Process: 514/2014-T

Date: November 17, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration case (514/2014-T) examines whether Item 28 of the General Stamp Tax Table (TGIS) applies to undeveloped building land valued above €1,000,000. The claimant, A..., S.A., challenged additional Stamp Tax assessments totaling €14,424.44 on a construction plot with a tax value of €2,163,664.75 in the Municipality. The Portuguese Tax Authority (AT) applied a 1% annual rate under Item 28.1 TGIS, treating the land as residential property. The claimant argued that Item 28 unlawfully taxes vacant building land without residential use, violating constitutional principles of tax legality, typicality, and proportionality. The property contains no buildings or constructions, and no one resides on it permanently or sporadically. The claimant contended that the mere possibility of future residential development does not satisfy the legal requirement that property must be 'devoted to housing' for Stamp Tax purposes. The Tax Authority defended its position based on Law No. 55-A/2012, which amended the Stamp Tax Code to impose annual tax on ownership, usufruct, or superficies rights over urban properties with registered tax values equal to or exceeding €1,000,000 under the Real Estate Tax Code (CIMI). The central legal question concerns whether 'urban properties' under Item 28 TGIS includes undeveloped construction land or only properties with actual residential use. The arbitral tribunal, constituted under Decree-Law No. 10/2011, was materially competent to decide this dispute. This case highlights the tension between broad tax base expansion and strict interpretation of tax incidence rules, particularly regarding high-value real estate without current residential occupation, affecting property developers and landowners holding construction plots valued above statutory thresholds.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration
Case No. 514/2014 – T
Subject: IS – Land for construction; Item 28 of TGIS

I – REPORT

A – PARTIES

A..., S.A., with NIPC ..., with registered office at Praceta …, hereinafter referred to as Claimant or passive subject.

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

The request for constitution of the arbitral tribunal was accepted by the President of CAAD, and the Arbitral Tribunal was duly constituted on 28-07-2014, to assess and decide the subject matter of the present case, and was automatically notified to the Tax and Customs Authority on 28-07-2014, as per the respective minutes.

The Claimant did not proceed with the appointment of an arbitrator, and therefore, under the terms of Article 6, No. 1 and Article 11, No. 1, subsection b) of Decree-Law No. 10/2011, of January 20, as amended by Article 228 of Law No. 66-B/2012, of December 31, the Ethics Council appointed Dr. Paulo Ferreira Alves, and the appointment was accepted in accordance with legal provisions.

On 11-09-2014 the parties were duly notified of this appointment and did not express any intention to refuse the appointment of the arbitrators, in accordance with Article 11, No. 1, subsections a) and b), of RJAT and Articles 6 and 7 of the Ethics Code.

In accordance with the provision in Article 11, No. 1, subsection c) of Decree-Law No. 10/2011, of January 20, as amended by Article 228 of Law No. 66-B/2012, of December 31, the sole arbitral tribunal is duly constituted on 16-07-2014.

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

Both parties agree to waive the meeting provided for in Article 18 of RJAT.

The parties have legal personality and capacity, are legitimate and are legally represented (Articles 4 and 10, No. 2, of the same statute and Article 1 of Ordinance No. 112-A/2011, of March 22).

The case does not suffer from defects that would invalidate it.

B – CLAIM

  1. The now Claimant seeks a declaration of illegality of the tax act of additional assessment of Stamp Duty No. 2014 ... and No. 2014 ..., which set a total tax payable of €14,424.44 (fourteen thousand four hundred twenty-four euros and forty-four cents).

C – GROUNDS FOR THE CLAIM

  1. To substantiate its request for an arbitral pronouncement, the Claimant alleged, with a view to declaring the illegality of the tax act of additional assessment of Stamp Duty No. 2014 ... and No. 2014 ..., in summary, the following:

  2. It is the owner of a property, specifically a piece of land for construction, registered in the urban property register under article No. ..., located in the Union of Parishes of ... and ..., Municipality of …, which to the North ends in an acute angle and borders to the South with a railway overpass, to the East with Rua do ... and to the West with Rua ... and ..., with a tax value of € 2,163,664.75.

  3. It argues that the tax value was calculated in accordance with Article 45 of the Real Estate Tax Code, in 2009, and was automatically updated in 2012 to that value of € 2,163,664.75.

  4. It was notified of stamp duty assessments by application of item No. 28.1 of the stamp duty table, by reference to the year 2013 (first two installments), with a collection of €21,636.65.

  5. These notifications correspond to No. 2014 ... in the amount of €7,212.23 and to No. 2014 ... in the amount of €7,212.21, which set a total tax payable of €14,424.44.

  6. The claimant argues that they are illegal because the land for construction is merely land (and not a property with residential use) and are illegal because the AT is taxing the same fact twice.

  7. The respondent alleges that it results from the assessments challenged that AT applied a rate of 1% to the tax value of the property calculated in accordance with CIMI (t.v. of €2,163,664.75), treating the urban land for construction as if it were an urban property devoted to housing.

  8. The claimant further states that the property does not have residential use, and therefore, at most, we are facing virtual use without correspondence with reality, promoted by AT in disregard of the limits of the principle of tax legality.

  9. The claimant notes that the legislation concerning construction and urban building, the classification of a property as "residential" does not present any particular feature; only those so classified are residential. And, in the absence of licensing, what is relevant for classification is the normal use given to the property.

  10. Now, a piece of land for construction (regardless of the type and purpose of the building that will be erected on it) does not, in itself, satisfy any condition to be licensed as such or to be able to define housing as its normal purpose.

  11. The claimant sustains that on the land no one resides, neither permanently nor sporadically, as there is no construction on it that would permit this; in fact, the land has no building or construction erected on its ground.

  12. Consequently, the property in question does not have residential use, and is, unequivocally, outside the scope of application of this tax.

  13. The mere possibility that in the future a residential complex will be built on that property does not fulfill the prediction of a rule of incidence that requires that the property is already devoted to housing.

  14. On the one hand, such a scenario is not legally possible because, according to current tax legislation, one cannot tax a fact that does not yet exist.

  15. In these terms, it argues that there is, therefore, no taxable event capable of giving rise to the payment of stamp duty by application of item 28.1.

  16. Furthermore, it states that the wording given to item No. 28.1, in its original wording, of the General Table of Stamp Duty when interpreted in the sense that properties with residential use should be taxed – land for construction with t.v. = to €1,000,000.00 is unconstitutional for violation of the principle of legality, typicality, generality, abstraction, universality, tax confidence and proportionality (Articles 1, 2 and 12 of the Constitution), of the principle of private property (Article 62/2 of the Constitution), as well as of the principle that taxation of assets should contribute to equality among citizens (Article 104/3 of the Constitution).

  17. It is unconstitutional, for violation of the principle of legality, the interpretation that item 28.1 of the CIS table (in the version applicable to facts occurring until 31.12.2013, inclusive) can be applied to the property sub judice, as there is no law that provides for it.

  18. The claimant concludes by alleging the voidability of the tax act of assessment under Real Estate Tax for violation of law, in the qualification of the taxable fact, having been wrongly applied item 28.1 of the General Table of Stamp Duty, in the wording in force in 2013, which constitutes grounds for judicial challenge and annulment of the acts challenged (Art. 99 of CPPT - ex vi Art. 10, No. 2, subsection c) of RJAT).

D – RESPONSE OF THE RESPONDENT

  1. The Respondent, duly notified for this purpose, timely submitted its response in which, in brief summary, it alleged the following:

  2. Law No. 55-A/2012, of 29/10/2012 amended Article 1 of CIS, and added to TGIS item 28, with this legislative amendment, the IS would now also apply to ownership, usufruct or right of superficies of urban properties whose tax value recorded in the register, under the Real Estate Tax Code (CIMI), is equal to or greater than €1,000,000.00.

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

  4. In the absence of any definition of the concepts of urban property, land for construction and residential use, under Stamp Duty, one must resort to CIMI, in search of a definition that allows assessing any subjection to IS, in accordance with the provision of Article 67, No. 2 of CIS as amended by Law No. 55A/2012, of 29/10.

  5. The Respondent argues, under the terms of the aforementioned legal provision, to matters not regulated in the Code, concerning item No. 28 of TGIS, the provisions of CIMI shall apply subsidiary.

  6. The notion of use of urban property is found in the part relating to the assessment of properties, which is well understood because the assessment of the property (purpose) incorporates value to the property, constituting a fact of distinctive determination (coefficient) for purposes of assessment.

  7. Thus, for purposes of determining the tax value of land for construction, the application of the use coefficient in the context of assessment is clear, and its consideration for purposes of applying item 28 of TGIS cannot be ignored.

  8. The AT understands that the provision of item 28 of TGIS does not constitute a violation of any constitutional requirement.

  9. Item 28 of TGIS applies to ownership, usufruct or right of superficies of urban properties with residential use, whose tax value recorded in the register, under CIMI, is equal to or greater than € 1,000,000.00, that is, it applies to the value of the property.

  10. The Respondent concludes by sustaining its position to the effect that the assessment in question constitutes a correct interpretation and application of law to the facts, suffering from no defect of violation of law, whether of the Constitution or of CIS, and that, consequently, the claimant's claim should be judged without merit and the Respondent absolved from the request.

E – FACTUAL FINDINGS

  1. Before addressing these issues, it is necessary to present the factual matter relevant for their understanding and decision, which was conducted on the basis of documentary evidence and taking into account the facts alleged.

  2. With regard to relevant matters of fact, this tribunal finds the following facts to be established:

  3. The claimant is the owner of an urban property composed of "land for construction", registered in the urban property register under article No. ..., located in the Union of Parishes of ... and ..., Municipality of …, which to the North ends in an acute angle and borders to the South with a railway overpass, to the East with Rua do ... and to the West with Rua ... and ..., with a tax value of € 2,163,664.75.

  4. The claimant was notified of the acts of assessment of Stamp Duty No. 2014 ... which set a tax payable on the property described above in the amount of €7,212.23 and of the act of assessment of Stamp Duty No. 2014 ... in the amount of €7,212.21.

  5. Acts of assessment No. 2014 ... and No. 2014 ... which set a total tax payable of €14,424.44.

  6. The claimant proceeded with timely payment of both assessment acts mentioned above.

F – UNPROVEN FACTS

  1. Of the facts with interest for the decision of the case, contained in the challenge, all those that are the object of concrete analysis were not proven except those not set forth in the factual description above.

G – ISSUES TO BE DECIDED

  1. Given the positions of the parties taken in the arguments presented, the central issue to be determined is the following, which must therefore be assessed and decided:

i. The one alleged by the Claimant, a declaration of illegality of the tax act of additional assessment of Stamp Duty No. 2014 ... and No. 2014 ....

H – LEGAL MATTERS

  1. Given the positions of the parties taken in the written submissions presented, the central issue to be decided by this arbitral tribunal is whether the acts of assessment of stamp duty, in the amount of €14,424.44, both relating to the urban property composed of "land for construction", registered in the urban property register under article No. ..., located in the Union of Parishes of ... and ..., Municipality of …, which to the North ends in an acute angle and borders to the South with a railway overpass, to the East with Rua do ... and to the West with Rua ... and ..., suffer from formal defects, specifically the one raised by the respondent regarding lack of grounds, and from violation of law, due to erroneous interpretation and application of item 28.1 of TGIS and Article 6, No. 1, subsection f), i) of the aforementioned Law No. 55-A/2012, of October 29.

  2. The defects of law due to error regarding the prerequisites of the right to assess, regarding the issue of the classification of land for construction within the scope of application of Article 28 No. 1 of TGIS, introduced by the Regime of Law No. 55-A/2012, of October 29.

  3. The amendment of the regime concerning the subjection to stamp duty of properties with residential use by the addition of item 28 to the General Table of Stamp Duty, carried out by Article 4 of Law 55-A/2012, of 29/10, now typifies the following taxable facts, through the following wording:

"28 – Ownership, usufruct or right of superficies of urban properties whose tax value recorded in the register, under the Real Estate Tax Code (CIMI), is equal to or greater than € 1,000,000 – on the tax value used for purposes of Real Estate Tax:

28.1 – For property with residential use – 1 %;

28.2 – For property, when the passive subjects who are not individuals are residents of a country, territory or region subject to a clearly more favorable tax regime, included in the list approved by ordinance of the Minister of Finance – 7.5 %."

  1. Article 6 of Law No. 55-A/2012 contains 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 with reference to the assessment of stamp duty provided for in item No. 28 of the respective General Table:

The taxable event occurs on October 31, 2012;

The passive subject 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 subsection;

The tax value to be used in the assessment of the tax corresponds to what results from the rules provided for in the Real Estate Tax Code by reference to 2011;

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

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

The applicable rates are as follows:

Properties with residential use assessed under the Real Estate Tax Code: 0.5 %;

ii) Properties with residential use not yet assessed under the Real Estate Tax Code: 0.8 %;

iii) Urban properties when the passive subjects who are not individuals are residents of a country, territory or region subject to a clearly more favorable tax regime, included in the list approved by ordinance of the Minister of Finance: 7.5 %.

2 – In 2013, the assessment of stamp duty provided for in item No. 28 of the respective General Table must be based on the same tax value used for purposes of the real estate tax assessment 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 violation, punished in accordance with the law."

Regarding the interpretation of this statute, the arbitral award 53/2013-T has already ruled, which writes "In the aforementioned item 28.1 and in the sub-subsections i) and ii) of subsection f) of No. 1 of Article 6 of Law 55-A/2012, a concept was used that is not used in any other tax legislation in these precise terms, which is that of "property with residential use". Namely in CIMI, which in several norms of CIS introduced by that Law is indicated as the statute of subsidiary application regarding the tributes foreseen in the aforementioned item No. 28 [Articles 2, No. 4, 3, No. 3, subsection u), 5, subsection u), 23, No. 7, and 46 and 67 of CIS], is not used a concept defined in those terms." On this matter the awards of the Arbitral Tribunal of CAAD, No. 42/2013-T, 48/2013-T, 49/2013-T, 189/2013-T, 207/2013-T, 247/2013, 284/2013-T, 288/2013-T, 308/2013-T, 31/2014-T, 202/2014-T, 310/2014-T have already decided.

  1. As to the concept of "properties", it is for this purpose necessary to resort to the concepts of "properties" used in CIMI, in which the types of properties are listed in its Articles 2 to 6, which is transcribed as follows:

Article 2

Concept of property

  1. For purposes of this Code, property is any portion of territory, including waters, plantations, buildings and constructions of any nature incorporated or based thereon, with a permanent character, provided that it is part of the assets of a natural or legal person and, under 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, even if located in a portion of territory that constitutes an integral part of assets otherwise owned or does not have patrimonial nature.

  2. Buildings or constructions, although movable by nature, are deemed to have a permanent character when devoted to non-transitory purposes.

  3. The permanent character is presumed when buildings or constructions are based in the same location for a period exceeding one year.

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

Article 3

Rural properties

1 – Rural properties are lands located outside an urban agglomeration that are not to be classified as land for construction, under the terms of No. 3 of Article 6, provided that:

They are devoted or, in the absence of concrete devotion, have as their normal purpose a use generating agricultural income, such as are considered for purposes of the personal income tax (IRS);

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

2 – Also rural properties are lands located within an urban agglomeration, provided that, by force of a legally approved provision, they cannot have a use generating any income or can only have a use generating agricultural income and are actually having this devotion.

3 – Also rural properties are:

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

Waters and plantations in the situations referred to in No. 1 of Article 2.

4 – For purposes of this Code, urban agglomerations are considered, in addition to those located within legally fixed perimeters, those nuclei with a minimum of 10 housing units served by public utility roads, with their perimeter delimited by points distanced 50 m from the axis of the roads, in the transverse direction, and 20 m from the last building, in the direction of the roads.

Article 4

Urban properties

Urban properties are all those that should not be classified as rural, without prejudice to the provision in 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 of the parts can be classified as main, the property is deemed mixed.

Article 6

Types 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 their normal purpose each of these uses.

3 – Land for construction is considered to be land located within or outside an urban agglomeration for which a license or authorization has been granted, prior communication admitted or favorable prior information issued of subdivision or construction operation, and also those that have been so declared in the acquisition title, excepting lands where the competent entities prohibit any of those operations, namely those located in green zones, protected areas or which, in accordance with municipal spatial planning plans, are devoted to spaces, public infrastructure or equipment. (Wording of Law No. 64-A/08, of 31-12)

4 – Subsection d) of No. 1 includes lands located within an urban agglomeration that are not land for construction nor are covered by the provision in No. 2 of Article 3, and also buildings and constructions licensed or, in the absence of a license, which have as their normal purpose purposes other than those referred to in No. 2 and also those in 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 does so in the following terms:

Article 11

Interpretation

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

Whenever, in tax norms, terms specific to other branches of law are employed, they must be interpreted in the same sense they have there, unless otherwise clearly results from the law.

If doubt persists about the meaning of the norms of incidence to apply, the economic substance of the taxable facts should be considered.

Gaps resulting from tax norms covered by the reservation of law to the National Assembly are not susceptible to supplementation by analogy.

  1. To this provision, it is also necessary to resort to the general principles of interpretation of laws, which Article 11, No. 1 of LGT refers to, which are established in Article 9 of the Civil Code, which establishes the following:

Article 9

Interpretation of law

The interpretation should not be limited to the letter of the law, but should reconstruct from the texts the legislative intent, having particularly in mind the unity of the legal system, the circumstances in which the law was enacted and the specific conditions of the time in which it is applied.

However, the interpreter cannot consider the legislative intent that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed.

In fixing the meaning and scope of the law, the interpreter shall presume that the legislator adopted the most appropriate solutions and knew how to express its intent in adequate terms.

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

  2. Articles 2 to 6 of CIMI transcribed above are not used by the legislator, in the classification of properties, 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 can give rise to various interpretive 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 intent" must be reconstructed, as imposed by No. 1 of Article 9 of the Civil Code, applicable by force of the provision in Article 11, No. 1, of LGT, 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 ruled on this matter. An award that equally sustains two interpretive hypotheses to the concept of "property with residential use", respectively in the same sense of the present decision, regarding the concept of "property with residential use" as referring to residential properties, and regarding 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:

"The concept closest to the literal meaning of this expression used is manifestly that of "residential properties", defined in No. 2 of Article 6 of CIMI as including "buildings or constructions" licensed for residential purposes or, in the absence of a license, that have as their normal purpose residential purposes.

If it is understood that the expression "property with residential use" coincides with that of "residential properties", it is manifest that the assessments will suffer from error regarding the factual and legal prerequisites, as 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".

Therefore, if one adopts the interpretation that "property with residential use" means "residential property", the assessments whose declaration of illegality is requested will be illegal, because there is no building or construction in any of the lands.

However, the non-coincidence of the terms of the expression used in item No. 28.1 of TGIS with that which results from No. 2 of Article 6 of CIMI points in the direction of not having intended to use the same concept."

  1. 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 "devotion", in this context of use of a property, has the meaning of "the act of assigning something to a particular use". ( [1] )

"When, as is the rule, norms (legislative formulas) behave more than one meaning, then the positive function of the text translates into giving stronger support to or more strongly suggesting 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 can only fit in the verbal framework of the norm in a forced, artificial manner. Now, in the absence of other elements that induce the choice of the less immediate meaning of the text, the interpreter should opt in principle for that meaning which best and most directly corresponds to the natural meaning of the verbal expressions used, and particularly to their technical-legal meaning, in the supposition (not always exact) that the legislator knew how to properly express its intent". ( [2] )

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

The recognized lack of coherence of Stamp Duty is particularly evident in the case of this item No. 28.1, hastily included outside the General State Budget, by a tax legislator without perceivable global tax direction, who is successively implementing norms of tax increases as a result of setbacks in budget execution, the impositions of international institutional creditors (represented by the "troika") and the oversight of the Constitutional Court.

In fact, although in the "Explanatory Memorandum" of Draft Law No. 96/XII/2nd ( [3] ), on which Law No. 55-A/2012 was based, reference is made to the laudable concern of the Government to "strengthen the principle of social equity in austerity, ensuring an effective distribution of necessary sacrifices for compliance with the adjustment program" and its commitment "to ensure that the distribution of these sacrifices will be done by all and not just by those who live from the income of their work", it is manifest, on the one hand, that those reasons of equity, certainly existing, did not begin to be relevant in mid-2012, already existing at the beginning of the year, when the General State Budget came into force, and on the other hand, that the scope of item No. 28.1, by taxing additionally properties with residential use and not also properties that do not have it, reveals that the concerns of social equity and the proclaimed intention to distribute the sacrifices among all, affects much more some than properly all.

In this context, there being no secure interpretive elements that allow detecting legislative coherence in the solution adopted in the aforementioned item No. 28.1 or the correctness or incorrectness of the adopted solution (relevant for interpretive purposes in light of No. 3 of Article 9 of the Civil Code), the tenor of the legal text must be the primordial element of interpretation, in accordance with the presumption, imposed by the same No. 3 of Article 9, that the legislator knew how to express its intent in adequate terms.

In light of those meanings of the words "devotion" and "devote", which are "to assign purpose" or "to apply", the formula used in that item No. 28.1 of TGIS encompasses, manifestly, properties that are already applied to housing purposes, and therefore it is important to inquire whether it will also encompass properties that, although not yet applied to housing purposes, are assigned to them and those whose purpose is unknown.

In light of the literal tenor of item No. 28.1, it is to be excluded from the scope of application of Stamp Duty provided there are lands for construction of some Claimants that do not yet have any type of use defined, as they are not yet applied nor assigned to housing purposes. That is, lands for construction that do not have defined use cannot be considered properties with residential use, as they do not yet have any devotion nor other purpose than construction of unknown type. An interpretation to the effect that item No. 28.1 refers to properties whose devotion is unknown does not have the minimum of verbal correspondence in the letter of that norm, and therefore a hypothetical legislative intent of that type cannot be considered by the interpreter of the law, in light of the prohibition in No. 2 of Article 9 of the Civil Code.

But this is not sufficient to clarify the situation of those lands for construction that, although not yet applied to housing purposes, already have a determined purpose, namely, in the subdivision license, which is the case of the properties referred to in subsections z) to dd) of the factual matter fixed.

Therefore, it will be necessary to clarify when a property can be understood to be devoted to a housing purpose, namely whether it is when that purpose is fixed for it in a licensing act or similar, or only when the actual assignment of that purpose is concretized.

From the outset, the comparison of item No. 28.1 of TGIS with No. 2 of Article 6 of CIMI, which defines the concept of residential properties, points manifestly in the direction of it being necessary for an actual devotion.

In fact, a building or construction licensed for housing or, even without a license, but which has housing as its normal purpose, 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 its intent in adequate terms (as Article 9, No. 3, of the Civil Code presumes), if it intended to refer to those properties already licensed for housing or that have housing as their normal purpose, it would certainly have used the concept of "residential properties", which would express perfectly and clearly its intent, in light of the definition given by that No. 2 of Article 6 of CIMI.

Consequently, it must be presumed that the use of a different expression is intended to cover a different reality, and therefore, in good hermeneutics, "property with residential use" cannot be a property merely licensed for housing or destined for that purpose (that is, it will not be enough that it be a "residential property"), it must be a property that already has actual devotion to that purpose.

That this is the meaning of the expression "devotion", in the same context of classification of properties that CIMI makes, is confirmed by Article 3 in which, regarding rural properties, reference is made to those "that are devoted or, in the absence of concrete devotion, have as their normal purpose a use generating agricultural income", which shows that the devotion is concrete, actual. In fact, as can be seen from the final part of this text, a property can have as its purpose a particular use and be or not be devoted to it, which shows that devotion is, at the level of the connection of a property to a particular use, something more intense than mere purpose and that may or may not occur, downstream of this and not upstream. ( [4] )

Furthermore, the text of the law, by adopting the formula "property with residential use" instead of "urban properties with residential use", which appears in the aforementioned "Explanatory Memorandum", points strongly in the direction that it is required that the residential devotion is already realized, as only then will the property be with that devotion.

With respect to Article 45 of CIMI, it has no relation to the classification of properties, only indicating the factors to be considered in the assessment of land for construction. What is considered there, when referring to the "building to be constructed" is the consideration of the purpose of the land, which, as seen, is something that, in the context of CIMI, does not imply devotion and occurs before this.

The correctness of this interpretation to the effect that only properties that are actually devoted to housing are included in the scope of application of item No. 28.1 of TGIS is also confirmed by the ratio legis perceivable from the restriction of the field of application of the norm to properties with residential use, in the context of the "circumstances in which the law was enacted and the specific conditions of the time in which it is applied", which Article 9, No. 1, of the Civil Code also establishes as interpretive elements. ( [5] ).

From the outset, the limitation of Stamp Duty taxation to "properties with residential use" reveals that it was not intended to encompass within the scope of application of the tax properties with devotion to services, industry or trade, that is, properties devoted to economic activity, which is understood in a context in which, as is notorious, the economy finds itself in a recessionary spiral, publicly proclaimed at the highest level, with unemployment rates reaching maximum historical levels, with an avalanche of business closures resulting from economic unsustainability.

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

Therefore, it is to be concluded that the available interpretive elements, including the "circumstances in which the law was enacted and the specific conditions of the time in which it is applied", point clearly in the direction of not having intended to encompass within the scope of application of item No. 28.1 the situations of properties that are not yet devoted to housing, namely lands for construction held by companies. ( [6] )"

  1. It results from the foregoing that the application of the regime to the situation of the Claimant, regarding the urban property corresponding to "land for construction", which does not occur in the present case, before a property with actual residential use, and therefore does not apply to those properties the Stamp Duty provided for in item 28.1 of TGIS.

  2. In this manner, the assessment sub judice, whose declaration of illegality is requested, suffers from the defect of violation of that item No. 28.1, due to error regarding the legal prerequisites, which justifies the declaration of its illegality and annulment (Article 135 of CPA).

I – INDEMNITY INTEREST

  1. The claimant also petitions for payment of indemnity interest.

  2. In light of the foregoing, the assessment of IS, in the part covered by the annulment, which will be decreed, results from errors of fact and law imputable exclusively to the tax administration, in that the Claimant fulfilled its duty to declare and were committed by it and the same could not have been unaware of different understandings.

  3. In fact, being demonstrated that the claimant paid the tax challenged in an amount exceeding what is due, by force of the provisions of Articles 61 of CPPT and 43 of LGT, the Claimant has the right to the indemnity interest due, interest that is to be counted from the date of payment of the undue (annulled) tax until the date of issuance of the respective credit note, counting the period for that payment from the beginning of the period for voluntary execution of the present decision (Article 61, Nos. 2 to 5, of CPPTRIB), all at the rate determined in accordance with the provision in No. 4 of Article 43 of LGT.

  4. The claimant's request is granted.

J – DECISION

Therefore, given all the foregoing, this Arbitral Tribunal decides:

I. To judge well-founded the request for declaration of illegality of the tax acts of assessment under Stamp Duty, No. 2014 ... and No. 2014 ..., for defect of violation of law regarding the norm contained in item 28 No. 1, due to error regarding the legal prerequisites, which justifies the declaration of its illegality and annulment.

II. To condemn the Respondent to restore to the claimant the amount wrongfully assessed and paid, plus the payment of indemnity interest already accrued relating to the period between July 24, 2014 to be calculated on the amount of €7,212.23, and from July 31, 2014 to be calculated on the amount of €7,212.21, all in accordance with Nos. 2 to 5 of Article 61 of CPPT and at the rate determined in accordance with the provision in No. 4 of Article 43 of LGT until full reimbursement.

III. The value of the case is set at € 14,424.44, taking into account the economic value of the case as measured by the value of the tax assessments challenged, and accordingly the costs are set, in their respective amount of €918.00 (nine hundred eighteen euros), payable by the respondent in accordance with Article 12, No. 2 of the Tax Arbitration Regime, Article 4 of RCPAT and Table I appended thereto – No. 10 of Article 35, and Nos. 1, 4 and 5 of Article 43 of LGT, Articles 5, No. 1, subsection a) of RCPT, 97-A, No. 1, subsection a) of CPPT and 559 of CPC).

To be registered and notified.

Lisbon, November 17, 2014.

The Arbitrator

Paulo Renato Ferreira Alves

Text prepared by computer, in accordance with No. 5 of Article 131 of CPC, applicable by reference in subsection e) of No. 1 of Article 29 of Decree-Law No. 10/2011, of 20/01.

The drafting of this decision is governed by the old spelling.

[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 CIMI make it clear that the term "devotion" is used to reference situations already existing and not merely future, even if foreseeable, such as "purpose". This is the case with Article 9 of CIMI, which, after establishing that "the tax is due from" "the 4th year following, inclusive, the one in which land for construction has begun to appear in the inventory of a company whose business is the construction of buildings for sale" or "the 3rd year following, inclusive, the one in which a property has begun to appear in the inventory of a company whose business is its sale" [subsections d) and e) of No. 1], determines that "for purposes of the provision in subsections d) and e) of No. 1, passive subjects must communicate to the tax service of the area of the situation of the properties, within 60 days counted from the verification of the fact determining its application, the devotion of the properties to those purposes". The "devotion of the properties to those purposes", in the context of this Article 9, reduces to the concrete assignment to the properties of the purpose "for sale", materialized by their inventorying, it not being enough that they have been constructed or acquired with a view to their sale.

[5] This approach is not intended to apply to the special cases provided for in item No. 28.2, of ownership of properties by legal persons resident in a country, territory or region subject to a clearly more favorable tax regime, included in the list approved by ordinance of the Minister of Finance to which, as in other norms, strong tax penalties are assigned, as 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

Does Verba 28 of the General Stamp Tax Table (TGIS) apply to building land (terrenos para construção)?
The application of Item 28 TGIS to building land (terrenos para construção) is the central issue in this arbitration. While the Tax Authority applied the 1% annual Stamp Tax rate to construction land valued at €2,163,664.75, treating it as residential property, the claimant argued that vacant building land without any constructed buildings cannot be classified as property 'devoted to housing.' Item 28.1 TGIS, introduced by Law No. 55-A/2012, taxes urban properties with tax values ≥€1,000,000, but the critical legal question is whether undeveloped land qualifies as 'urban property' for this purpose. The claimant maintained that only properties with actual residential use or licensing should fall within Item 28's scope, and that taxing based on potential future use violates tax legality principles. The proper classification depends on whether the property's current state or its designation for future construction determines tax treatment under CIMI and TGIS provisions.
Can property owners challenge additional Stamp Tax (Imposto de Selo) assessments on building land through CAAD arbitration?
Yes, property owners can challenge additional Stamp Tax assessments on building land through CAAD (Centro de Arbitragem Administrativa) arbitration. This case demonstrates the procedural mechanism available under Decree-Law No. 10/2011 (RJAT - Tax Arbitration Legal Regime). The arbitral tribunal has material competence under Articles 2(1)(a) and 30(1) of RJAT to review the legality of Stamp Tax liquidations. The process involves filing a request for constitution of an arbitral tribunal, which is accepted by the CAAD President. The tribunal is then constituted with appointed arbitrators, and both parties have the opportunity to present arguments. Property owners can contest assessments on grounds including improper legal qualification of taxable events, violations of tax legality principles, and unconstitutional application of tax provisions. The arbitration provides an alternative to traditional judicial appeals, offering faster resolution of tax disputes with specialized arbitrators experienced in tax law matters.
What is the legal basis for Stamp Tax liability on high-value urban properties under Portuguese tax law?
The legal basis for Stamp Tax liability on high-value urban properties stems from Law No. 55-A/2012 of October 29, 2012, which amended Article 1 of the Stamp Tax Code (CIS) and added Item 28 to the General Stamp Tax Table (TGIS). This legislative amendment established annual Stamp Tax on ownership, usufruct, or superficies rights over urban properties whose tax value registered under the Real Estate Tax Code (CIMI) equals or exceeds €1,000,000. The tax rate is 1% annually for properties devoted to housing and 0.5% for other urban properties. The tax value is determined according to CIMI provisions, specifically Article 45, which governs valuation of urban properties for Real Estate Tax (IMI) purposes. This legislative change expanded the Stamp Tax base beyond traditional transactional taxes to include ongoing ownership of high-value real estate, creating a wealth tax component. The constitutional validity and proper interpretation of these provisions, particularly regarding what constitutes 'urban property' and 'residential use,' remain subject to judicial and arbitral review.
How does the CAAD arbitral tribunal determine the legality of additional Stamp Tax liquidations on building plots?
The CAAD arbitral tribunal determines the legality of additional Stamp Tax liquidations on building plots through comprehensive legal analysis examining several factors. First, the tribunal verifies its own material competence under RJAT provisions and confirms proper constitution and notification procedures. Second, it analyzes whether the tax assessment correctly applied the applicable legal provisions, examining the qualification of the taxable event under Item 28 TGIS. Third, the tribunal evaluates whether the property characteristics satisfy the legal requirements for Stamp Tax incidence, considering factors such as actual use, licensing status, property classification under CIMI, and whether the land constitutes 'urban property devoted to housing.' Fourth, it assesses compliance with constitutional principles including tax legality, typicality, proportionality, and property rights protection under Articles 1, 2, 12, 62(2), and 104(3) of the Portuguese Constitution. The tribunal examines the Tax Authority's legal reasoning, reviews relevant documentation including property registry records and tax valuations, and applies established interpretation principles. The decision must address whether vacant construction land falls within Item 28's scope and whether taxing potential future use violates legal certainty and tax legitimacy principles.
What are the procedural requirements for filing a tax arbitration request against the Portuguese Tax Authority (AT) regarding Stamp Tax on land?
The procedural requirements for filing a tax arbitration request against the Portuguese Tax Authority regarding Stamp Tax on land include several mandatory elements under Decree-Law No. 10/2011 (RJAT). First, the taxpayer must file a formal request for constitution of an arbitral tribunal with CAAD, identifying the specific tax acts being challenged (in this case, liquidation notices No. 2014... totaling €14,424.44). Second, the request must specify the legal and factual grounds for illegality, including relevant constitutional or statutory violations. Third, the taxpayer must have legal personality, capacity, and legitimate standing, with proper legal representation as required by Articles 4 and 10(2) of RJAT and Ordinance No. 112-A/2011. Fourth, parties may appoint their own arbitrator or allow the CAAD Ethics Council to make appointments under Article 6(1) and 11(1)(b) provisions. Fifth, both parties receive notification opportunities, including the right to challenge arbitrator appointments within specified timeframes under Articles 6 and 7 of the Ethics Code. The tribunal becomes duly constituted once procedural requirements are satisfied, and parties may waive the preliminary meeting under Article 18 of RJAT. The case must not suffer from invalidating defects, and all documentation supporting the claim must be properly submitted.