Process: 504/2014-T

Date: March 16, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitration decision concerns the application of Stamp Duty under item 28.1 of the General Table (TGIS) to land for construction valued at €2,180,260. Law 55-A/2012 introduced a 1% annual stamp duty on urban properties with residential use and tax asset value exceeding €1,000,000. The taxpayer challenged the €22,620.20 assessment on multiple grounds: (1) substantive error arguing that land for construction lacks residential use classification required by item 28.1; (2) procedural defects including absence of prior hearing and lack of proper statement of grounds; (3) duplication of taxation; and (4) constitutional violations of legality, equality, justice, and the prohibition on retroactive tax laws. The Tax Authority defended that residential use classification is merely a coefficient in determining tax asset value under CIMI, and that literal interpretation of item 28.1 applies regardless of the land for construction typology. The central legal question is whether the express requirement for 'residential use' in item 28.1 excludes undeveloped construction land, or whether such land falls within the provision's scope through the subsidiary application of CIMI valuation rules as provided in Article 67(2) of the Stamp Duty Code. This case exemplifies the tension between strict statutory interpretation of tax incidence rules and administrative attempts to expand the tax base through subsidiary legal provisions.

Full Decision

ARBITRATION DECISION

Claimant: A –..., Lda (hereinafter "Claimant")

Respondent: Tax and Customs Authority (hereinafter "AT" and "Respondent")

  1. Report

A, Lda, NIPC …, with registered office at Rua … in Lisbon, submitted to the Administrative Arbitration Centre (CAAD) a request for constitution of an arbitral tribunal with a view to annulling the tax act of assessment of item no. 28.1 of the General Table of Stamp Duty (TGIS) of 2013, in the total amount of € 22,620.20 (which is broken down in collection notices no. 2014 …, 2014 … and 2014 …), of the urban property registered in the urban property register under the article … of the parish of … (former article … of the parish …).

The Claimant substantiates the illegality of the tax act, based on the following defects:

a) Lack of authorship of the act;

b) Lack of reasoned statement of the assessment;

c) Lack of prior hearing;

d) Error of law regarding the facts due to lack of residential use classification of the land for construction;

e) Duplication of collection;

f) Violation of constitutional principles of legality, justice, equality and impartiality;

g) Violation of the principle prohibiting retroactive application of tax law;

The Tax and Customs Authority, in turn, defended, in summary, that no constitutional provision is violated, contrary to what the Claimant alleged, and furthermore sustains that the use classification of the property is a coefficient that contributes to the assessment of the tax asset value, which includes land for construction, through the literal wording of Item 28.1 of the TGIS (article 9 of the Civil Code), which supersedes the classification adopted by the legislator in subsection a) of section 1 of article 6 of the CIMI, by referral of section 2 of article 67 of the CIS, concluding consequently for the dismissal of the request for annulment of the tax act.

A single arbitrator was appointed on 10.09.2014.

In accordance with the provisions of article 11, section 1, subsection c) of the RJAT, the singular arbitral tribunal was constituted on 07.10.2014.

The meeting of the arbitral tribunal was scheduled for 19.12.2014 at 15:30 hours.

On that occasion, with the presence of the Honourable counsel of the Claimant, nothing was requested by the Claimant in the matter of exceptions, as these were not raised.

The Claimant manifested itself, in said meeting, in favour of the waiver of formulation of arguments, provided that the AT would likewise dispense with them.

The AT not being present at the meeting, an order was issued scheduling oral arguments for 28 January 2015, and scheduling 23 February 2015 for the purpose of rendering the arbitral decision.

The AT subsequently submitted a request, waiving the formulation of arguments, and this arbitral tribunal rendered without effect the scheduling of arguments decided at the time of the arbitral decision.

By order of 19 February 2015, the tribunal requested from the Claimant a document relating to the collection notice of the 3rd instalment of Stamp Duty that is the subject matter of these proceedings, which was subsequently attached, rescheduling the rendering of the decision for 16 March 2015.

  1. Sanitation of the Case

The arbitral tribunal is materially competent, in accordance with the provisions of articles 2, section 1, subsection a) of the Legal Regime of Arbitration in Tax Matters.

The parties have legal standing and capacity and have legitimate interest in accordance with art. 4 and section 2 of art. 10 of the Legal Regime of Arbitration in Tax Matters (RJAT), and art. 1 of Ordinance no. 112-A/2011, of 22 March.

The proceedings do not suffer from any nullity nor have the parties raised any exceptions that prevent the examination of the merits of the case, whereby the conditions are met for the rendering of the arbitral decision.

  1. Factual Matters

3.1. Proven Facts:

Having analyzed the documentary evidence produced, the following facts are considered proven and relevant for the decision of the case:

  1. The Claimant is the owner of the urban property located at Rua … and Rua …, plot …, registered in the urban property register under the article … of the parish … (former article … of the parish …), with the typology of land for construction, as per the urban property record card;

  2. The urban property article in question – land for construction – identified in 1 – has a tax asset value of € 2,180,260.00;

  3. The Tax Authority notified the Claimant for payment of Stamp Duty of 2013, Item no. 28.1 of the General Table of Stamp Duty (TGIS), through collection notices no. 2014 …, 2014 … and 2014 …, with voluntary payment deadline in April, July and November 2014, respectively, in the total amount of € 22,620.20;

  4. The Claimant submitted, on 22 July 2014, a request for arbitral pronouncement regarding the assessment of Stamp Duty materialized in the already identified collection notices, a request which gave rise to these proceedings;

  5. The Claimant proceeded on 11.02.2015 to payment of the subsequent court fee.

No other facts with relevance for the decision of the case were proven.

3.2. Substantiation of the Factual Matters Considered Proven and Not Proven:

The arbitrator's conviction was based on the documentary evidence attached to the file.

  1. Legal Matters:

4.1. Object and Scope of the Present Case

The issues presented to the Tribunal relate solely to the interpretation and application of rules of law, given that as to the facts, both the Claimant and the Respondent showed no divergence.

Thus, the question to be decided is limited to ascertaining the scope of the provision of the rule of incidence contained in Item 28.1 of the TGIS and to that extent, whether or not it encompasses the legal-fiscal reality defined in law as "land for construction".

The request for arbitral pronouncement has as its object the declaration of illegality of the act of assessment of stamp duty, in the total amount of € 22,620.20, broken down under the collection documents above identified, effected pursuant to Item 28.1 of the TGIS, whereby the Claimant points to the tax act in question formal and substantive defects, in the sense that the latter seek to put in question the essence of the basis which underlies the taxation carried out by the tax act sub judice, in casu, the applicability or not of the legal rule already mentioned in light of the existing factual reality and, if affirmative, the compliance or not of that same provision with the Constitution of the Portuguese Republic.

Having regard to the provisions of article 124 of the CPPT, applicable by force of subsection a) of section 1 of DL 10/2011, of 20 January (RJAT), it is firmly established that the defects above called "substantive" are those which, in case of admissibility, determine a more stable and effective protection of offended interests, whereby it cannot fail to commence examination of the defect pointed out by the Claimant relating to the inapplicability of Item 28.1 of the TGIS of the Stamp Duty Code (CIS) to the urban property – land for construction.

4.2. Applicability to Urban Properties of the Typology Land for Construction of the Provision Contained in Item 28.1 of the TGIS of the CIS;

Law no. 55-A/2012, of 29 October, added item 28.1 to the General Table of Stamp Duty (TGIS), with the following wording:

"28 – Ownership, usufruct or right of superficies of urban properties whose tax asset value contained in the register, pursuant to the Municipal Property Tax Code (CIMI), is equal to or greater than € 1,000,000 – on the tax asset value used for the purpose of IMI:

28.1 – For property with residential use – 1 % (…);"

In turn, article 67, section 2 of the Stamp Duty Code, added by said Law, provides that "to matters not regulated in this code relating to item 28 of the General Table, the CIMI is applied subsidiarily."

The provision of incidence refers to urban properties with residential use classification, whose base concept of property originates from the provisions of article 2 of the CIMI, according to which:

"Article 2

Concept of Property

1 - For the purposes of this Code, property is any fraction of land, including waters, plantations, buildings and constructions of any nature incorporated or established thereon, with a character of permanence, provided that it forms part of the assets of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the aforementioned circumstances, endowed with economic autonomy in relation to the land where they are located, although situated in a fraction of land that constitutes an integral part of different assets or does not have patrimonial nature.

2 - Buildings or constructions, although movable by nature, are deemed to have character of permanence when dedicated to non-transitory purposes.

3 - The character of permanence is presumed when buildings or constructions are established in the same location for a period exceeding one year.

4 - For the purposes of this tax, each autonomous fraction, under the horizontal property regime, is deemed to constitute a property.

In turn, article 6 of the IMI Code enumerates the following types of urban properties:

"Article 6

Types of Urban Properties

1 - Urban properties are divided into:

a) Residential;

b) Commercial, industrial or for services;

c) Land for construction;

d) Other.

2 - Residential, commercial, industrial or for services are buildings or constructions licensed for such purposes or, in the absence of licence, having as normal destination each of these purposes.

3 - Land for construction is considered to be land situated within or outside an urban agglomeration, for which building or construction licence or authorization has been granted, prior notification admitted or favourable prior information issued for subdivision or construction operations, and also those declared as such in the acquisition title, excepting land where the competent authorities prohibit any of those operations, namely those located in green areas, protected areas or which, in accordance with municipal land planning plans, are dedicated to public spaces, infrastructure or equipment. (Amended by Law no. 64-A/2008, of 31 December)

4 - The provision of subsection d) of section 1 is encompassed by land situated within an urban agglomeration that are neither land for construction nor are covered by the provisions of section 2 of article 3 and also buildings and constructions licensed or, in the absence of licence, having as normal destination purposes other than those referred to in section 2 and also those in the exception of section 3."

It results from the concatenated reading of the legal provisions above cited that the property in question falls within the concept of urban property for the purposes of CIMI and, consequently, for the purposes of CIS, integrating itself in the sub-type "land for construction".

Whereby in this respect, the land for construction owned by the Claimant subsumes to the provision contained in Item 28.1 of the TGIS, in the segment in which this delimits incidence to all urban properties.

But this exercise of subsumption to the norm by the real estate reality in question requires to be continued, insofar as the legislator expressly refers that only urban properties with residential use classification (with tax asset value exceeding € 1,000,000.00) are subject to such taxation under Stamp Duty.

The question thus now becomes to understand whether land for construction should be considered as integrated within the concept of residential use classification to which the legislator refers in the above cited provision.

Land for construction – whatever the type and purpose of the building that will be, or could be, erected on it – does not satisfy, by itself, any condition for being licensed as such or for defining habitability as its normal destination.

The provision of incidence of stamp duty now under analysis refers to urban properties with "residential use classification", without any specific concept being established for this purpose, and it does not result from its literal wording that this refers to future potentiality, such as, for example, a different property that may possibly be built on the land.

On the contrary, it appears to us that from the expression "with residential use classification" emerges a notion of real and present functionality of the underlying real estate reality.

Moreover, it is not possible to extract from the mention contained in item 28.1 of the TGIS any legislative intent that would allow its interpretation as referring to other real estate realities that extend beyond the nomenclature and distinction of urban properties effected by article 6, section 1, subsection a), of the CIMI.

That is, even appealing to the principles of interpretation of norms, such as that contained in article 11 of the Civil Code, it does not appear possible to conclude that the legislator intended in Item 28.1 of the TGIS to refer to residential use classification in terms not coinciding with the typological distinction contained in article 6 of the CIMI.

And thus it must be established that: residential use classification is only had by urban properties to which subsection a) of section 1 of article 6 of the CIMI refers, with the definition that is given by section 2 of the said legal provision.

Being as they are, the land for construction provided for in subsection c) and with the (distinct) definition that is drawn from section 3 and without that same definition resulting as a characterizing element, any present and effective residential use classification, it is not perceived, contrary to what the Respondent AT sustains, how "land for construction" can integrate the provision of incidence of Item 28.1 of the TGIS, which always presupposes that the urban property to be taxed has residential use classification.

A characteristic that land for construction, whether through the legal definition, or by its own material or substantive real estate nature, does not have.

A question similar to the one here at issue was already opportunely raised before the Supreme Administrative Court, which has come to understand and in summary that:

"Not having the legislator defined the concept of "(urban) properties with residential use classification", and resulting from article 6 of the IMI Code - subsidiarily applicable to Stamp Duty provided for in the new item no. 28 of the General Table - a clear distinction between "residential urban properties" and "land for construction", these cannot be considered, for the purposes of incidence of Stamp Duty (Item 28.1 of the TGIS, in the wording of Law no. 55-A/2012, of 29 October), as urban properties with residential use classification." – cf. Supreme Administrative Court Decision, of 23-04-2014, case no. 0272/14.

Doctrine emanating from this which we absolutely endorse and hereby affirm.

Finally, and appealing to the very succession of wording that the still recent legal provision has already undergone since its entry into force, we cannot fail to confirm the conclusion that we have been consolidating above.

To wit, if the legislator had as initial aim the inclusion of "land for construction" in the provision of incidence of Item 28.1, it would be expected that it would do so in the manner and literal terms that eventually took place only with the legislative amendment brought by Law 83-C/2013, of 31.12, according to which:

"28.1. For residential property or for land for construction whose building, authorized or foreseen, is for residential purposes, pursuant to the provisions of the IMI Code."

In this context, the very succession of wording given to Item 28.1 of the TGIS makes clear the understanding that has just been explained, that is, that the concept of "residential use classification" is to be found according to the rules established within the Municipal Property Tax Code and more specifically in what that same legal compendium provides regarding the concept and definition of the various types of urban properties – article 6 of the CIMI.

Finally, it is appropriate to note that in casu the question of the applicability to the assessment of Stamp Duty in the present arbitral instance under examination of the wording brought by Law 83-C/2013, of 31.12 does not even arise, given that the provision does not have an interpretative nature, as is evident from that same diploma according to which the provision only entered into force on 01.01.2014, whereas the tax act object of these proceedings refers to the year 2013, reason by which the question relating to tax incidence cannot fail to be measured through the wording of Item 28.1 of the TGIS given by Law 55-A/2012, of 29.10.

In light of what has been stated, it is concluded that the interpretation of the AT is legally non-conforming in subjecting to Item 28.1 of the TGIS the land for construction better identified in 1 of the factual matters considered proven, such judgment of censure necessarily determining the annulment of the tax act object of these proceedings – Assessment of Stamp Duty (broken down in three collection notices).

4.3. Other Defects Invoked by the Claimant:

Having the singular arbitral tribunal accepted the understanding of the inapplicability of Item 28.1 of the TGIS to the present case, the examination of the remaining defects alleged and which may affect the contested assessment is prejudiced as procedurally moot.

The knowledge of all other questions raised for the purpose of annulment of the tax act arbitrally reviewed is thus prejudiced.

  1. DECISION:

In these terms and with the substantiation set forth above, this arbitral tribunal decides:

To grant the request for declaration of illegality of the tax act of assessment of Stamp Duty of the year 2013, to which correspond the collection notices identified in 3, due to defect of violation of law regarding the provision contained in item 28.1 of the TGIS and consequent annulment of the tax act of the assessment of Stamp Duty in question.

Value of the case: € 22,620.20 – arts. 97-A of the CPPT, 12 of the RJAT (DL 10/2011), 3-2, of the Regulations of Costs in Tax Arbitration Proceedings (RCPAT).

Costs in accordance with Table I of the RCPTA, calculated as a function of the aforesaid value of the request, payable by the respondent - arts. 4-1 of the RCPTA and 6-2/a) and 22-4, of the RJAT.

Let this arbitral decision be notified to the parties and, in due course, let the proceedings be filed.

Lisbon, 16 March 2015

The Single Arbitrator

Luís Ricardo Farinha Sequeira

Text prepared by computer, pursuant to article 138, section 5 of the Code of Civil Procedure (CPC), applicable by referral of article 29, section 1, subsection e) of the Regime of Tax Arbitration, with blank verses and reviewed by me.

Frequently Asked Questions

Automatically Created

Does verba 28.1 of the TGIS apply to land for construction (terrenos para construção) without residential designation?
Item 28.1 of the TGIS expressly applies to 'property with residential use' valued at €1,000,000 or more. The central dispute is whether land for construction (terrenos para construção) without actual residential designation falls within this provision. The Tax Authority argues that residential use classification is a valuation coefficient under CIMI that applies through literal interpretation and Article 67(2) CIS subsidiary rules. However, the taxpayer contends that land for construction lacks the residential use classification expressly required by item 28.1, making the assessment legally erroneous. The resolution depends on whether 'residential use' is interpreted as a substantive requirement limiting the tax's scope or merely a reference to CIMI valuation methodology.
What constitutional principles can be invoked to challenge a Stamp Tax (Imposto de Selo) assessment in Portugal?
Taxpayers challenging Stamp Tax assessments in Portugal can invoke several constitutional principles: (1) the principle of legality (princípio da legalidade) requiring clear legal basis for taxation; (2) the principle of tax justice (princípio da justiça) ensuring fair and reasonable taxation; (3) the principle of equality (princípio da igualdade) prohibiting arbitrary discrimination between taxpayers; (4) the principle of impartiality (princípio da imparcialidade) requiring objective tax administration; and (5) the prohibition on retroactive application of tax laws (proibição da retroatividade da lei fiscal), protecting taxpayers from taxes applied to past situations. These constitutional safeguards, derived from the Portuguese Constitution, provide grounds to challenge both the substantive application of tax provisions and procedural irregularities in assessment procedures.
Can a taxpayer claim duplicate taxation (duplicação de coleta) when Stamp Tax is levied under verba 28.1 TGIS?
Duplicate taxation (duplicação de coleta) can be claimed when the same taxpayer is assessed multiple times for the same tax obligation or when overlapping taxes violate the principle of tax justice. In the context of item 28.1 TGIS, such claims may arise if: (1) multiple collection notices are issued for the same tax period; (2) both IMI (Municipal Property Tax) and Stamp Duty burden the same property ownership in ways that constitute double taxation; or (3) administrative errors result in repeated assessments. However, the mere coexistence of different taxes on property (IMI and Stamp Duty) does not automatically constitute prohibited duplication, as they have distinct legal bases and tax different dimensions of property ownership.
Is prior hearing (audição prévia) required before issuing a Stamp Tax liquidation on high-value urban property?
Prior hearing (audição prévia) is a fundamental procedural right under Portuguese administrative law, required before acts that adversely affect taxpayer rights. For Stamp Tax liquidations under item 28.1 TGIS on high-value urban property, the requirement depends on whether the assessment constitutes an automatic tax based on existing cadastral data or involves discretionary evaluation. When tax authorities rely solely on registered tax asset values without new factual determinations, some argue prior hearing may not be mandatory. However, taxpayers often claim prior hearing is essential to contest property classification, valuation, or applicability of the tax provision. The absence of prior hearing constitutes a procedural defect that can ground annulment of the tax act, particularly when factual or legal questions exist regarding the property's characteristics or tax liability.
Does applying verba 28.1 TGIS to properties assessed after its enactment violate the prohibition on retroactive tax law?
Applying item 28.1 TGIS to properties may raise retroactivity concerns depending on when property valuations were established versus when the tax obligation arose. Law 55-A/2012 introduced this stamp duty effective from a specific date, creating obligations for property ownership going forward. Retroactivity issues emerge if: (1) the tax bases itself on property valuations determined before the law's enactment; (2) the tax reaches back to ownership periods preceding the legal provision's effectiveness; or (3) the tax applies to property acquisitions or rights constituted before the law existed. The prohibition on retroactive tax laws (Article 103(3) Portuguese Constitution) prevents applying new taxes to completed facts. However, applying new taxes to ongoing situations (like continuous property ownership) from the law's effective date forward generally does not violate this principle, even if using pre-existing valuation data, as the taxable event is the ownership during the period when the law is in force.