Process: 532/2015-T

Date: May 2, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitration case (Process 532/2015-T) addresses whether Stamp Duty under item 28.1 of the General Table of Stamp Duty (TGIS) applies to construction land not designated for housing purposes. The claimant, A... S.A., challenged the 2014 Stamp Duty assessment on an urban property in Peniche with a taxable property value of €1,164,090.00, arguing the land was designated for a hotel development project (including a four-star hotel and seven single-family dwellings as part of an integrated tourist facility) rather than residential housing. The claimant alleged three grounds for annulment: (1) violation of ordinary law due to incorrect application of item 28.1 of the TGIS, since the property was construction land without authorized or planned housing construction; (2) violation of the constitutional principle of equality regarding contributive capacity under Article 13 of the Portuguese Constitution; and (3) violation of the constitutional principle of equality concerning fiscal system coherence. The Tax and Customs Authority responded by raising a preliminary exception regarding the Arbitral Tribunal's competence to assess constitutional matters and defending that the property had a residential allocation nature, making the Stamp Duty assessment correct. The case raises fundamental questions about the scope of Verba 28.1 of the TGIS, particularly whether it extends to construction land designated for non-residential purposes such as tourist developments, and whether such application respects constitutional principles of taxation equality and ability to pay.

Full Decision

ARBITRATION DECISION

Claimant/Applicant: A…, S.A.

Respondent: Tax and Customs Authority (hereinafter T.C.A.)

  1. Report

On 31-07-2015, the company A…, S.A., legal entity no. …, with registered office at Rua …, no. …, …-… Lisbon, hereinafter referred to as the Claimant, submitted to the Administrative Arbitration Centre (CAAD) a request for constitution of an arbitral tribunal with a view to annulling the tax assessment act of Stamp Duty of item no. 28.1 of the General Table of Stamp Duty (GTSD), relating to the year 2014 and concerning the urban property registered in the urban property matrix under article … of the parish and municipality of Peniche, with the taxable property value of 1,164,090.00 €.

The Claimant alleges that the property to which the Stamp Duty assessment refers is a construction land and that on that land no building construction for housing is authorized nor planned, whereby the assessment in question is illegal.

The Claimant states that the assessment in dispute has the following defects:

a) Violation of ordinary law, since there is an error concerning the assumptions for application of item 28.1 of the GTSD;

b) Violation of constitutional law, because the assessment violates article 13 of the Constitution of the Portuguese Republic (CPR), that is, it violates the principle of equality in the aspect of contributive capacity;

c) Violation of constitutional law, because the assessment violates article 13 of the CPR, that is, it violates the principle of equality in the aspect of fiscal system coherence.

A single arbitrator, Suzana Fernandes da Costa, was appointed on 20-10-2015.

In accordance with the provisions of article 11 no. 1, paragraph c) of the RJAT, the singular arbitral tribunal was constituted on 04-11-2015.

The Tax and Customs Authority submitted a response on 09-12-2015 (within the legal deadline therefor).

In its response, the T.C.A. first presents a defense by exception, alleging the material incompetence of the Arbitral Tribunal to hear an application for declaration of material unconstitutionality of item 28.1 of the GTSD.

Next, the T.C.A. defends that the application for declaration of illegality and consequent annulment of the contested assessment should be judged unfounded, since the assessment in dispute would constitute a correct interpretation of item 28.1 of the General Table of Stamp Duty, given that the referred property would have the legal nature of property with residential allocation. The T.C.A. further states that there is no violation of any legal provisions or constitutional principles, namely the principle of fiscal equality and the principle of contributive capacity.

On 10-12-2015, an order was issued scheduling the meeting provided for in article 18 of the RJAT for 05-01-2016 at 16:45 hours.

And on 14-12-2015 the T.C.A. submitted a motion requesting waiver of the holding of the meeting and requesting that the Claimant be notified to respond in writing to the matter of exception contained in the Respondent's response. It further requested, should the meeting not be waived, that its date be changed to 08-01-2016 at 11:00 hours.

The Arbitral Tribunal issued an order on 17-12-2015, ordering the notification of the Claimant to comment, within 10 days, on the request for waiver of the meeting submitted by the T.C.A. and on the possibility of responding in writing to the matter of exception.

On 04-01-2016, an order was attached to the file cancelling the meeting scheduled for the following day, since the deadline for the Claimant to comment on the request for waiver of the meeting and on the possibility of responding to the matter of exception was still running.

The Claimant came to comment on 07-01-2016, informing that it did not oppose the waiver of the holding of the meeting provided for in article 18 of the RJAT, nor to the written response to the matter of exception.

On 11-01-2016, the Claimant submitted to the file the following documents: proof of delivery to IGESPAR of the Hotel project on 28-11-2013; first rejection of the proposal by IGESPAR on 26-12-2013; proof of delivery of revised Hotel project to IGESPAR on 25-03-2014; approval by IGESPAR received on 28-04-2014; approval by Tourism of Portugal received on 26-06-2014; proof of delivery of the project to the Municipal Council on 10-07-2014. The Claimant states that these documents prove what was alleged in article 15 of the arbitral request, that is, that on the construction land no building construction for housing is authorized or planned, but rather that since 2011 the land has been intended for a hotel unit composed of a four-star hotel and seven single-family dwellings that form an integral part of the referred tourist project.

On 12-01-2016 it was found that there might be timeliness issues with the arbitral request at issue in this case, and an order was issued directing notification of the parties to successively comment, within 10 days, under the principle of contradictory, on the timeliness of the arbitral request, taking into account that the deadline for voluntary payment of the assessment in question ended on 30-04-2015 and that the arbitral request was filed on 31-07-2015.

On 18-01-2016, the T.C.A. came to comment on the submission of documents by the Claimant on 11-01-2016, alleging that the motion of the Claimant and attached documents should be removed from the file, or, should this not be considered appropriate, they should be disregarded as not producing the effects claimed by the Claimant, or further, it should be judged that the request for compensatory interest is unfounded.

The Claimant submitted a motion on 22-01-2016, concerning the issue of timeliness of the arbitral request, stating that the request was timely filed, since the deadline would be counted in accordance with article 279 of the Civil Code, which states in paragraph e) that the deadline ending during judicial vacations would transfer to the first working day following the end of such vacations. Thus, in this case, the deadline would end on 29-07-2015, but since it was a day of judicial vacations, the end of the deadline would transfer to 01-09-2015. The request having been filed on 31-07-2015, the Claimant alleges that it is timely.

On 29-01-2016, the Claimant came to comment on the motion of the T.C.A. requesting the removal of its motion and the documents submitted on 11-01-2016. The Claimant alleged that the submission of documents is admissible, in accordance with article 423 of the Code of Civil Procedure, applicable by virtue of article 29 of the RJAT, which states in no. 2 that documents may be presented up to 20 days before the date the final hearing is held, but the party is condemned to a fine.

On 02-02-2016 an order was issued admitting the submission to the file of the documents presented by the Claimant on 11-01-2016, under the principles of free determination of evidence production procedures, officiality and investigative or inquisitorial proceedings. In the referred order the holding of the meeting provided for in article 18 of the RJAT was waived, and notification was ordered of the Claimant and the Respondent to comment within 10 days, in this order and successively, on the matter of exception contained in the response submitted by the Respondent.

The Claimant submitted a motion concerning the matter of exception on 10-02-2016, alleging that this "does not ask the arbitral tribunal to declare the unconstitutionality of item 28 of the GTSD, but rather to assess the conformity of the assessment act that is the subject of the request for constitution of the arbitral tribunal with the Constitution of the Portuguese Republic (CPR), more specifically with the principle of equality, in the aspect of fiscal system coherence and contributive capacity (article 13 of the CPR)". The Claimant further states that this assessment is entirely admissible in light of the provisions of article 204 of the CPR. And mentions in this regard the arbitration decision of case no. 312/2015-T.

The T.C.A. commented on the Claimant's response regarding the matter of exception on 25-02-2016, defending that item 28 of the GTSD does not suffer from any unconstitutionality, and that on this matter, the Constitutional Court has already ruled in judgment no. 590/2015 of 11-11-2015, not finding unconstitutional item 28 and 28.1 of the GTSD, to the extent that it imposes annual taxation on the ownership of urban properties with residential allocation, whose taxable property value is equal to or greater than one million euros.

On 08-03-2016, an order was issued directing notification of the parties to, in this order and successively, submit their written submissions within 15 days. In this order the date for pronouncement of the decision was also set as 15-04-2016, and the Claimant was cautioned to pay the subsequent arbitral fee by that date.

On 23-03-2016, the Claimant submitted its submissions and the T.C.A. submitted its on 12-04-2016.

And on 11-04-2016 the Claimant submitted proof of the subsequent arbitral fee and a copy of arbitration decision no. 507/2015-T issued by the arbitrators Judge Counselor Jorge Manuel Lopes de Sousa, Dr. Rogério M. Fernandes Ferreira and Judge Counselor José Manuel Cardoso da Costa.

An order was issued on 14-04-2016, directing notification of the Respondent to, within 10 days, comment on the motion of the Claimant, and the date for pronouncement of the decision was extended to 02-05-2016, in order to comply with the principle of contradictory.

The Respondent chose not to comment.

The parties have legal personality and capacity and are legitimate (articles 4 and 10 no. 1 and 2 of the RJAT and article 1 of Ordinance no. 112-A/2011 of 22 March).

The present request for arbitral ruling was presented timely. Under article 20 no. 1 of the Code of Tax Procedure and Process (CTPP), applicable by virtue of article 29 of the RJAT, the deadline for judicial challenge is counted in accordance with article 279 of the Civil Code. Now, under article 279 paragraph e) of the Civil Code, the deadline ending during judicial vacations transfers to the first working day following the end of such vacations, in cases where the act must be performed in court. In this sense, the judgment of the Supreme Administrative Court of case no. 01534/13 of 15-01-2014 decided.

The case does not suffer from nullities and no preliminary questions were raised.

Regarding the preliminary question of the competence of the Arbitral Tribunal

The Respondent alleges in its response that the Arbitral Tribunal is incompetent ratione materiae to hear an application for declaration of material unconstitutionality of item 28 of the GTSD, for violation of the principle of contributive capacity as an aspect of the principle of equality, provided for in article 13 and 104 no. 3 of the CPR.

In the view of this tribunal, what the Claimant seeks is the declaration of illegality of the contested assessment act, based on the unconstitutionality of the norm that sustains it. And this conclusion concerning the object of the present case results evident from the application ultimately made by the Claimant: "In these terms it is requested that the present application for declaration of illegality of the Stamp Duty assessment better identified in the foregoing be considered well-founded as proven, whereby the assessment should consequently be annulled, all with the other consequences legally provided for".

The CAAD has already ruled on this matter, namely in arbitration decision of case no. 385/2015-T, to which we adhere.

Thus, we understand that the Claimant does not seek for this tribunal to substitute itself for the Constitutional Court and declare item 28.1 of the GTSD unconstitutional, seeking rather that this tribunal, within the scope of the powers legally recognized to it, judge the norm in question unconstitutional, thereby refusing its application to the specific case. As the norm cannot be applied, in concreto, the tax act that results from its execution will consequently be illegal and, as such, subject to annulment.

What is at issue in the present case is, therefore, the legality of the assessment act, and in order to decide, this tribunal will necessarily have to, as mandated by constitutional imperative (article 204 of the CPR), evaluate the constitutional conformity of the norms that legally sustain it.

In light of the foregoing, the invoked incompetence of this tribunal is considered unfounded.

  1. Factual Matters

2.1. Established Facts:

After analysis of the documentary evidence produced, the following facts are considered established and material to the decision of the case:

  1. The Claimant was, in 2014, the owner of the urban property registered in the property matrix under article … of the parish and municipality of Peniche, described as construction land and with a taxable property value of 1,164,090.00 €, as per the property record attached to the arbitral request as document 2.

  2. The Claimant was notified of Stamp Duty assessment no. 2015…, in the amount of 11,640.90 €, relating to the urban article identified in the previous point, as per the assessment attached to the arbitral request as document 1.

  3. The Claimant was notified on 28-04-2014 by IGESPAR of the approval of the four-star hotel project, as per documents submitted on 11-01-2016.

  4. On the construction land referred to in point one, no building construction for housing is authorized or planned.

No other facts were established with relevance to the decision of the case.

2.2. Justification of the Established Factual Matter:

With regard to the established facts, the arbitrator's conviction was based on the documentary evidence attached to the file, all analyzed critically and in articulation with the positions of the parties in the case and having in mind the absence of controversy regarding the factual framework but only as to law, which is the subject of the dispute.

  1. Legal Matters:

3.1. Object and Scope of the Present Case

From all the foregoing, it behooves this tribunal to pronounce itself on the following questions:

a) Competence of the tribunal to hear the application;

b) Illegality of the Stamp Duty assessment act for violation of ordinary law and violation of constitutional law.

What is at issue in this case is the alleged illegality of the contested tax act, resulting from the violation of ordinary law, namely due to error concerning the assumptions for application of item 28.1 of the GTSD, and resulting from the application of a norm deemed unconstitutional for violation of the principles of equality, aspect of contributive capacity and aspect of fiscal system coherence.

3.2. Question of the Categorization of Construction Lands within the Scope of Application of Item No. 28.1 of the GTSD

3.2.1. Regime of the Amendment Introduced by Article 194 of Law No. 83-C/2013 of 31-12

Regarding the meaning and scope of item 28.1 of the GTSD, according to the wording given by article 194 of Law no. 83-C/2013, was addressed in the Judgment of the CAAD, of 4 February 2016, case no. 467/2015-T, in terms that, by deserving our agreement, we proceed to reproduce, in the terms that follow: "The new wording of item 28.1 of the GTSD (given, as was stated, by art. 194 of Law no. 83-C/2013, of 31 December) states as follows: 'for residential property or for construction land whose construction, authorized or planned, is for housing, in accordance with the provisions of the IMI Code'. The essential question that, in this context, arises, is whether, in the absence of a provision or expectation of 'construction for housing' with respect to the construction lands under analysis, the application of Stamp Duty may be accepted, in the manner performed by the TA".

SANTOS ROCHA, António and MARTINS BRÁS, Eduardo José, in the book Taxation of Patrimony. IMI-IMT and Stamp Duty (Annotated and Commented), Almedina, 2015, page 44, state that: "as regards construction lands, whether or not located within an urban agglomerate, as defined in art. 3/4 of the present Code [CIMI], should, as such, be considered the lands with respect to which a license for land subdivision operation; license for construction; authorization for land subdivision operation; authorization for construction; admitted favorable prior notice of land subdivision or construction operation; or issued favorable prior information of land subdivision or construction operation, has been granted, as well as; those which have been declared as such in the acquisition title, and it should be noted that, also for this purpose, only the acquisition title with the form required by civil law should be relevant, that is, the public deed or the authenticated private document referred to in art. 875 CC."

3.2.2. Application of the Regime to the Claimant's Situation

The Claimant states in the arbitral request that "on this construction land no building construction for housing is authorized or planned". And on 11-01-2016, the Claimant submitted to the file the following documents:

a) proof of delivery to IGESPAR of the Hotel project on 28-11-2013;

b) first rejection of the proposal by IGESPAR on 26-12-2013;

c) proof of delivery of revised Hotel project to IGESPAR on 25-03-2014;

d) approval by IGESPAR received on 28-04-2014;

e) approval by Tourism of Portugal received on 26-06-2014;

f) proof of delivery of the project to the Municipal Council of … on 10-07-2014.

The Claimant alleged that "these documents prove what was mentioned in article 15 of the Request for Constitution of the Arbitral Tribunal, that is, that on the construction land no building construction for housing is authorized or planned. As these documents prove, since 2011 this construction land has been intended for a hotel unit composed of a 4-star Hotel and 7 single-family dwellings that form an integral part of this tourist project, the project for this purpose having already been approved by IGESPAR and presented to the Municipal Council".

Now, on the construction land at issue in this case no building construction for housing is authorized or planned, but rather a construction intended for commercial purposes, as is recorded in the established facts.

On the question of the present case the judgments of the CAAD of cases no. 578/2015-T, 485/2015-T and 467/2015-T have already ruled.

Thus, and agreeing with the above-referred judgments, the assessment in dispute in the present case must be declared illegal for failure to satisfy the assumptions for taxation provided for in item 28.1 of the GTSD, which justifies the declaration of its illegality and annulment (article 135 of the CPA).

As the understanding of the Claimant proves well-founded regarding the question referred, the examination of the other allegations of the Claimant is prejudiced, in light of the provisions of article 124 of the Code of Tax Procedure and Process, applicable by virtue of article 29 no. 1 paragraph c) of the TJAT, and there is, in light of this decision, no prejudice to the more stable or effective protection of the interests of the same.

However, on the question of the alleged unconstitutionality of item 28.1 for violation of the principle of equality in the aspect of contributive capacity, the judgments of the CAAD of cases no. 515/2015-T, 505/2015-T, 517/2015-T and 485/2015-T have already ruled, among others.

On this matter we expressly agree with these referred judgments, and we understand that item 28.1 of the GTSD does not violate the principle of equality constitutionally enshrined, in its aspect of contributive capacity and of fiscal system coherence.

  1. Decision

In light of the foregoing, it is determined that the application filed by the Claimant in the present tax arbitral case be judged well-founded, regarding the illegality of the Stamp Duty assessment of the year 2014 no. 2015…, in the amount of 11,640.90 €.

  1. Value of the Case:

In accordance with the provisions of article 315, no. 2, of the CPC and 97-A, no. 1, paragraph a) of the CTPP and 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings the value of the action is set at 11,640.90 €.

  1. Costs:

Under article 22, no. 4, of the RJAT, and Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is set at 918.00 € to be paid by the Tax and Customs Authority.

Notify.

Lisbon, 02 May 2016.

Text prepared by computer, in accordance with article 138, no. 5 of the Code of Civil Procedure (CPC), applicable by reference from article 29, no. 1, paragraph e) of the Tax Arbitration Regime, reviewed by me.

The single arbitrator

Suzana Fernandes da Costa

Frequently Asked Questions

Automatically Created

Is Stamp Tax under Verba 28.1 of the TGIS applicable to building land (terrenos para construção) not designated for housing?
Based on this arbitration case, the applicability of Stamp Tax under Verba 28.1 of the TGIS to building land not designated for housing is contested. The claimant argued that construction land designated for a hotel tourist development should not be subject to this tax provision, as item 28.1 traditionally applies to properties with residential allocation. The claimant presented evidence showing that since 2011, the land was intended for a four-star hotel and integrated tourist project, not housing construction. However, the Tax Authority maintained that the property had residential allocation characteristics. The central legal issue is whether Verba 28.1's scope is limited strictly to land designated for residential housing or extends to any construction land with a taxable value exceeding €1,000,000, regardless of the intended construction purpose.
Can a taxpayer challenge a Stamp Tax assessment on building land through CAAD arbitration proceedings?
Yes, taxpayers can challenge Stamp Tax assessments on building land through CAAD (Centro de Arbitragem Administrativa) arbitration proceedings. This case demonstrates the process: the claimant filed an arbitration request on July 31, 2015, seeking annulment of the 2014 Stamp Duty assessment under Verba 28.1 of the TGIS. The arbitral tribunal was constituted with a single arbitrator, and both parties submitted their arguments. However, the Tax Authority raised a preliminary exception regarding the tribunal's material competence to assess claims of constitutional unconstitutionality. The case also addressed procedural issues including the timeliness of the arbitration request (considering judicial vacation periods under Article 279 of the Civil Code) and the admissibility of documents submitted after the initial filing. The arbitration process allows for examination of both the legality of the assessment under ordinary tax law and constitutional compliance.
Does applying Verba 28.1 of the Stamp Tax Table to non-residential building land violate the constitutional principle of equality and ability to pay?
The claimant argued that applying Verba 28.1 of the Stamp Tax Table to non-residential building land violates two aspects of the constitutional principle of equality under Article 13 of the Portuguese Constitution: (1) the principle of contributive capacity (ability to pay), and (2) fiscal system coherence. The argument suggests that taxing construction land designated for commercial/tourist purposes (hotel development) under the same provision as residential property creates unjustified discrimination and fails to respect differences in contributive capacity. However, the Tax Authority contested these constitutional challenges, first raising an exception regarding the Arbitral Tribunal's competence to declare provisions unconstitutional, and second, arguing that no violation of constitutional principles occurred because the assessment correctly interpreted the law. The claimant clarified that it was not requesting a declaration of unconstitutionality of item 28.1 itself, but rather asking the tribunal to assess whether the specific assessment act conformed to constitutional principles under Article 204 of the Portuguese Constitution.
What are the legal requirements for a property to be subject to Stamp Tax under Verba 28.1 of the TGIS?
Based on this case, the legal requirements for property to be subject to Stamp Tax under Verba 28.1 of the TGIS are disputed. According to the Tax Authority's position, the provision applies to properties with 'residential allocation' characteristics that have a taxable property value (valor patrimonial tributário - VPT) exceeding €1,000,000. The central dispute concerns what constitutes 'residential allocation': The Tax Authority argued that the property in question had residential allocation nature, thus triggering Stamp Duty liability. The claimant countered that construction land (terreno para construção) without authorized or planned housing construction should not fall under this provision. The claimant's property was designated for a hotel tourist development with planning approvals from IGESPAR and Tourism of Portugal obtained in 2014. The case highlights uncertainty about whether Verba 28.1 requires actual residential use, authorization for residential construction, or whether mixed-use developments with some residential components (like the seven single-family dwellings integrated into the hotel project) qualify under this provision.
How does the patrimonial tax value (VPT) exceeding €1,000,000 affect Stamp Tax liability on building land in Portugal?
Under Verba 28.1 of the TGIS, a patrimonial tax value (valor patrimonial tributário - VPT) exceeding €1,000,000 is the threshold that triggers Stamp Tax liability on qualifying properties. In this case, the urban property in Peniche had a VPT of €1,164,090.00, surpassing the €1,000,000 threshold and resulting in the Tax Authority's Stamp Duty assessment for the year 2014. Once this threshold is exceeded, the property becomes subject to annual Stamp Tax. However, this case demonstrates that exceeding the VPT threshold alone is not sufficient—the property must also meet the qualitative requirements of Verba 28.1, which is the core dispute. The claimant challenged whether construction land designated for non-residential purposes (hotel development) should be taxed under this provision despite exceeding the VPT threshold. The Tax Authority's position was that the €1,164,090.00 valuation, combined with what it characterized as residential allocation, justified the Stamp Duty assessment. This case illustrates that both the quantitative criterion (VPT > €1,000,000) and qualitative criterion (property classification/allocation) must be analyzed when determining Stamp Tax liability under Verba 28.1.