Process: 522/2014-T

Date: March 23, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitral decision (Process 522/2014-T) addresses whether building land (terrenos para construção) is subject to Stamp Tax under item 28.1 of the General Stamp Tax Table (TGIS) as 'property with residential use.' The taxpayer, A, LDA., challenged a €12,274.45 Stamp Tax assessment for 2013 on land for construction valued at €2,454,890 in Matosinhos. The central legal issue concerned the interpretation of item 28.1 TGIS as introduced by Law 55-A/2012, which imposed a 1% stamp duty on 'properties with residential use' valued at €1,000,000 or more. The taxpayer argued that building land constitutes a distinct property category that cannot be equated with residential properties under a strict interpretation of the law. Additionally, the taxpayer invoked constitutional protections against retroactive taxation under Article 103 of the Portuguese Constitution, arguing that subsequent amendments by Law 83-C/2013 could not apply to the 2013 tax year. The Tax Authority contended that building land should be considered comparable to residential properties for stamp tax purposes. The tribunal analyzed whether the innovative concept of 'property with residential use' introduced in 2012 legislation could encompass undeveloped land designated for future construction, noting that this terminology was unprecedented in Portuguese tax law and not used in the Municipal Property Tax Code (CIMI) or other tax statutes. The case highlights fundamental questions about statutory interpretation in tax law, the scope of real estate taxation categories, and constitutional limits on retroactive tax legislation.

Full Decision

ARBITRAL DECISION

I. REPORT

A, LDA., with registered office at Rua … Matosinhos, holder of the single registration and identification number for legal entities …, hereinafter simply designated as Applicant, filed a request for constitution of an arbitral tribunal in tax matters and a request for arbitral award, pursuant to Articles 2, no. 1 (a) and 10, no. 1 (a), both of Decree-Law no. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, abbreviated as RJAT), petitioning for the annulment of the tax assessment act for Stamp Duty (IS) relating to the year 2013, in the total amount of €12,274.45.

To substantiate its request, it alleges, in summary:

a) The Applicant was notified of the assessment note concerning Stamp Duty, relating to the year 2013, in the amount of €12,274.45;

b) The assessment referred to in the preceding subparagraph concerns the urban property located at Rua …, Union of parishes of … and …, municipality of Matosinhos, registered in article … of the respective urban property registry;

c) Such assessment was carried out under item 28.1 of the General Table of Stamp Duty (TGIS);

d) Pursuant to Article 103, no. 3 of the Constitution of the Portuguese Republic and Article 12 of the General Tax Law, the legislator is prohibited from creating or retroactively increasing taxes;

e) As the tax-triggering event of Stamp Duty occurred prior to the entry into force of the new wording given to item 28.1 of the TGIS by Law no. 83-C/2013, of 31 December, the assessment of the stamp duty in question should be carried out pursuant to Law no. 55-A/2012, of 29 October;

f) The property subject to the stamp duty assessment in question is land for construction;

g) In the wording given by Law no. 55-A/2012, of 29 October, in force on 31.12.2013, item 28.1 of the TGIS only provided for the taxation of properties with residential use, with no provision for the taxation of land for construction;

h) Land for construction constitutes a type of property completely distinct from properties classified as residential;

i) The qualification of land for construction as "properties with residential use" for purposes of their subsumption to IS, by application of item 28.1 of the TGIS, annexed to the CIS, in the wording given by Law no. 55-A/2012, of 29 October, is illegal;

j) The assessment in question is illegal, pursuant to Article 99 (a) of the Code of Tax Procedure and Process, due to error regarding the prerequisites;

k) It is further illegal due to the defect of lack of reasoning, in violation of Articles 268 of the Constitution of the Portuguese Republic, 77 of the General Tax Law, and 125 of the Administrative Procedure Code.

The Applicant attached three (3) documents and did not list any witnesses.

In the request for arbitral award, the Applicant chose not to designate an arbitrator, and therefore, pursuant to Article 6, no. 1 of the RJAT, the undersigned was appointed by the Deontological Council of the Administrative Arbitration Center, with the appointment accepted as legally provided.

The arbitral tribunal was constituted on 26 September 2014.

Notified in the terms and for the purposes of Article 17 of the RJAT, the Respondent submitted a response, arguing in summary that, for purposes of applying item 28.1 of the TGIS annexed to IS, land for construction is comparable to properties with residential use.

It concludes by petitioning for the dismissal of the request and, consequently, the maintenance of the assessment act in dispute.

The Respondent did not attach a copy of the administrative file and did not list any witnesses.

In light of the position assumed by the parties and there being no need for additional evidence production, the holding of the meeting referred to in Article 18 of the RJAT was dispensed with, as well as the presentation of arguments.

II. QUESTIONS TO BE DECIDED:

In the present proceedings, the question to be decided consists solely in determining whether, for purposes of applying item 28.1 of the TGIS annexed to the CIS, in the wording given by Law no. 55-A/2012, of 29 October, land for construction is considered as property with residential use.

III. MATTERS OF FACT:

a. Proven Facts:

With relevance to the decision to be rendered in the present proceedings, the following facts were established as proven:

  1. The Applicant is owner of the urban property located at Rua …, no. …, Union of parishes of … and …, in the municipality of Matosinhos, described in the Land Registry Office of Matosinhos under number … and registered in the urban property registry under article …;

  2. The property referred to in 1 is land for construction, with the assessed property value of €2,454,890.00;

  3. A subdivision authorization is registered relating to the property referred to in 1, with part of the lots designated for residential, commercial and office use;

  4. On 18/03/2014, the tax authority (AT) assessed, under item 28.1 of the TGIS annexed to the CIS, stamp duty on the property referred to in 1, relating to the year 2013;

  5. The Applicant was notified of the 1st installment to be paid, in the amount of €4,091.49, of the IS assessed by the AT.

b. Unproven Facts:

With interest to these proceedings, there are no unproven factual matters.

c. Substantiation of Matters of Fact:

The conviction regarding the facts established as proven was based on the documentary evidence presented by the Applicant, indicated relative to each of the points, the authenticity and adherence to reality of which was not contested by the Respondent.

IV. ASSESSMENT OF PROCEDURAL REQUIREMENTS:

The Arbitral Tribunal is properly constituted and materially competent.

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

The proceedings do not suffer from defects affecting their validity, there being no exceptions or preliminary questions that prevent the tribunal from ruling on the merits and which the tribunal is required to address ex officio.

V. ON THE LAW:

Having established the matters of fact, it now falls to determine, by reference thereto, the applicable law.

The Applicant argues that land for construction cannot be considered, for purposes of subjection to IS, as properties with residential use.

In its understanding, the provision of item 28.1 of the TGIS annexed to the CIS does not permit any extensive interpretation, such that land for construction could be equated with properties with residential use, and such item 28.1 is therefore not applicable thereto.

To the contrary, the Respondent argues that the property on which the contested assessment rests has the legal nature of property with residential use, and does not suffer from any illegality or unconstitutionality.

As to the objective scope of taxation, Article 1, no. 1 of the CIS provides that stamp duty applies to all acts, contracts, documents, titles, papers and other facts or legal situations provided for in the General Table.

Article 4 of Law no. 55-A/2012, of 29 October added to the TGIS, annexed to the CIS, approved by Law no. 150/99, of 11 September, item no. 28, with the following wording:

"28 - Ownership, usufruct or surface right of urban properties whose assessed property value recorded in the registry, pursuant to the Code of Municipal Property Tax (CIMI), is equal to or greater than €1,000,000 - on the assessed property value used for purposes of IMI:

28.1 - For property with residential use - 1%;

28.2 - For property, when the taxpayers who 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%."

That being said,

In item 28.1 of the TGIS added by Law no. 55-A/2012, of 29 October, an innovative concept was used, which is not used in any other tax legislation: the concept of property with residential use.

Neither in the CIMI, indicated by the said Law no. 55-A/2012 as a statute of subsidiary application regarding the tax introduced by the addition of item 28 to the TGIS, is any such defined concept used.

Indeed, the CIMI defines the concept of property, defines the various types of properties and identifies the species of urban properties.

Thus,

Pursuant to Article 2 of the CIMI, "property is every parcel of land, including waters, plantings, buildings and constructions of any nature incorporated therein or resting thereon, with the character of permanence, provided it forms part of the patrimony of a natural or legal person and, under normal circumstances, has economic value."

Properties are divided into rural (Article 3), urban (Article 4) or mixed (Article 5), with urban properties subdivided into 4 species: residential, commercial, industrial or for services; land for construction and others (Article 6).

Article 6, no. 3 of the CIMI clarifies that land for construction is considered to be "land located within or outside an urban settlement, for which a building license or authorization has been granted, admission of prior notice has been granted or favorable prior information has been issued for a subdivision or construction operation, and also those which have been declared as such in the acquisition title."

Combining the indicated provisions, it appears that there is no reference whatsoever to property with residential use in any of the indicated norms.

Therefore, to determine what constitutes property with residential use, recourse must be had to an exercise of interpretation, using the general rules of legal hermeneutics contained in Article 9 of the Civil Code.

Thus, interpretive activity must begin with analysis of the letter of the law, which constitutes the limit of interpretation, and an interpretation that does not have in the letter of the law a minimum of verbal correspondence, however imperfectly expressed, cannot be considered.

Now, as results from the legal provisions already cited, the concept of property with residential use is absolutely innovative in the CIS, not existing in any other tax law.

The closest concept is that of "residential property," defined in Article 6, no. 2 of the CIMI as being the building or construction licensed for such purpose or, in the absence of license, which has as its normal destination this purpose.

The truth, however, is that the legislator, in item 28.1 of the TGIS annexed to the CIS, did not use the expression "residential property" but rather "property with residential use."

Therefore, proceeding from the principle – which is certainly held to be true – that the legislator knew how to express itself in appropriate terms, one cannot defend that these distinct expressions have the same meaning. Rather, by application of the principles enshrined in Articles 9, nos. 2 and 3 of the Civil Code, one must necessarily defend that, by using distinct expressions, the legislator intended to encompass different realities.

Let us focus, then, on the term "use," noun form of the verb "to use."

This concept has already been exhaustively analyzed by various and learned jurisprudence rendered by this arbitration center[1], and we therefore dispense with dissecting such concept, accepting and arguing that it consists in the action of designating something for a particular use.

Thus, property with "residential use" will be that which is designated for residential purposes.

Moreover, this conclusion is equally reached through reconstruction of the legislative intent, taking into account the unity of the legal system, the circumstances in which the law was enacted and the specific conditions of the time in which it is applied, as imposed by the aforementioned Article 9 of the Civil Code.

First and foremost, it is important to take into account that the introduction of this item 28 into the TGIS occurred at a time when, there being an absolute necessity to address the crisis that had been established, it was necessary to collect the maximum possible revenue, which was intended to be achieved, in particular, through the taxation of so-called "luxury" properties.

The intention was, therefore, with the introduction of the taxation provided for in item 28 of the TGIS, to tax wealth, manifested in the ownership, usufruct or surface right of "luxury" urban properties with residential use.

That only properties with residential use are included in this new taxation results clearly from the Explanatory Memorandum of Legislative Proposal no. 96/XII, which states that, in order to strengthen the "principle of social equity in austerity, ensuring an effective distribution of the sacrifices necessary to comply with the adjustment program," the legal diploma to be approved "extends the taxation of capital and property income, equitably encompassing a broad set of sectors of Portuguese society."

Thus, it may further be read in the cited Explanatory Memorandum that a "rate is created under Stamp Duty applicable to urban properties with residential use whose assessed property value is equal to or greater than one million euros" (emphasis ours).

Already within the context of the general discussion of the indicated Legislative Proposal, it may be read:

"First, the Government proposes the creation of a special rate to tax higher-value urban residential properties. This is the first time in Portugal that a special taxation has been created on high-value properties intended for residential use. This rate will be 0.5% to 0.8% in 2012, and 1% in 2013, and will apply to homes with a value equal to or greater than 1 million euros" (emphasis ours).

There can be no doubt, therefore, that the intention of the legislator was to tax homes, residential urban properties, properties intended for residential purposes, that is, properties already effectively designated for residential purposes.

It being established that the concept of "property with residential use" means property actually designated for, assigned to residential purposes, it now falls to analyze the actual scope of such concept. In other words, it is necessary to verify whether such residential use, for purposes of applying item 28.1 of the TGIS, must be present or could be future, that is, whether it will encompass only properties already effectively assigned to residential purposes or also properties which, being land for construction, do not yet have any defined destination.

The distinction assumes special importance if we note that land for construction may in the future be designated to construct one or more residential units, and therefore, if future uses that could be given to the property are included in the concept of "residential use," it could, in this case, be argued that item 28.1 of the TGIS applies to land for construction.

This understanding, however, has, in our view, no adherence whatsoever to the letter and spirit of the law.

Indeed, analyzing the literal wording of item 28.1 of the TGIS, it seems manifest that its application should be excluded for properties whose destination is unknown, since these, manifestly and from any point of view, cannot be considered designated for residential purposes.

For, as the destination of the property in question is not known, it could be designated for residential use, commerce, industry or services, and it is certain that item 28.1 will be applicable only to properties with residential use and not to properties with any other use, namely economic use.

In the present case, analyzing the proven facts, it appears that despite the existing subdivision authorization, designating part of the lots for residential use, commerce and offices, it is nonetheless not encompassed by the application of item 28.1 of the TGIS.

This is because, from the combination of the norms inherent in item 28.1 of the TGIS and Article 6, no. 3 of the CIMI, it results, without any margin for doubt, that the use must be actual and not merely future or probable.

In sum, although land for construction may have a presumed known destination, by virtue of the existing subdivision authorization, as is the case with the property in these proceedings, it cannot be considered as property with residential use for purposes of applying item 28.1 of the TGIS annexed to the CIS.

Nor can it be said, as the Respondent does, that the legal identity, for purposes of applying item 28.1 of the TGIS, between land for construction and properties with residential use results clearly from the fact that the legislator determines that the methodology of assessment of properties in general be applied to land for construction.

It is true that Article 45 of the CIMI determines that the same evaluation methods applicable to properties in general be applied to land for construction.

However, it cannot be denied that such identity is limited to the evaluation methodology and not to its classification.

With respect to evaluation, there is no doubt that the legislator mandates the application of the same rules to both land for construction and residential properties.

But as to the classification of the property, nothing in the law or in the general legislative intent permits us to conclude that such identity exists.

Indeed, as, in our view, is well stated in a judgment rendered by the Supreme Court of Justice, "it would be strange, moreover, that the determination of the scope of the tax incidence norm of item no. 28 of the General Table of Stamp Duty would ultimately be found in the norms of determination of the assessed property value of the IMI Code, and that the terminological imprecision of the legislator in the drafting of that rule would ultimately be clarified and finally explained via an indirect and equivocal reference to the use coefficient established by the legislator regarding constructed properties (Article 41 of the IMI Code)[2].

Therefore, and following closely jurisprudence already established by this arbitration center[3], it is to be concluded that "the interpretive elements available, including the «circumstances in which the law was enacted and the specific conditions of the time in which it is applied», clearly point to the fact that it was not intended to encompass within the scope of application of item 28.1 situations of properties that are not yet assigned to residential use, namely land for construction held by companies," as is the case in these proceedings.

But not only has the jurisprudence of this arbitration center pronounced itself in this sense. In judgments rendered very recently, the Supreme Administrative Court decided that "as the legislator did not define the concept of «properties (urban) with residential use», and as it results from Article 6 of the IMI Code – subsidiarily applicable to the Stamp Duty provided for in new item no. 28 of the General Table – a clear distinction between «residential urban properties» and «land for construction», these cannot be considered, for purposes of the incidence of Stamp Duty (Item 28.1 of the TGIS, in the wording of Law no. 55-A/2012, of 29 October), as urban properties with residential use"[4].

And that this is so results clearly from the fact that, in the last amendment made to item 28.1 of the TGIS annexed to the CIS, by Law no. 83-C/2013, of 31 December, which approved the State Budget for 2014, land for construction was here expressly included. Note, however, that even with this amendment, not all land for construction becomes subject to taxation as a result of the application of item 28.1 of the TGIS annexed to the CIS, but only and exclusively land for construction whose construction, authorized or intended, is for residential purposes.

As the aforementioned State Budget Law 2014 is not interpretive legislation, it appears evident that if the legislator felt the need to include in this item 28.1 land for construction, it is because previously such land was not included therein.

Any other interpretation of item 28.1 of the TGIS annexed to the CIS, in the wording given by Law no. 55-A/2012, of 29 October, has the slightest legal support and cannot be defended.

It thus appears that the assessment in question in these proceedings is clearly illegal, having no legal foundation or support whatsoever.

Thus, as land for construction is not included in item 28.1 of the TGIS annexed to the CIS, in the wording given by Law no. 55-A/2012, of 29 October, nor can it be classified, for this purpose, as property with residential use, it appears evident that it cannot be the subject of taxation under this item.

Therefore, there being no legal foundation for the assessment act carried out, its annulment is necessary.

VI. OPERATIVE PART:

In light of the foregoing, it is decided to uphold the request for declaration of illegality of the Stamp Duty assessment act in the total amount of €12,274.45, with the consequent annulment thereof.

The value of the proceedings is set at €12,274.45, pursuant to Article 97-A, no. 1 (a) of the Code of Tax Procedure and Process, applicable by virtue of Articles 29, no. 1 (a) and (b) of the RJAT and Article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings.

The value of the arbitration fee is set at €918.00, pursuant to Table I of the Regulation of Costs in Tax Arbitration Proceedings, as well as Articles 12, no. 2 and 22, no. 4, both of the RJAT, and Article 4, no. 3 of the cited Regulation, to be paid by the Respondent as the unsuccessful party.

Register and notify.

Lisbon, 23 March 2015.

The Arbitrator,

Alberto Amorim Pereira

Text prepared by computer, pursuant to Article 131, no. 5 of the Code of Civil Procedure, applicable by reference of Article 29, no. 1 (e) of Decree-Law no. 10/2011, of 20/01, governed in its drafting by ancient orthography.

[1] See, among others, the decisions rendered in the scope of proceedings 48/2013-T; 50/2013-T and 132/2013-T, all available at www.caad.org.pt.

[2] Judgment of 09/04/2014, proceeding no. 1870/13, available at www.dgsi.pt.

[3] Proceeding no. 53/2013-T, available at www.caad.org.pt.

[4] Judgments of 23/04/2014, proceeding no. 0272/14, and of 09/04/2014, proceedings nos. 1870/13, already cited, and 48/14, all at www.dgsi.pt.

Frequently Asked Questions

Automatically Created

Are building land plots (terrenos para construção) subject to Stamp Tax under Verba 28.1 of the TGIS in Portugal?
Under the original wording of item 28.1 TGIS introduced by Law 55-A/2012 for the 2013 tax year, building land (terrenos para construção) could not be clearly classified as 'property with residential use.' The legislation specifically referenced residential use properties, and building land represents a distinct property category under Portuguese law—undeveloped land designated for future construction rather than completed residential buildings. The taxpayer successfully argued that these are fundamentally different property types that cannot be equated through extensive interpretation. While a subdivision authorization existed designating some lots for residential purposes, the land remained undeveloped construction land rather than actual residential property. The ambiguity in the legislative language and the lack of precedent in other tax codes (such as CIMI) supported the position that the 1% stamp tax under item 28.1 should not apply to building land during the 2013 assessment period.
Can the Portuguese tax authority apply Stamp Tax retroactively following changes introduced by Lei n.º 83-C/2013?
The Portuguese Constitution Article 103(3) and Article 12 of the General Tax Law explicitly prohibit retroactive creation or increase of taxes. In this case, the tax-triggering event occurred on December 31, 2013, before Law 83-C/2013 (which entered into force on December 31, 2013) could clarify or expand the scope of item 28.1 TGIS. The taxpayer correctly argued that the assessment must be based on the legal framework in force when the taxable event occurred—specifically, Law 55-A/2012. Any subsequent legislative amendments that expanded the definition to clearly include building land could not be applied retroactively to the 2013 tax year without violating constitutional protections. This constitutional principle ensures taxpayers can rely on existing law when conducting transactions and prohibits the tax authority from applying new or expanded interpretations to past tax periods. The prohibition applies even when subsequent legislation purports to 'clarify' rather than change the law, as retroactive clarifications that increase tax liability are constitutionally impermissible.
What is the difference between residential properties and building land for Stamp Tax purposes under Portuguese law?
Portuguese tax law distinguishes residential properties from building land based on their current state and use. Residential properties (propriedades com afetação habitacional) are developed buildings actually used or available for residential purposes, with completed structures suitable for habitation. Building land (terrenos para construção) consists of undeveloped urban land designated in urban planning instruments for future construction, which may include residential, commercial, or mixed-use development. For Stamp Tax purposes under the original item 28.1 TGIS wording, this distinction proved critical. The term 'property with residential use' introduced by Law 55-A/2012 represented an innovative concept not previously defined in Portuguese tax legislation, including the Municipal Property Tax Code (CIMI). The absence of clear legislative guidance on whether this term encompassed both completed residential buildings and land designated for residential construction created interpretive ambiguity. The tribunal recognized that land for construction, even with subdivision authorization for residential lots, maintains a distinct legal and economic character from actual residential buildings, supporting a restrictive interpretation that excluded building land from the 1% stamp tax during the relevant tax period.
How does the constitutional prohibition on retroactive taxation (Article 103 CRP) affect Stamp Tax assessments on real estate?
Article 103(3) of the Portuguese Constitution (CRP) establishes a fundamental limitation on legislative power by prohibiting retroactive taxes, stating that no tax may be created or increased with retroactive effect. This constitutional guarantee protects taxpayers' legitimate expectations and legal certainty in tax matters. For Stamp Tax assessments on real estate, this means the applicable legal framework is determined by the law in force when the tax-triggering event occurs—typically December 31 of the relevant tax year for annual property taxes. When Law 83-C/2013 entered into force on December 31, 2013, it could not retroactively affect stamp tax liability for the 2013 tax year, as the taxable event had already occurred under the previous legal regime (Law 55-A/2012). The constitutional prohibition applies even when subsequent legislation claims to 'clarify' ambiguous provisions, if such clarification results in increased tax liability for past periods. Taxpayers can invoke Article 103(3) CRP to challenge assessments based on retroactive application of new legislative interpretations. In administrative and arbitral proceedings, this constitutional principle takes precedence over ordinary legislation and administrative interpretations, providing a powerful defense against retroactive tax assessments that would otherwise increase taxpayer liability beyond what was legally required under the law in force during the relevant tax period.
What grounds can taxpayers use to challenge an illegal Stamp Tax liquidation before the CAAD arbitral tribunal?
Taxpayers can challenge illegal Stamp Tax assessments before the CAAD (Centro de Arbitragem Administrativa) arbitral tribunal on multiple grounds. First, error regarding prerequisites (erro sobre os pressupostos) under Article 99(a) of the Tax Procedure Code allows challenges when the tax authority incorrectly applies legal provisions to the factual situation, such as misclassifying building land as residential property. Second, lack of reasoning (falta de fundamentação) constitutes a formal defect violating Article 268 CRP, Article 77 of the General Tax Law, and Article 125 of the Administrative Procedure Code, requiring the tax authority to provide adequate explanation for its assessment decisions. Third, constitutional violations including retroactive taxation prohibited by Article 103(3) CRP provide grounds for annulment when assessments apply new legal interpretations to past tax periods. Fourth, taxpayers can argue improper statutory interpretation when the tax authority extends legislative provisions beyond their clear meaning without legal basis. Fifth, violations of the legality principle and tax certainty can be invoked when ambiguous legislation is interpreted against the taxpayer without clear legislative authorization. The CAAD arbitral process, governed by Decree-Law 10/2011 (RJAT), provides an alternative to judicial courts for resolving tax disputes, offering specialized expertise in tax matters, faster resolution, and the ability to address both factual and legal issues comprehensively in a single proceeding with binding effect.