Process: 519/2014-T

Date: April 27, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

Arbitral Case 519/2014-T examined the legality of Stamp Duty assessments totaling €93,503.86 under item 28.1 of the General Table of Stamp Duty (GTSD) on three urban properties classified as land for construction in Maia. The claimant, a real estate investment fund, challenged the Tax Authority's position that such land constitutes 'properties with residential use' subject to Stamp Duty. The core dispute centered on whether land for construction located in zones designated exclusively for commerce and services under municipal planning regulations can be taxed as residential property. The claimant argued that residential use under item 28.1 GTSD requires actual, concrete use of constructed buildings, not abstract future potential use, and that the Tax Authority committed an error in factual assumptions by treating commercially-zoned land as residential. The properties were located in Maia's sports zone, where municipal regulations only permit construction for commercial and service purposes. The claimant further contended that land for construction, as classified for Municipal Property Tax (IMI) purposes without allocation coefficients, cannot be deemed residential property under Stamp Duty legislation. The Tax Authority maintained that item 28 GTSD applies to both constructed properties and land for construction based on literal interpretation of the legal provision. The case raised important questions about the intersection of municipal zoning regulations, IMI classification criteria, and Stamp Duty incidence rules, particularly regarding the temporal dimension of 'residential use' and whether potential future use suffices for taxation purposes.

Full Decision

Case No. 519/2014-T

Claimant: Closed Real Estate Investment Fund A...

Respondent: Tax Authority and Customs Authority

Stamp Duty ("SD") 2013

ARBITRAL AWARD

The arbitrators, Court of Appeal Judge Manuel Malheiros (arbitrator-president), Dr. Henrique Nogueira Nunes and Professor Doctor Guilherme W. d' Oliveira Martins (member arbitrators), appointed by the Deontological Council of the Administrative Arbitration Center ("CAAD") to form the Collective Arbitral Tribunal, constituted on 30 September 2014, agree as follows:

I. REPORT

1.1. Closed Real Estate Investment Fund A..., tax identification number …, with registered office at Avenue …, in Lisbon, managed and represented by B… — … Real Estate Funds, S.A., tax identification number …, with registered office at the same address, hereinafter referred to as "Claimant", requested the constitution of an arbitral tribunal, under article 2(1)(a) and article 10, both of Decree-Law No. 10/2011, of 20 January (hereinafter "RJAT"[1]).

1.2. The request for arbitral pronouncement concerns the declaration of illegality, and consequent annulment, of the tax assessment acts for Stamp Duty Nos. ..., ... and ..., in the total amount of € 93,503.86, made on 17/03/2014, under item 28.1 of the General Table of Stamp Duty ("GTSD") and relating to three urban properties owned by the Claimant.

1.3. The Claimant is the owner of three urban properties registered in the real estate registry of the parish of Maia City, municipality of Maia, district of Porto, under the registration numbers ..., with the tax patrimonial value ("TPV") of € 4,317,608.13; ..., with the TPV of € 2,800,274.75; and ..., with the TPV of € 2,232,502.88, being registered in the respective registries as land for construction.

1.4. To support its request, the Claimant alleges, in summary, that the Stamp Duty assessments object of its initial petition are illegal, particularly because the three urban properties at issue in these proceedings do not have, it argues, nor can have, residential use, forming part of the sports zone of the city of Maia, and because the Municipality of Maia only provides, for the area in which those lands are situated, the construction of buildings intended for commerce and services, and therefore the properties in question do not have, nor can have residential use, with the Respondent being in error as to the factual assumptions, by considering that the lands in question have residential use.

It also considers that urban properties qualified as "land for construction" for purposes of IMI are not subject to Stamp Duty provided for in item 28 of the GTSD, and that the understanding of the Tax Authority contains a legal error due to violation of the rules of incidence of item 28 of the GTSD, arguing that for purposes of taxation under item 28.1 of the GTSD, the residential use of urban properties refers to the concrete and actual use of a constructed building, and not to an abstract, future and merely potential or projected use, under penalty of violation of the applicable legal and constitutional norms.

It considers that in determining the tax patrimonial value of land for construction for purposes of IMI, the allocation coefficient should not be considered, and therefore land for construction cannot, in consequence, be considered as properties with residential use for purposes of taxation under Stamp Duty, and that the assessments in question also violate the provisions of articles 41 and 45 of the CIMI [Code of Municipal Property Tax].

Finally, it requests compensation for the provision of improper security.

1.5. The Respondent argues, in summary, that the request for declaration of illegality, and consequent annulment of the assessments at issue in these proceedings, should be judged unfounded, considering that the property subject to each of the disputed assessments has the legal nature of a property with residential use, and therefore the assessment acts object of the present request for arbitral pronouncement should be upheld, as they constitute a correct interpretation of Item 28 of the GTSD.

The Tax Authority argues that, contrary to what is advocated by the Claimant, the concept of "properties with residential use", for purposes of what is provided in item 28 of the GTSD, comprises both constructed properties and land for construction, particularly given the literal wording of the rule.

As regards the value of the land adjacent to the area of construction, it considers that this is determined in the same manner as the value of the area of free land and the area of excess land for purposes of any urban property.

It considers, finally, that the provision of item 28 of the GTSD does not constitute a violation of any constitutional command, thus advocating for the legality of the tax acts because they constitute, in its understanding, a correct application of the law to the facts.

1.6. The parties agreed to dispense with the meeting provided for in article 18 of the RJAT.

II. PROCEDURAL MATTERS

The Tribunal was properly constituted and has competence ratione materiae, in accordance with article 2 of the RJAT.

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

No procedural defects were identified.

The deadline for the arbitral decision was set for 10 March 2015, and subsequently, by arbitral order, the deadline for the arbitral decision was extended by 2 months.

III. GROUNDS

III.A FACTS PROVEN

Before addressing the substantive issues, it is necessary to present the factual matter relevant to its understanding and decision, which, having examined the documentary evidence and the administrative tax proceedings attached to the case and also taking into account the facts alleged, is established as follows:

· The Claimant is the owner of three urban properties registered in the real estate registry of the parish of Maia City, municipality of Maia, district of Porto, under the registration numbers ..., with the tax patrimonial value ("TPV") of € 4,317,608.13; ..., with the TPV of € 2,800,274.75; and ..., with the TPV of € 2,232,502.88, being registered in the respective registries as land for construction;

· The analysis of the legality of three tax assessment acts for Stamp Duty Nos. ..., ... and ..., in the total amount of € 93,503.86, made on 17/03/2014, under item 28.1 of the General Table of Stamp Duty ("GTSD") and relating to three urban properties owned by the Claimant, is at issue.

III.B FACTS NOT PROVEN

There are no facts, alleged or of official knowledge, relevant to the decision that have not been established as proven.

III.C MOTIVATION

The determination of the factual matter was based on the administrative proceedings, documents attached to the initial petition or in the course of these proceedings.

IV. ON THE LAW

The Claimant alleges, in summary, that the Stamp Duty assessments object of its initial petition are illegal, particularly because the three urban properties at issue in these proceedings do not have, it argues, nor can have, residential use, forming part of the sports zone of the city of Maia, and because the Municipality of Maia only provides, for the area in which those lands are situated, the construction of buildings intended for commerce and services, and therefore the properties in question do not have, nor can have residential use, with the Respondent being in error as to the factual assumptions, by considering that the lands in question have residential use.

Thus, the Tax Authority, by presupposing that land for construction is a property with residential use, makes an incorrect interpretation of article 1(1) of the CIS [Code of Stamp Duty] and of item 28.1 of the General Table of Stamp Duty (hereinafter abbreviated as "GTSD"), as well as of article 6(1)(f)(i) of the aforementioned Law No. 55-A/2012, or commits the so-called "error of law regarding facts", and also that the taxation of item 28.1 of the GTSD regarded as a taxation of the ownership of properties with residential use of value greater than 1 million euros, even in cases where such does not correspond to a manifestation of luxury of its owners, but only to the mere development of their economic activity, is unconstitutional due to violation of the constitutional principles of equality and impartiality provided for in articles 266(2), 13 and 104(3), all of the CRP [Portuguese Constitution].

The essential question in the present dispute is, therefore, whether land for construction can be subsumed under the concept of "properties with residential use" and, consequently, whether they are included within the scope of objective incidence of item 28.1 of the GTSD attached to the CIS.

Law No. 55-A/2012 of 29/10/2012 amended article 1 of the Code of Stamp Duty and added to the General Table of Stamp Duty, Item 28, whereby the following came to fall within the scope of incidence of stamp duty:

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

28.1 - For properties with residential use - 1%; [...]"

Article 6 of the aforementioned act provides, under the heading "Transitional Provisions", the legal regime applicable in 2012, determining that the rate applicable in that year is 0.5% or 0.8%, depending on whether it is, respectively, properties with residential use assessed in accordance with the CIMI or properties with residential use not yet assessed in accordance with the CIMI.

Furthermore, a paragraph 2 was added to article 67 of the CIS, which provides that "To matters not regulated in this Code relating to item No. 28 of the General Table applies, subsidiarily, the provision of the CIMI".

The essential question is, therefore, to determine the scope of application of the rule of objective incidence of item 28.1 of the GTSD, namely as regards the determination of the scope of the definition of "urban properties with residential use", since it appears to be undisputed in the present case that the question of the TPV equal to or greater than € 1,000,000 is uncontested.

Neither Law No. 55-A/2012, of 29 October, nor the CIS, defines "urban property with residential use", so given the reference in the aforementioned paragraph 2 of article 67 of the CIS, we must seek to determine such definition within the scope of the CIMI, naturally resorting to the mechanisms of statutory interpretation.

Article 4 of the CIMI defines urban properties as all those that should not be classified as rural.

Pursuant to the aforementioned provision, urban properties are divided into:

a) Residential;

b) Commercial, industrial or for services;

c) Land for construction;

d) Other.

These types of urban properties are defined, in the CIMI, as follows:

Residential, commercial, industrial or services properties are buildings or constructions licensed for such purposes or, in the absence of a license, that have as their normal destination each of these purposes (paragraph 2 of article 6 of the CIMI);

Land for construction are lands situated within or outside an urban agglomeration, for which a license or authorization has been granted, prior notification admitted or favorable prior information issued for a subdivision or construction operation, and also those that have been declared as such in the acquisitive title, except lands in which the competent authorities prohibit any of such operations, namely those located in green areas, protected areas or which, in accordance with the municipal territorial planning schemes, are allocated to public spaces, infrastructure or equipment (paragraph 3 of article 6 of the CIMI).

Properties of the "other" type are lands situated within an urban agglomeration that are neither land for construction nor classified as rural properties and also buildings and constructions licensed or, in the absence of a license, that have as their normal destination purposes other than residential, commercial, industrial or services purposes, and also lands in which the competent authorities prohibit any of such operations, namely those located in green areas, protected areas or which, in accordance with the municipal territorial planning schemes, are allocated to public spaces, infrastructure or equipment (paragraph 4 of article 6 of the CIMI).

It thus appears that the CIMI also does not contain a specific definition of what constitutes "urban properties with residential use".

From a literal interpretation of the rule of incidence at issue, it results that the legislature intended to include within the scope of application of the rule urban properties that have "residential use".

The expression "residential use" does not appear to be able to have any other meaning than that of "utilization" for residential purposes, that is, urban properties that have actual utilization for residential purposes, whether because they are licensed for such purposes, or because they have such normal destination.

And we cannot confuse a "residential use" which implies an actual allocation of an urban property to that purpose, with the expectation, or potentiality, of an urban property being able to have a "residential use".

Land for construction, not being constructed, does not satisfy, by itself, any condition to be considered as properties with residential use, since, on the one hand, it does not possess a use license for residential purposes, and, on the other hand, it is not habitable (because quite simply it is not constructed).

Whereby it does not appear to us to be sufficient for it to be subsumed under the rule of objective incidence in question that there exists the expectation of an urban property coming to have residential use, or of having the potentiality of coming to have residential use.

And in land for construction, nothing more exists than the expectation, or potentiality, of an urban property being able, after construction, to come to have a "residential use". But only when the "residential use" materializes, and never before its construction, can we consider that the urban property falls within the scope of the tax rule of objective incidence in question.

We disagree with the Respondent's understanding that the qualification of land for construction as "properties with residential use" finds support in article 45 of the CIMI and that, as such, the tax acts constitute, in its understanding, a correct application of the law to the facts.

Article 45 of the CIMI has as its objective the evaluation of land for construction, considering as one of its elements the authorized or possible destination, as a function of the urban planning conditions.

Once again, we are only in the field of potentialities, of expectations, and this is not sufficient to alter the nature of the property, which continues to be considered as land for construction, nor to support that the property in question comes to have a "residential use" for purposes of the objective incidence of item 28.1 of the GTSD.

We thus consider that the expression "urban property with residential use" provided for in Item 28.1 of the GTSD comes down to that of urban property for residential purposes, provided for in article 6(1)(a) of the CIMI.

To that extent, the urban property in question being land for construction, it does not fall within the scope of the rule of objective incidence of Item 28.1 of the GTSD, which renders unlawful the assessment object of the present arbitral proceedings, and makes the Claimant's request well-founded in this respect.

The Claimant raised issues of unconstitutionality of item 28.1 of the GTSD, on the assumption that this includes "land for construction". Having not been that the interpretation of such rule in the present Arbitral Decision, it ceases to be necessary, and to have utility, to examine the (un)constitutionality of that interpretation of the rule.

Compensation for the provision of improper security

The Claimant further formulates a request for compensation for improper security, under article 53 of the LGT [General Tax Law], for the value of the expenses with fees, taxes and attorneys' fees charged by the legal services to which it resorted in order to prepare and provide security.

In its response, the Tax Authority opposes this request, arguing that it is not possible in arbitral proceedings to obtain any condemnatory pronouncement with respect to compensation for improper security and that, furthermore, the Claimant did not provide proof of the expenses incurred with the provision of the security.

Let us first examine the wording of the article under which the Claimant petitions for compensation:

"Article 53

Security in case of improper payment

1 - The debtor who, in order to suspend execution, offers bank security or equivalent shall be compensated in whole or in part for the damages resulting from its provision, should it have maintained it for a period exceeding three years, in proportion to the expiration in administrative appeal, challenge or opposition to execution that have as their object the debt secured.

2 - The period referred to in the preceding paragraph does not apply when it is verified, in gracious complaint or judicial challenge, that there was error attributable to the services in the assessment of the tax.

3 - The compensation referred to in paragraph 1 has as its maximum limit the amount resulting from the application to the amount secured of the indemnificatory interest rate provided for in this law and can be requested in the very process of complaint or judicial challenge, or autonomously.

4 - The compensation for improper security shall be paid by deduction from the tax revenue of the year in which the payment was made."

The Claimant promised to attach to the proceedings information regarding which securities it would provide, which it did not do until the present.

From the letter of article 53 of the LGT, it results that the securities that can generate a right to compensation under that provision are only bank security and equivalents, and not any security that is suitable to suspend tax execution.

A security equivalent to bank security shall be one that entails for the interested party an expense whose amount increases in function of the period of time during which it is maintained (in this sense, see Jorge de Sousa, in Code of Tax Procedure and Process annotated and commented 6th edition 2011, at page 242).

Although the solution may be debatable "de jure condendo", it is the meaning of article 53 of the LGT.

Given the foregoing, we conclude that the Claimant has no right to the compensation provided for in article 53 of the LGT, because it did not invoke whether the same was provided and what was the nature of the security, without prejudice to, having regard to the constitutional principle of responsibility of the Administration provided for in article 22 of the CRP, it may always resort to the general indemnificatory means to be reimbursed for that charge.

Whereby, in this respect, the Claimant's request is unfounded.

V. DECISION:

In these terms, and with the grounds set forth, the Arbitral Tribunal decides:

· To judge as well-founded the request for annulment of the stamp duty assessment disputed, with the consequent annulment of such assessment.

· To judge as unfounded the request for recognition of the Claimant's right to compensation for improper security.

In accordance with the provision of article 315(2) of the CPC [Code of Civil Procedure] and article 97-A(1)(a) of the CPPT [Code of Tax Procedure and Process] and paragraph 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings, the value fixed for the proceedings is € 93,503.86.

The amount of costs is fixed at €2,574.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Respondent, in accordance with articles 12(2), 22(4) of the RJAT and 4(4) of the aforementioned regulation.

Lisbon, 27 April 2015

The Arbitrators,

Manuel Macaísta Malheiros (Arbitrator-President)

Henrique Nogueira Nunes

Guilherme W. d' Oliveira Martins

[1] Acronym for the Legal Regime of Tax Arbitration.

Frequently Asked Questions

Automatically Created

Is Stamp Tax under Verba 28.1 TGIS applicable to land for construction classified without residential use?
Stamp Tax under item 28.1 GTSD on land for construction without residential use remains contentious. The claimant argued that 'residential use' requires actual, concrete occupation of constructed buildings, not abstract future potential. Land classified merely as 'land for construction' for IMI purposes, without considering allocation coefficients, should not automatically qualify as residential property under Stamp Duty legislation. The Tax Authority's position that item 28 applies to both constructed properties and land for construction based on literal statutory interpretation conflicts with the principle that tax incidence requires concrete factual elements, not hypothetical future scenarios. When land is zoned exclusively for non-residential purposes under municipal planning regulations, treating it as residential property for Stamp Duty purposes may constitute an error in factual assumptions and violate articles 41 and 45 of the Municipal Property Tax Code (CIMI).
Can urban land zoned exclusively for commerce and services be subject to Stamp Tax as residential property?
Urban land zoned exclusively for commerce and services faces legal challenges when assessed as residential property for Stamp Duty. The case illustrates that when municipal planning instruments restrict land use to commercial and service activities—as in Maia's sports zone—the Tax Authority's classification of such property as having 'residential use' under item 28.1 GTSD may be legally defective. The claimant successfully demonstrated that municipal regulations prohibited residential construction in the area, creating a factual impossibility of residential use. This discrepancy between zoning restrictions and tax classification raises questions about whether tax law can impute residential character to property that legally cannot be used for residential purposes. The principle of factual basis for taxation suggests that Stamp Duty on residential property should require at minimum the legal possibility of residential use, not merely abstract categorization disconnected from planning law constraints.
What are the legal grounds to challenge Stamp Tax assessments on terrenos para construção before CAAD?
Legal grounds to challenge Stamp Tax assessments on land for construction before CAAD include: (1) violation of incidence rules under item 28 GTSD and article 1(1) of the Stamp Duty Code, arguing that 'residential use' requires actual constructed buildings with concrete residential occupation rather than potential future use; (2) error in factual assumptions by the Tax Authority when it classifies land legally restricted to non-residential uses as residential property; (3) violation of CIMI articles 41 and 45 regarding determination of patrimonial tax value for land for construction, which excludes allocation coefficients; (4) constitutional violations when taxation is based on abstract potential rather than concrete factual reality; and (5) improper extension of tax incidence beyond statutory scope. Claimants should present municipal planning documents proving zoning restrictions, land registry classifications, and IMI assessment methodologies to demonstrate the impossibility of residential use and the absence of residential characteristics in property valuation.
How does the patrimonial tax value (VPT) threshold affect Stamp Tax liability on urban land plots?
The patrimonial tax value (VPT) threshold determines Stamp Duty liability under item 28.1 GTSD, which applies to urban properties with residential use exceeding specified values. In this case, the three properties had VPT values of €4,317,608.13, €2,800,274.75, and €2,232,502.88, respectively, triggering potential Stamp Duty liability if classified as residential. However, the claimant argued that VPT determination for land for construction follows different methodology under CIMI articles 41 and 45, which do not incorporate allocation coefficients that would indicate residential character. This distinction is crucial: if land for construction valuation excludes residential allocation factors for IMI purposes, using such valuations as the basis for residential Stamp Duty creates internal inconsistency in tax treatment. The threshold mechanism thus depends not only on absolute VPT amounts but also on whether the valuation methodology itself incorporates residential use assumptions, affecting the logical coherence of applying residential Stamp Duty to such property.
What constitutes an error in factual assumptions by the Tax Authority in applying Verba 28 of TGIS?
An error in factual assumptions by the Tax Authority in applying item 28 GTSD occurs when the assessment presumes residential use contradicting objective factual circumstances. In this case, the error manifested when the Tax Authority treated land in Maia's sports zone as residential property despite: (1) municipal planning regulations restricting the area exclusively to commerce and services; (2) land registry classification as undeveloped 'land for construction' without residential buildings; (3) legal impossibility of obtaining residential construction permits in that zone; and (4) IMI valuation methodology excluding residential allocation coefficients. The error is not merely interpretive but factual—the Authority assumed a present or potential residential character that planning law categorically prohibited. Such errors are cognizable grounds for annulment under administrative arbitration procedures (Decree-Law 10/2011), as tax assessments must rest on accurate factual predicates. Challenging such errors requires documentary evidence of zoning restrictions, construction permit limitations, and municipal urban planning instruments demonstrating the factual impossibility of the assumed residential use.