Process: 515/2014-T

Date: December 19, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

Arbitral Decision 515/2014-T addressed whether Stamp Duty under Item 28.1 of the General Table of Stamp Duty (TGIS) applies to construction land (terrenos para construção). The petitioner, a real estate company, challenged three Stamp Duty assessments on properties registered as construction land, arguing they cannot be classified as 'properties with residential use' as required by Item 28.1 TGIS. The company contended that Article 6(1) of CIMI establishes construction land as a distinct category from residential urban properties, and that Article 41 CIMI's allocation coefficient applies only to built properties with defined uses (housing, commerce, services), not to undeveloped land. The petitioner argued residential use only materializes upon actual construction, when the land registration is replaced by registration of the built property. Additionally, they claimed the taxation violated constitutional principles of contributive capacity and equality, as construction land represents productive instruments rather than wealth indicators. The Tax Authority countered that the concept of 'properties with residential use' in Item 28.1 TGIS is broader than CIMI's property classifications, encompassing both built properties and construction land. They argued that Article 45(2) CIMI's reference to 'value of authorized buildings' demonstrates that construction land valuation applies the general property methodology, including allocation coefficients. The Authority maintained that residential use can be determined before construction through building permits and municipal master plans, which specify intended uses, dwelling units, and zoning. They asserted no violation of constitutional equality principles exists, as the taxation has sufficient justification and material basis for the differential treatment.

Full Decision

Proc. 515/2014-T

Arbitral Decision

Subject: Item 28.1 of the General Table of Stamp Duty – Building Land

Petitioners: A... – Real Estate Company, S.A.

Respondent: AT - Tax and Customs Authority

I – REPORT

  1.  Application

A... – Real Estate Company, S.A., with registered office in … Porto, legal entity no. …, filed, under the terms provided in no. 1 of article 2 of Decree-Law no. 10/2011, of 20 January, which established the Tax Arbitration System (RJAT) and of Order no. 112-A/2011, of 22 March, an application for an arbitral ruling, with a view to:

  •    The declaration of the illegality of the Stamp Duty (SD) assessments, made under Item 28.1 of the respective General Table (GSDT), identified by numbers 2014…, 2014… and 2014…, and relating to properties described as building land.

The Petitioner alleges, in essence, the following:

  •    The properties on which the assessed Stamp Duty was levied cannot be classified as properties with residential use, as required by Item 28.1 of the General Table of Stamp Duty (GSDT);

  •    Since neither the Stamp Tax Code (STC) nor the GSDT define what is meant by a property with residential use, it is necessary to resort to the Real Estate Municipal Tax Code (REMTC) to find such a definition;

  •    According to art. 6, no. 1, of the REMTC, building land is a type of urban property distinct from residential properties;

  •    The expression "residential use" used in Item no. 28.1 of the GSDT is found in art. 41 of the REMTC, where, with regard to determining the taxable property value of "urban properties for housing, commerce, industry and services..." (art. 38, no. 1) an allocation coefficient is provided, with the said art. 41 establishing that "the allocation coefficient (AC) depends on the type of use of built properties...", one of these uses being, precisely, housing. This means that building land does not have an allocation, whether for housing, whether for commerce, whether for services;

  •    Urban properties with residential use are, therefore, those which, in accordance with their respective construction process to which articles 62 et seq. of the Legal Regime of Urban Buildings (LRUB, approved by art. 1 of Decree-Law no. 555/99, of 16/12) have been, as such, licensed or by virtue of their physical characteristics, had housing as their normal destination. In this way, and as is evident, building land are not urban properties with residential purposes;

  •    The authorization or provision for building, even if intended for housing, in the location area of building land, does not thus transform them into properties with residential use. Even if the land is intended for construction of properties dedicated to housing, this use only occurs with the actual construction of the property, with the consequent cancellation of the property registration of the building land and its replacement by a new property registration of the built urban property or autonomous fraction;

  •    The fact that the forecast of the buildings to be constructed influences the value of the land, in accordance with art. 45 of the REMTC, does not transform building land into a property with residential use;

  •    The taxation of construction land through Item 28.1 of the GSDT also does not comply with the principle of contributive capacity, since the aforementioned rule aims to tax the wealth expressed in the ownership of properties of high value, when the properties taxed in the ownership of the Petitioner are not demonstrative of wealth, in that they are, only and solely, productive instruments;

  •    Such taxation also violates the constitutional principle of equality, since a company that acquires for its assets, as merchandise or as raw material, other types of goods, is not subject to taxation, whereas a company that acquires properties as merchandise or raw material, namely, building land, is subject to taxation;

  •    In this way, the assessments now contested are illegal, whether by violation of Item 28 of the GSDT, whether by unconstitutionality, in the terms indicated, of the aforementioned rule.

  1.  Response

In its response to the application for an arbitral ruling, the Respondent AT - Tax and Customs Authority contends for the dismissal of the application, alleging, in summary, the following:

  •    Since the STC does not define what should be understood by urban property, building land or residential use, it is necessary for this purpose to resort to the REMTC, where the concept of use of urban property is found in the part relating to the valuation of properties;

  •    As results from the expression "…value of authorized buildings", contained in art. 45, no. 2, of the REMTC, the legislator chose to determine the application of the methodology for valuation of properties in general to the valuation of building land, and consequently the allocation coefficient provided for in art. 41 of the REMTC applies to them. Thus, the use of the property (suitability or purpose) is a coefficient that contributes to the valuation of the property, in determining the taxable property value, applicable to building land;

  •    Item 28 itself of the GSDT refers to the expression "properties with residential use", appealing to a classification that overlaps the types provided for in no. 1 of art. 6 of the REMTC. Being an expression different and broader than that used in the REMTC, its meaning must be found in the need to integrate other realities beyond those identified in art. 6, no. 1, letter a) of the REMTC;

  •    The concept of "properties with residential use", for the purposes of the provision in Item 28 of the GSDT, comprises both built properties and building land, from the outset taking into account the literal element of the rule;

  •    The fact that the valuation of building land takes into account residential use, where applicable; the fact that the building permit for the carrying out of urban development operations must contain, among other elements, the number of plots and the indication of the location area, purpose, implantation area, construction area, number of floors, number of dwelling units in each of the plots, with specification of dwelling units intended for housing at controlled costs; and all this further associated with the fact that municipal master plans establish the municipal development strategy, the municipal policy on land use planning and urban planning and other urban policies, makes it possible, well before the actual construction of the property, to ascertain and determine the use of building land;

  •    Article 13 of the Constitution of the Republic "requires that what is necessarily equal be treated equally and what is essentially different be treated differently, not preventing differentiation of treatment, but only arbitrary, unreasonable discriminations, that is, distinctions of treatment that do not have sufficient justification and material basis", this not being the case with the rule of Item 28 of the GSDT;

  •    Thus, the Respondent contends that the provision of Item 28 of the GSDT does not constitute any violation of the principle of equality of art. 13 of the Constitution of the Republic.

  1.  Meeting provided for in article 18 of the RJAT and submissions

With the agreement of the parties, the Tribunal determined the waiving of the holding of the meeting provided for in article 18 of the RJAT as well as the phase of final submissions.

II – QUESTIONS TO BE DECIDED

The following are the questions to be decided by the Tribunal:

  •    The applicability of Item 28.1 of the GSDT to urban properties described in the property registry as building land;

  •    In case of an affirmative answer to the previous question, the constitutionality of the rule of scope of application contained in Item 28.1 of the GSDT, if interpreted as encompassing building land, in light of the constitutional principle of equality.

III – PRELIMINARY MATTERS

The Tribunal is competent and is properly constituted, in accordance with articles 2, no. 1, letter a), 5 and 6, all of the RJAT.

The parties have legal personality and judicial capacity, are legitimate and are properly represented.

The joinder of applications is admissible, as all the requirements established in article 3, no. 1, of the RJAT are met.

No irregularities were identified in the proceedings, so nothing prevents the consideration of the application.

IV – REASONING

  1.  PROVEN FACTS CONSIDERED RELEVANT

The following are the proven facts considered relevant for the decision:

  •    As of the date of the tax events, the Petitioner was the owner of the following properties (in accordance with document 4 attached to the initial petition, the contents of which are hereby reproduced):

  •    Urban property (hereinafter referred to as "property 1") described as building land, registered in the urban property registry of the parish of Vila Nova de Gaia (...), municipality of Vila Nova de Gaia, under number …, with the taxable property value of 3,404,157.75 euros;

  •    Urban property (hereinafter referred to as "property 2") described as building land, registered in the urban property registry of the parish of Vila Nova de Gaia (...), municipality of Vila Nova de Gaia, under number …, with the taxable property value of 3,100,926.50 euros;

  •    Urban property (hereinafter referred to as "property 3") described as building land, registered in the urban property registry of the parish of Vila Nova de Gaia (...), municipality of Vila Nova de Gaia, under number …, with the taxable property value of 1,086,912.75 euros;

  •    In March 2014, the Petitioner was notified of the Stamp Duty assessments identified by numbers 2014…, 2014… and 2014…, on the properties referred to, under Item 28.1 of the GSDT, relating to the year 2013;

There are no facts considered unproven that are relevant to the decision.

  1.  LEGAL REASONING

(i) Question of the applicability of Item 28.1 of the GSDT to building land

On this question, and in the exact terms in which it is raised here, the Supreme Administrative Court has ruled repeatedly, mostly in a sense consistent with that contended by the Petitioner (see the judgments of that Court delivered on 24/9/2014, procs. nos. 01533/13, 0739/14 and 0825/14; on 10/9/2014, procs. nos. 0503/14, 0707/14 and 0740/14; on 9/7/2014, proc. no. 0676/14; on 2/7/2014, proc. no. 0467/14; on 28/5/2014, procs. nos. 0425/14, 0396/14, 0395/14; on 14/5/2014, procs. nos. 055/14, 01871/13 and 0317/14; on 23/4/2014, procs. nos. 270/14 and 272/14; and on 9/4/2014, procs. nos. 1870/13 and 48/14).

The same question was also the subject of rulings by the arbitral tribunals, notably in proceedings nos. 151/2014-T, 42/2013-T, 48/2014-T, 49/2013-T, 53/2014-T, 75/2013-T, 144/2013-T, 158/2013-T, 180/2013-T, 189/2013-T, among others) and the arbitral case law is also mostly to the effect that the provision of Item 28.1 of the GSDT, in the wording in force until 31 December 2013, did not encompass building land.

Among the many judgments issued by the Supreme Administrative Court on this matter, the judgment delivered in the proceeding already referred to above is cited, in which it is stated:

"The concept of 'property (urban) with residential use' was not defined by the legislator. Neither in Law no. 55-A/2012, which introduced it, nor in the Real Estate Municipal Tax Code, to which no. 2 of article 67 of the Stamp Tax Code (also introduced by that Law), refers on a subsidiary basis. And it is a concept which, probably owing to its imprecision – a fact all the more serious given that the scope of application of the new taxation is defined on the basis of it -, had a short life, since it was abandoned when the State Budget Law for 2014 (Law no. 83-C/2013, of 31 December) came into force, which gave new wording to that Item no. 28 of the General Table, and which now defines its scope of application through the use of concepts that are legally defined in article 6 of the Real Estate Municipal Tax Code.

This amendment - to which the legislator did not give an interpretive character, nor does it appear to us that he did -, merely makes it unequivocal for the future that building land whose construction, authorized or planned, is for housing are encompassed within the scope of Item 28.1 of the General Table of Stamp Duty (provided that the respective taxable property value is equal to or greater than 1 million euros), clarifying nothing, however, with regard to past situations (assessments of 2012 and 2013), such as the one at issue in the present proceedings.

Now, as to these, it does not appear possible to adopt the interpretation of the appellant, since it does not result unequivocally either from the letter or from the spirit of the law that its intention was, ab initio, to encompass within its scope of application building land for which the construction of residential buildings was authorized or planned, as clearly results today from Item 28.1 of the General Table of Stamp Duty.

From the letter of the law nothing unequivocal follows, moreover, since it itself, by using a concept which it did not define and which was also not defined in the statute to which it referred on a subsidiary basis, lent itself, unnecessarily, to ambiguities, in a matter – of tax scope of application - in which certainty and legal security should also be paramount concerns of the legislator.

And from its 'spirit', ascertainable in the explanatory memorandum of the bill that is the origin of Law no. 55-A/2012 (…) nothing more follows than the concern to generate new tax revenues, on sources of wealth 'more sheltered' in the past from the onslaught of taxation on labor income, in particular income from capital, capital gains and property, reasons which bring no relevant contribution to the clarification of the concept of 'properties (urban) with residential use', since it is taken as settled, without any concern to clarify it. Such clarification must, however, have emerged (…), when the said bill was presented and discussed in the Parliament, in the words of the Mr. Secretary of State for Tax Affairs, who must have stated expressly, (…) that: 'The Government proposes the creation of a special tax on residential urban properties of higher value. It is the first time that in Portugal a special tax on high-value properties intended for housing is created. This tax will be 0.5% to 0.8% in 2012 and 1% in 2013, and will apply to houses worth equal to or greater than 1 million euros' (…) from which it is gathered that the reality intended to be taxed is, after all, and notwithstanding the terminological imprecision of the law, 'residential (urban) properties', in common language 'houses', and not other realities.

The fact that it can be considered that in determining the taxable property value of urban properties classified as building land account should be taken of the use that the building authorized or planned for it will have in determining the respective value of the implantation area (see nos. 1 and 2 of article 45 of the REMTC), does not determine that building land can be classified as 'properties with residential use', since 'residential use' always appears in the Real Estate Municipal Tax Code referred to 'buildings' or 'constructions', existing, authorized or planned, since only these can be inhabited, which is not the case with building land, which do not have, in themselves, conditions for such use, and are not susceptible to being used for housing except if and when the construction authorized and planned for them is erected on them (but in that case they will no longer be 'building land' but another type of urban property – 'residential', 'commercial, industrial or for services' or 'other' – article 6 of the REMTC).

It would be strange, moreover, if the determination of the scope of the rule of scope of application of Item no. 28 of the General Table of Stamp Duty were, after all, to be found in the rules for determining the taxable property value of the Real Estate Municipal Tax Code, and if the terminological imprecision of the legislator in the drafting of that rule were, after all, elucidated and finally clarified by means of an indirect and ambiguous referral to the allocation coefficient established by the legislator in relation to built properties (article 41 of the Real Estate Municipal Tax Code).

Thus, considering that building land – regardless of the type and purpose of the building that will be, or could be, erected on it – does not satisfy, by itself, any condition for being licensed as such or for it being possible to define housing as its normal destination, and the rule of scope of application of Stamp Duty referring to urban properties with 'residential use', without any specific concept being established for such purpose, it cannot be inferred from it that it contains a future potentiality, inherent to a different property that may possibly be built on the land.

It is concluded therefore, in conformity with what was decided in the judgment under appeal, that, as results from article 6 of the Real Estate Municipal Tax Code a clear distinction between urban properties 'residential' and 'building land', the latter cannot be considered as 'properties with residential use' for the purposes of the provision of Item no. 28.1 of the General Table of Stamp Duty, in its original wording, as conferred by Law no. 55-A/2012, of 29 October."

Relying on this case law, which is entirely adopted, it is concluded that the allegation of the defect of illegality of the contested assessments is well founded, due to error in the prerequisites for the application of the rule of Item 28.1 of the GSDT.

(ii) Question of the unconstitutionality of the rule of scope of application contained in Item 28.1 of the GSDT, if interpreted as encompassing building land, in light of the constitutional principle of equality

Considering the allegation of illegality of the contested assessments due to error in the prerequisites for the application of Item 28.1 of the GSDT to be well founded, it becomes superfluous to analyze the question of the unconstitutionality of the same rule when interpreted as encompassing building land, in light of the constitutional principle of equality.

VI. DECISION

Based on the grounds set forth, the present Tribunal decides:

  1.  To annul the Stamp Duty assessment acts numbered 2014…, 2014… and 2014…, which are the subject matter of the present proceedings, due to the defect of violation of law.

  2.  To condemn the AT to payment of the costs of the proceedings.

Value of the case: The value of the case is set at 79,305.77 euros.

Costs: Pursuant to article 22, no. 4, of the RJAT, the amount of costs is fixed at 2,448.00 euros, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Respondent.

Let this arbitral decision be registered and notified to the parties.

Lisbon, Administrative Arbitration Center, 19 December 2014.

The President Arbitrator

José Pedro Carvalho

The Arbitrator Member

Luís Máximo dos Santos

The Reporting Arbitrator Member

Nina Aguiar

Frequently Asked Questions

Automatically Created

Does Stamp Tax under Verba 28.1 of the TGIS apply to construction land (terrenos para construção) in Portugal?
The applicability of Stamp Tax under Item 28.1 TGIS to construction land was disputed in this arbitration. The petitioner argued construction land should not be subject to this tax because Item 28.1 requires 'properties with residential use,' and construction land is classified distinctly from residential properties under Article 6(1) CIMI. However, the Tax Authority maintained that construction land with authorized residential buildings falls within the scope of Item 28.1, as the concept of 'residential use' is broader than CIMI's property type classifications and can be determined through building permits and master plans before actual construction occurs.
Can construction land be classified as residential property for Imposto do Selo purposes under Portuguese tax law?
Under Portuguese tax law, whether construction land can be classified as residential property for Stamp Duty purposes depends on the interpretation of 'properties with residential use' in Item 28.1 TGIS. The Tax Authority's position is that construction land destined for residential construction constitutes property with residential use, citing Article 45(2) CIMI which values construction land based on authorized buildings. The petitioner disputed this, arguing that residential use only materializes with actual construction of buildings, and that Article 41 CIMI's allocation coefficient system applies exclusively to built properties, not undeveloped land.
How does Article 6 of the CIMI distinguish construction land from residential urban properties?
Article 6(1) CIMI establishes construction land (terrenos para construção) as a specific category of urban property, distinct from buildings for housing, commerce, industry, or services. This classification formed the basis of the petitioner's argument that construction land cannot be considered 'residential property' for Stamp Duty purposes. The petitioner emphasized that allocation coefficients under Article 41 CIMI, which include residential use as a factor, apply only to built properties with defined purposes. Construction land lacks such allocation until actual construction occurs and the property registration is replaced with registration of the completed building or autonomous fraction.
What role does the coefficient of allocation (coeficiente de afetação) under Article 41 CIMI play in determining Stamp Tax liability on land?
The allocation coefficient (coeficiente de afetação) under Article 41 CIMI became central to the dispute over Stamp Tax liability on construction land. Article 41 establishes that the allocation coefficient depends on the type of use of built properties, with residential use being one such category. The petitioner argued this coefficient applies exclusively to constructed urban properties, not to construction land, which therefore cannot have 'residential use' for Stamp Tax purposes. Conversely, the Tax Authority argued that Article 45(2) CIMI's methodology for valuing construction land based on 'authorized buildings' incorporates the allocation coefficient system, allowing construction land to be attributed residential use before actual construction based on building permits specifying intended residential purposes.
What was the outcome of CAAD arbitration process 515/2014-T regarding Stamp Tax liquidation on construction land?
Process 515/2014-T was initiated by a real estate company challenging Stamp Duty assessments on three properties classified as construction land under Item 28.1 TGIS. The company sought a declaration of illegality of the assessments, arguing construction land cannot qualify as 'properties with residential use' required by Item 28.1, and that such taxation violated constitutional principles of contributive capacity and equality. The Tax Authority defended the assessments, contending that 'residential use' encompasses construction land destined for residential buildings, as determinable from building permits and municipal planning documents. The arbitral tribunal was tasked with deciding the applicability of Item 28.1 TGIS to construction land and, if applicable, whether the provision is constitutional when interpreted to include such land.