Process: 516/2015-T

Date: April 28, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD arbitration process 516/2015-T involved a challenge by a Portuguese real estate development company against Stamp Tax assessments totaling €284,238.60 levied under Verba 28.1 of the General Stamp Tax Table (TGIS) for the year 2014. The assessments targeted construction land located in Loulé municipality, comprising twelve urban property parcels. The petitioner challenged the constitutionality of Verba 28.1, arguing it violated the equality principle enshrined in Article 13 and the property taxation principles in Article 104(3) of the Portuguese Constitution. The company's core arguments centered on discriminatory treatment: first, the tax applies only to owners of residential properties or construction land intended for residential use with taxable values equal to or exceeding €1,000,000, excluding other property types; second, taxation applies to the entire property value rather than only the amount exceeding the €1 million threshold, creating unfair treatment compared to owners whose properties fall just below this threshold; third, taxpayers holding multiple properties each valued below €1 million escape taxation entirely, even when their aggregate wealth substantially exceeds €1 million; fourth, the provision violates the tax capacity principle by failing to tax equals equally and unequals proportionately to their economic capacity. The petitioner invoked Constitutional Court jurisprudence and fiscal progressivity principles, arguing the tax structure creates arbitrary distinctions unrelated to actual wealth or tax-paying capacity. The company sought declaration of illegality of the assessments, restitution of taxes paid, and compensatory interest. The arbitration tribunal was constituted on October 28, 2015, following the statutory procedures under RJAT. While the decision excerpt establishes the facts and legal framework, the final ruling and reasoning on the constitutional challenge are not included in the provided text.

Full Decision

ARBITRAL DECISION

I. Report

On 29.07.2015, company A..., SA, NIPC ..., filed a petition for the constitution of a collective arbitration tribunal, in accordance with the combined provisions of articles 2 and 10 of Decree-Law No. 10/2011 of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to only as RJAT), in which the Tax and Customs Authority (AT) is the respondent.

The petition for the constitution of the arbitration tribunal was accepted by the Honorable President of CAAD and automatically notified to the Tax and Customs Authority on 31.08.2015.

Pursuant to the provision in subparagraph a) of article 11 of Decree-Law No. 10/2011 of 20 January, as amended by article 228 of Law No. 66-B/2012 of 31 December, the Ethics Board appointed the undersigned signatories as arbitrators of the arbitration tribunal, who communicated acceptance of their office within the applicable period, and notified the parties of this appointment on 13.10.2015.

Thus, in compliance with the provision in subparagraph c) of article 11, paragraph 1, of Decree-Law No. 10/2011 of 20 January, as amended by article 228 of Law No. 66-B/2012 of 31 December, the tribunal was constituted on 28.10.2015.

The present case concerns Stamp Tax assessments relating to the year 2014 and construction land located in the parish of..., Municipality of Loulé, better identified in section III.1 of this decision, whose illegality is raised by the petitioner, who requests, pursuant to the provisions of articles 2, paragraph 1, subparagraph a), 5, paragraph 3, subparagraph a), 6, paragraph 2, subparagraph a), 10, paragraph 1, subparagraph a) of RJAT, the respective declaration of illegality, as well as the restitution of the tax paid and the payment of compensatory interest.

The petitioner alleges that the provision on which the disputed assessments are based – established in item 28.1 of TGIS – is unconstitutional due to violation of the principle of equality provided for in article 13 and, specifically regarding taxation of property, in article 104, paragraph 3, of the Constitution, while the respondent maintains the constitutionality of the said provision, and, consequently, the validity of the disputed assessments.

II. Preliminary Objections

The Arbitration Tribunal was duly constituted.

The parties have legal capacity and standing, are legitimate (articles 4 and 10, paragraph 2, of the same decree and article 1 of Ministerial Order No. 112-A/2011 of 22 March) and are duly represented.

There are no nullities, exceptions or preliminary questions that preclude immediate determination of the merits of the case.

III. Reasoning

III.1 Statement of Facts

The following are established:

a) Proven Facts

  1. The petitioner is a commercial company that, within the scope of its activity, engages in real estate development and construction;

  2. In March 2015, the petitioner was notified of the Stamp Tax assessments relating to the year 2014 and the construction land located in the parish of..., Municipality of Loulé, registered in the urban property register under articles U-..., U-..., U-..., U-..., U-..., U-..., U-..., U-..., U-..., U-..., U-..., and U-... respectively, in the total amount of € 284,238.60, materialized in collection documents Nos. 2015...; 2015...; 2015...; 2015...; 2015...; 2015...; 2015...; 2015...; 2015...; 2015...; 2015...; 2015..., all dated 20 March 2015;

  3. The petitioner proceeded to make voluntary payment of the first installments of the assessments referred to in point 2.

b) Unproven Facts

There are no facts relevant to the decision of the case that have not been proven.

c) Reasoning for the Establishment of Facts

The facts were established as proven based on the documents submitted with the petition for arbitration, with no controversy regarding the facts.

III.2 Law

The question before the tribunal reduces to whether the provision contained in item 28.1 of TGIS is materially unconstitutional due to violation of the principle of equality, namely tax equality from the perspective of tax capacity.

The petitioner argues, in summary, as follows:

  • On the one hand, not all owners, usufructuaries or surface right holders of property with tax value equal to or greater than € 1,000,000 are subject to this tax burden, but only those who own urban properties used for residential purposes or construction land whose buildings, authorized or planned, are for residential purposes, excluding all those in relation to other urban or rural properties.

  • On the other hand, only the owners, usufructuaries or surface right holders of these urban properties with tax value equal to or greater than € 1,000,000 bear the tax burden and, in these cases, taxation is levied on the total tax value of the property.

  • Furthermore, the taxation of patrimonial wealth by reference to the value of the "unit" property excludes from taxation individuals holding the same rights over real estate assets composed of several properties with unit value lower than that defined in the scope of application provision but whose total value is substantially higher than the reference value of the "unit" for tax purposes.

  • Similarly, the petitioner sees no reason why owners, usufructuaries or surface right holders of urban properties used for residential purposes or construction land whose buildings, authorized or planned, are for residential purposes, with tax value exceeding € 1,000,000 should bear the tax burden on the entire tax value of those properties and not merely on the amount exceeding that value, when owners, usufructuaries or surface right holders of the same type of urban properties with tax value below € 1,000,000 bear no taxation. In the petitioner's view, if one of the criteria for determining the scope of application is that the properties in question have a value exceeding € 1,000,000, then, to avoid negatively discriminating against these taxpayers compared to those whose properties do not exceed the reference value, taxation should apply only to the difference between the tax value of the properties in question and that reference value.

  • The criterion of tax capacity presupposes equal taxation for those with the same tax capacity and different taxation for those whose tax capacity differs, according to that difference. As a corollary of the principle of (tax) equality, the principle of taxation according to each person's tax capacity must be observed by the ordinary legislator in defining the objective scope of application of the tax by reference to the three manifestations of wealth capable of indicating the taxpayer's economic capacity: (i) wealth earned (income); (ii) wealth possessed (property); and (iii) wealth spent (consumption). On this subject, the petitioner cites case law of the Constitutional Court (Decision No. 106/2013 of 20 February in Case No. 702/12):

"The constitutional principle of tax equality, as an expression of the general structuring principle of equality (article 13 of the Constitution of the Portuguese Republic), is not limited to the rule of universality of taxes, according to which these apply to all those who have tax capacity, but also determines that all must be bound to pay on the same basis.

'According to this rule, what is equal must be taxed equally and what is unequal must be taxed unequally to the extent of that inequality. However, the differentiation between what is equal or unequal implies the adoption of evaluative criteria for the taxable realities.'"

  • The petitioner also invokes fiscal progressivity as a corollary of the principle of equality. In this regard, it relies on the words of SOUSA FRANCO (Public Finances and Financial Law, volume II, Coimbra, 4th edition – reprint, page 198): "(...) the principle of tax capacity requires that taxpayers be treated with equality and that their payments involve an equal sacrifice for each of them, from which it follows that progressive taxation will be more just than proportional taxation, since the objective sacrifice imposed by taxation is all the smaller the greater the income."

  • It thus maintains that fiscal progressivity requires that the relationship between tax paid and the level of wealth be more than proportional, which can only be achieved by applying a higher tax rate to taxpayers with greater manifestations of wealth. In the case at hand, the Stamp Tax on the ownership, usufruct or surface right of urban properties with residential or potentially residential use, with tax value equal to or greater than € 1,000,000.00, at the rate of 1%, does not assume a progressive character.

  • Similarly, it considers it disproportionate and in no way reducing inequality in the social distribution of wealth the fact of taxing the entire tax value of an urban property with a value of € 1,000,000.00 and not taxing even the ownership of an urban property with a value of € 999,999.00.

  • It concludes that, as the legislator has not established differentiating mechanisms in the application of the tax in question, actually tending towards the desired reduction of inequality in the social distribution of wealth, in the case at hand, we are faced with a clear violation of the principle of progressivity. It again cites the case law of the Constitutional Court (cf. Decision of the Constitutional Court No. 806/93, published in the Official Gazette, Series II, of 29 January 1994, cited in Decision of the Constitutional Court No. 711/2006 of 29 December in Case No. 1067/06, following Decisions of the Constitutional Court Nos. 44/84, 142/85, 80/86, 336/86, published in the Official Gazette, respectively, Series II, of 11 July 1984, Series II, of 7 September 1985, Series I, of 9 June 1986 and Series I, of 24 December 1986), following the case law of the Constitutional Commission (in particular, Opinion No. 26/82, published in the Opinions of the Constitutional Commission, 20th vol., p. 211 et seq.): "(...) if the principle of equality does not prohibit that there be differences of treatment in law, sometimes even imposing them directly or indirectly, what can certainly be said is that such principle prohibits, indeed, arbitrary, unreasonable or unfounded discriminations, being regarded as such all those that do not find sufficient support in the distinct materiality of the different situations that are contemplated or in the reconciliation of the said principle of equality with other constitutionally recognized principles."

  • The petitioner also challenges the justification advanced for taxation under item 28.1 of TGIS, according to which it would aim at the taxation of luxury properties, namely:

  • The concept of luxury evokes the notion of enjoyment (which is immediately recognized by the constitutional legislator by appealing to such concept in the provision of taxation of consumption and not as regards taxation of property), being not reasonable to admit that the enjoyment of the properties subject to taxation necessarily occurs in the sphere of their respective owners, and may occur in the sphere of tenants or not even occur at all (as is the case with construction land with potential residential use);

  • Associating the concept of luxury with high-value urban properties whose use is residential or potentially residential leaves out other properties of equal value whose use is susceptible of deserving the same designation (luxury hotels; golf courses; luxury service spaces, such as "private" spaces in banking institutions, among many others that could be mentioned).

  • Finally, the petitioner cites case law from arbitration tribunals at CAAD, in particular that contained in Arbitral Decision No. 218/2013-T (24-02-2014), followed by arbitral decision No. 206/2014-T.

In contrast, the Tax and Customs Authority argues that:

  • In addition to Decision 590/2015, Decisions Nos. 692/2015 and 620/2015 of the Constitutional Court also pronounce themselves in favor of the non-unconstitutionality of item 28.1 of TGIS.

  • The Constitutional Court thus found, in 3 recent decisions, that the said provision does not violate the principle of equality from the perspective of tax capacity (for whose reasoning it refers).

  • Various arbitration tribunals at CAAD have also decided not to find the provision contained in item 28.1 of TGIS unconstitutional - cases No. 517/2015-T, No. 495/2015-T and No. 515/2015-T.

  • In view of what the Tax and Customs Authority alleged, taking into account article 4 of the Civil Code which prohibits the courts from resorting to equity, it considers that if the petitioner's thesis prevailed, the arbitral decision would be unconstitutional since by censuring the act performed based on criteria other than legality, it would violate the constitutional principle of separation of powers.

Let us examine this.

Article 13 of the Constitution of the Portuguese Republic establishes the principle of equality in the following terms:

  1. All citizens have the same social dignity and are equal before the law.

  2. No one may be privileged, benefited, prejudiced, deprived of any right or exempted from any duty on account of ancestry, sex, race, language, territory of origin, religion, political or ideological convictions, education, economic situation, social condition or sexual orientation.

Article 103 of the Constitution, on the tax system, provides as follows:

  1. The tax system aims at satisfying the financial needs of the State and other public entities and at a fair distribution of income and wealth.

  2. Taxes are created by law, which determines the scope of application, the rate, the tax benefits and the guarantees of taxpayers.

  3. No one may be obliged to pay taxes that have not been created in accordance with the Constitution, that have a retroactive nature or whose assessment and collection are not made in accordance with the law.

Finally, and still with relevance for the present analysis, paragraph 2 of article 104 of the Constitution provides that:

  1. The taxation of property must contribute to equality among citizens.

The petitioner maintains the illegality of the assessment acts in dispute based on violation of the principle of equality, in particular tax equality. The principle of tax equality unfolds in two aspects: that of generality and that of uniformity of taxes. From the perspective of the generality of taxes, the principle of tax equality determines that the duty to pay taxes is universal, while from the perspective of uniformity it implies the adoption of the same criterion of taxation for all taxpayers.

In the words of Casalta Nabais, "the principle of tax equality requires that what is (essentially) equal be taxed equally, and what is (essentially) unequal be taxed unequally to the extent of that inequality."[1] One of the criteria for determining what is equal and what is unequal is the criterion of tax capacity, which requires that taxpayers with the same tax capacity pay the same tax (horizontal equality) and that taxpayers with different tax capacity pay taxes that are different - qualitatively and/or quantitatively – (vertical equality). The principle of equality thus prohibits arbitrariness, meaning it should only be considered violated if the treatment regarded as unequal is arbitrary or, in less stringent terms, if the unequal treatment is neither justified nor reasonable.

It has been the repeated understanding of the Constitutional Court that regime choices made by the ordinary legislator should be censured, on the grounds of violation of the principle of equality, in those cases in which it is proven that they result in differences of treatment between persons that do not find justification in reasonable or intelligible grounds, taking into account the constitutional objectives that, with the measure of the difference, are being pursued" (See Decision of the Constitutional Court No. 47/2010).

Item 28 was added to TGIS by Law No. 55-A/2012 of 29 October.

In the wording given to it by Law No. 83-C/2013 of 31 December, this item has the following text:

28 - Ownership, usufruct or surface right of urban properties whose tax value as shown in the register, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than € 1,000,000 - on the tax value used for the purpose of IMI:

28.1 - For residential property or for construction land whose buildings, authorized or planned, are for residential purposes, in accordance with the provisions of the IMI Code - 1%.

The petitioner's argument was reviewed in Decision No. 590/2015 of the Constitutional Court, of 11-11-2015, rendered in case No. 542/14, in terms that, insofar as it matters here, are followed.

In support of the constitutionality of the provision contained in item 28.1, in its current wording, arbitration tribunals constituted at CAAD have also pronounced themselves – see cases 495/2015-T and 515/2015-T.

  • Against the current set forth above, there has now emerged, very recently, the decision in case No. 507/2015-T — rendered by an Arbitration Tribunal, — in which the arbitrators maintain the unconstitutionality of Item 28.1 of the Schedule[2].

The present Arbitration Tribunal, not disregarding the cited CAAD Decision, understands that there are no serious reasons, in this case, not to apply the same doctrine defended by the Constitutional Court in several Decisions cited in this and other CAAD decisions on the same subject, even considering that these decisions concern urban residential properties, in line, indeed, with what has already occurred in previously cited arbitral decisions above.

Concerning the fact that it involves two taxes based on the same taxable fact, the Constitutional Court understands, and here we agree, that "the inclusion of the taxation under analysis within the scope of the Stamp Tax, and not within other types of taxes, does not, in itself, result in a violation of any constitutional parameter. Even if it were to be concluded that there is an introduction of a factor of incoherence, or even of imbalance, in the system of taxation of real estate property, as the petitioner claims, the mere lack of systematicity of the questioned provision is not suitable to determine constitutional review (cf., although in other fields of regulation, Decisions Nos. 353/2010 and 324/2013)" (...) "Other paths certainly could be conceived that are available to the legislator, possibly through resort to other types of taxes, but it is nonetheless true that the option taken finds inscription in the broad margin of discretion of the tax legislator, being incapable of founding independent constitutional review".

As for the prohibition of arbitrariness, the Constitutional Court understood that "There is also no arbitrary fiscal measure in the scope of application provision in question, because it is not devoid of rational foundation. As we have seen, the legislative change was intended to broaden the taxation of property, making it apply more intensely to property which, by its value substantially higher than that of the majority of urban properties with residential use, reveals greater indicators of wealth and, as such, is capable of founding the imposition of an increased contribution for the consolidation of public accounts on its holders, in realization of the aforementioned "principle of social equity in austerity"".

As for the issue of double taxation, the understanding of the Constitutional Court, which is reiterated here, is as follows: "(...) situations of double taxation, reflected in the application of two taxes to the same taxable fact, are frequent in cases where the public entities that benefit from them are distinct, as occurs in the case at hand, since IMI is municipal revenue and the Stamp Tax is state revenue. A parallel situation occurs with the municipal surcharge which, currently, applies, like the Corporate Income Tax, to the taxable matter of this tax (article 18, paragraph 1, of Law No. 73/2013 of 3 September)."

Regarding the argument that taxpayers with identical tax capacity are not covered by the scope of application of item No. 28 only because the properties of which they are owners have a tax value below € 1,000,000.00, for example € 999,999.00, the following is stated in the cited decision of the Constitutional Court: "It should be noted that the existence of distinct application results in the face of very approximate values - by excess or by defect - of a quantitative expression stipulated normatively as a limit – positive or negative – of any legal effect is inherent to its fixation by the legislator. Whether in the definition of the scope of taxation, or in the enactment of exemptions or tax benefits based on value criteria, it is always possible to find examples of taxpayers with differentiated treatment based on a quantitative variation of very limited expression. Because it must necessarily be so, the differentiation involved in the second hypothesis posed does not appear to be devoid of rational foundation, in accordance with the scope, structure and nature of the provision under analysis: intended to increase the taxation of properties with residential use of high value, the fiscal measure could not fail to determine, by imperative of the principle of fiscal legality, the concrete tax value from which a special rate of Stamp Tax would apply to such properties, which removes, also on this point, the occurrence of arbitrariness on the part of the legislator."

It is true that, in the factual situation underlying the analysis of the Constitutional Court, as in the present case, there was no construction land. However, there are no serious reasons, in this case, not to apply the same doctrine, in line, indeed, with what has already occurred in previously cited arbitral decisions above.

In these terms, the tribunal considers, in the specific case, that the unconstitutionality of the provision contained in item 28.1 of TGIS due to violation of the principle of equality has not been established.

IV. Decision

In these terms, the members of this Arbitration Tribunal agree to dismiss:

(i) The petition for declaration of illegality and annulment of the disputed Stamp Tax assessments;

(ii) The petition for payment of compensatory interest.

V. Dissenting Opinion

Pursuant to article 22, paragraph 5, of RJAT, arbitrator Raquel Franco filed a dissenting opinion which forms an integral part of this arbitral decision.

VI. Case Value

In accordance with the provision of article 306, paragraph 2, of the Code of Civil Procedure, article 97-A, paragraph 1, subparagraph a), of the Tax Procedure Code and article 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is set at € 284,238.60.

VII. Costs

Pursuant to article 22, paragraph 4, of RJAT, the costs are set at € 5,202.00, in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the petitioner.

Lisbon, 28 April 2016

The Arbitrators

José Baeta de Queiroz

(President)

Ana Teixeira de Sousa

(Member)

Raquel Franco

(Member – Dissenting as per Dissenting Opinion)

(Text prepared by computer, in accordance with article 131, paragraph 5, of the Code of Civil Procedure (CPC), applicable by operation of article 29, paragraph 1, subparagraph e) of the Regulation of Tax Arbitration.)

Dissenting Opinion in Case 516/2015-T

I disagree with the prevailing thesis for the following reasons:

The wording of the provision contained in item 28.1 of TGIS resulted from a broadening of the scope of application of the original provision (which provided only for taxation of properties with residential use and of properties held by entities other than individuals resident in a country, territory or region subject to a clearly more favorable tax regime), to construction land whose buildings, authorized or planned, are for residential purposes.

When the original provision was created, the justification for it advanced in the Explanatory Memorandum of Bill No. 96/XII/2nd was as follows:

"The pursuit of the public interest, in view of the country's economic and financial situation, requires an effort of consolidation that will require, in addition to ongoing activism in reducing public spending, the introduction of tax measures inserted in a broader set of measures to combat the budget deficit.

These measures are fundamental to reinforce the principle of social equity in austerity, ensuring an effective distribution of the sacrifices necessary to fulfill the adjustment program. The Government is strongly committed to ensuring that the distribution of these sacrifices will be made by everyone and not just by those who live from the income of their work. In accordance with this objective, this decree broadens the taxation of income and property, equitably covering a broad set of sectors of Portuguese society.

(...)

On the other hand, a rate is created in the Stamp Tax applying to urban properties with residential use whose tax value is equal to or greater than one million euros."

The constitutionality of the first wording of item 28.1, in light of the principle of equality, was affirmed by the Constitutional Court in Decision No. 590/2015 of 11-11-2015, rendered in case No. 542/14, in which it is stated, in particular, that "there is no arbitrary fiscal measure in the scope of application provision in question, because it is not devoid of rational foundation. As we have seen, the legislative change was intended to broaden the taxation of property, making it apply more intensely to property which, by its value substantially higher than that of the majority of urban properties with residential use, reveals greater indicators of wealth and, as such, is capable of founding the imposition of an increased contribution for the consolidation of public accounts on its holders, in realization of the aforementioned "principle of social equity in austerity"' and that 'the tax value on which the tax depends applies only to urban properties with residential vocation of the highest economic significance, externizing levels of wealth corresponding to the highest standards of Portuguese society'. (our emphasis)"

The original wording of item 28.1 of TGIS, taking into account, moreover, the justification advanced in the Explanatory Memorandum of Bill No. 96/XII/2nd, was intended, therefore, to tax the ownership of rights over luxury homes, as it reveals higher tax capacity on the part of those who hold them.

The broadening of the scope of application to construction land whose buildings, authorized or planned, are for residential purposes was not accompanied by a distinction relating to the value of the constructed building, and therefore, applying the general rules, even when the construction authorized or planned for the land is residential housing in several units, it is the tax value of the land, the only one that exists before the building is constructed and that is 'used for the purpose of IMI', that is relevant for assessing the scope of application of the tax.

This circumstance raises, in my view, constitutional issues regarding the provision in question, which I analyze in a manner very close to that contained in the decision rendered in case 507/2015-T. Thus, in summary:

  • the tax value of construction land is the sum of the value of the footprint area of the building to be constructed, which is that situated within the perimeter of fixation of the building to the ground, measured by the external part, added to the value of the land adjacent to the footprint', and that 'the value of the footprint area varies between 15% and 45% of the value of the buildings authorized or planned' (article 45, paragraphs 1 and 2, of the CIMI).

  • regarding construction land for which only building with residential units of value less than € 1,000,000.00 is planned or authorized, the justification of the high tax capacity revealed by the possession of such property does not hold, because the fact that the land has value equal to or exceeding that does not allow identification of a taxpayer with tax capacity at the level of the 'highest standards of Portuguese society'.

  • ownership of rights over construction land for units susceptible of independent use even reveals less tax capacity than that revealed by ownership of rights over the already constructed property, and therefore no rational justification can be found for taxing ownership of rights over the land, when the latter has value equal to or exceeding € 1,000,000.00, and not taxing ownership of rights of the same taxpayer over the already constructed property, when all units have values below that.

  • it lacks rational justification to tax based on hypothetical high tax capacity situations in which there is ownership of rights over construction land on which only buildings composed exclusively of units of individual value less than € 1,000,000.00 are authorized or planned, and not apply the same taxation to situations in which these buildings have already been constructed on the land, with a huge increase in the tax value of the building, since 'the value of the footprint area varies between 15% and 45% of the value of the buildings authorized or planned'.

  • as for construction land intended for the building of autonomous dwellings of value equal to or exceeding € 1,000,000.00, ownership of rights over land with this purpose reveals, on its own, a situation of wealth at the level of the 'highest standards of Portuguese society'.

Item 28.1 of TGIS, in its part relating to construction land, makes no distinction based on the value of the authorized or planned buildings, and therefore it must be concluded that it only makes its application dependent on the tax value of the land itself. Being so, it must be concluded that the provision of item 28.1 of TGIS, in the wording introduced by Law No. 83-C/2013 of 31 December, is materially unconstitutional, due to violation of the principle of equality, stated generically in article 13 of the Constitution of the Portuguese Republic, insofar as it applies to construction land with tax value equal to or exceeding € 1,000,000.00 for which the authorized or planned construction does not include any unit susceptible of independent use with value equal to or exceeding that.

For these reasons, I would find the petition for declaration of illegality of the assessments in the present case to be well-founded.

Lisbon, 28 April 2016

Raquel Franco

[1] José Casalta Nabais, in The Fundamental Duty to Pay Taxes, Theses Almedina, 2009, p. 435.

[2] In accordance with this CAAD decision, there is an underlying idea that, to differentiate the cases in which the planned or authorized buildings do or do not have value exceeding € 1 million, the issue relating to construction land, which is that these show a potentiality and not an actual value, is at stake. That is, it is recognized that the situation of construction land is different from that of constructed buildings and that, therefore, the provision should create conditions for differentiated treatment of what is unequal.

Thus it is concluded that the provision in question is unconstitutional due to violation of the principle of equality, stated generically in article 13 of the Constitution of the Portuguese Republic, insofar as it applies to construction land with tax value equal to or exceeding € 1,000,000.00 for which the authorized or planned construction does not include any unit susceptible of independent use with value equal to or exceeding that.

Additionally, the Arbitration Tribunal understood that the application of item 28.1 of the General Schedule of Stamp Tax, in its part relating to construction land, to companies that engage in the activity of purchasing construction land for resale is unconstitutional, since it is unequivocal that companies engaged in the commercialization of construction land are burdened with a significant additional tax burden compared to companies in general, based on a hypothetical index of tax capacity that does not necessarily correspond in reality, because the imposition of taxation has no relationship with the actual income of the activity developed by the companies and burdens them even if they have negative results.

Frequently Asked Questions

Automatically Created

What is the Stamp Tax (Imposto do Selo) under Verba 28.1 of the TGIS applied to building land in Portugal?
Stamp Tax (Imposto do Selo) under Verba 28.1 of the General Stamp Tax Table (TGIS) is an annual tax levied on urban properties used for residential purposes or construction land intended for residential buildings, where the taxable patrimonial value equals or exceeds €1,000,000. The tax applies to owners, usufructuaries, or surface right holders of such properties and is calculated on the total taxable value of each property unit. Introduced as part of Portugal's fiscal framework, this tax targets high-value real estate assets and represents a form of wealth taxation based on property ownership rather than income or transactions.
Can the constitutionality of Verba 28.1 of the TGIS be challenged on the basis of the equality principle under Articles 13 and 104(3) of the Portuguese Constitution?
Yes, the constitutionality of Verba 28.1 of TGIS can be challenged based on equality principles under Articles 13 and 104(3) of the Portuguese Constitution. Taxpayers can argue that the provision violates the general equality principle (Article 13) and the specific requirement that property taxation respect citizens' tax capacity (Article 104(3)). Challenges typically focus on discriminatory treatment between different property owners, arbitrary thresholds creating cliff effects, failure to tax based on genuine economic capacity, and unequal treatment of taxpayers with similar overall wealth but different property configurations. Such constitutional challenges can be raised in arbitration proceedings at CAAD or through appeals to the Constitutional Court.
How does a taxpayer request arbitral tribunal proceedings at CAAD to contest Stamp Tax assessments?
To request arbitral tribunal proceedings at CAAD (Centro de Arbitragem Administrativa) to contest Stamp Tax assessments, taxpayers must file a petition for constitution of an arbitration tribunal in accordance with Articles 2 and 10 of Decree-Law No. 10/2011 (RJAT - Legal Regime for Arbitration in Tax Matters). The petition identifies the Tax and Customs Authority (AT) as respondent and specifies the contested tax assessments. The CAAD President accepts and notifies the petition to AT. An Ethics Board then appoints arbitrators who must accept their appointments. Once arbitrators are appointed and accept, the tribunal is formally constituted. The petitioner must specify the legal grounds for challenging the assessments, request declaration of illegality, and may also seek restitution of amounts paid plus compensatory interest.
Are property developers entitled to refunds and compensatory interest when Stamp Tax liquidations on building land are declared illegal?
Yes, property developers are entitled to refunds and compensatory interest when Stamp Tax liquidations on building land are declared illegal by arbitral tribunals. Under RJAT provisions (specifically Articles 2(1)(a), 5(3)(a), 6(2)(a), and 10(1)(a)), petitioners can request not only the declaration of illegality of contested tax assessments but also restitution of taxes paid and payment of compensatory interest. Compensatory interest compensates taxpayers for the time value of money paid to the State while the tax assessment was being challenged. If the tribunal declares the assessments illegal, the Tax Authority must refund the amounts paid with applicable compensatory interest calculated from the payment date until restitution.
What was the outcome of CAAD arbitration process 516/2015-T regarding Stamp Tax on building land in Loulé?
The provided excerpt of CAAD arbitration process 516/2015-T does not include the final outcome or decision regarding Stamp Tax on building land in Loulé. The document establishes that the company challenged €284,238.60 in Stamp Tax assessments on twelve construction land parcels, arguing Verba 28.1 of TGIS violated constitutional equality principles. The tribunal was properly constituted on October 28, 2015, with no procedural defects identified. The facts section confirms the company received assessments in March 2015 and paid the first installments voluntarily. However, the excerpt ends during the legal reasoning section while presenting the petitioner's arguments, before the tribunal's analysis and final ruling on whether the constitutional challenge succeeded or failed.