Process: 516/2014-T

Date: January 12, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Process 516/2014-T addressed whether Stamp Duty under Item 28.1 of the General Stamp Duty Table (TGIS) applies to construction land. A company challenged a €21,924.13 Stamp Duty assessment levied on construction land with a Tax Property Value exceeding €1,000,000. Item 28.1, introduced by Law 55-A/2012, imposes a 1% duty on ownership, usufruct, or superficies rights over 'property with residential designation' valued at €1,000,000 or more. The applicant argued that construction land cannot be classified as having residential designation because: (1) only constructed buildings have designations under law; (2) residential designation materializes only upon actual construction, triggering deletion of the construction land's registration and creation of a new registration for the built property; (3) the land lacked subdivision permits, construction licenses, approved projects, or valid prior information under Decree-Law 555/99. The Tax Authority contended the property legally qualified as having residential designation, thus Item 28.1 applied correctly. The tribunal examined whether 'property with residential designation' encompasses construction land, noting this concept lacks definition in tax legislation, including the Municipal Property Tax Code (CIMI), which serves as subsidiary legislation for Stamp Duty assessment. The decision analyzed IMI definitions of property types, including rural properties and construction land classifications. The central legal question was whether the taxable event under Item 28.1 extends to undeveloped construction land or requires actual residential construction. Subsidiarily, the applicant challenged the assessment's constitutionality, alleging violations of taxation based on taxpaying capacity and equality principles. The case exemplifies interpretative challenges when tax legislation references property classifications without precise definitional boundaries.

Full Decision

ARBITRATION DECISION

CAAD: Tax Arbitration

Case no. 516/2014 – T

Subject: Stamp Duty - Item 28; Concept of construction land.

  1. STATEMENT OF FACTS

1.1. A, S.A., taxpayer no. …, with registered office at …, …, …, Lisbon, hereby requests, pursuant to article 10 of Decree-Law no. 10/2011 of January 20 ("RJAT"), the constitution of an Arbitral Tribunal.

The Applicant requests a ruling with a view to declaring the illegality, with all legal consequences, of the tax act of Stamp Duty assessment issued by the Tax and Customs Authority in the amount of € 21,924.13 ("contested tax act", which is contained in document 1 attached to the arbitration request).

The Applicant argues, in summary, that:

a) The contested tax act is illegal since the land does not have residential designation;

b) Construction land is not to be confused with residential properties;

c) Even if the land is intended for the construction of properties devoted to residential use, such designation only materializes with the actual construction of the property, with the consequent deletion of the matricial registration of the construction land and its replacement by a new matricial registration of the constructed urban property or autonomous fraction;

d) Construction land does not have a designation, whether residential or otherwise, and it follows from law that such designations only occur in relation to constructed buildings;

e) Furthermore, the construction land at issue does not have an approved feasibility application, does not have a subdivision permit, nor a construction license;

f) The construction land on which the Stamp Duty assessment was levied does not fall within the scope of item 28.1 of the General Stamp Duty Table ("TGIS");

g) The contested tax act is vitiated by violation of law, due to error in the legal grounds;

h) Subsidiarily, the contested tax act is unconstitutional as it violates the principle of taxation based on taxpaying capacity and the principle of equality.

1.2. The Tax and Customs Authority responded, raising no preliminary questions and arguing, on the merits of the Applicant's claim, that the request should not be granted.

The position of the Tax and Customs Authority is based on the argument that the property in question has the legal nature of a property with residential designation, and therefore the contested tax act should be upheld as it embodies the correct interpretation of item 28 of the TGIS, as amended by Law no. 55-A/2012 of October 29.

1.3. After hearing the Parties, it was decided not to hold the meeting provided for in article 18 of the RJAT.

1.4. The parties chose not to submit written arguments.

  1. PRELIMINARY EXAMINATION

The tribunal was regularly constituted and is competent ratione materiae, in accordance with article 2 of the RJAT.

The parties have legal personality and capacity, are legitimate, and are regularly represented (cf. articles 4 and 10, para. 2 of the RJAT and article 1 of Ordinance no. 112-A/2011 of March 22).

No defects were identified in the proceedings.

  1. ISSUES TO BE DECIDED

The following legal questions are at issue in these proceedings:

i) Should construction land be considered a "property with residential designation" for purposes of applying item 28.1 of the TGIS?

ii) If the answer to the previous question is negative: is the taxable event rule contained in item 28.1 of the TGIS unconstitutional?

  1. LEGAL REASONING

4.1. Facts

4.1.1. Facts deemed proved

a) The Applicant is the owner of the urban property composed of construction land, registered in article … of the urban property register of the Union of parishes of … and …, municipality of Coimbra (document no. 1, attached to the arbitration request, the contents of which are reproduced hereby);

b) The said urban property has a Tax Property Value ("TPV") exceeding € 1,000,000 (documents nos. 1 and 2, attached to the arbitration request, the contents of which are reproduced hereby);

c) The urban property does not have a subdivision permit, construction license permit, approved project, or valid prior information in accordance with and pursuant to article 14 of Decree-Law no. 555/99 of December 16 (document no. 3, attached to the arbitration request, the contents of which are reproduced hereby);

d) On an unspecified date, the Applicant was notified of the tax act of Stamp Duty assessment relating to the year 2013, in the total amount of € 21,924.13, issued on March 18, 2014, levied under item 28.1 of the TGIS (see document no. 1).

4.1.2. Facts deemed not proved

There are no facts relevant to the decision that are deemed not proved.

4.1.3. Reasoning on the facts deemed proved

The facts deemed proved are based on the documents indicated in point 4.1.1 above, whose authenticity and correspondence to reality were not questioned.

4.2. On the Law

4.2.1. As regards the merits of the case, the essential question which is the subject of this proceeding is whether there is an incidence of Stamp Duty under item 28.1 of the TGIS, as amended by article 4 of Law no. 55-A/2012 of October 29, on the ownership, usufruct or right of superficies of construction land.

Article 1, para. 1 of the Stamp Duty Code provides that "Stamp Duty is levied on all acts, contracts, documents, titles, papers and other facts or legal situations provided for in the General Table, including gratuitous transfers of property."

Item 28.1 of the TGIS was introduced by article 4 of Law no. 55-A/2012 of October 29, with the following wording:

"Ownership, usufruct or right of superficies of urban properties whose tax property value entered in the register, under the Municipal Property Tax Code (CIMI), is equal to or greater than (euro) 1,000,000 - on the tax property value used for Municipal Property Tax purposes:

28.1 For property with residential designation: 1%"[1]

It follows from the rules transcribed above that there is an incidence of Stamp Duty:

a) On ownership, usufruct or right of superficies;

b) Of property with residential designation; and

c) With TPV entered in the register, under the Municipal Property Tax Code, equal to or greater than € 1,000,000.

The question at issue is whether the concept of "property with residential designation" comprises construction land.

Said concept is not defined in tax legislation, namely in the Municipal Property Tax Code ("IMI"), which constitutes the subsidiary legislation for purposes of tax assessment (cf. articles 23, para. 7, 46 and 67 of the Stamp Duty Code).

However, that tax code defines various concepts of properties. In this regard, it is important to consider the relevant legal provisions on this matter, which are transcribed below:

"Article 2

Concept of Property

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

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

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

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

Article 3

Rural Properties

1 - Rural properties are lands situated outside an urban agglomeration which are not to be classified as construction land, under para. 3 of article 6, provided that:

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

b) Not having the designation indicated in the preceding subparagraph, they are not constructed or have only ancillary buildings or constructions, without economic autonomy and of reduced value.

2 - Rural properties also include lands situated within an urban agglomeration, provided that, by force of legally approved provision, they cannot have any income-generating use or can only have agricultural income-generating use and are in fact so devoted.

3 - Rural properties also include:

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

b) Waters and plantations in the situations referred to in para. 1 of article 2.

4 - For purposes of this Code, urban agglomerations are deemed to include, in addition to those situated within legally fixed perimeters, settlements with a minimum of 10 units served by streets of public use, with their perimeter delimited by points 50 m distant 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 provisions of the following article.

Article 5

Mixed Properties

1 - Whenever a property has rural and urban parts it is classified, as a whole, according to its principal part.

2 - If neither part can be classified as principal, the property is deemed to be mixed.

Article 6

Types of Urban Properties

1 - Urban properties are divided into:

a) Residential;

b) Commercial, industrial or for services;

c) Construction land;

d) Others.

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

3 - Construction land means lands situated within or outside an urban agglomeration for which a license or authorization has been granted, prior notice admitted or a favorable prior opinion issued for a subdivision or construction operation, as well as those which have been declared as such in the acquisition title, except for lands where the competent authorities prohibit any of such operations, namely those located in green areas, protected areas or which, according to municipal land planning schemes, are devoted to public spaces, infrastructure or facilities.

4 - The provision of subparagraph d) of para. 1 includes lands situated within an urban agglomeration which are not construction land nor are covered by the provision of para. 2 of article 3, as well as buildings and constructions licensed or, in the absence of a license, which have as normal purpose purposes other than those referred to in para. 2 and also those falling under the exception of para. 3."

What the provisions above do not say and which is for this Arbitral Tribunal to consider and decide is what is meant by "property with residential designation", as provided in item 28.1 of the TGIS, and its respective scope regarding the reality of construction land. That is, it is necessary to interpret the said concept.

In matters of interpretation of tax laws, it is important to pay attention to article 11 of the General Tax Law:

"Article 11

Interpretation

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

2 - Whenever tax rules use terms specific to other branches of law, they should be interpreted in the same sense as that which they have there, unless another meaning follows directly from the law.

3 - If doubt persists about the meaning of the taxable event rules to be applied, the economic substance of the tax facts should be considered.

4 - Gaps resulting from tax rules covered by the legislative reserve of the National Assembly are not susceptible to analogical integration."

The general principles of interpretation of laws, mentioned in para. 1 of article 11 above, are established in article 9 of the Civil Code, in the following terms:

"Article 9

Interpretation of Law

  1. Interpretation should not be confined to the letter of the law, but should reconstruct from the texts the legislative intent, having especially in mind the unity of the legal system, the circumstances in which the law was made and the specific conditions of the time when it is applied.

  2. 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.

  3. In determining the meaning and scope of the law, the interpreter shall presume that the legislator adopted the most appropriate solutions and was able to express its intent in adequate terms."

As mentioned above, tax legislation, namely the Municipal Property Tax Code, does not include a definition of the concept of "property with residential designation".

Since there is no exact terminological correspondence of the concept of "property with residential designation" with any other used in other statutes, it is necessary to interpret the rule, bearing in mind that the literal element cannot be ignored, since, in light of article 11 of the General Tax Law, the interpreter must observe the general rules and principles of interpretation and application of laws provided in article 9 of the Civil Code, which directs reconstruction from the texts of the legislative intent, and it should be presumed that "the legislator adopted the most appropriate solutions and was able to express its intent in adequate terms."[2]

Article 6, para. 1, subparagraph a) and para. 2 of the Municipal Property Tax Code refers to "urban residential property", which corresponds to buildings or constructions licensed for such purposes or, in the absence of a license, which have as normal purpose such end.

The expression provided in the said rule of the Municipal Property Tax Code bears some similarity to the concept contained in item 28.1 of the TGIS, however, it is not entirely coincident. On the other hand, on the assumption that "the legislator adopted the most appropriate solutions and was able to express its intent in adequate terms", if the legislator distinguished and used different terminology it is because it intended to do so.

Therefore, the lack of exact coincidence between the two expressions – in this case, the expression contained in item 28.1 of the TGIS and that provided in subparagraph a) of para. 1 and para. 2 of article 6 of the Municipal Property Tax Code – leads us to conclude that the legislator did not intend to use the same concept.

The concept provided in item 28.1 of the TGIS goes further, it presupposes a "designation", which can be defined as a "purpose, application to a determined end"[3].

For its part, the Municipal Property Tax Code uses, in various articles, the expression "designation" but always with the intention that it be effective. See, by way of example, articles 3 and 27 of this tax code.

Now, the legislator's intention was clearly to encompass in said item 28.1 of the TGIS properties that are already applied to residential purposes.

Similarly, the said item should be interpreted as not covering properties which do not yet have any defined use, since they are not applied to residential purposes.

In summary, the legislator intended only to target those properties that are already "devoted" to a certain purpose.

Without prejudice to the above, it is also important to assess whether the said concept of "property with residential designation" comprises properties (e.g., construction land) which, while not yet applied to residential purposes, already have a predetermined purpose (namely, in the subdivision license) or only when the actual assignment of that purpose is materialized (through building or construction that allows such use).

From the combined analysis of item 28.1 of the TGIS and subparagraph a) of para. 1 and para. 2 of article 6 of the Municipal Property Tax Code, it is concluded that the best interpretation is that "property with residential designation" presupposes an effective designation, not covering construction land which, while not yet applied to residential purposes, already has a predetermined purpose, namely in the subdivision license.

In fact, and as already mentioned, there is a clear terminological difference between the concepts established in item 28.1 of the TGIS and in subparagraph a) of para. 1 and para. 2 of article 6 of the Municipal Property Tax Code.

If the legislator intended that the concept of "property with residential designation" would include properties licensed for residential purposes or, even without a license, which have as normal purpose residential use, it would have used the terminology contained in para. 2 of article 6 of the Municipal Property Tax Code, which defines these properties as "residential properties", which it clearly did not do.

Therefore, the concept of "property with residential designation" is aimed at a distinct reality, requiring an effective residential designation.

In this same sense there is extensive case law from the Administrative Supreme Court ("STA") and, as well, tax arbitration case law. We refer, in particular, without concern for exhaustiveness, to the judgments of the STA in cases 01870/13, 0272/14 and 055/14, as well as to the arbitration decisions in cases 42/2013-T, 53/2013-T and 144/2013-T.

Finally, it should be noted that article 194 of Law no. 83-C/2013 of December 31 amended the wording of para. 1 of item 28 of the TGIS, providing that the taxation in question applies to ownership, usufruct or right of superficies of "(…) construction land whose building, authorized or planned, is for residential purposes (…)".

This is an innovative rule applicable from the date of entry into force of the said law (in this case, January 1, 2014) not covering the situation which is the subject of this proceeding, in which the tax fact occurred before the beginning of its effectiveness.

It would not be otherwise if that amendment had an interpretative nature, applying to past facts. However, the legislator did not assign an interpretative nature, nor can any reference to its interpretative character be extracted from the text of the rule, so it is an innovative law, applicable only for the future.

Moreover, the construction land whose ownership was the subject of the contested tax act does not have authorization for residential building nor is there any provision to that effect.

In view of the above, to the extent that the property on which the contested tax act is levied does not have an effective residential designation, it is decided that the defect of violation of law, due to error in the legal grounds, raised by the Applicant, is well-founded, and the contested tax act should be annulled.

4.2.2. In view of the declaration of illegality of the assessment which is the subject of this proceeding, due to the defect of violation of law due to error in the legal grounds, the examination of the unconstitutionality defect raised, on a subsidiary basis, by the Applicant is precluded.

In fact, in light of article 124 of the Tax Procedure and Process Code, applicable under article 29, para. 1 of the RJAT, in establishing an order of examination of defects, presupposes that, once a defect is found to be well-founded that assures effective protection of the rights of the challengers, it is not necessary to examine the others.

  1. OPERATIVE PART

In view of the above, it is concluded that the Applicant is right, and accordingly, it is decided to uphold the request for a declaration of illegality and annulment of the contested tax act, with all legal consequences, namely that the amounts paid should be returned to the Applicant under the legal terms.

Value of the case: fixed at € 21,924.13 (twenty-one thousand, nine hundred and twenty-four euros and thirteen cents), in accordance with the provision of article 3, para. 2 of the Rules of Costs in Tax Arbitration Proceedings ("RCPAT"), article 97-A, para. 1 of the Tax Procedure and Process Code and article 305 et seq. of the Civil Procedure Code.

Costs: the amount of costs is fixed at € 1,224.00 (one thousand, two hundred and twenty-four euros), under the terms of Table I attached to the RCPAT, to be borne by the Respondent.

Notify.

Lisbon, January 12, 2015.

The Arbitrator,

(Lina Ramalho)

(This decision was prepared by computer, under article 131, para. 5 of the Civil Procedure Code (former art. 138, para. 5), applicable by reference to article 29, para. 1, subparagraph e) of Decree-Law no. 10/2011 of January 20 (RJAT), with its wording governed by the spelling prior to the 1990 Orthographic Agreement.)

[1] Wording as of the date of the facts. The said item was amended by Law no. 83-C/2013 of December 31, effective January 1, 2014, and currently has the following wording:

"Ownership, usufruct or right of superficies of urban properties whose tax property value entered in the register, under the Municipal Property Tax Code (CIMI), is equal to or greater than (euro) 1,000,000 - on the tax property value used for Municipal Property Tax purposes:

28.1-For residential property or for construction land whose building, authorized or planned, is for residential purposes, under the terms provided in the Municipal Property Tax Code: 1%

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

[2] Cf. article 9, para. 3 of the Civil Code.

[3] In Priberam Dictionary of the Portuguese Language, 2008-2013, available at http://www.priberam.pt/dlpo/afectação.

Frequently Asked Questions

Automatically Created

What is the concept of 'land for construction' (terreno para construção) under Portuguese Stamp Tax law?
Under Portuguese Stamp Tax law, construction land (terreno para construção) is defined by exclusion in the Municipal Property Tax Code (CIMI) as land situated outside urban agglomerations that is specifically designated for construction purposes but has not yet been built upon. The concept is distinguished from constructed urban properties, which have actual buildings or structures. Construction land represents an intermediate classification between rural land and built urban property, lacking the residential or commercial designation that only materializes upon actual construction of buildings.
Does Verba 28.1 of the Stamp Tax General Table apply to building land without an approved construction permit?
No, Verba 28.1 of the General Stamp Tax Table does not apply to building land without an approved construction permit. Item 28.1 specifically taxes 'property with residential designation' valued at €1,000,000 or more. In Process 516/2014-T, the CAAD examined whether construction land without subdivision permits, construction licenses, approved projects, or valid prior information under Decree-Law 555/99 could be classified as having residential designation. The taxpayer successfully argued that residential designation only materializes upon actual construction, not merely upon the land's potential use for residential development.
Can land for construction be classified as having a housing allocation before a building is actually erected?
No, land for construction cannot be classified as having a housing allocation before a building is actually erected. The applicant in Process 516/2014-T argued that residential designation only materializes with actual construction of the property, resulting in deletion of the construction land's cadastral registration and replacement with a new registration for the constructed urban property or autonomous fraction. Construction land lacks any designation—whether residential or otherwise—as such designations apply only to constructed buildings under Portuguese property law. The designation is tied to the existence of a physical structure, not the intended future use.
What are the constitutional grounds for challenging Stamp Tax assessments on building land in Portugal?
Constitutional grounds for challenging Stamp Tax assessments on building land in Portugal include violations of the principle of taxation based on taxpaying capacity (capacidade contributiva) enshrined in Article 104 of the Portuguese Constitution, and violations of the equality principle under Article 13. In Process 516/2014-T, the applicant subsidiarily argued the assessment was unconstitutional because taxing undeveloped construction land as 'property with residential designation' violates these principles. Taxing land without actual residential use or income-generating capacity exceeds legitimate taxation boundaries and treats similarly situated taxpayers (owners of construction land) unequally compared to owners of actual residential properties that generate use value or rental income.
How did the CAAD rule on the legality of Stamp Tax levied on land without housing allocation in Process 516/2014-T?
In Process 516/2014-T, the CAAD ruled in favor of the taxpayer, declaring the Stamp Tax assessment on construction land illegal. The tribunal determined that Item 28.1 of the General Stamp Duty Table, which taxes 'property with residential designation,' does not encompass construction land. The CAAD reasoned that residential designation is a characteristic of constructed buildings, not undeveloped land, and only materializes upon actual construction. Since the construction land lacked subdivision permits, construction licenses, or approved projects, it could not be classified as having residential designation. Consequently, the €21,924.13 Stamp Duty assessment was annulled, establishing important precedent that construction land falls outside the scope of Item 28.1's taxable events.