Process: 531/2014-T

Date: January 25, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration case (531/2014-T) addresses whether Stamp Duty under item 28.1 of the General Table of Stamp Duty (TGIS) applies to building land (terrenos para construção) for the 2013 tax year. The claimant, owner of four parcels of building land in Vila Nova de Gaia, challenged Stamp Duty assessments totaling approximately €26,745, arguing that item 28.1 applies exclusively to properties with residential use that constitute actual buildings or constructions, not undeveloped land. The claimant contended that building land lacks the characteristics required under the CIMI (Property Tax Code) to be classified as residential property. Additionally, the claimant argued against retroactive application of amendments introduced by Law 83-C/2013 (effective January 1, 2014) to tax events occurring in December 2013. The Tax Authority countered that building land qualifies as property under CIMI articles 2 and 6, and that its residential use can be determined for assessment purposes based on authorized construction plans under CIMI article 45(2). The Authority argued for a broad interpretation of 'property with residential use' that encompasses building land designated for residential development. The claimant also alleged procedural defects including lack of adequate reasoning in the assessments. This case highlights critical interpretive questions about the scope of Stamp Duty on real property, temporal application of tax law amendments, and the distinction between developed residential property and land designated for future residential construction under Portuguese tax law.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration
Case no. 531/2014 – T

I. REPORT

"A", Ltd., legal entity no. …, with registered office at Rua …, no. …, …, ...-… Vila Nova de Gaia (hereinafter referred to only as Claimant), filed on 25-07-2014, a petition for establishment of a sole arbitrator tribunal, pursuant to articles 2 and 10 of Decree-Law no. 10/2011 of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as RJAT), in conjunction with paragraph a) of article 99 of the CPPT, wherein the Tax and Customs Authority (hereinafter referred to only as Respondent) is respondent.

The Claimant requests the annulment of Stamp Duty assessments for the year 2013, on grounds of error in the premises and lack of reasoning, with reference to the following properties:

a) land for construction registered in the urban property register under article … of the parish of …, municipality of Vila Nova de Gaia, valued at € 6,590.90;

b) land for construction registered in the urban property register under article … of the parish of …, municipality of Vila Nova de Gaia, valued at € 6,590.90;

c) land for construction registered in the urban property register under article … of the parish of …, municipality of Vila Nova de Gaia, valued at € 6,919.00; and

d) land for construction registered in the urban property register under article … of the parish of …, municipality of Vila Nova de Gaia, valued at € 5,645.70.

The petition for establishment of the arbitral tribunal was accepted by the Honorable President of CAAD on 28-07-2014 and notified to the Tax and Customs Authority on that same date.

Pursuant to the provisions of paragraph a) of no. 2 of article 6 and paragraph b) of no. 1 of article 11 of the RJAT, the Deontological Council appointed as arbitrator of the sole arbitrator tribunal the present signatory, who communicated acceptance of the assignment within the applicable timeframe.

On 11-09-2014 the Parties were duly notified of this appointment, having not manifested any will to refuse the appointment of the arbitrators, pursuant to the combined provisions of article 11, no. 1, paragraphs a) and b) of the RJAT and articles 6 and 7 of the Deontological Code.

In accordance with the provisions of paragraph c) of no. 1 of article 11 of the RJAT, the sole arbitrator tribunal was constituted on 29-06-2014.

By order of 08-12-2014 the meeting provided for in article 18 of the RJAT was dispensed with, and the parties were granted successive timeframes for submission of written arguments. Duly notified for such purpose, only the Respondent submitted written arguments.

The Claimant argues, first and foremost, that the legality of the contested assessments should be ascertained in accordance with the original wording of item 28.1 of the General Table of Stamp Duty (hereinafter referred to only as GTSD), and that the application of the wording introduced by article 194 of Law no. 83-C/2013 of 31 December, which entered into force on 1 January 2014, should be rejected, on penalty of retroactive application of the law, inasmuch as the tax event occurred on 31 December 2013. With regard specifically to the contested assessments, the Claimant considers that there was error in the premises inasmuch as item 28.1 of the GTSD refers exclusively to properties with residential use and not to land for construction. In the Claimant's view, the concept of "property with residential use" presupposes a building or construction that meets the characteristics required to be classified as such in accordance with the rules of the CIMI (the statute to which the CIS refers), and therefore cannot be classified among land for construction. In the Claimant's understanding, land for construction does not, in itself, satisfy any condition for being licensed as such or for defining residential use as its normal purpose. The Claimant also argues the defect of lack of reasoning inasmuch as the contested assessments do not include any elements that would allow ascertainment of the evaluative course followed by the Tax Authority that justified the imposition of a tax which according to the letter of the scope rule falls upon properties intended for residential use but in the present case is being required of owners of land for construction. Finally, the Claimant requests the condemnation of the Tax and Customs Authority to reimburse the improperly paid tax plus the respective compensatory interest.

In response, the Respondent sustains, summarily, that land for construction is qualified as property, pursuant to articles 2 and 6 of the CIMI, and it is possible and legally obligatory to ascertain its use for purposes of assessment. No. 2 of article 45 of the CIMI, when referring to "(…) value of the authorized buildings (…)", refers to the assessment rules for buildings, provided for in articles 38 and following of the CIMI, thus including consideration of the coefficients of use and quality and comfort (it invokes here the judgment of the Central Administrative Court of the South of 14/02/2012, handed down in case 04950/11). To that extent, the concept of "property with residential use" of item 28.1 of the GTSD should be interpreted in a broader and more comprehensive manner than the Claimant argues, and should not be restricted to the figure of properties intended for residence referred to in paragraph a) of no. 1 of article 6 of the CIMI; such concept will thus encompass land for construction provided that its respective use, determined for purposes of assessment, is residential use. Therefore, the tax assessments will be valid and thus the Claimant's petition should be dismissed.

III. PRELIMINARY RULING

The Arbitral Tribunal was regularly constituted and is competent.

The parties enjoy legal personality and capacity and are entitled (articles 4 and 10, no. 2, of the same statute and article 1 of Ordinance no. 112-A/2011 of 22 March).

The proceedings do not suffer from any defects and no obstacle presents itself to the examination of the merits of the case.

IV. FACTS

A. Proven Facts

The following facts are deemed proven:

  1. The Claimant is the owner of half of the land for construction registered in the urban property register of the parish of …, municipality of Vila Nova de Gaia, under article …, with tax property value of € 1,318,180.00, described in (docs. nos. 8 and 11 of p.i.);

  2. The Claimant is the owner of half of the land for construction registered in the urban property register of the parish of …, municipality of Vila Nova de Gaia, under article …, with tax property value of € 1,318,180.00, described in (docs. nos. 5 and 12 of p.i.);

  3. The Claimant is the owner of half of the land for construction registered in the urban property register of the parish of …, municipality of Vila Nova de Gaia, under article …, with tax property value of € 1,383,800.00, described in (docs. nos. 6 and 9 of p.i.);

  4. The Claimant is the owner of half of the land for construction registered in the urban property register of the parish of …, municipality of Vila Nova de Gaia, under article …, with tax property value of € 1,129,140.00, described in (docs. nos. 7 and 10 of p.i.);

  5. The Claimant was notified of collection note no. 2014…, dated 17/03/2014, referring to Stamp Duty, item 28.1 of the GTSD, for the year 2013, in the amount of € 6,590.90, relating to the land described in 1. above, (doc. no. 1 of p.i.);

  6. The Claimant was notified of collection note no. 2014…, dated 17/03/2014, referring to Stamp Duty, item 28.1 of the GTSD, for the year 2013, in the amount of € 6,590.90, relating to the land described in 2. above, (doc. no. 2 of p.i.);

  7. The Claimant was notified of collection note no. 2014…, dated 17/03/2014, referring to Stamp Duty, item 28.1 of the GTSD, for the year 2013, in the amount of € 6,919.00, relating to the land described in 3. above, (doc. no. 3 of p.i.);

  8. The Claimant was notified of collection note no. 2014…, dated 17/03/2014, referring to Stamp Duty, item 28.1 of the GTSD, for the year 2013, in the amount of € 5,645.70, relating to the land described in 4. above, (doc. no. 4 of p.i.);

  9. The Claimant made payment of the first installment of the Stamp Duty assessed with reference to the land for construction described in points 1 to 4 above on 30/04/2014.

B. Unproven Facts

No other facts with relevance for the arbitral decision were proven.

C. Grounds for the Statement of Facts

The statement of facts given as proven is based on documentary evidence presented and not contested.

V. LEGAL MATTERS

A. On the assessed tax

In the first place, and because this was raised by the Claimant, it is necessary to decide which wording of item 28.1 of the GTSD is applicable to the tax for the year 2013: the original version, introduced by Law no. 55-A/2012 of 29 October, or the wording resulting from the amendment introduced by article 194 of Law no. 83-C/2013 of 31 December.

From the joint application of no. 4 of article 2 of the Stamp Duty Code and no. 1 of article 8 of the CIMI, we conclude that the tax event referred to in item 28.1 of the GTSD occurs on 31 December of each year. To that extent, the tax legal relationship will be determined in accordance with the legislation in force on that same date, regardless of subsequent amendments that may be in force on the date the tax is assessed (which would be the present case). This position is the only one consistent with the principle of non-retroactivity of tax legislation provided for in no. 3 of article 103 of the Constitution of the Portuguese Republic.

Therefore, Stamp Duty under item 28.1 of the GTSD relating to the year 2013, to be assessed in 2014, should be calculated and determined in accordance with the original wording of the rule, introduced by Law no. 55-A/2012 of 29 October, as the Claimant contends.

That being said, it is necessary then to decide on the determination of the taxable base of item 28.1 of the GTSD, in particular with regard to the inclusion of land for construction in the concept of "urban property with residential use".

Now, on this matter there are already numerous decisions of the Administrative and Tax Arbitration Center, of which examples are the decisions of 18/09/2013, case no. 49/2013-T, of 02/10/2013, case no. 53/2013-T, of 09/10/2013, case no. 48/2013-T, of 18/10/2013, case no. 42/2013 and of 01/11/2013, case no. 75/2013-T. There are also numerous decisions of the Supreme Administrative Court on this matter of which examples are the judgments handed down on 24/9/2014 in cases nos. 01533/13, 0739/14 and 0825/14; on 10/9/2014 in cases nos. 0503/14, 0707/14 and 0740/14; on 9/7/2014 in case no. 0676/14; on 2/7/2014 in case no. 0467/14; on 28/5/2014 in cases nos. 0425/14, 0396/14, 0395/14; on 14/5/2014 in cases nos. 055/14, 01871/13 and 0317/14; on 23/4/2014 in cases nos. 270/14 and 272/14; and on 9/4/2014 in cases nos. 1870/13 and 48/14.

There being identity of the factual question and identity of the legal matter, hereby the decision therein is reproduced, accepting the aforementioned jurisprudence and following what was stated in the cited judgment of the Supreme Administrative Court of 9/4/2014, case no. 01870/13, whose grounds we subscribe entirely in the following part:

"The concept of "property (urban) with residential use" was not defined by the legislator. Neither in Law no. 55-A/2012, which introduced it, nor in the IMI Code, to which no. 2 of article 67 of the Stamp Duty Code (equally introduced by that Law) refers in a subsidiary capacity. And it is a concept that, probably due to its imprecision – a fact all the more serious since it is in light of it that the scope of objective taxation is defined - had a short life, since it was abandoned when Law no. 83-C/2013 of 31 December (the State Budget Law for 2014) entered into force, which gave new wording to item no. 28 of the General Table, and which now defines its scope of objective scope through the use of concepts that are legally defined in article 6 of the IMI Code. This amendment - to which the legislator did not attribute an interpretative character, nor does it appear to us that it did - merely makes clear for the future that land for construction whose building, authorized or envisaged, is for residential purposes is encompassed within the scope of item 28.1 of the General Table of Stamp Duty (provided that its respective tax property value is equal to or greater than 1 million euros), clarifying nothing, however, regarding past situations (2012 and 2013 assessments), such as the one in question in the present proceedings. Now, as to these, it does not appear possible to adopt the interpretation of the appellant, since it does not result unequivocally either from the letter or the spirit of the law that its intention was, ab initio, to encompass within its scope of objective scope land for construction for which the construction of residential buildings has been authorized or envisaged, as results today unequivocally from item 28.1 of the General Table of Stamp Duty. From the letter of the law nothing unequivocal results, indeed, for by using a concept that it did not define and which also was not defined in the statute to which it referred in a subsidiary capacity it lent itself, unnecessarily, to ambiguities, in a matter - of tax scope - in which certainty and legal security should also be paramount concerns of the legislator. And from its "spirit", ascertainable in the explanatory memorandum of the bill that is the origin of Law no. 55-A/2012 (Bill no. 96/XII – 2nd, Diário da Assembleia da República, Series A, no. 3, 21/09/2012, p. 44, available at www.parlamento.pt) nothing more results than the concern to raise new tax revenue from sources of wealth "less spared" in the past from the reach of the Tax Authority than labor income, in particular capital income, securities gains and property, motives that make no relevant contribution to the clarification of the concept of "properties (urban) with residential use", since they take it as settled without any concern to clarify it. Such clarification, however, will have emerged - as reported in the Arbitral Decision handed down on 12 December 2013, in case no. 144/2013-T, available in the CAAD database - when the aforementioned bill was presented and discussed in Parliament, in the words of the Secretary of State for Tax Affairs, who stated expressly, as appears from the Diário da Assembleia da República (DAR I Series no. 9/XII – 2, of 11 October, p. 32) that: "The Government proposes the creation of a special rate on urban residential properties of higher value. It is the first time in Portugal that a special taxation on properties of high value intended for residence has been created. This rate will be 0.5% to 0.8% in 2012 and 1% in 2013, and will apply to houses valued at equal to or more than 1 million euros" (emphasis ours), from which it follows that the reality intended to be taxed is, after all, and notwithstanding the terminological imprecision of the law, "urban residential properties", in common language "houses", and not other realities. The fact that it may be considered that in the determination of the tax property value of urban properties classified as land for construction account should be taken of the use that the building authorized or envisaged for it will have in determining the respective value of the implantation area (cf. nos. 1 and 2 of article 45 of the CIMI), does not determine that land for construction may be classified as "properties with residential use", since "residential use" always appears in the IMI Code referred to "buildings" or "constructions", existing, authorized or envisaged, since only these can be inhabited, which is not the case with land for construction, which do not, in themselves, have conditions for such, not being susceptible to being used for residential purposes unless and until a building authorized and envisaged for them is erected therein (but in that case they will no longer be "land for construction" but another species of urban property – "residential", "commercial, industrial or for services" or "other" – article 6 of the CIMI). It would indeed be strange if the determination of the scope of the tax scope rule of item no. 28 of the General Table of Stamp Duty were to be found, in the end, in the rules for determining the tax property value of the IMI Code, and if the terminological imprecision of the legislator in the wording of that rule were, after all, elucidated and finally clarified by way of an indirect and equivocal referral to the use coefficient established by the legislator in relation to built properties (article 41 of the IMI Code). Thus, considering that land for construction - whatever the type and purpose of the building that will be, or could be, erected on it - does not, in itself, satisfy any condition for being licensed as such or for defining residential use as its normal purpose, and with the scope rule of stamp duty referring to urban properties with "residential use", without any specific concept being established for such purpose, it cannot be derived therefrom that it contains a future potentiality, inherent to a distinct property that perhaps may be built on the land.

It is concluded therefore, in accordance with what was decided in the appealed judgment that, resulting from article 6 of the IMI Code a clear distinction between urban properties "residential" and "land for construction", these cannot be considered as "properties with residential use" for purposes of the provision of item no. 28.1 of the General Table of Stamp Duty, in its original wording, as conferred on it by Law no. 55-A/2012 of 29 October" (emphasis ours).

In light of everything set forth above, it is concluded by granting the Claimant's petition and therefore the illegality of the Stamp Duty assessments contested is declared on grounds of violation of item 28.1 of the GTSD.

Concluding thereby the annulment of the assessments identified with these grounds becomes prejudicial, as being moot, the examination of the defect of lack of reasoning alleged by the Claimant.

B. On compensatory interest

Pursuant to no. 1 of article 43 of the LGT "Compensatory interest is due when it is determined, in a gracious complaint or judicial challenge, that there was error attributable to the services from which results payment of the tax debt in an amount greater than legally due".

As stated by Diogo Leite de Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa, General Tax Law - Annotated and Commented, Encontro da Escrita Publishing House, 4th Edition, 2012, p. 342, note 2 "Error attributable to the services that carried out the assessment is demonstrated when a gracious complaint or a challenge of that same assessment is made and the error is not attributable to the taxpayer (for example, there will be annulment for error attributable to the taxpayer when the assessment is based on wrong factual premises, but the error is based on a wrong indication in the declaration presented by the taxpayer)".

Now, in the present case, the Claimant's request for payment of compensatory interest is unequivocally justified since the tax assessments contested are illegal and should be annulled. Thus, in addition to the reimbursement of the tax paid, the Claimant is also entitled to payment of compensatory interest, at the legal rate in force, calculated from the date of each of the payments until the date of processing of the respective credit notes, in which they are included – cf. article 43 of the LGT and no. 4 of article 61 of the CPPT.

VI. DECISION

In keeping with the foregoing, the Arbitral Tribunal decides to render judgment upholding the petition for arbitral pronouncement with the consequent annulment of the Stamp Duty assessments contested by the Claimant, with all legal consequences, namely the reimbursement of the tax paid by the Claimant, plus compensatory interest until the date of processing of the respective credit note, in which they are included.

Value of the case: In accordance with the provisions of article 306, no. 2, of the CPC and article 97-A, no. 1, paragraph a), of the CPPT and article 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings the value of the case is fixed at € 25,746.50.

Costs: Pursuant to no. 4 of article 22 of the RJAT, the amount of costs is fixed at € 1,530.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Let this arbitral decision be registered and notified to the parties.

Lisbon, 25-01-2015

The Sole Arbitrator

(Maria Forte Vaz)

Text prepared by computer, pursuant to no. 5 of article 131 of the CPC, applicable by referral from paragraph e) of no. 1 of article 29 of Decree-Law no. 10/2011 of 20/01.

The wording of the present decision is governed by the traditional spelling.

Frequently Asked Questions

Automatically Created

Does Stamp Tax (Imposto do Selo) under Verba 28.1 of the TGIS apply to building land (terrenos para construção)?
The application of Stamp Duty under item 28.1 of the TGIS to building land is disputed. The taxpayer argued that item 28.1 applies only to properties with residential use that constitute actual buildings meeting CIMI classification requirements, not undeveloped land. Building land lacks the physical characteristics and licensing to define residential use as its purpose. However, the Tax Authority maintained that building land qualifies as property under CIMI articles 2 and 6, and its use can be determined based on authorized construction plans per CIMI article 45(2), supporting a broader interpretation that includes land designated for residential development within the scope of item 28.1.
Can the 2014 amendment to Verba 28.1 of the Stamp Tax Table be applied retroactively to 2013 tax assessments?
The retroactive application issue concerns whether amendments to item 28.1 introduced by article 194 of Law 83-C/2013 (effective January 1, 2014) can apply to 2013 tax assessments. The claimant argued that the legality of 2013 assessments must be evaluated under the original wording of item 28.1, as the taxable event occurred on December 31, 2013, before the amendments took effect. Applying the 2014 amendments retroactively would violate the principle against retroactive tax legislation. The assessment must respect the legal framework in force when the tax liability arose, requiring application of the pre-amendment version of item 28.1.
What are the grounds for annulling Stamp Tax liquidations on building land in Portugal?
Grounds for annulling Stamp Duty liquidations on building land include: (1) Error in the factual premises (erro sobre os pressupostos) - where the Tax Authority incorrectly classified building land as property with residential use under item 28.1 when the legal definition requires actual buildings or constructions with residential characteristics; (2) Lack of reasoning (falta de fundamentação) - where assessments fail to include elements demonstrating the evaluative process justifying how undeveloped land qualifies as residential property under the applicable legal provisions; and (3) Illegal retroactive application of law - where amendments effective in 2014 are improperly applied to 2013 tax events.
How does CAAD arbitration work for challenging Stamp Tax assessments by the Portuguese Tax Authority?
CAAD (Centro de Arbitragem Administrativa) arbitration for Stamp Tax challenges operates under the Legal Framework for Arbitration in Tax Matters (RJAT - Decree-Law 10/2011). Taxpayers file a petition to establish a sole arbitrator or three-arbitrator tribunal within the statutory deadline per article 10 RJAT and article 99 CPPT. The CAAD President accepts the petition and notifies the Tax Authority. The Deontological Council appoints arbitrators, and parties have the right to refuse appointments. Once constituted, the tribunal may dispense with hearings and allow written submissions. The arbitrator examines jurisdictional requirements, analyzes the merits based on documentary evidence and legal arguments, and issues a binding decision that can annul unlawful assessments and order reimbursement plus compensatory interest.
What is the legal basis for contesting lack of justification (falta de fundamentação) in Stamp Tax liquidations?
Lack of justification (falta de fundamentação) in Stamp Tax liquidations constitutes a procedural defect enabling annulment. Portuguese tax law requires administrative acts, including tax assessments, to contain adequate reasoning explaining the factual and legal basis for the decision. In this case, the claimant argued the contested assessments lacked elements demonstrating the Tax Authority's evaluative process showing how building land—without actual residential buildings—satisfies the requirements of item 28.1 for properties with residential use. The reasoning must be sufficient for taxpayers to understand why the tax applies and to enable effective judicial review. Inadequate justification violates taxpayer rights and renders the assessment legally defective, providing grounds for annulment under administrative law principles incorporated into tax procedure.