specific VPT according to the area relating to each of the various uses.

iii) The IS assessments in question here, in the total amount of €41,458.80, relate to the years 2014 and 2015, as detailed in the following description: 1) docs. no. 2015…, 2015… and 2015…, relating to the three installments in which the IS assessment for the year 2014 was divided, issued under Item no. 28 of the TGIS, in the total amount of €20,729.40, and relating to the property with registry article U… of the parish of … (…-…), as per Doc. 1 attached to the case file; 2) docs. no. 2016… and 2016…, relating to the two installments in which the IS assessment for the year 2015 was divided, issued under Item no. 28 of the TGIS, relating to the same property mentioned above, also as per Doc. 1 attached to the case file.

iv) The IS assessment acts referred to above resulted from the application of the rate of 1%, provided for in the General Table of Stamp Duty (TGIS) - Item 28.1, to the VPT (of €2,072,940.00) of the mentioned property.

v) By disagreeing with the same, the Claimant filed a request for gracious reclamation of the assessment on 25/11/2015 (see Doc. 3). On 14/4/2016, it was notified of the project for a decision to dismiss, and did not exercise the right to prior hearing provided for in art. 60 of the LGT.

vi) Dissatisfied with the final decision (of 20/5/2016) dismissing the gracious reclamation, the Claimant filed the present request on 5/8/2016.

3.2. There are no material unproven facts relevant to the decision of the case.

3.3. The facts considered pertinent and proven (v. 3.1) are grounded in the analysis of the positions presented by the parties and the documentary evidence attached to these proceedings.

IV – On the Law

From the above, the following matters arise: i) illegality of the assessments because they concern a "land for construction" which, notwithstanding having construction foreseen for housing, does not have authorized construction; and ii) illegality of the assessments in question because "the land for construction has only an authorization foreseen for various purposes, namely housing, and there is still no, for that purpose, a VPT allocated to the areas intended for each of the aforesaid purposes". At the end, the question of compensatory interest will be addressed [iii)].

Let us see, then.

i) and ii) In view of the issues presented, reference will be made, without further developments and as an introductory matter, to the legal analysis contained in the DA handed down in proc. no. 467/2015-T, of 4/2/2016, in the preparation of which I participated as a member of the respective collective panel (and further considering that there are no reasons to alter the direction of that preliminary analysis in the case of the proceedings now under consideration).

Thus, to resolve the issues listed, it is important to keep in mind the evolution and framing of Item 28, both before and after the amendment made by art. 194 of Law no. 83-C/2013, of 31/12 (which is the wording applicable to the present case).

"In that sense, it is useful to refer to the Supreme Administrative Court Judgment of 9/4/2014 (proc. no. 1870/13), which, like other Supreme Administrative Court judgments – e.g.: Judgment of 9/4/2014 (proc. no. 48/14); Judgments of 23/4/2014 (proc. nos. 270/14, 271/14 and 272/14); Judgment of 25/11/2015 (proc. 1338/15) – makes a detailed historical and chronological analysis of the evolution and framing of Item 28 now under analysis:

'The concept of '(urban) property with housing use' was not defined by the legislator. Neither in Law no. 55-A/2012, which introduced it, nor in the IMI Code, to which no. 2 of article 67 of the Stamp Duty Code (equally introduced by that Law) refers on a subsidiary basis. And it is a concept that, probably due to its imprecision – a fact all the more serious as it is as a function of it that the objective scope of the new taxation is defined –, had a short life, as it was abandoned upon the entry into force of the State Budget Law for 2014 (Law no. 83-C/2013, of December 31), which gave new wording to that Item no. 28 of the General Table, and which now defines its objective scope of application through the use of concepts that are legally defined in article 6 of the IMI Code.

This amendment – to which the legislator did not assign an interpretive character, nor does it seem to us that it did – merely makes clear for the future that land for construction whose building, authorized or foreseen, is for housing are within the scope of Item 28.1 of the General Stamp Duty Table (provided that the respective tax property value is equal to or greater than 1 million euros)'.» [End of quotation.]

In summary, from this it can be inferred that: 1) with the new wording of Item 28.1 of the TGIS, given by art. 194 of Law no. 83-C/2013, of 31/12 (applicable to the present case, as it concerns tax for the years 2014 and 2015), the objective scope of application of the norm was innovatively broadened, to explicitly include land for construction for which construction of residential buildings has been authorized or foreseen; 2) the application of said wording is unequivocal, leaving no room for doubt, given the literal element of the norm.

However, the Claimant alleges, in the case under analysis here, that "the land under analysis has no authorized construction [...], consisting only in the subdivision authorization deed the [...] authorization foreseen for various purposes, namely housing, and there is still no, for that purpose, a VPT allocated to the areas intended for each of the aforesaid purposes, not being, thus, subject to IS, in accordance with Item no. 28 of the TGIS, since it is impossible to determine, at the relevant date of the facts, the VPT corresponding to the part of said land allocated to housing".

In fact, given the new wording of Item 28 (which is applicable to these proceedings), (the non-materialization of) an expectation or foresight of construction for housing does not imply, per se, the application of IS. In this regard, it is noted in the cited DA no. 467/2015-T, of 4/2/2016:

"The essential question that, [in the context of the new wording of Item 28.1 of the TGIS, given by art. 194 of Law no. 83-C/2013, of 31/12,] arises, is whether, using the words of the Claimant, 'without [...] that foresight or expectation of 'construction for housing' [...] materialized', it can be accepted that the application of the Stamp Duty here in question [...]. To answer said question, it appears particularly useful to consider the following:

'With regard to land for construction, whether or not located within an urban agglomeration, as defined in art. 3/4 of this instrument [IMI Code], should be considered as such, the land to which has been granted: - license for subdivision operation; - construction license; - authorization for subdivision operation; - construction authorization; - favorable prior communication admitted for subdivision or construction operation; issued favorable prior information for subdivision or construction operation, as well as; - those that have been declared as such in the acquisition title, and it should be borne in mind that, also for that purpose, only the acquisition title with the form prescribed by civil law should be relevant, namely, the public deed or the authenticated private document referred to in art. 875 CC.' [see. ANTÓNIO SANTOS ROCHA / EDUARDO JOSÉ MARTINS BRÁS – Tributação do Património. IMI-IMT e Imposto do Selo (Anotados e Comentados). Coimbra, Almedina, 2015, p. 44].» [End of quotation.]

However, the "land for construction" here in question has, as was stated in point ii) of the proven facts, construction authorized for various purposes, beyond housing, with no specific VPT according to the area relating to each of the various uses – and this condition is essential in order to be able to assess whether the VPT of the specific housing area meets the requirements established in Item 28 of the TGIS. With no such definition and with such condition not being met, it appears that the Claimant is correct.

In the same sense, see the following Arbitral Decision (concerning a very similar case), with which I agree entirely: "in the specific case, we find two IS assessments concerning land for construction that possess an express authorization for construction, with it being foreseen that its area be intended for housing, commerce and services, and also for parking. In this sense, there is already a total VPT defined, with respect to each of those urban properties, but there is no VPT assigned to each of the purposes for which it has a building license, namely a VPT for the area intended for housing, a VPT for the area intended for commerce and services, and a VPT for the area intended for parking. And, being so, the VPT upon which Item 28.1 of the TGIS should apply is unknown, which states that properties with housing use or land for construction whose building, authorized or foreseen, is for housing, and whose VPT is equal to or greater than €1,000,000 are subject to IS at the rate of 1%. This is because, in the understanding of this tribunal, said norm establishes that, in cases where certain land for construction has construction authorized (which is the situation at issue) for housing, IS is due, upon verification of the remaining requirements (VPT greater than €1,000,000). However, how to proceed in cases where the land for construction has construction authorized for various purposes, beyond housing? One cannot certainly overlook the principle of typicity, which, applied to tax law, presupposes that all taxes, as well as their scope of application, are embodied in law, as it follows from the Constitution of the Portuguese Republic ("CRP"). In the hypothetical scenario of the land for construction referred to above, possessing, at the date of occurrence of the tax event, a VPT broken down by the purpose to which its construction would relate, this tribunal understands that, having in consideration the will of the legislator, it could possibly be assessed whether said property was subject to IS, under Item no. 28 of the TGIS. In fact, it would be possible to validate which VPT relates to that purpose and ascertain whether the same was equal to or greater than €1,000,000. However, this is not the framework of the situation now dissected. In fact, at the date of the relevant facts, the land for construction in question had an express authorization for building, in which the area granted to the different purposes to which they would be intended was foreseen. However, the VPTs of the areas (divided by specific purpose) were not quantified [...]. [Furthermore,] based on what was previously said regarding the principle of typicity, the AT cannot interfere in matters for which the legislator chose not to legislate, having, naturally, to be bound by tax legality (which requires in particular that taxes be legally and expressly delimited). [...]. [...] this tribunal understands that one cannot follow a criterion that is not legally provided for, for the subjection, or not, of certain land for construction to IS, in the terms that result from Item no. 28 of the TGIS, which, in the specific case, is based on an indirect and presumptive analysis by the AT. In parallel, and although not expressly referred to by the Respondent, it should be established from now on that a proportional allocation of the total VPT of the land for construction based on the area relating to each of the uses (commerce, housing, among others), with a view to determining the VPT of the land that relates to construction for housing, should also not be accepted. In fact, with no legally defined criterion that provides for such allocation, such an assumption is manifestly illegal, by virtue of what follows from article 103 of the CRP, 'taxes are created by law, which determines the incidence, rate, tax benefits and taxpayers' guarantees'. [...]. The situation would be different if a certain land for construction already had a specific VPT defined for the area that would be intended for the construction of housing, since, as previously said, with that framework it would be possible to assess whether the necessary requirements for the application of Item no. 28 of the TGIS were met, namely whether said VPT was equal to or greater than €1,000,000. Nevertheless, that is not the framework that it falls to this tribunal to assess. In fact, the Claimant received the assessments mentioned above, with respect to two parcels of land for construction, which, despite having a building license, did not have, at the date, a delimitation of the part of their VPT that would relate to residential construction. In this context, and as it is not possible, in this way, to determine the amount corresponding to the specific VPT of the part that, in accordance with Item no. 28 of the TGIS, would possibly be subject to IS, the understanding expressed by the AT cannot consequently be accepted." (DA handed down in proc. no. 480/2015-T, of 30/3/2016).

In light of the above, it is concluded that the property in question cannot, at the date of the facts, be subject to IS, in accordance with Item 28.1 of the TGIS (in its current wording). The non-fulfillment, in the present case, of the legal prerequisite for application thus implies the annulment of the assessment acts contested here.

iii) In light of the provision in no. 5 of article 24 of the RJAT – in the part where it is stated that "payment of interest, regardless of its nature, is due in the terms provided for in the general tax law and in the Tax Procedure and Process Code" – it has been understood that such provision allows for the recognition of the right to compensatory interest in arbitral proceedings.

The analysis of the request for payment of compensatory interest to the Claimant is justified by the above.

Compensatory interest is due when it is determined, in a gracious reclamation or judicial challenge, that there has been error attributable to the services from which results payment of the tax debt in an amount higher than that legally due (see article 43, no. 1, of the LGT).

It is, therefore, a necessary condition for the granting of said interest the demonstration of the existence of error attributable to the services. In that sense, see, for example, the following judgments: "The right to compensatory interest provided for in no. 1 of art. 43 of the LGT [...] depends on it having been demonstrated in the proceedings that this act is affected by error regarding the facts or law attributable to the AT." (Supreme Administrative Court Judgment of 30/5/2012, proc. 410/12); "The right to compensatory interest provided for in no. 1 of article 43 of the General Tax Law presupposes that the proceedings determine that in the assessment 'there was error attributable to the services', understood as the 'error regarding the facts or law attributable to the Tax Administration'" (Supreme Administrative Court Judgment of 10/4/2013, proc. 1215/12).

Now, given that there was, as results from what was said in points i) and ii), error attributable to the services – which determines the annulment of the assessments under law and the restitution of the amount paid – it is concluded, in accordance, to the merit of the request for payment of compensatory interest to the Claimant.

V – DECISION

In light of the above, it is decided:

  • To judge the present request for arbitral ruling to have merit and, consequently, to annul the Stamp Duty assessments in question here, determining the restitution of the amounts improperly charged.

  • To judge the request also to have merit in the part that concerns the recognition of the right to compensatory interest in favor of the claimant.

The value of the case is set at €41,458.80 (forty-one thousand, four hundred and fifty-eight euros and eighty cents), in accordance with articles 32 of the CPTA and 97-A of the CPPT, applicable by virtue of the provision in art. 29, no. 1, letters a) and b), of the RJAT, and in art. 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

Costs to be borne by the respondent, in the amount of €2,142.00, in accordance with Table I of the RCPAT, and in compliance with the provision in articles 12, no. 2, and 22, no. 4, both of the RJAT, as well as the provision in art. 4, no. 4, of the cited Regulation.

Notify.

Lisbon, December 15, 2016.

The Arbitrator,

(Miguel Patrício)

Text prepared by computer, in accordance with the provision in art. 131, no. 5, of the CPC, applicable by referral of art. 29, no. 1, letter e), of the RJAT.

The wording of this decision follows the spelling prior to the Orthographic Agreement of 1990.

Frequently Asked Questions

Automatically Created

Does Stamp Tax (Imposto de Selo) under Verba 28.1 of the TGIS apply to building land intended for housing construction?
Yes, following the 2014 State Budget Law amendment to Item 28.1 of the TGIS, Stamp Tax explicitly applies to building land where housing construction has been authorized or is planned, provided the Tax Patrimonial Value equals or exceeds €1 million. However, disputes arise regarding whether this provision applied before the 2014 clarification and whether the original legislation intended to tax undeveloped land versus completed residential properties.
Can the tax authority levy Stamp Tax on a building plot when the housing construction has not yet been authorized?
The Tax Authority's position is that Stamp Tax can be levied on building plots with planned housing construction based on property records showing housing use designation, even without formal construction authorization. However, claimants argue that without authorized construction and specific VPT allocation to the housing component, especially in mixed-use developments, the tax base cannot be properly determined and assessment is premature.
How is the taxable patrimonial value (VPT) determined for building land with planned but unbuilt housing?
For building land, VPT is determined under Article 38 of the IMI Code by calculating the value of authorized or planned buildings. This involves applying use coefficients that reflect the intended purpose (housing, commercial, etc.) of future construction. The controversy in case 498/2016-T centered on whether VPT can be validly determined when land has multiple authorized uses but no VPT specifically allocated to each use category, particularly the housing portion subject to Stamp Tax.
What changes did the 2014 State Budget Law introduce regarding Stamp Tax on building land for housing?
The 2014 State Budget Law (Law 83-C/2013) amended Item 28.1 of the TGIS to explicitly state that building land with authorized or planned housing construction falls within the Stamp Tax scope when VPT reaches €1 million. The claimant argued this amendment was prospective clarification, not interpretive, meaning it should not apply retroactively to 2014-2015 assessments. This legislative change resolved ambiguity about whether 'urban property with housing use' encompassed undeveloped construction land or only completed residential buildings.
What was the outcome of CAAD arbitral process 498/2016-T concerning the annulment of Stamp Tax assessments for 2014 and 2015?
While the complete arbitral decision text is not provided, the case challenged the legality of Stamp Tax assessments for 2014 and 2015, seeking annulment of €41,458.80 in assessed taxes, restitution of improperly paid amounts, and compensatory interest. The arbitral tribunal was constituted on November 4, 2016, with decision scheduled for December 15, 2016. The outcome would determine whether building land with mixed-use authorization but no housing-specific VPT allocation is subject to Stamp Tax under Item 28.1 of the TGIS.