Process: 521/2014-T

Date: March 12, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

Process 521/2014-T addressed whether Stamp Tax under Item 28.1 of the General Stamp Tax Table applies to undeveloped construction land. Three co-owners of a building plot in Lisbon valued at €1,054,316.31 challenged the Tax Authority's 2013 Stamp Tax assessment totaling €3,953.85. The claimants argued that construction land cannot have 'residential designation' (afectação habitacional) since no one can actually live on vacant land without approved construction projects. The Tax Authority contended that 'residential designation' is broader than 'housing purpose,' encompassing both built properties and building land, citing that construction potential immediately increases property value. The tribunal analyzed Item 28.1 through subsidiary application of the Municipal Real Estate Tax Code (Article 67(2) of the Stamp Tax Code) and followed precedent from arbitral decision 53/2013-T. The key interpretative issue centered on whether vacant building plots fall within the legal concept of 'properties with residential designation.' The decision emphasized literal interpretation and noted that Article 9(1) of the Civil Code requires interpretative analysis when exact terminological correspondence is absent in tax legislation. The tribunal examined how the Municipal Real Estate Tax Code classifies properties under Articles 2, 4, and 6, finding no direct support for extending 'residential designation' to unconstructed land. This case establishes important precedent for distinguishing between actual or immediate residential use versus speculative construction potential for Stamp Tax purposes under Law 55-A/2012.

Full Decision

ARBITRAL DECISION

1. Report

1.1

A..., married, Tax Identification Number …, his wife B..., Tax Identification Number … and C..., single, of legal age, hereinafter also referred to as the "Claimants," filed a request for arbitral ruling, in accordance with the provisions of Article 10 of Decree-Law No. 10/2011, of 20 January (Legal Framework for Tax Arbitration, hereinafter "LFTA"), with the "Respondent" being the Tax and Customs Authority (hereinafter "TCA").

The Claimants seek a declaration of illegality of the Stamp Tax (ST) assessment relating to the fiscal year 2013, with reference to the urban property with property registration number U-..., located on Rua ..., between numbers ... and ..., in ..., Lisbon, with a taxable property value of €1,054,316.31.

The Claimant further seeks the condemnation of the TCA to reimburse the Claimants, B... and C..., the sums improperly paid, in the amount of €292.88 each, totaling €585.76.

1.2

As the basis for their request, the Claimants allege in summary that:

(a) They are co-owners of a building plot situated on Rua ..., between numbers ... and ..., in ..., Lisbon, with a taxable property value of €1,054,316.31, with property registration number U-...;

(b) The TCA assessed Stamp Tax, with reference to the fiscal year 2013, in accordance with Article 4 of Law No. 55-A/2012, of 29 October.

(c) The collection documents that substantiate the assessment of the 1st installment of ST relating to the identified property (attached as documents 2, 3 and 4 to the case file) determined the following amounts due:

i. For A..., the sum of €732.17;

ii. For B..., the sum of €292.88; and

iii. For C..., the sum of €292.88.

(d) Building land cannot have a residential designation.

(e) The land subject to the assessment has no construction project approved or even in the process of approval.

(f) The expression contained in Item 28.1 of the General Table refers to properties where people actually live, or at most could live, at the present moment, and it is evident that on the land subject to the Stamp Tax assessment in question, habitation is not possible.

(g) Concluding by requesting the declaration of illegality and annulment of the Stamp Tax assessments issued and consequent reimbursement of the sums assessed by the Claimants ... and B..., in the amount of €292.88 each.

1.3

The Tax and Customs Authority contested by alleging in summary that:

(a) The property on which the challenged assessment falls has the legal nature of a property with residential designation, whereby the assessment act that is the subject of the present request for arbitral ruling should be maintained, as it embodies a correct interpretation of Item 28 of the General Table, as amended by Law 55-A/2012, of 29/12.

(b) The TCA understands that the concept of "properties with residential designation," for the purposes of item 28 of the General Table, comprises both constructed properties and building land, not least in light of the literal meaning of the rule.

(c) The legislator does not refer to "properties intended for housing," having opted for the notion of "residential designation" – a different and broader expression whose meaning must be found in the need to integrate other realities beyond those identified in Art. 6, No. 1, paragraph (a) of the Municipal Real Estate Tax Code.

(d) The mere establishment of a right of potential construction immediately increases the value of the property in question, hence the rule contained in Article 45 of the Municipal Real Estate Tax Code that requires the separation of the two parts of the land.

(e) Long before the actual construction of the property, it is possible to ascertain and determine the designation of the land for construction.

(f) Concluding by the rejection of the declaration of illegality and consequent annulment of the disputed assessments.

1.4

The Arbitral Tribunal is duly constituted, is materially competent, the proceeding does not suffer from defects that would invalidate it, and the Parties have legal personality and capacity, have shown themselves to be legitimate, the Claimant is duly represented by a Lawyer, and no exceptions were raised; it is therefore incumbent to review and decide.

2. Factual Matters

2.1 Facts Considered Proven

(a) The Claimants are co-owners of a building plot situated on Rua ..., between numbers ... and ..., in ..., Lisbon, with a taxable property value of €1,054,316.31, property registration number U-....

(b) The TCA issued Stamp Tax assessments, with reference to the fiscal year 2013, by application of Item 28.1, to the urban property with property registration number U-..., to Claimant A..., in the amount of €2,196.49; to Claimant B..., in the amount of €878.68; and to Claimant C..., in the same amount of €878.68.

(c) Claimant A... was notified of the ST assessment, in accordance with the provisions of Item 28.1 of the General Table, to pay the 1st installment of the ST assessment relating to the fiscal year 2013, in the amount of €732.17, with a payment deadline until the end of April 2014, document identification 2014 ....

(d) Claimant B... was notified of the ST assessment, in accordance with the provisions of Item 28.1 of the General Table, to pay the 1st installment of the ST assessment relating to the fiscal year 2013, in the amount of €292.88, with a payment deadline until the end of April 2014, document identification 2014 0..., and made the required payment.

(e) Claimant C... was notified of the ST assessment, in accordance with the provisions of Item 28.1 of the General Table, to pay the 1st installment of the ST assessment relating to the fiscal year 2013, in the amount of €292.88, with a payment deadline until the end of April 2014, document identification 2014 …, and made the required payment.

2.2 Facts Not Considered Proven and Respective Justification

There are no facts relevant to the decision that are considered not proven.

2.3 Justification of the Factual Matters Proven

The proven facts are based on the documents attached to the case file, whose authenticity and correspondence were not disputed.

3. Legal Matters

The disputed issue is reduced to whether or not building land falls within the concept of a property with residential designation, as set out in Item No. 28.1 of the General Table.

Law No. 55-A/2012, which came into force on 30/10/2012, did not provide a definition of the concepts contained in the said item no. 28, in particular, the concept of "property with residential designation."

This is an innovative concept in tax legislation that requires clarification in the Stamp Tax Code.

However, observing what Article 67, No. 2, of the Stamp Tax Code provides, also amended by the aforementioned Law No. 55-A/2012, it is verified that "to matters not regulated in this code relating to item 28 of the General Table, the Municipal Real Estate Tax Code shall apply subsidiarily."

Thus, given the uncertainty as to the scope of the said concept, it is justified to consider what the Municipal Real Estate Tax Code states.

From careful reading of the provisions of the Municipal Real Estate Tax Code (see Articles 2, 4, and 6), the classification of "properties" does not reveal the concept of "property with residential designation."

In the absence of exact terminological correspondence of this concept, there is therefore no other alternative than to consider interpretative hypotheses, in light of the provisions of Article 9, No. 1, of the Civil Code.

On this matter – the concept of property with residential designation – several rulings have been issued by the Administrative Arbitration Center and the Supreme Administrative Court, whose understanding I follow.

By way of example, reference is made to the arbitral decision No. 53/2013-T, of 2/10/2013, which I follow in its entirety, which, when referring to the concept of property with residential designation as referring to residential properties, states that: "The concept closest to the literal meaning of this expression used is manifestly that of 'residential properties,' defined in No. 2 of Article 6 of the Municipal Real Estate Tax Code as encompassing 'buildings or structures' licensed for residential purposes or, in the absence of a license, which have as their normal purpose residential use.

If one understands that the expression 'property with residential designation' coincides with that of 'residential properties,' it is manifest that the assessments will suffer from an error regarding the factual and legal presuppositions, since all properties for which Stamp Tax was assessed under the said item No. 28.1 are building land, without any building or structure, required to fulfill that concept of 'residential properties.'

For this reason, if one adopts the interpretation that 'property with residential designation' means 'residential property,' the assessments whose declaration of illegality is sought will be illegal, because there is no building or structure on any of the plots of land."

However, one must also analyze the concept of property with residential designation as a concept distinct from residential properties, but what concept would this be?

Also on this matter, by way of example, we refer to the arbitral decision No. 231/2013-T, of 03/02/2014, which I follow in its entirety and which states that, as there is no coherent meaning in item No. 28.1, there remains only the route of interpretation of the legal text, framed by Article 9, No. 3, of the Civil Code.

And it continues by stating that "in light of those meanings of the words 'designation' and 'designate,' which are 'to allocate' or 'to apply,' the formula used in that item No. 28.1 of the General Table manifestly encompasses properties to which a destination for housing has already been given, properties that are already applied to housing purposes, whereby it is important to inquire whether it will also encompass properties that, although not yet applied to housing purposes, are intended for those purposes, namely under a subdivision license. For this, it must be clarified when a property can be understood to be designated for housing purposes, in particular whether it is when that purpose is assigned to it in a subdivision license or licensing act or similar, or only when the actual assignment of that purpose is concretized. [...]. The text of the law, by adopting the formula 'property with residential designation,' instead of 'urban properties with residential designation,' which appears in the [...] 'Statement of Reasons,' points strongly in the direction that it is required that the residential designation already be concretized, since only then will the property have such designation."

And it continues by stating that "one is faced with a reality even more remote in relation to residential designation, which is that there is not even any building or structure, and therefore one cannot consider to exist a designation that presupposes its existence. On the other hand, as the Claimant rightly refers [and the present claimant, in exactly the same terms], the legislative intention of not extending the scope to building land was expressly mentioned by the Government when presenting to the Plenary of the Assembly of the Republic the Bill 96-XII by saying, in the voice of the Secretary of State for Fiscal Affairs: 'First of all, the Government proposes the creation of a special rate to tax urban residential properties of higher value. This is the first time in Portugal that a special taxation is created on properties of high value intended for housing. This rate will be 0.5% to 0.8% in 2012, and 1% in 2013, and will apply to properties with a value equal to or greater than 1 million euros. With the creation of this additional rate, the tax effort required of these owners will be significantly increased in 2012 and 2013.' The express reference to 'houses' as the target of the incidence of the new tax leaves no room for doubt as to the legislative intention. On the other hand, no reference is found in the discussion of the said Bill to 'building land'."

So that there be no doubt on this matter, another reference to the case law of the Administrative Arbitration Center regarding the matter here in dispute, this time referring to the Arbitral Decision No. 49/2013-T, of 18/9/2013, which I equally follow in its entirety in stating that: "Building land – whatever the type and purpose of the building that will be, or could be, erected on it – does not, by itself, satisfy any condition to be licensed as such or to be defined as having housing as its normal purpose. The rule governing the incidence of stamp tax therefore referring to urban properties with 'residential designation,' without any specific concept being established for that purpose, cannot lead to the extraction from it that it contains a future potentiality, inherent to a distinct property that may eventually be built on the land."

Finally, the case law of the Supreme Administrative Court is highlighted, fully adhering to the thesis invoked above, by way of example the Judgments issued in the context of the cases No. 1870/13, of 9 April 2014, No. 48/14 also of 9 April 2014, No. 272/14 of 23 April 2014, No. 317/2014 of 14 May 2014, and No. 467/14 of 2 July 2014.

For this reason, the ST assessments relating to the fiscal year 2013, with reference to the application of Item 28.1 of the General Table to the urban property with property registration number U-..., with a taxable property value of €1,054,316.31, whose declaration of illegality is sought, suffer from a defect of breach of that item No. 28.1, due to an error as to the legal and factual presuppositions, which justifies the declaration of its illegality and annulment (Article 135 of the Administrative Procedure Code).

4. Decision

In view of the foregoing, the Arbitral Tribunal decides:

(a) To uphold the request for arbitral ruling, with the consequent annulment of the Stamp Tax assessments challenged, relating to the application of Item 28.1 of the General Table to the urban property with property registration number U-..., with a taxable property value of €1,054,316.31, with reference to the fiscal year 2013.

(b) To condemn the Tax and Customs Authority to reimburse the sum of €292.88 to Claimant B..., with Tax Identification Number … and the sum of €292.88 to Claimant C....

5. Case Value

In accordance with the provisions of Article 315, No. 2, of the Code of Civil Procedure and Article 97-A, No. 1, paragraph (a), of the Code of Tax Procedure and Process, and Article 3, No. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the case is assigned a value of €1,317.93.

6. Costs

The arbitration fee is fixed at €306.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Respondent, in accordance with Articles 12, No. 2, and 22, No. 4, both of the Legal Framework for Tax Arbitration, and Article 4, No. 4, of the aforesaid Regulation.

Notify parties.

Lisbon, Administrative Arbitration Center, 12 March 2015

The Arbitrator,

André Gonçalves

Frequently Asked Questions

Automatically Created

Is Stamp Tax (Imposto do Selo) applicable to construction land (terrenos para construção) under Verba 28.1 of the General Stamp Tax Table?
Based on CAAD arbitral jurisprudence, Stamp Tax under Verba 28.1 is not applicable to bare construction land (terrenos para construção). The tribunal in Process 521/2014-T followed precedent from decision 53/2013-T, holding that 'properties with residential designation' (prédios com afectação habitacional) refers to properties where people actually live or could immediately live. Vacant building plots without approved construction projects cannot satisfy this requirement, as habitation is impossible on unconstructed land. The tribunal applied subsidiary rules from the Municipal Real Estate Tax Code (CIMI) per Article 67(2) of the Stamp Tax Code and found no legal basis for extending the concept to undeveloped land, even if designated for future residential construction.
Can a construction land plot be classified as having 'housing allocation' (afectação habitacional) for Stamp Tax purposes?
No, construction land without buildings cannot be classified as having 'housing allocation' (afectação habitacional) for Stamp Tax purposes under Item 28.1. Process 521/2014-T clarified that the legal concept requires actual or immediate habitability, not mere construction potential. The claimants successfully argued that the expression in Item 28.1 refers to properties where people actually live or could presently live. The Tax Authority's broader interpretation—that construction potential alone creates 'residential designation'—was rejected. Even though Article 45 of the Municipal Real Estate Tax Code recognizes that construction rights increase land value, this economic reality does not transform vacant land into a property with residential designation for Stamp Tax purposes under Law 55-A/2012.
What was the CAAD arbitral tribunal's decision in Process 521/2014-T regarding Stamp Tax on construction land valued over €1 million?
The CAAD arbitral tribunal in Process 521/2014-T ruled in favor of the claimants, declaring the Stamp Tax assessments on their construction land illegal and ordering reimbursement. The tribunal followed precedent from decision 53/2013-T, holding that Verba 28.1 does not apply to undeveloped building plots. Two claimants (B... and C...) who had already paid €292.88 each (totaling €585.76) were entitled to reimbursement. The decision established that 'properties with residential designation' cannot include vacant land where no construction project exists or has been approved, as the literal interpretation and subsidiary application of the Municipal Real Estate Tax Code do not support extending this tax to unconstructed plots, regardless of their high taxable value (€1,054,316.31 in this case).
How does the Portuguese Tax Authority (AT) interpret the concept of 'prédios com afectação habitacional' for construction land under Law 55-A/2012?
The Portuguese Tax Authority (AT) interprets 'prédios com afectação habitacional' broadly to include both constructed residential properties and building land designated for residential construction. In Process 521/2014-T, the AT argued that the legislator deliberately chose 'residential designation' (afectação habitacional) rather than 'properties intended for housing,' indicating a broader concept that extends beyond Article 6(1)(a) of the Municipal Real Estate Tax Code. The AT contended that construction potential immediately increases property value (referencing Article 45 of CIMI regarding land separation), and that residential designation can be determined long before actual construction. However, this administrative interpretation was rejected by the arbitral tribunal, which adopted a narrower, literal reading requiring actual or immediate habitability for Stamp Tax applicability under Law 55-A/2012.
Can property owners request a refund of unlawfully charged Stamp Tax on construction land through CAAD arbitration proceedings?
Yes, property owners can successfully request refunds of unlawfully charged Stamp Tax on construction land through CAAD (Centro de Arbitragem Administrativa) arbitration proceedings. Process 521/2014-T demonstrates this remedy: the claimants filed under Article 10 of Decree-Law 10/2011 (Legal Framework for Tax Arbitration) seeking declaration of illegality of the 2013 Stamp Tax assessment and reimbursement of amounts paid. The tribunal declared the assessments illegal and ordered the Tax Authority to reimburse the claimants €585.76 (€292.88 each for two claimants who had paid). CAAD arbitration provides an effective, specialized forum for challenging erroneous Stamp Tax assessments on construction land, with arbitral decisions establishing binding precedent that Verba 28.1 does not apply to vacant building plots lacking approved construction projects.