Process: 510/2015-T

Date: January 22, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Process 510/2015-T examines the controversial application of Stamp Tax (Imposto de Selo) under Verba 28.1 of the General Stamp Tax Table (TGIS) to building land valued above €1 million. The taxpayer challenged a 2012 Stamp Tax assessment of €9,758.55 (0.50% rate) levied on undeveloped construction land with a taxable property value of €1,951,710.00. The central legal dispute concerns whether building land (terrenos para construção) without residential use can be subjected to the 0.50% Stamp Tax rate applicable to properties with residential use. The taxpayer argued that Law 55-A/2012, which introduced Verba 28, should not apply the residential use rate to land registered as construction land in the IMI system, lacking any building license or actual residential occupation. The claimant contended the assessment suffered from legal error in qualifying the taxable event, constituting a violation of law under article 163 of the Administrative Procedure Code. The Tax Authority defended the assessment, arguing that article 67(2) of the Stamp Duty Code requires subsidiary application of the Property Tax Code (CIMI) definitions, and that urban properties exceeding €1 million threshold fall within Verba 28's scope regardless of development status. The case was submitted to arbitration under Decree-Law 10/2011 (RJAT), with the tribunal constituted on October 28, 2015. This arbitration decision has significant implications for owners of high-value undeveloped land regarding annual Stamp Tax obligations and the interpretation of residential use requirements under Portuguese tax legislation.

Full Decision

ARBITRAL DECISION

I - REPORT

A - PARTIES

A…, a limited liability company with unique registration number and collective person number…, with headquarters at Av. …, …, …-… ..., hereinafter referred to as Claimant or taxpayer.

TAX AND CUSTOMS AUTHORITY (which succeeded the General Directorate of Taxes, through Decree-Law no. 118/2011, of 15 December) hereinafter referred to as Respondent or AT.

The request for constitution of the arbitral tribunal was accepted by the Rapporteur of CAAD, and the Arbitral Tribunal was duly constituted on 28-10-2015 to consider and decide the subject matter of the present proceedings, and was automatically notified to the Tax and Customs Authority on 28-10-2015.

The Claimant did not proceed to appoint an arbitrator, and therefore, pursuant to the provisions of no. 1 of article 6 and paragraph b) of no. 1 of article 11 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council appointed His Excellency Dr. Paulo Ferreira Alves, and the appointment was accepted in accordance with the legal provisions.

On 28-09-2015 the parties were duly notified of this appointment and did not manifest any intent to challenge the appointment of arbitrators, in accordance with article 11, no. 1, paragraphs a) and b), of the RJAT and Articles 6 and 7 of the Deontological Code.

In accordance with the provision of paragraph c) of no. 1 of article 11 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the sole arbitral tribunal is duly constituted on 28-10-2015.

Both parties agreed to the waiver of the meeting provided for in article 18 of the RJAT, but submitted written pleadings.

The arbitral tribunal is duly constituted. It is materially competent, in accordance with articles 2, no. 1, paragraph a), and 30, no. 1, of Decree-Law no. 10/2011, of 20 January.

The parties enjoy legal personality and capacity, are legitimate parties and are legally represented (articles 4 and 10, no. 2, of the same statute and article 1 of Ordinance no. 112-A/2011, of 22 March).

The proceedings are not affected by defects that would render it invalid.

B – CLAIM

The Claimant herein seeks a declaration of illegality of the Assessment of Stamp Duty (item 28.1 of the GTST), for the year 2012, which fixed a total tax payable of €9,758.55 (nine thousand seven hundred and fifty-eight euros and fifty-five cents) concerning the acts nos. 2012….

C – GROUNDS FOR CLAIM

To support its request for arbitral pronouncement, the Claimant alleged, with a view to the declaration of illegality of the tax assessment acts in the sphere of Stamp Duty, already described in point 1 of this Award, in summary, the following:

The Claimant is the full owner of the land for construction, situated at Rua …, Lugar …, …-… ..., of the parish of …, municipality of ..., registered in the respective urban property register under article …

The claimant contends that the land for construction was registered in the year 2009, valued on 2009/05/04 with the Property Tax Value (IMI) of €1,951,710.00, updated in the year 2012 to €2,024,899.13; in the year 2014 to €1,577,050.00; and in the year 2015 to €967,637.00.

The Finance Office of … regarding the property in question and tax year 2012 notified the claimant of the Stamp Duty assessment on 2012-11-08 of the urban property Municipality/Parish/article (…/…/ U – …), Item GTST 28.1, Property Value €1,951.71, rate 0.50% = Assessment €9,758.55 – articles 4 and 6/1/f/i of Law no. 55-A/2012, of 29 October.

The claimant filed an administrative complaint, which was dismissed, and filed a hierarchical appeal, which was also dismissed.

The Claimant contends that the property is a plot of land intended for construction, not subdivided.

It alleges that the AT, based on item 28, assessed the Claimant, as owner of an urban property with a property value exceeding €1,000,000.00, applying a rate of 0.50% - specific to properties with residential use - to the taxable property value used for purposes of the IMI.

This assessment act is illegal, because the land, being intended for construction, cannot be considered at the date of the assessment as a property with residential use.

The property in question is not licensed nor did it have at the date of the Stamp Duty assessment a license for normal residential use.

The claimant's property was registered (IMI Model 1, filed on 04/03/2009) as land for construction.

Since there is no property with current residential use, the Stamp Duty provided for in item 28.1 of the GTST cannot apply to that property.

And to assess the claimant in the aforementioned circumstances is a legal error and an injustice due to lack of legal provision.

Therefore, the assessment in question – year 2012 –, whose declaration of illegality is requested, suffers from a defect of violation of law, of item no. 28.1 of the General Stamp Duty Table, due to error in the legal assumptions, which justifies the declaration of its illegality and annulment (article 163, formerly 135 of the CPA).

The claimant concludes by arguing that in addition to pronouncing on the illegality of the Stamp Duty in question, it should also condemn the Tax and Customs Authority to refund the claimant the amounts improperly paid or which may be paid, including default interest, in cases where they have been paid and enforcement costs, plus compensation interest, as well as expenses for the provision of security to suspend enforcement proceedings, prior to the annulment of the assessments and consequent tax relief for the claimant, as far as the matter sub judice is concerned.

The Claimant concludes by alleging the voidability of the tax assessment act in the sphere of Municipal Property Tax due to violation of law, in the qualification of the taxable fact, with item 28.1 of the General Stamp Duty Table incorrectly applied, in the wording in force in the year 2013, which constitutes a ground for judicial challenge and annulment of the challenged acts (art. 99 of the CPPT - pursuant to art. 10, no. 2, subparagraph c) of the RJAT).

D - RESPONDENT'S REPLY

  1. The Respondent, duly notified for that purpose, timely submitted its reply in which, in abbreviated summary, it alleged the following:

  2. The Respondent contends that Law no. 55-A/2012, of 29/10/2012 amended article 1 of the Stamp Duty Code, and added item 28 to the GTST, with this legislative amendment, Stamp Duty would also apply to ownership, usufruct or surface right of urban properties whose taxable property value contained in the property register, pursuant to the Property Tax Code (CIMI), is equal to or exceeding €1,000,000.00.

  3. Stamp duty would thus apply to all acts, contracts, documents, titles, papers and other legal facts or situations provided for in the general table, including gratuitous transfers of goods.

  4. Since there is no definition in the Stamp Duty Code of what is meant by 'urban property', 'land for construction' and 'residential use', it is necessary to resort subsidiarily to the CIMI to obtain a definition that allows one to ascertain the possible subjection to Stamp Duty, in accordance with the provision of article 67, no. 2 of the Stamp Duty Code in the wording given by Law no. 55-A/2012, of 29/10.

  5. The Respondent contends, in accordance with the aforementioned legal provision, that as to matters not regulated in the Code, relating to item no. 28 of the GTST, the provisions of the CIMI apply subsidiarily.

  6. The notion of designation of urban property is found in the part relating to the valuation of immovable property, which is well understood since the valuation of the immovable property (purpose) incorporates value into the immovable property, constituting a determining fact of distinction (coefficient) for purposes of valuation.

  7. The Respondent alleges that the legislator chose to determine the application of the methodology for valuation of properties in general to the valuation of 'land for construction', as follows from the expression 'value of authorized buildings' referred to in article 45, no. 2 of the CIMI and applying to it accordingly the designation coefficient provided for in article 41 of the CIMI.

  8. Moreover, the Respondent contends that for purposes of determining the taxable property value of land for construction, the application of the designation coefficient in the context of valuation is clear, and therefore its consideration for purposes of applying item 28 of the GTST cannot be ignored, being valid in this sense this order of considerations: a) In the application of the law to concrete cases it is important to determine the exact meaning and scope of the norm, so that the rule contained therein is revealed, an indispensable condition for it to be applied, in accordance with the provision of article 9 of the Civil Code, pursuant to article 11 of the General Tax Law; b) Article 67, no. 2 of the Stamp Duty Code mandates the application subsidiarily of the provisions of the CIMI; c) The designation of the immovable property (aptitude or purpose) is a coefficient that contributes to the valuation of the immovable property, in the determination of the taxable property value, applicable to land for construction; d) Item 28 GTST itself refers to the expression "properties with residential use", appealing to a classification that overlaps the species provided for in no. 1 of article 6 of the CIMI.

  9. The Respondent sustains that the mere constitution of a right of potential construction immediately increases the value of the immovable property in question, hence the rule contained in article 45 of the CIMI which mandates the separation of the two parts of the land.

  10. It cannot be ignored that the license permit for the carrying out of urban operations must contain, among other elements, the number of lots and the indication of the area of location, purpose, area of implantation, building area, number of floors and number of units in each of the lots, with specification of units intended for housing at controlled costs, when provided for, in accordance with paragraph a) of article 77 of the Urban Development Regime;

  11. And also article 77 of the Urban Development Regime contains mandatory specifications, notably for development operation permits or urbanization works, and for construction works. The Municipal Master Plans also establish the strategy for municipal development, the municipal policy on land use planning and urbanism and other urban policies. It integrates and articulates the orientations established by land management instruments at national and regional levels and establishes the model for spatial organization of municipal territory.

  12. And in those terms, well before the actual construction of the property, it is possible to ascertain and determine the designation of the land for construction.

  13. The Respondent concludes supporting its position to the effect that the assessment in issue constitutes a correct interpretation and application of the law to the facts, not suffering from a defect of violation of law, whether of the Constitution or of the Stamp Duty Code, and therefore the claim put forward should be judged unfounded and the Respondent Entity absolved of the claim.

E - FACTUAL FINDINGS

  1. Before entering into the consideration of these questions, it is necessary to present the factual matter relevant to its understanding and decision, which was effected on the basis of documentary evidence, and taking into account the facts alleged.

  2. As to relevant factual matters, this tribunal finds established the following facts:

The claimant is the owner of the plot of land for construction situated at Rua …, Lugar …, …-… ..., of the parish of …, municipality of ..., registered in the respective urban property register under article …, with the property value of €1,951,710.00 for purposes of Stamp Duty taxation.

The Finance Office of … regarding the property in question and tax year 2012 notified the claimant of the Stamp Duty assessment on 2012-11-08 of the urban property Municipality/Parish/article (…/…/ U – …), Item GTST 28.1, Property Value €1,951.71, rate 0.50% = Assessment €9,758.55 – articles 4 and 6/1/f/i of Law no. 55-A/2012, of 29 October.

  1. The claimant filed an administrative complaint of the stamp duty assessment act, which was assigned the number …2013…, which was dismissed.

  2. The claimant filed a hierarchical appeal which was assigned the number …2013…, which was dismissed.

F - UNPROVEN FACTS

  1. Of the facts with interest for the decision of the case, contained in the impugnation, all those subject to concrete analysis, those not contained in the factual matters described above were not proven.

G - ISSUES TO BE DECIDED

  1. Given the positions of the parties assumed in the arguments presented, the central issue to be resolved is the following, which must therefore be considered and decided:

a. The alleged declaration of illegality of the tax assessment acts of additional Stamp Duty no. 2012 ….

b. The payment of compensation interest for the improper payment of the tax.

c. The payment of expenses for the constitution of adequate security to suspend tax enforcement.

H - MATTERS OF LAW

  1. Given the positions of the parties assumed in the pleadings submitted, the central issue to be resolved by this arbitral tribunal consists of deciding whether the stamp duty assessment act no. 2012 …, in the amount of €9,758.55 relating to the plot of land for construction situated at Rua …, Lugar …, …-… ..., of the parish of …, municipality of ..., registered in the respective urban property register under article …, with the taxable property value of €1,951,710.00, suffers from formal defects, specifically those raised by the respondent regarding lack of substantiation, and violation of law, due to the erroneous interpretation and application of item 28.1 of the GTST and of article 6, no. 1, paragraph f), i) of the aforementioned Law no. 55-A/2012, of 29 October.

  2. The factual matter is established and proven, which is why we now proceed to determine the law applicable to the disputed facts, since we are dealing with established factual matters, three plots of land for construction without any structure erected or constructed, the same regime and the same legal matter thus apply to all.

  3. The defects of law due to error in the legal assumptions of assessment, as to the question of the classification of land for construction within the scope of application of article 28, no. 1 of the GTST, introduced by the Regime of Law no. 55-A/2012, of 29 October.

  4. The amendment of the regime as to the subjection to Stamp Duty of properties with residential use through the addition of item 28 of the General Stamp Duty Table, carried out by article 4 of Law 55-A/2012, of 29/10, came to typify the following taxable facts, through the following wording:

"28 – Ownership, usufruct or surface right of urban properties whose taxable property value contained in the property register, pursuant to the Property Tax Code (CIMI), is equal to or exceeding €1,000,000 – on the taxable property value used for purposes of the IMI:

28.1 – For property with residential use – 1%;

28.2 – For property, when the taxpayers who are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by ordinance of the Minister of Finance – 7.5%."

  1. The provisions contained in article 6 of Law no. 55-A/2012 are the transitional provisions which established the rules relating to the assessment of the tax provided for in that item:

"1 – In 2012, the following rules must be observed by reference to the assessment of stamp duty provided for in item no. 28 of the respective General Table:

The taxable event occurs on 31 October 2012;

The taxpayer of the tax is the one mentioned in no. 4 of article 2 of the Stamp Duty Code on the date referred to in the previous paragraph;

The taxable property value to be used in the assessment of the tax corresponds to that which results from the rules provided for in the Property Tax Code by reference to the year 2011;

The assessment of the tax by the Tax and Customs Authority must be carried out by the end of the month of November 2012;

The tax must be paid, in a single installment, by the taxpayers by 20 December 2012;

The applicable rates are as follows:

Properties with residential use valued in accordance with the IMI Code: 0.5%;

ii) Properties with residential use not yet valued in accordance with the IMI Code: 0.8%;

iii) Urban properties when the taxpayers who are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by ordinance of the Minister of Finance: 7.5%.

2 – In 2013, the assessment of the stamp duty provided for in item no. 28 of the respective General Table must apply to the same taxable property value used for purposes of the assessment of municipal property tax to be carried out in that year.

3 – The failure to deliver, in whole or in part, within the prescribed period, the amounts assessed as stamp duty constitutes a tax infraction, punished in accordance with the law."

  1. On the interpretation of this statute there has already been a pronouncement by Award 53/2013-T, which states "The expression 'property with residential use' was used in the aforementioned item 28.1 and in the sub-items i) and ii) of paragraph f) of no. 1 of article 6 of Law no. 55-A/2012, a concept that is not used in any other tax legislation in these precise terms. Namely in the CIMI, which in various norms of the Stamp Duty Code introduced by that Law is indicated as a statute of subsidiary application with respect to the tax provided for in the aforementioned item no. 28 [articles 2, no. 4, 3, no. 3, paragraph u), 5, paragraph u), 23, no. 7, and 46 and 67 of the Stamp Duty Code], a concept is not used defined in those terms." On this matter, the Awards of the CAAD Arbitral Tribunal, nos. 42/2013-T, 48/2013-T, 49/2013-T, 189/2013-T, 207/2013-T, 247/2013-T, 284/2013-T, 288/2013-T, 308/2013-T, 31/2014-T, 202/2014-T, 310/2014-T have already decided.

  2. As to the concept of "properties", it is necessary for this purpose to resort to the concepts of "properties" used in the CIMI, in which the species of properties are enumerated in its articles 2 to 6, which are transcribed:

Article 2

Concept of Property

  1. For purposes of this Code, a property is every fraction of territory, including waters, plantations, buildings and constructions of any nature incorporated in or erected on it, with 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 circumstances above, endowed with economic autonomy in relation to the land on which they are located, although situated in a fraction of territory that constitutes an integral part of a diverse patrimony or does not have patrimonial nature.

  2. Buildings or constructions, although movable by nature, are regarded as having character of permanence when destined for non-transitory purposes.

  3. The character of permanence is presumed when the buildings or constructions have been located in the same place for a period exceeding one year.

  4. For purposes of this tax, each autonomous fraction, under the horizontal property regime, is regarded as constituting a property.

Article 3

Rural Properties

1 – Rural properties are lands situated outside an urban area that are not to be classified as land for construction, pursuant to no. 3 of article 6, provided that:

They are devoted or, in the absence of concrete devotion, have as normal destination a use generating agricultural income, as are considered for purposes of income tax on natural persons (IRS);

Not having the devotion indicated in the previous paragraph, they are not constructed or have only buildings or constructions of accessory character, without economic autonomy and of reduced value.

2 – Rural properties are also lands situated within an urban area, provided that, by force of a legally approved provision, they cannot have use generating any income or can only have use generating agricultural income and are having, in fact, this devotion.

3 – Rural properties are also:

Buildings and constructions directly devoted to the production of agricultural income, when situated on the lands referred to in the preceding numbers;

Waters and plantations in the situations to which no. 1 of article 2 refers.

4 – For purposes of this Code, urban areas are considered, besides those situated within legally established perimeters, nuclei with a minimum of 10 units served by publicly used streets, being their perimeter delimited by points distanced 50 m from the axis of the streets, in the transversal direction, and 20 m from the last building, in the direction of the streets.

Article 4

Urban Properties

Urban properties are all those which should not be classified as rural, without prejudice to the provision of the following article.

Article 5

Mixed Properties

1 – Whenever a property has rural and urban parts it is classified, in its entirety, according to the main part.

2 – If neither part can be classified as main, the property is regarded as mixed.

Article 6

Species of Urban Properties

1 – Urban properties are divided into:

Residential;

Commercial, industrial or for services;

Land for construction;

Other.

2 – Residential, commercial, industrial or for services are buildings or constructions licensed for such purposes or, in the absence of a license, which have as normal destination each of these purposes.

3 – Land for construction is considered land situated within or outside an urban area for which a license or authorization has been granted, admission of prior notification or issued favorable prior information for a subdivision or construction operation, and also those which have been so declared in the title of acquisition, excepting lands in which the competent entities prohibit any of these operations, namely those located in green areas, protected areas or which, in accordance with the municipal master plans for land use planning, are devoted to public spaces, infrastructure or public facilities. (Wording of Law no. 64-A/08, of 31-12)

4 – Lands situated within an urban area that are not land for construction nor are covered by the provision of no. 2 of article 3 are included in the provision of paragraph d) of no. 1, as well as buildings and constructions licensed or, in the absence of a license, which have as normal destination purposes other than those referred to in no. 2 and also those of the exception of no. 3.

  1. On the interpretation of tax norms, for the case sub judice, article 11 of the General Tax Law tells us, which establishes the essential rules for the interpretation of tax laws, which it does in the following terms:

Article 11

Interpretation

In determining the meaning of tax norms and in the qualification of the facts to which they apply, the general rules and principles of interpretation and application of laws are observed.

Whenever tax norms employ terms specific to other branches of law, they must be interpreted in the same sense that they have therein, unless otherwise directly follows from the law.

If doubt persists about the meaning of the rules of scope to be applied, the economic substance of the taxable facts must be considered.

Gaps resulting from tax norms covered by the reserve of law of the National Assembly are not subject to analogical integration.

  1. To this provision, it is also necessary to resort to the general principles of interpretation of laws, to which no. 1 of article 11 of the General Tax Law refers, which are established in article 9 of the Civil Code, which establishes the following:

Article 9

Interpretation of Law

Interpretation must not confine itself to the letter of the law, but must reconstruct from the texts the legislative thought, having especially in mind the unity of the legal system, the circumstances in which the law was elaborated and the specific conditions of the time in which it is applied.

The legislative thought that does not have in the letter of the law a minimum of verbal correspondence cannot, however, be considered by the interpreter, even if imperfectly expressed.

In determining the meaning and scope of the law, the interpreter shall presume that the legislator established the most correct solutions and knew how to express his thought in adequate terms.

  1. In light of the legal reasoning already set forth, and considering the articles transcribed and enumerated, the following hypotheses of interpretation arise of the concept of "property with residential use", as to the Concept of "property with residential use" as referring to residential properties, and as to the Concept of "property with residential use" as a concept distinct from "residential properties".

  2. Articles 2 to 6 of the CIMI transcribed above are not used by the legislator in the classification of properties with the concept of "property with residential use". Equally, this concept is not found, with this terminology, in any other statute.

  3. The lack of exact terminological correspondence of the concept of "property with residential use" with any other used in other statutes may give rise to various interpretative hypotheses.

  4. The text of the law, being the starting point for the interpretation of the expression "properties with residential use", being based on it that the "legislative thought" must be reconstructed, as imposed by no. 1 of article 9 of the Civil Code, applicable by force of the provision of article 11, no. 1, of the General Tax Law, already transcribed.

  5. On the interpretation of the concept of "property with residential use", it is important to cite Award 53/2013-T which has already pronounced on this matter. An Award that equally supports two interpretative hypotheses on the concept of "property with residential use", respectively in the same sense as the present decision, as to the concept of "property with residential use" as referring to residential properties, and as to the Concept of "property with residential use" as a concept distinct from "residential properties".

  6. Award 53/2013-T writes, on the concept of "property with residential use" as referring to residential properties:

  7. "The concept closest to the literal tenor of this expression used is manifestly that of 'residential properties', defined in no. 2 of article 6 of the CIMI as encompassing 'buildings or constructions' licensed for residential purposes or, in the absence of a license, which have as normal destination residential purposes.

  8. If it is understood that the expression 'property with residential use' coincides with that of 'residential properties', it is manifest that the assessments will be affected by error in the factual and legal assumptions, for all properties for which Stamp Duty was assessed under the aforementioned item no. 28.1 are land for construction, without any building or construction required to fulfill that concept of 'residential properties'.

  9. Therefore, by adopting the interpretation that 'property with residential use' means 'residential property', the assessments whose declaration of illegality is requested will be illegal, for there being no building or construction in any of the lands.

  10. However, the non-coincidence of the terms of the expression used in item no. 28.1 of the GTST with that which is extracted from no. 2 of article 6 of the CIMI points to the fact that it was not intended to use the same concept."

  11. On the interpretation of the second hypothesis: Concept of "property with residential use" as a concept distinct from "residential properties", Award 53/2013-T is cited again, in which it writes:

"The word 'designation', in this context of the use of a property, has the meaning of 'action of destining something to a determined use'. ( [1] )

'When, as is the rule, the norms (legislative formulas) bear more than one meaning, then the positive function of the text is translated into giving stronger support to or suggesting more strongly one of the possible meanings. For among the possible meanings, some will correspond to the most natural and direct meaning of the expressions used, whereas others will only fit within the verbal framework of the norm in a forced, artificial manner. Now, in the absence of other elements that induce the election of the less immediate meaning of the text, the interpreter should opt in principle for that meaning which best and most immediately corresponds to the natural meaning of the verbal expressions used, and namely its technical-legal meaning, in the supposed (not always exact) case that the legislator knew how to express his thought with correction'. ( [2] )

The relevance of the text of the law is especially stressed in the matter of interpretation of norms of scope of Stamp Duty, which are reduced to an amalgam, under a common denomination, of an incongruous set of taxes of completely distinct natures (on income, on expenditure, on assets, on acts, etc.), which leaves no appreciable margin for the application of the primary interpretative criterion, which is the unity of the legal system, which demands its overall coherence.

The recognized lack of coherence of Stamp Duty is particularly exuberant in the case of this item no. 28.1, hastily included outside the General State Budget, by a tax legislator without discernible global tax orientation, who is successively implementing norms of tax increases in the measure of the setbacks of budget execution, of the impositions of international institutional creditors (represented by the 'troika') and of the supervision of the Constitutional Court.

Indeed, although in the 'Statement of Reasons' of the Draft Law no. 96/XII/2nd ( [3] ), on which Law no. 55-A/2012 was based, there is reference to the commendable concern of the Government to 'strengthen the principle of social equity in austerity, ensuring an effective distribution of the necessary sacrifices to comply with the adjustment program' and its commitment 'to ensure that the distribution of these sacrifices will be made by all and not only by those who live from the income of their work', it is manifest, on the one hand, that these reasons of equity, certainly existing, did not begin to be valid in mid-2012, already existing at the beginning of the year, when the General State Budget entered into force, and on the other hand, that the scope of item no. 28.1, by additionally taxing properties with residential use and not also properties that do not have it, gives a hint that the concerns of social equity and the proclaimed intention to distribute sacrifices to all, affects much more some than actually all.

In this context, not existing sure interpretative elements that allow one to detect legislative coherence in the solution adopted in the aforementioned item no. 28.1 or the correctness or incorrectness of the solution adopted (relevant for interpretative purposes in the face of no. 3 of article 9 of the Civil Code), the content of the legal text must be the primary element of interpretation, in accordance with the presumption, imposed by the same no. 3 of article 9, that the legislator knew how to express his thought in adequate terms.

In light of those meanings of the words 'designation' and 'to designate', which are 'to give destination' or 'to apply', the formula used in that item no. 28.1 of the GTST manifestly encompasses the properties that are already applied to residential purposes, which is why it is important to inquire whether it will also encompass the properties which, although not yet applied to residential purposes, are destined to these and those whose destination is unknown.

In light of the literal content of item no. 28.1, it is to be excluded from the scope of Stamp Duty provided therein the land for construction of some Claimants which do not yet have any type of use defined, for they are not yet applied nor destined to residential purposes. That is, land for construction which does not have defined use cannot be considered properties with residential use, for they do not yet have any designation nor other destination than the construction of unknown type. An interpretation to the effect that item no. 28.1 refers to properties whose designation is unknown does not have the minimum of verbal correspondence in the letter of that norm, which is why a hypothetical legislative thought of that type cannot be considered by the interpreter of the law, in face of the prohibition contained in no. 2 of article 9 of the Civil Code.

But this is not enough to clarify the situation of those plots of land for construction which, although not yet applied to residential purposes, already have a determined destination, namely in the subdivision license, which is the case of the properties referred to in sub-items z) to dd) of the factual matter established.

Which is why there will have to be clarification of when a property can be understood to be designated to residential purpose, namely if it is when this destination is fixed for it in a licensing act or similar, or only when the effective attribution of this destination is concretized.

From the outset, the comparison of item no. 28.1 of the GTST with no. 2 of article 6 of the CIMI, which defines the concept of residential properties, points manifestly to the need for effective designation.

Indeed, a building or construction licensed for residential purposes or, even without a license, but which has as normal destination residential purposes, is, in light of no. 2 of that article 6, a residential property.

Therefore, in the assumption that the legislator of Law no. 55-A/2012 knew how to express his thought in adequate terms (as article 9, no. 3, of the Civil Code imposes to be presumed), if he intended to refer to those buildings already licensed for residential purposes or that have residential purposes as normal destination, he would certainly have used the concept of 'residential properties', which would express perfectly and clearly his thought, in light of the definition given by that no. 2 of article 6 of the CIMI.

Consequently one must presume that the use of a different expression is aimed at a distinct reality, which is why, in good legal interpretation, 'property with residential use', cannot be a property merely licensed for residential purposes or destined for that purpose (that is, it will not suffice that it be a 'residential property'), having to be a property which already has effective designation to that purpose.

That this is the meaning of the expression 'designation', in the same context of property classification that the CIMI does, is confirmed by article 3 in which, regarding rural properties, reference is made to those which 'are designated or, in the absence of concrete designation, have as normal destination a use generating agricultural income', which shows that the designation is concrete, effective. Indeed, as is seen from the final part of this text, a property may have as destination a determined use and be or not be designated to it, which shows that the designation is, at the level of the connection of a property to a determined use, something more intense than mere destination and which may or may not occur, downstream of this and not upstream of it. ( [4] )

Moreover, the text of the law, by adopting the formula 'property with residential use', instead of 'urban properties with residential designation', which appears in the aforementioned 'Statement of Reasons', points strongly to the fact that it is required that residential designation is already concretized, for only thus will the property be with that designation.

With regard to article 45 of the CIMI, it has no relation whatsoever to property classification, only indicating the factors to be considered in the valuation of land for construction. What is considered therein, in making reference to the 'building to be constructed' is the consideration of the destination of the land, which, as has been seen, is something which, in the context of the CIMI, does not imply designation and occurs before it.

The correctness of this interpretation to the effect that only properties that are effectively designated for residential use fall within the scope of item no. 28.1 of the GTST is also confirmed by the discernible ratio legis of the restriction of the scope of application of the norm to properties with residential designation, in the context of the 'circumstances in which the law was elaborated and the specific conditions of the time in which it is applied', which article 9, no. 1, of the Civil Code also erects as interpretative elements. ( [5] ).

From the outset, the limitation of Stamp Duty taxation to 'properties with residential use' leaves it to be understood that it was not intended to encompass within the scope of the tax properties designated for services, industry or commerce, that is, properties designated for economic activity, which is understood in a context in which, as is well-known, the economy is in a recessionary spiral, publicly proclaimed at the highest level, with unemployment rates reaching maximum historical levels, with an avalanche of business closures derived from economic unsustainability.

Bearing in mind this situation and being well-known and public that the reanimation of economic activity and the increase of exports are the ways out of the crisis, it is understood that legislative measures that would hinder economic activity, namely the aggravation of the tax burden that hinders it and affects competitiveness in international terms, were not taken.

Therefore, it is to be concluded that the interpretative elements available, including the 'circumstances in which the law was elaborated and the specific conditions of the time in which it is applied', point clearly to the fact that it was not intended to encompass within the scope of item no. 28.1 the situations of properties that are not yet designated for residential purposes, namely land for construction held by companies. ( [6] )"

  1. It follows from the foregoing that the application of the regime to the situation of the Claimant, as to the urban property corresponding to a "plot of land for construction", which does not occur in the present case, being faced with a property with current residential designation, the Stamp Duty provided for in item 28.1 of the GTST does not apply to those properties.

  2. Thus, the assessment sub judice, whose declaration of illegality is requested, is affected by a defect of violation of that item no. 28.1, due to error in the legal assumptions, which justifies the declaration of its illegality and annulment (article 135 of the CPA).

J - ISSUE OF UNCONSTITUTIONALITY

  1. As to the issue of unconstitutionality of the norm of scope contained in item 28.1 of the GTST, if interpreted to encompass land for construction, in light of the constitutional principle

  2. Considering the challenge of illegality of the assessments impugned to be well-founded due to error in the legal assumptions of the application of item 28.1 of the GTST, it becomes superfluous to analyze the issue of unconstitutionality of that same norm when interpreted to encompass land for construction.

L - COMPENSATION INTEREST

  1. The claimant further petitions payment of compensation interest.

  2. In light of the foregoing, the Stamp Duty assessment, in the part covered by the annulment, which will be decreed, results from errors of fact and of law attributable exclusively to the Tax Administration, insofar as the Claimant fulfilled its duty of declaration and were committed by it and the Claimant could not have been unaware of different understandings.

  3. Indeed, it being demonstrated that the claimant paid the impugned tax in a portion exceeding what is due, by virtue of the provision of articles 61 of the CPPT and 43 of the General Tax Law, the Claimant has the right to compensation interest due, such interest to be counted from the date of payment of the improper tax (annulled) until the date of issuance of the respective tax credit note, with the period for that payment being counted from the beginning of the period for spontaneous execution of the present decision (article 61, nos. 2 to 5, of the CPPTRIB), all at the rate ascertained in accordance with the provision of no. 4 of article 43 of the General Tax Law.

  4. The claimant's petition is granted.

M - COMPENSATION FOR IMPROPERLY PROVIDED GUARANTEE

  1. The claimant further petitions compensation for guarantee improperly provided, in accordance with article 53 of the General Tax Law and article 169 of the CPPT, with the intent to suspend the tax enforcement proceedings relating to the collection of the tax debts to which this arbitral pronouncement refers.

  2. In accordance with the provision of no. 1 of article 53 of the General Tax Law, the debtor who, to suspend enforcement, offers bank guarantee or equivalent will be indemnified totally or partially for the losses resulting from its provision, should he have kept it for a period exceeding three years in proportion to the decision in administrative appeal, impugnation or opposition to enforcement that have as object the guaranteed debt.

  3. As is apparent from no. 2 of the cited article, all losses incurred with the provision of guarantees provided to suspend enforcement are indemnified, without dependence on the aforementioned period, in case of total success in an action in which there is found to have been error attributable to the services in the assessment of the tax.

  4. For its part, article 171 of the CPPT establishes that "compensation in case of bank guarantee or equivalent improperly provided will be requested in the proceedings in which the legality of the exigible debt is disputed" and that "compensation must be requested in the complaint, impugnation or appeal or in case its grounds are supervenient within 30 days of its occurrence".

  5. The judicial impugnation proceedings, in which the legality of the tax act is decided, constitutes, therefore, the adequate procedural means to formulate the petition for compensation for improper guarantee.

  6. In accordance with reiterated arbitral case law, "The request for constitution of the arbitral tribunal has as a corollary that it will be in the arbitral proceedings that the 'legality of the exigible debt' will be discussed, which is why, as results from the express tenor of that no. 1 of the aforementioned article 171 of the CPPT, it is also the arbitral proceedings that is adequate to consider the petition for compensation for improper guarantee."

  7. In light of the foregoing, the Stamp Duty assessment, in the part covered by the annulment, which will be decreed, results from errors of fact and of law attributable exclusively to the Tax Administration, insofar as the Claimant fulfilled its duty of declaration and were committed by it and the Claimant could not have been unaware of different understandings.

  8. However, in the present case the claimant does not have the right to compensation for provision of improper guarantee, in accordance with articles 53 of the General Tax Law and article 169 of the CPPT, since the claimant in the course of the present action made proof of the provision of guarantee petitioned.

  9. In light of the foregoing, this tribunal does not grant the claimant's petition.

N - DECISION

  1. Therefore, in light of all of the foregoing, this Arbitral Tribunal decides:

To hold the petition for a declaration of illegality of the tax assessment act in the sphere of Stamp Duty, which fixed an assessment of €9,758.55 (nine thousand seven hundred and fifty-eight euros and fifty-five cents), to be well-founded and the consequent annulment of the tax assessment act no. 2012 …, due to a defect of violation of law as to the norm contained in item 28, no. 1, due to error in the legal assumptions, which justifies the declaration of its illegality and annulment, which fixed a total tax payable of €9,758.55 (nine thousand seven hundred and fifty-eight euros and fifty-five cents), due to a defect of violation of law as to the norm contained in item 28, no. 1, due to error in the legal assumptions, which justifies the declaration of its illegality and annulment.

To condemn the Respondent to refund to the Claimant that amount improperly assessed and paid, plus the payment of compensation interest already accrued relating to the period between the date of the tax assessment and the date of refund of the improperly assessed tax, as well as the payment of future compensation interest to be counted from that last date, all in accordance with nos. 2 to 5 of article 61 of the CPPT and at the rate ascertained in accordance with the provision of no. 4 of article 43 of the General Tax Law until full reimbursement.

The value of the proceedings is fixed at €9,758.55 (nine thousand seven hundred and fifty-eight euros and fifty-five cents) based on the value of the assessment having regard to the economic value of the proceedings ascertained by the value of the tax assessments impugned, and accordingly the costs are fixed, in the respective amount of €918.00 (nine hundred and eighteen euros), at the charge of the Respondent in accordance with article 12, no. 2 of the Tax Arbitration Regime, article 4 of the RCPAT and Table I attached thereto – no. 10 of article 35, and nos. 1, 4 and 5 of article 43 of the General Tax Law, articles 5, no. 1, paragraph a) of the RCPT, 97-A, no. 1, paragraph a) of the CPPT and 559 of the Civil Procedure Code).

Notify.

Lisbon, 22 January 2016

The Arbitrator

Paulo Ferreira Alves

[1] Dictionary of Contemporary Portuguese Language of the Academy of Sciences of Lisbon, Volume I, page 102.

[2] BAPTISTA MACHADO, Introduction to Law and Legitimizing Discourse, page 182.

[3] Draft Law no. 99/XII/2nd is available at http://www.parlamento.pt/ActividadeParlamentar/Paginas/DetalheIniciativa.aspx?BID=37245

[4] Other norms of the CIMI make it clear that the term 'designation' is used to reference already existing situations and not merely future ones, even if foreseeable, such as 'destination'. This is the case of article 9 of the CIMI, which, after establishing that "the tax is due from" "the 4th year following, inclusive, that in which a plot of land for construction has come to figure in the inventory of a company whose object is the construction of buildings for sale" or "the 3rd year following, inclusive, that in which a property has come to figure in the inventory of a company whose object is its sale" [paragraphs d) and e) of no. 1], determines that "for purposes of the provision of paragraphs d) and e) of no. 1, the taxpayers must communicate to the finance office of the area of the situation of the properties, within the period of 60 days counted from the verification of the fact determining their application, the designation of the properties to those purposes". The "designation of the properties to those purposes", in the context of this article 9, is reduced to the concrete attribution to the properties of the purpose "for sale", materialized by their inventorization, not sufficing that they have been constructed or acquired with a view to their sale.

[5] Not in mind, in this approach, are the special cases provided for in item no. 28.2, of ownership of the properties by legal persons resident in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by ordinance of the Minister of Finance to which, as in other norms, strong tax penalty is assigned, for these are situations normally associated with tax evasion.

[6] Outside the special cases provided for in item no. 28.2.

Frequently Asked Questions

Automatically Created

Is Stamp Tax (Imposto de Selo) under Verba 28 of the TGIS applicable to building land (terrenos para construção)?
The applicability of Stamp Tax under Verba 28 of the TGIS to building land (terrenos para construção) was the core dispute in Process 510/2015-T. The taxpayer argued that undeveloped construction land should not be subject to the 0.50% rate specified in item 28.1, which applies to properties with residential use. Since the land was registered as construction land without any residential license or occupation, the claimant contended the assessment violated law by incorrectly applying the residential use rate. The Tax Authority maintained that Verba 28 applies to all urban properties with taxable values exceeding €1,000,000, relying on subsidiary application of CIMI definitions per article 67(2) of the Stamp Duty Code.
What was the legal basis for challenging the 2012 Stamp Tax assessment in CAAD Process 510/2015-T?
The legal basis for challenging the 2012 Stamp Tax assessment included: (1) violation of law regarding the application of Verba 28.1 of the TGIS, constituting legal error in qualifying the taxable event under article 163 (formerly 135) of the Administrative Procedure Code (CPA); (2) incorrect application of the 0.50% rate to building land without residential use; (3) grounds for annulment under article 99 of the Tax Procedure Code (CPPT) pursuant to article 10(2)(c) of RJAT. The taxpayer argued the property was registered as land for construction in IMI Model 1 filed on March 4, 2009, and lacked any license for residential use at the assessment date, making the application of item 28.1 legally erroneous.
How is the taxable value determined for Stamp Tax on building land under Portuguese tax law?
For Stamp Tax on building land under Portuguese law, the taxable value is determined by reference to the taxable property value (VPT - Valor Patrimonial Tributável) registered for IMI (Municipal Property Tax) purposes under the Property Tax Code (CIMI). In Process 510/2015-T, the land was initially valued at €1,951,710.00 in 2009, updated to €2,024,899.13 in 2012 (the assessment year), later revised to €1,577,050.00 in 2014, and €967,637.00 in 2015. The Stamp Tax assessment applied the 0.50% rate under item 28.1 to the 2012 taxable value, resulting in tax of €9,758.55. Article 67(2) of the Stamp Duty Code, as amended by Law 55-A/2012, establishes subsidiary application of CIMI provisions for valuation matters related to Verba 28.
What is the CAAD arbitration procedure for contesting Stamp Tax liquidations in Portugal?
The CAAD (Administrative Arbitration Center) arbitration procedure for contesting Stamp Tax liquidations follows Decree-Law 10/2011 (RJAT). The process includes: (1) filing a request for constitution of an arbitral tribunal, accepted by the CAAD Rapporteur; (2) formation of the tribunal (sole arbitrator if taxpayer doesn't appoint, or three-member panel); (3) automatic notification to the Tax Authority; (4) appointment of arbitrators by parties or the Deontological Council; (5) notification period for challenging arbitrator appointments per articles 6-7 of the Deontological Code; (6) formal constitution of the tribunal; (7) optional waiver of the preliminary hearing under article 18 of RJAT; (8) submission of written pleadings by both parties; and (9) issuance of the arbitral decision. In Process 510/2015-T, the tribunal was constituted on October 28, 2015, with material competence under articles 2(1)(a) and 30(1) of the RJAT.
Can a taxpayer request annulment of Stamp Tax charged under Verba 28.1 of the TGIS on undeveloped land?
Yes, a taxpayer can request annulment of Stamp Tax charged under Verba 28.1 of the TGIS on undeveloped land, as demonstrated in Process 510/2015-T. The grounds for annulment include violation of law in the incorrect application of item 28.1 to properties lacking residential use, legal error in qualifying the taxable event, and exceeding legal authority in assessing tax without proper legal basis. The taxpayer must demonstrate that the property is registered as building land (terrenos para construção) without residential licensing or occupation, arguing that the 0.50% rate applicable to residential use properties cannot legally apply to undeveloped construction land. The challenge can be brought through CAAD arbitration under article 10(2)(c) of RJAT, seeking declaration of illegality, annulment of the assessment, refund of amounts paid with default and compensatory interest, and reimbursement of enforcement costs and security expenses.