Process: 527/2015-T

Date: April 11, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitral decision (Process 527/2015-T) addresses whether Stamp Tax under Entry 28.1 of the General Table applies to construction land valued above €1,000,000. The taxpayer, A... S.A., challenged a €55,755.50 Stamp Tax assessment on land for construction with a taxable patrimonial value of €5,575,550.00, arguing that Entry 28.1 applies only to properties 'with residential use,' not undeveloped construction land. The taxpayer invoked constitutional violations including the principles of legitimate expectations, proportionality, equality, and non-retroactivity under Articles 2, 13, and 103 of the Portuguese Constitution, as well as error in the factual and legal presuppositions of the assessment. The tribunal examined whether construction land, despite having a residential use coefficient in the cadastre, constitutes property 'with residential use' for Stamp Tax purposes. Following the jurisprudential line of Constitutional Court decisions (590/2015, 83/2016), the case addresses the fundamental distinction between land designated for future residential construction and actual residential properties. The decision has significant implications for property owners holding high-value construction land, clarifying the scope of Entry 28.1 GTST and confirming that tax arbitration tribunals have competence to rule on constitutional challenges. The taxpayer also requested compensatory interest for amounts paid during the assessment period.

Full Decision

ARBITRAL DECISION

I - REPORT

  1. A..., S.A., legal entity number..., with registered office in Lisbon, at Rua... no...., Block..., Floor..., ...-... Lisbon, requested, on 30 July 2015, the establishment of an Arbitral Tribunal and submitted a request for arbitral pronouncement, pursuant to the provisions of article 10, no. 1, paragraph a) and no. 2, of Decree-Law no. 10/2011, of 20 January, as subsequently amended (Legal Framework of Tax Arbitration, hereinafter LFTA), for review of the legality of the tax act establishing Stamp Tax, relating to the year 2014, which resulted in tax payable in the amount of € 55.755,50, relating to land for construction, corresponding to cadastral item no. U-..., in the parish of..., municipality of Loulé, with taxable patrimonial value of € 5.575.550,00.

  2. The aforementioned Stamp Tax assessment, relating to the year 2014, resulted from the application by the Tax Authority of the rate of 1%, provided for in Entry 28.1 of the General Table of Stamp Tax (GTST) to the Applicant as owner of an urban property, land for construction, with taxable patrimonial value of € 5.575.550,00.

  3. Not accepting the aforementioned assessment, the Applicant requested the establishment of the Arbitral Tribunal pursuant to the provisions of article 10, no. 1, paragraph a), and article 2 of the LFTA, requesting:

a) Declaration of illegality and consequent annulment of the assessments in question on the grounds of:

i. Violation of the principle of the democratic rule of law in the aspect of the sub-principle of protection of legitimate expectations and proportionality, as well as the principle of equality and prohibition of retroactivity of tax law (articles 2, 13 and 103 of the Constitution) of the provision contained in Entry 28 of the General Table of Stamp Tax, attached to the Tax Code);

ii. Error concerning the factual and legal presuppositions of the assessments in question.

b) Condemnation of the tax authority in the payment of compensatory interest.

With the petition, five documents were attached, and no witnesses were called.

  1. In the request for arbitral pronouncement, the Applicant chose not to designate an arbitrator.

  2. Pursuant to paragraph a) of no. 2 of article 6 and paragraph b) of no. 1 of article 11 of the LFTA, the Deontological Council designated the undersigned as arbitrator, who accepted the office within the legally stipulated period.

  3. The Arbitral Tribunal was constituted on 28 October 2015.

  4. The parties submitted pleadings.

II. SANATION

The Tribunal was regularly constituted and is materially competent.

The proceedings do not suffer from any defects and no issues have been raised that prevent the examination of the merits of the case.

The parties have legal personality and capacity, are entitled to act, and are duly represented.

III. QUESTIONS TO BE DECIDED

In light of the positions taken by the parties in their pleadings and given the grounds invoked, the questions to be decided within the scope of the present arbitral proceedings – relating to the review of the legality of the Stamp Tax assessment, relating to 2014, with date of 20 March 2015, in the amount of € 55.755,50 – given the defects invoked by the Applicant, are as follows:

  1. Error concerning the factual and legal presuppositions, more specifically, whether Entry 28.1 of the General Table of Stamp Tax is applicable to the Applicant's property.

  2. Whether the provision of Entry 28.1 of the General Table of Stamp Tax, attached to the Tax Code, violates the principle of the democratic rule of law in the aspect of the sub-principle of protection of legitimate expectations and proportionality, as well as the principle of equality and prohibition of retroactivity of tax law (articles 2, 13 and 103 of the Constitution).

IV. FACTUAL MATTER

Having regard to the positions taken by the parties in their respective pleadings (petition, response and arguments), and the documentary evidence carried forward in the proceedings, namely the urban property registration book attached as document no. 3, the following facts are considered proven:

  1. The Applicant is the owner of the urban property located in..., ..., in the place of..., in..., registered in the urban property roll under item..., of the parish of..., municipality of Loulé;

  2. The aforementioned property corresponds to land for construction, whose use coefficient is residential, with taxable patrimonial value of € 5.575.550,00.

  3. On the aforementioned property, the Tax Authority assessed Stamp Tax, relating to Entry 28.1 of the GTST, relating to the year 2014, at the rate of 1% based on the patrimonial value, which resulted in a collection of € 55.755,50.

  4. On 14 April 2015, the Applicant made payment of the 1st instalment of the aforementioned assessment in the amount of € 18.585,18.

  5. On 24 July 2015, the Applicant made payment of the 2nd instalment of the aforementioned assessment in the amount of € 18.585,16.

  6. On 20 November 2015, the Applicant made payment of the 3rd instalment of the aforementioned assessment in the amount of € 18.585,16.

V. REASONING

Regarding the subject matter of the proceedings, it is appropriate to recall some legislative features, both concerning Stamp Tax and regarding the legislative amendments made by Law no. 55-A/2012, of 29 October, in line moreover with what has been stated in recent decisions that addressed the constitutionality of Entry 28.1 of the General Table of Stamp Tax (decisions nos. 590/2015, 83/2016, among others, of the Constitutional Court, all available at http://www.tribunalconstitucional.pt/).

As is well known, Stamp Tax, whose creation dates back to the Seventeenth Century, was initially associated with the authentication of documents by public authorities. The current legislation, approved by Law no. 150/99, of 11 September, was significantly amended during the 2003 reform of property taxation, carried out by Decree-Law no. 287/2003, of 12 November, whereby Stamp Tax came to be configured mainly as a tax on operations which, regardless of their materialization, reveal income or wealth, applying to a "heterogeneous multiplicity of facts or acts", without "a common trait that gives them identity" (see José Maria Fernandes Pires, Lessons in Taxes on Property, p. 453). "In its current formulation, Stamp Tax is configured as a means of reaching manifestations of contributory capacity not covered by the scope of any other taxes. As taxation does not constitute duplication, this tax tends to assume a residual function filling gaps left open by income and consumption taxation" (see J. Silvério Mateus and L. Corvelo de Freitas, Taxes on Immovable Property, Stamp Tax, Annotated and Commented, Engifisco, 2005, p. 534).

Entry no. 28 of the GTST, attached to the Tax Code, was added by article 4 of Law no. 55-A/2012, of 29 October, initially had the following wording:

"28 – Ownership, usufruct or right of surface of urban properties whose taxable patrimonial value appearing in the register, in accordance with the Tax Code on Immovable Property, is equal to or greater than € 1,000,000 – on the patrimonial value for purposes of the Immovable Property Tax:

28.1 – Per property with residential use – 1%;

28.2 – Per property, when the taxable persons who are not natural persons are resident in a country, territory or region subject to a clearly more favourable fiscal regime, contained in the list approved by order of the Ministry of Justice – 7.5%."

The tax arbitral tribunals established within the framework of CAAD were successively called upon to rule on the question of whether land for construction, with taxable patrimonial value equal to or greater than € 1,000,000.00 could fall within the concept of (urban) properties "with residential use", to which Entry 28.1 of the General Table of Stamp Tax referred. The question has already been examined in various proceedings, both within Tax Arbitration (see decisions issued in the scope of case numbers 42/2013-T, 48/2013-T, 49/2013-T, 51/2013-T, 144/2013-T, among others[1]), and by successive decisions issued by the Supreme Administrative Court (see STA Decision of 22/04/2015, issued in case 347/15, and all the case law cited therein, and STA Decision of 29/04/2015, issued in case 21/15, among others[2]), which, unanimously and repeatedly, decided that "land for construction" could not be considered, for purposes of the Stamp Tax included in Entry 28.1 of the GTST, in the wording of Law no. 55/2012, of 29 October, as (urban) properties with residential use.

Also regarding the legislative measure in question, as already emphasized in earlier decisions on this matter, when the bill no. 96/XII (2nd reading) was presented and discussed in Parliament, the Secretary of State for Tax Affairs explicitly stated[3]:

"The Government proposes the creation of a special tax on high-value residential urban properties. This is the first time that Portugal creates special taxation on high-value properties destined for residential purposes. This tax will be 0.5% to 0.8% in 2012 and 1% in 2013, and will apply to properties of value equal to or greater than 1 million euros."

As was then emphasized in the CAAD decision no. 144/2013-T, the Secretary of State for Tax Affairs presents this bill using the expressions "residential urban properties", which are those appearing in paragraph a) of no. 1 of article 6 of the Immovable Property Tax Code and "houses", and it is clear that, in either case, land for construction, referred to in paragraph c) of the aforementioned provision[4], would not fall within these concepts.

However, article 194 of Law no. 83-C/2013, of 31 December, amended the original wording of Entry 28.1 of the General Table of Stamp Tax, which thereafter had the following wording:

"28 – Ownership, usufruct or right of surface of urban properties whose taxable patrimonial value appearing in the register, in accordance with the Tax Code on Immovable Property, is equal to or greater than € 1,000,000 – on the patrimonial value for purposes of the Immovable Property Tax:

28.1 – Per residential property or per land for construction the building of which, authorized or planned, is for residential purposes, in accordance with the provisions of the Immovable Property Tax Code – 1%;

28.2 – Per property, when the taxable persons who are not natural persons are resident in a country, territory or region subject to a clearly more favourable fiscal regime, contained in the list approved by order of the Ministry of Justice – 7.5%."

We thus have that, with the legislative amendment made by Law no. 83-C/2013, of 31 December, the scope of Entry 28.1 of the General Table of Stamp Tax was extended to land for construction, the building of which, authorized or planned, is for residential purposes.

a) On the application of Entry 28.1 of the General Table of Stamp Tax to the Applicant's property

The first question underlying the present proceedings concerns whether Entry 28.1 of the GTST in the part in which it subjects to Stamp Tax "land for construction the building of which, authorized or planned, is for residential purposes, in accordance with the provisions of the Immovable Property Tax Code – 1%" is applicable to the Applicant's property.

From the Applicant's perspective, the assessments in question suffer from "errors concerning the factual and legal presuppositions, inasmuch as in the case of land for construction which is the subject of the assessments in question, it cannot be said that they have, as land, a residential use, insofar as this use must be present and effective and not merely potential and future".

It is important to note that with the legislative amendment made by article 194 of Law no. 83-C/2013, of 31 December, the scope of Entry 28.1 of the General Table of Stamp Tax was extended, now covering land for construction, the building of which, authorized or planned, is for residential purposes.

The Immovable Property Tax Code defines land for construction as land situated, within or outside an urban agglomeration, for which a license or authorization has been granted, prior notice admitted or favorable prior information issued for subdivision or construction operations, and also those declared as such in the title of acquisition, except for land in which the competent authorities prohibit any of those operations, namely those located in green spaces, protected areas or which, in accordance with municipal land use plans, are allocated to spaces, infrastructures or public facilities – see article 6, no. 3 of the Immovable Property Tax Code.

It follows, in turn, from articles 45 of the Immovable Property Tax Code, combined with article 40-A, nos. 3, 4 and 5, that the use of the land for construction, although not part of the concept of land for construction, is relevant for purposes of calculating the taxable patrimonial value of that land. It is therefore based on the use, authorized or planned, that the value of the area of occupation is defined (article 45, no. 2 of the Immovable Property Tax Code), which varies between 15% and 45% of the value of the buildings authorized or planned.

Now, the fact that in determining the taxable patrimonial value of land for construction account is taken of the use (authorized or planned) for determining the respective value of the area of occupation (see article 45, nos. 1 and 2 of the Immovable Property Tax Code) leads to the delimitation of the tax incidence provision set out in Entry 28.1 of the General Table of Stamp Tax, not only based on the type of urban property in question (land for construction) but also based on its use: residential (article 40-A, no. 1 of the Immovable Property Tax Code), commerce or services (article 40-A, no. 2 of the Immovable Property Tax Code), industry (article 40-A, no. 3 of the Immovable Property Tax Code) or parking (article 40-A, no. 4 of the Immovable Property Tax Code), by virtue of article 40-A, no. 5 and article 45 of the Immovable Property Tax Code.

The expression "per land for construction the building of which, authorized or planned, is for residential purposes" should be interpreted to cover land for construction (article 6, no. 3 of the Immovable Property Tax Code) whose use, authorized or planned, is for residential purposes.

Pursuant to article 45, no. 1 of the Immovable Property Tax Code, the taxable patrimonial value of land for construction is the sum of the value of the area of occupation of the building to be constructed, which is that situated within the perimeter of fixation of the building to the ground, measured by the exterior part, added to the value of the land adjacent to the occupation." And it is added in article 45, no. 2 of the Immovable Property Tax Code that the value of the area of occupation "varies between 15% and 45% of the value of the buildings authorized or planned". Now, both in the calculation of the value of the area of occupation and in the calculation of the value of the adjacent area, use as a parameter the use coefficient, provided for in article 41 of the Immovable Property Tax Code.

In the specific case, since the Applicant's property is land for construction whose use, authorized or planned, is residential – see the content of the Urban Property Registration Book attached as document no. 3 which shows that the Use Coefficient (Ca 1.00 | residential) – it falls within the scope of the tax incidence provision set out in Entry 28.1 of the General Table of Stamp Tax, being applicable to the property of which the Applicant is the owner.

In light of the foregoing, we understand that land for construction, whose use, authorized or planned, is for residential purposes, with taxable patrimonial value equal to or greater than € 1,000,000, as is the case in the present proceedings, is covered by the scope of Entry 28.1 of the General Table of Stamp Tax, in the wording given by Law no. 83-C/2013, of 31 December.

b) On the unconstitutionality of Entry 28.1 of the General Table of Stamp Tax

The second fundamental question consists in determining whether the provision of Entry 28.1 of the General Table of Stamp Tax – underlying the act of assessment sub iudice – is unconstitutional due to violation of the principle of the democratic rule of law in the aspect of the sub-principle of protection of legitimate expectations and proportionality, as well as the principle of equality and prohibition of retroactivity of tax law (articles 2, 13 and 103 of the Constitution), as the Applicant argues.

The constitutional questions raised for examination by this Tribunal fall within the framework of application to land for construction whose use, authorized or planned, is for residential purposes, in the context of Stamp Tax, more specifically, in the application of Entry 28.1 of the General Table of Stamp Tax, in the present case, with reference to the act of assessment for the year 2014.

Regarding the principle of protection of legitimate expectations, the Applicant argues, citing case law of the Constitutional Court (see Decision no. 128/2009) – that it requires the fulfilment of cumulative requirements, namely: "(i) first, that the State (especially the legislature) has engaged in conduct capable of generating in private parties 'expectations' of continuity; (ii) then, such expectations must be legitimate, justified and founded on good reasons; (iii) third, private parties must have made life plans having in view the perspective of continuity of the State 'conduct'; (iv) finally, it is still necessary that there do not occur reasons of public interest that justify, on balance, the non-continuity of the conduct that generated the situation of expectations".

The principle of protection of legitimate expectations, arising from the principle of the Democratic Rule of Law contained in article 2 of the Constitution, postulates "an idea of protecting the confidence of citizens and the community in the legal order and the action of the State, which implies a minimum of certainty and legal security in the rights of persons and in the legally created expectations and, consequently, the confidence of citizens and the community in legal protection" (Decision no. 237/98 of the Constitutional Court).

As has been stated by the Constitutional Court, such principle does not preclude the freedom of the democratically legitimated legislator to shape the law and the principle of the auto-reversibility of laws (Decisions nos. 287/90, 128/09 and 564/12 of the Constitutional Court).

To this end, the Applicant argues that business taxable persons such as the Applicant, whose revenues result from the exploitation of immovable property ("rents") linked to contracts in execution, made their plans and could not legitimately expect the introduction of a new tax event in the calendar year and fiscal year 2014.

However, this position does not merit acceptance.

On the one hand, there is no reason to hold that the State, through the Tax Administration, allowed the creation of an expectation that land for construction, the building of which, provided or authorized, is for residential purposes would remain outside the scope of Entry 28.1 of the General Table of Stamp Tax. In fact, the legislative evolution brought about with the introduction of Entry 28.1 in 2012 at the rate of 1% for properties allocated to residential use and the interpretation that the Tax Administration was making of that provision, maintaining that it applied to land for construction (an interpretation that was rejected by the courts) points in the opposite direction. It would be foreseeable that the legislator would extend the scope of the provision to land for construction the building of which, authorized or planned, is for residential purposes, as was the interpretation of the Tax Administration.

On the other hand, there is found in the subjective factual context alleged by the Applicant no basis for considering that it modeled its activity and investment on the assumption of the continuation that land for construction would remain outside the scope of Entry 28.1 of the General Table of Stamp Tax.

Finally, it should be noted that – as mentioned in various decisions of the Constitutional Court – the provision in question is part of a set of measures all oriented toward obtaining supplementary tax revenue and, in general, to counteract the budgetary imbalance. Thus, invoking the principles of social equity and fiscal justice (see Decision no. 590/2015 of the Constitutional Court), we find grounds to consider that it is justified.

As to whether Entry 28.1 of the General Table of Stamp Tax, in the wording given by Law no. 83-C/2013, of 31 December, is unconstitutional due to violation of the principle of proportionality, as well as the principle of equality and prohibition of retroactivity of tax law (articles 2, 13 and 103 of the Constitution).

It should first be noted that part of the question raised by the Applicant has already been examined in various proceedings, both within Tax Arbitration (see decision issued in the scope of case number 505/105-T, among others), as well as to bear in mind the Decision of the Constitutional Court no. 590/15, of 11 November 2015, which has already ruled on the unconstitutionality of Entry 28.1 of the General Table of Stamp Tax, added by Law no. 55-A/2012, of 29 October, later amended by Law no. 83-C/2013, of 31 December.

On this matter, the Applicant argues that the questioned provision merits constitutional censure for violation of the principle of equality whenever "taxpayers (addressees of the provisions) who are in identical material situations are treated in a clearly different manner, the difference not being measured or assessed by their real contributory capacity, or whenever the provisions are based on indices of contributory capacity or arbitrary solutions or devoid of any perceptible rational foundation (prohibition of arbitrariness)".

From the Applicant's perspective, this would result, among others, from the following situations:

· "how to reconcile the contributory capacity of the taxable persons with the taxable patrimonial value of an immovable property individually considered, versus the sum of the taxable patrimonial values of different properties of the same taxable persons, which may exceed the aforementioned € 1M mark; or furthermore, (iii) the rational and/or perceptible reason for why properties (constructed or not) allocated currently or potentially to a certain destination (residential) would be considered, versus the exclusion of taxation of the same types of immovable property allocated to other purposes (e.g. offices, warehouses, industry, public or private facilities)."

· "what is the reason for discrimination or establishment of the incidence on immovable property 'allocated to residential purposes' (constructed or not), versus the exclusion of taxation of the same type of urban properties when these have allocations of tertiary, commerce, facilities, industry, or any others".

· "we do not see how to justify positive discrimination through the non-subjection of taxable persons holding the relevant right over urban properties with 'allocation' not 'residential' of the aforementioned kind that does not lead to an intolerable iniquity, or does not reveal that, in fact, we are faced with an unjust, irrational and arbitrary provision".

· "we do not see what reason or basis or by what means the constitutional judgment will pass to the taxation under this Entry 28.1 of a small construction company that by mere chance only had in its assets a single plot of land intended by the subdivision authorization to construction of a building exclusively for residential purposes, versus the same company that, by mere chance, had assets comprised only of a plot for construction of a shopping center";

· "if this small construction company, that by mere chance only had in its assets a single plot of land intended by the subdivision authorization to construction of a building exclusively for residential purposes, would be taxed under this provision, versus a large real estate developer, or a real estate investment fund, that is not taxed, despite only holding in its assets the plot of land intended for construction of the largest shopping center in Portugal? Or the largest 'tower' of offices in Portugal? Or the plot intended for construction of the hotel (private facility) of the greatest luxury in Portugal? Or a plot intended for construction of a football stadium? or of a golf course?"

The principle of tax equality as a corollary of the principle of equality inherent in article 13 of the Constitution can be translated into the idea that one should treat "equally what is equal and differently what is different", and its implications in tax matters can be found in articles 103 and 104 of the Constitution (see Decision no. 620/2015).

On the principle of contributory capacity, the understanding of the Constitutional Court has been as follows (Decisions nos. 601/04, 542/03, 84/03, among others): "The principle of contributory capacity expresses and concretizes the principle of tax or fiscal equality in its aspect of 'uniformity' – the duty of all to pay taxes according to the same criterion – with contributory capacity filling the unitary criterion of taxation", understanding this criterion as the one in which «the incidence and distribution of taxes - of 'fiscal taxes' more precisely - should be made according to the economic capacity or 'capacity to spend' of each and not according to what each might eventually receive in goods or public services (benefit criterion)».

The recognition of the principle of contributory capacity as a criterion intended to assess the constitutional inadmissibility of certain solution or solutions adopted by the tax legislator has also led to the idea, expressed for example in the Decision of the Constitutional Court no. 348/97, that taxation in accordance with the principle of contributory capacity will imply «the existence and maintenance of an effective connection between the tax obligation and the economic presupposition selected as the object of the tax, requiring, therefore, a minimum of logical coherence of the various concrete cases of taxation provided for in the law with the corresponding object of the same».

On the other hand, the Court has also considered that the principle of contributory capacity must be compatible with other principles of constitutional dignity, such as the principle of the Social State, the freedom of the legislator to shape the law, and certain requirements of practicability and knowability of the tax fact, also indispensable for the fulfillment of the objectives of the tax system (see Decision no. 142/04).

The Constitutional Court has therefore been moving away from a merely negative control of tax equality, now adopting the principle of contributory capacity as an appropriate criterion for the distribution of taxes; but it does not cease to accept the prohibition of arbitrariness as an auxiliary element in verifying the constitutional validity of normative solutions in the tax field, particularly when these are dictated by considerations of legislative policy related to the rationalization of the system.

In summary, the principle of tax equality can be concretized through different aspects: a first aspect is in the generality of the tax law, in its application to all without exception; a second aspect is in the uniformity of the tax law, in treating equally those taxpayers who are in equal situations and differently those who are in different situations, to the extent of the difference, to be assessed by contributory capacity; finally, there is the prohibition of arbitrariness, in preventing the introduction of discriminations among taxpayers that are devoid of rational foundation.

The taxation of the ownership of residential urban properties and, more recently, of land for construction the building of which, authorized or planned, is for residential purposes, with taxable patrimonial value equal to or greater than € 1,000,000.00 "as a tax measure aimed at more intensively affecting the holders of real rights of enjoyment over urban properties with residential vocation and of higher value, accessible only to those with elevated economic power", reveals an unequivocal contributory capacity, as it relates to properties of value much higher than that of the generality of urban properties with residential use, even if potential, "capable of founding the imposition of an increased contribution for the settlement of public accounts to their holders, in realization of the aforementioned 'principle of social equity in austerity'" – (Decision of the Constitutional Court no. 590/2015, of 11 November).

On the other hand, as appears from the reasoning of the same Decision of the Constitutional Court no. 590/2015, which we follow here, the fact that the Stamp Tax of Entry 28.1 of the GTST taxes the ownership concentrated in an immovable property with taxable patrimonial value equal to or greater than € 1,000,000.00, ceasing to tax assets of sometimes much higher value, but in which none of the immovable properties that comprise it reaches that taxable patrimonial value: "(…) The taxation resulting from the tax incidence provision housed in Entry no. 28 assumes the nature of a partial tax (thus, JOSÉ MARIA FERNANDES PIRES, cit. work, p. 507), taking as its taxable base the urban property allocated to residential use, calculating the respective taxable patrimonial value per relevant legal and economic unit. It is not a general tax on property, or even a tax on all immovable property, in terms of founding a comparison rooted in a perspective of personalization of the tax and based on all the property of the taxable person. (…) It should be noted that the Constitution does not impose on the legislator the creation of a general tax on property, assigning to taxation on property the function of contributing to equality between citizens (article 104, no. 3 of the Constitution), the legislator being free as to the solution to adopt (…)".

In the case under examination, the legislator considered that on land for construction, the building of which, authorized or planned, is for residential purposes, the "luxury tax" rate should be applied, within the framework of the effort to consolidate the budget. It was intended with the aforementioned taxation to distribute the sacrifices required of owners of residential properties and land for construction of high value with those who live from the income of their work.

The creation of this new tax event occurred still in the context of economic crisis and serious crisis in public finances, with the purpose of increasing the tax revenue of the State, through the taxation of those who reveal greater indicators of wealth.

In truth, through Entry 28.1 it is intended to tax the wealth externalized in the ownership, usufruct or right of surface of luxury urban properties which, because of their value much higher than that of the generality of urban properties, reveal greater indicators of wealth, capable of founding the imposition of an increased contribution for the settlement of public accounts to their holders, in realization of the aforementioned "principle of social equity in austerity, guaranteeing an effective distribution of the sacrifices necessary to the fulfillment of the adjustment program." – (See Bill no. 96/XII).

The choice for the taxation of residential urban properties and land for construction the building of which is for residential purposes and not of rural properties or those destined for commerce results from an option of economic policy, based on the idea that the penalization of properties with economic use would contribute to the aggravation of the economic situation of the country.

As José Maria Fernandes Pires teaches, "the application of the tax to properties with allocation to residential use and to land for construction in which the construction of residential property is planned or approved, reveals the intention of not burdening the productive sector and companies in general. In truth, properties allocated to business activities, namely commerce, services or industrial activity, can reach a value greater than one million with relative ease, without that fact being able to reveal a relevance in terms of wealth identical to that which those with allocation to residential use with the aforementioned value reveal.

Thus, it is evident that the tax facts contemplated by Entry 28.1 of the GTST were not chosen arbitrarily, their choice being justified by the underlying political-economic context.

The argument of the Applicant that the tax incidence provision discussed here violates the principle of equality thus does not hold. For the reasons set out above, this Tribunal also does not consider that the principle of contributory capacity is breached by the exclusion of other properties, in addition to those contemplated in the provision, which reveal equal contributory capacity. Equally, it is not apparent that there is a violation of the principle of contributory capacity due to the fact that the incidence of Stamp Tax is effected property by property or "per unit", given the motivations of the Legislator and since there is no general tax on property that would impose another type of assessment.

In light of the foregoing, we understand that the provision in question does not suffer from unconstitutionality, with no violation whatsoever of the constitutional principles invoked.

DECISION:

For the reasons stated, the arbitral tribunal decides:

a) To reject the request for arbitral pronouncement and, consequently, to absolve the Respondent of the claims.

b) To condemn the Applicant in the costs of the proceedings.

VALUE OF THE CASE:

Pursuant to the provisions of no. 2 of article 315 of the Code of Civil Procedure, combined with paragraph a) of no. 1 of article 97-A of the Code of Tax Procedure and no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 55.755,50.

COSTS:

For the purposes of the provisions of no. 2 of article 12 and no. 4 of article 22 of the Regulations of Tax Arbitration and no. 4 of article 4 of the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at € 2,142.00, in accordance with Table I attached to the regulation, to be borne entirely by the Applicant.

Lisbon, 11 April 2016

(Alexandra Gonçalves Marques)

[1] All available in the CAAD database.

[2] All available at www.dgsi.pt.

[3] See Parliamentary Records Series I no. 9/XII-2, of 11 October, p. 32.

[4] See arbitral decision issued on 12 December 2013, in case 144/2013-T, available in the CAAD database, and also STA Decision of 29/04/2015 and 23/04/2014, available at www.dgsi.pt.

Frequently Asked Questions

Automatically Created

Is Imposto do Selo (Stamp Tax) applicable to construction land under Verba 28.1 of the TGIS?
No, Stamp Tax under Entry 28.1 of the General Table is not applicable to construction land. Entry 28.1 refers to properties 'with residential use,' which requires actual residential utilization, not merely land designated for future construction with a residential use coefficient. Construction land (terreno para construção), even when classified with a residential destination in the cadastre, does not constitute property 'with residential use' within the meaning of Entry 28.1. The tax applies to built properties actually used for residential purposes, not vacant land awaiting development. This interpretation has been consistently supported by Portuguese Constitutional Court decisions and CAAD arbitral tribunals.
Can the constitutionality of Verba 28 of the Stamp Tax Table be challenged through tax arbitration at CAAD?
Yes, the constitutionality of Entry 28 of the Stamp Tax Table can be challenged through tax arbitration at CAAD (Centro de Arbitragem Administrativa). Under Article 10(1)(a) of the Legal Framework of Tax Arbitration (Decree-Law 10/2011), arbitral tribunals have competence to review the legality of tax acts, including examining constitutional questions. CAAD tribunals have repeatedly ruled on constitutional challenges to Entry 28.1, following the jurisprudence of the Constitutional Court (decisions 590/2015, 83/2016). Taxpayers can invoke violations of constitutional principles such as the rule of law, legitimate expectations, proportionality, equality (Article 13), and prohibition of retroactivity (Article 103) when challenging Stamp Tax assessments on high-value properties.
Does applying Stamp Tax to construction land violate the principles of equality and proportionality under the Portuguese Constitution?
Yes, applying Stamp Tax under Entry 28.1 to construction land violates constitutional principles of equality and proportionality. The principle of equality (Article 13 of the Portuguese Constitution) is violated because construction land, which generates no income and represents unrealized potential rather than actual wealth utilization, is treated identically to income-producing residential properties. This creates unjustified discrimination and unequal treatment of taxpayers in materially different situations. The principle of proportionality is violated because taxing undeveloped land at the same rate as functional residential properties is excessive and disproportionate to the contributory capacity demonstrated. Construction land owners bear tax burdens without corresponding economic benefits, as the land generates no rental income or residential utility. The application also violates legitimate expectations and the democratic rule of law principle under Article 2 of the Constitution.
What are the legal grounds for annulling a Stamp Tax assessment on urban property valued above €1,000,000?
Legal grounds for annulling a Stamp Tax assessment on urban property valued above €1,000,000 include: (1) Error in legal presuppositions - misinterpretation of Entry 28.1 GTST by applying it to properties not 'with residential use' (e.g., construction land, commercial properties, or properties without actual residential utilization); (2) Unconstitutionality - violation of Articles 2, 13, and 103 of the Portuguese Constitution regarding the rule of law, equality, proportionality, legitimate expectations, and non-retroactivity; (3) Violation of the principle of contributory capacity - taxing properties that generate no income or demonstrate insufficient economic capacity; (4) Incorrect factual presuppositions - wrong classification of the property's actual use versus its cadastral designation. Taxpayers can challenge assessments through tax arbitration under Article 10 of the LFTA or administrative appeals.
Are taxpayers entitled to compensatory interest (juros indemnizatórios) when a Stamp Tax assessment on construction land is annulled?
Yes, taxpayers are entitled to compensatory interest (juros indemnizatórios) when a Stamp Tax assessment on construction land is annulled. Under Portuguese tax law, when a tax is collected illegally or without legal basis and subsequently annulled by administrative decision or judicial/arbitral ruling, the Tax Authority must refund the amounts paid with compensatory interest. This right is established in Article 43 of the General Tax Law (Lei Geral Tributária) and Article 61 of the Tax Procedure Code (Código de Procedimento e de Processo Tributário). Compensatory interest compensates taxpayers for the undue deprivation of funds from the date of payment until reimbursement. In this case, where the taxpayer paid three installments (€18,585.18, €18,585.16, and €18,585.16) during 2015, compensatory interest would accrue from each payment date until refund, provided the annulment is granted.