Process: 533/2014-T

Date: December 18, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD tax arbitration case (Process 533/2014-T) addresses whether Stamp Tax under Item 28.1 of the General Stamp Tax Table applies to land for construction (terrenos para construção). Two taxpayers challenged Stamp Tax assessments of €19,075.99 each for 2013, concerning their jointly-owned urban property registered as land for construction in Montijo. The Tax Authority applied the 1% rate under Item 28.1 for properties with residential use, as the tax patrimonial value exceeded €1,000,000 euros under Law 55-A/2012. The applicants argued that land for construction constitutes a distinct legal reality from buildings intended for housing and should not be classified as urban property with residential use under Item 28.1. They contended the assessments resulted from erroneous application of the law. Subsidiarily, they invoked constitutional violations of the principles of equality (Article 13 CRP), taxpaying capacity (Articles 103(1) and 104(3) CRP), and progressivity. The Tax Authority defended its position arguing that the legislator determined the general property assessment methodology applies to land for construction, making the allocation coefficient of Article 41 of the IMI Code applicable. This interpretation gives a broader meaning than Article 6(1)(a) of the IMI Code, encompassing land for construction within residential use properties. The Authority denied any constitutional violations. The arbitration proceeded under the RJAT framework (Decree-Law 10/2011), with the Arbitral Court constituted on October 2, 2014. The parties agreed to dispense with hearings. The applicants also requested compensation for undue guarantee under Article 53 of the General Tax Law, though no evidence was presented that guarantees were actually provided. This case highlights the interpretative challenges in applying Stamp Tax on high-value properties to undeveloped land classified for construction purposes.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Case No. 533/2014-T

I – Report

  1. On 28.07.2014, A..., holder of tax identification number ..., resident in ..., in Montijo (...) and B..., holder of tax identification number ..., resident at Rua ..., in Montijo (...) requested CAAD to constitute an Arbitral Court, in accordance with article 10 of Decree-Law No. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as "RJAT"), in which the Tax and Customs Authority is the Respondent, with a view to annulling two acts assessing Stamp Tax, (identified in documents numbers 3 and 4, attached with the request for arbitral decision), dated 18.03.2014, in the amount of € 19,075.99 each, in relation to each of the Applicants, relating to the year 2013 and concerning the ownership, in the proportion of ½ for each, of the urban property located in the parish of ..., municipality of Montijo, registered in the property matrix under number ... of the same parish.

The Applicants also petitioned, pursuant to article 53 of the General Tax Law, for payment of compensation for provision of undue guarantee.

  1. The request to constitute the Arbitral Court was accepted by the Esteemed President of CAAD and notified to the Tax and Customs Authority.

In accordance with and for the purposes of the provisions in paragraph 1 of article 6 of the RJAT, by decision of the President of the Deontological Council, duly communicated to the parties within the legally applicable deadlines, the undersigned was appointed as arbitrator, who communicated to the Deontological Council and to the Centre for Administrative Arbitration the acceptance of the assignment within the regularly applicable deadline.

The Arbitral Court was constituted on 2.10.2014.

  1. The joinder of claims and the joinder of parties are admissible in accordance with paragraph 1 of article 3 of the RJAT, given the identity of the tax, as well as the factual and legal grounds invoked.

  2. The grounds presented by the Applicants, in support of their claim, were, in summary, that there is erroneous application of item no. 28.1 of the General Table of Stamp Tax, amended by Law No. 55-A/2012, of 29 October, given that the properties in question are land for construction and not buildings intended for housing, and do not fall within the definition of "urban property with residential use", whereby one is not dealing with urban property with residential use, but rather with land for construction, a distinct reality.

Subsidiarily, the Applicants also consider that the assessments sub judice are manifestly in violation of the principles of equality and taxpaying capacity, provided for in articles 13, 103, paragraph 1 and 104, paragraph 3, all of the Constitution of the Portuguese Republic (CRP) and, equally, of the principle of progressivity provided for in articles 103, paragraph 1 and 104, paragraph 3, both of the CRP.

  1. The ATA – Tax and Customs Administration, called upon to respond, contested the claim of the Applicants.

From its response it results that its position is, in summary, that the property on which each of the disputed assessments fall has the nature of properties with residential use, whereby the assessment acts subject to the present request for arbitral decision should be maintained, as they embody correct interpretation of Item 28 of the General Table, amended by Law 55-A/2012, of 29/12. To this end, the Respondent argues that the legislator opted to determine the application of the methodology for assessment of properties in general to the assessment of land for construction, being thus applicable thereto the allocation coefficient provided for in article 41 of the IMI Code, and from which results a different and broader sense of the realities identified in article 6, paragraph 1, letter a) of the IMI Code.

The Respondent further manifests the understanding that the assessments in question do not violate any constitutional provision.

  1. By order of 2.12.2014 it was decided to dispense with the holding of the meeting provided for in article 18, paragraph 1 of the RJAT, as well as the holding of arguments, on the grounds of its unnecessary nature, following a request by the Respondent to that effect, which met with the agreement of the Applicants.

  2. The Court is materially competent and is properly constituted in accordance with the RJAT.

The parties have legal personality and capacity, are legitimate and are legally represented.

The case does not suffer from defects that would invalidate it.

II – Relevant Factual Matter

  1. The Court deems the following facts proven:

1- The Applicants are registered in the property matrix as owners, in the proportion of one-half for each, of the urban property located in the parish of ..., municipality of Montijo, registered in the property matrix under number 2302, which is composed of a plot of land intended for construction.

2- The Applicant A... was notified of the stamp tax assessment dated 18.03.2014, in the amount of € 19,075.99 relating to the year 2013 and concerning the ownership, in the proportion of ½, of the urban property located in the parish of ..., municipality of Montijo, registered in the property matrix under number ... of the same parish, with the tax collection amounting to € 19,075.99, as a result of the application of the rate of 1% provided for in item 28.1 – "For property with residential use" – of the General Table of Stamp Tax (TGIS), annexed to the Stamp Tax Code (Stamp Tax Code), in the wording given by Law No. 55-A/2012, of 29 October.

3- The Applicant B... was notified of the stamp tax assessment dated 18.03.2014, in the amount of € 19,075.99 relating to the year 2013 and concerning the ownership, in the proportion of ½, of the urban property located in the parish of ..., municipality of Montijo, registered in the property matrix under number ... of the same parish, with the tax collection amounting to € 19,075.99, as a result of the application of the rate of 1% provided for in item 28.1 – "For property with residential use" – of the General Table of Stamp Tax (TGIS), annexed to the Stamp Tax Code (Stamp Tax Code), in the wording given by Law No. 55-A/2012, of 29 October.

4- According to the notification made to Applicant A..., payment of the assessed tax should be made in 3 installments of € 6,358.67 each, with the first installment to be paid during the month of April 2014.

5- According to the notification made to Applicant B..., payment of the assessed tax should be made in 3 installments of € 6,358.67 each, with the first installment to be paid during the month of April 2014.

6- The Applicants were also notified of the collection documents for payment of the second installment.

FACTS NOT PROVEN

It was not proven that the Applicants provided guarantee in order to suspend the executive proceedings, intended for the coercive collection of the assessments.

JUSTIFICATION OF THE FACTUAL MATTER

  1. The decision on the factual matter is based on documents numbers 1, 3 and 4 attached by the Applicants with the request for arbitral decision, which were not subject to challenge, and it should also be noted that there was no disagreement between the parties regarding the factual matter alleged and deemed proven, with the disagreement being limited to the matter of law.

III – Applicable Law

  1. Item 28 of the General Table of Stamp Tax provided, in the wording at the time of the facts, that ownership of properties with residential use with VPT equal to or greater than 1,000,000 euros was subject to stamp tax, in the following terms:

"28 – Ownership, usufruct or right of surface of urban properties whose tax patrimonial value contained in the matrix, in accordance with the Code of Municipal Tax on Real Property (CIMI), is equal to or greater than 1,000,000 euros – on the tax patrimonial value used for purposes of IMI:[1]

28.1 – For property with residential use – 1%;

28.2 – For property, when the taxable persons who are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, listed in the list approved by ordinance of the Minister of Finance – 7.5%".

  1. It has already been abundantly emphasized in various arbitral decisions[2] (namely in cases 42/2013-T, 48/2013-T, 49/2013-T, 51/2013-T, 53/2013-T, 144/2013-T and 202/2014-T) that the concept of "property with residential use" (which is not the subject of any specific definition in the Stamp Tax Code) is not used by the CIMI[3], nor in any other legislative act.

All of these arbitral decisions, whose doctrine is endorsed, go, in essence, in the direction that such a concept requires for its fulfillment, at least, the effective possibility that the existing property be used for housing and, in all of them, it was understood that land for construction, even if intended for the construction of residential buildings, does not fall within the concept of "property with residential use", as results from the following passages of the mentioned cases:

Case 42/2013-T:

"The expression 'residential use' does not seem to be able to have any other meaning than that of 'use' for housing purposes, that is, urban properties that have an actual use for residential purposes, either because they are licensed for that purpose, or because that is their normal destination.

And we cannot confuse a 'residential use' that implies an actual allocation of an urban property to that purpose, with the expectation, or potentiality, of an urban property being able to have a 'residential use' in the future.

Case 49/2013-T:

"The expression 'with residential use' inculcates, in a simple reading, an idea of real and present functionality. From the provision in question it is not possible to extract, by interpretation, that, as is stated in the Respondent's response, the legislator's choice of that expression was intended to integrate 'other realities beyond those identified in article 6, paragraph 1, letter a), of the CIMI.' Such interpretation has no legal support, in light of the principles contained in articles 9 of the Civil Code and 11 of the General Tax Law.

In fact, if the legislator intended to encompass within the scope of the tax other realities than those resulting from the classification governed by article 6 of the CIMI, it would have said so expressly. But it does not, instead referring, in block, to the concepts and procedures provided for in that Code".

Case 51/2013-T:

"The point that matters to decide is this: is there a difference between the expression that the CIMI uses of 'residential urban property' and the expression used by article 4 of Law No. 55-A/2012, when referring to 'property with residential use'?

We believe not, since the same fundamental meaning prevails, even if using slightly different words, namely that of taxing the ownership of properties with the same destination, the effectiveness or the possibility that use be for purposes of human housing, with all the consequences that legislation in general and the CIMI in particular gives it."

Case 53/2013-T:

"(...) it should be presumed that the use of a different expression is intended to denote a different reality, whereby, in good hermeneutics, 'property with residential use' cannot be a property merely licensed for housing or intended for that purpose (that is, it will not be enough that it be a 'residential property'), having to be a property that already has actual use for that purpose."

Case 144/2013-T:

"(...) we believe that it is necessary, in the interpretation of the provision of item 28.1 of the TGIS, the understanding that the residential use of an urban property suggests that it be given that actual destination, or that it can be directly given that destination."

Case 202/2014-T

"The expression 'with residential use' inculcates, in a simple reading, an idea of real and present functionality. From the provision in question it is not possible to extract, by interpretation, that, as is stated in the Respondent's response, the legislator's choice of that expression was intended to integrate 'other realities beyond those identified in article 6, paragraph 1, letter a), of the CIMI.' Such interpretation has no legal support, in light of the principles contained in articles 9 of the Civil Code and 11 of the General Tax Law."

  1. Also in the ruling of the Supreme Administrative Court, of 09-04-2014, case No. 048/14[4] it was considered that:

"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 paragraph 2 of article 67 of the Stamp Tax Code (also introduced by that Law) refers on a subsidiary basis. And it is a concept that, probably due to its imprecision – a fact all the more serious given that it is in function thereof that the scope of the objective scope of the new taxation is cut out – had a short life, as it was abandoned upon the entry into force of the State Budget Law for 2014 (Law No. 83-C/2013, of 31 December), which gave new wording to that item no. 28 of the General Table, and which now cuts out its 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 interpretive character, nor does it seem to us that it did – merely makes it unequivocal for the future that land for construction whose building, authorized or envisaged, is for housing is encompassed within the scope of item 28.1 of the General Table of Stamp Tax (provided that its respective tax patrimonial value is equal to or greater than 1 million euros), nothing clarifying, however, with respect to past situations (assessments of 2012 and 2013), such as the one at issue in the present case.

Now, as to these, it does not seem possible to adopt the interpretation of the appellant, as, contrary to what is alleged, it does not result unequivocally either from the letter or from the spirit of the law that its intention was, ab initio, to encompass within its objective scope land for construction for which the construction of residential buildings was authorized or envisaged, as unequivocally results today from item 28.1 of the General Table of Stamp Tax."

(...)

"It is thus concluded, with the Respondent and in accordance with what was decided in the judgment under appeal, that, as it results from article 6 of the IMI Code a clear distinction between urban properties that are '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 Tax, in its original wording, as it was given by Law No. 55-A/2012, of 29 October."

  1. This understanding continued to be adopted by the Supreme Administrative Court, uniformly, in the other cases in which it was called upon to decide. As can be read in the ruling issued in case 0707/14, of 10.09.2014[5]:

"The question was already decided by this Section of Tax Litigation of the Supreme Administrative Court on 9 April 2014, in cases Nos. 1870/13 (Not yet published in the official journal, available at http://www.dgsi.pt/jsta.nsf/35fbbbf22e1bb1e680256f8e003ea931/f6fd29ac6d6ebaf380257cc30030891a?OpenDocument.) and 48/14 (Not yet published in the official journal, available at http://www.dgsi.pt/jsta.nsf/35fbbbf22e1bb1e680256f8e003ea931/0e28073928824e5080257cc3003a0cbd?OpenDocument.), and since then, reiterated and uniformly in numerous rulings, being able to be considered established jurisprudence in the sense that land for construction cannot be considered for purposes of the scope of the Stamp Tax provided for in Item 28.1 (in the wording of Law No. 55-A/2012, of 29 October) as urban properties with residential use.

This is jurisprudence that is also accepted here, as we fully agree with it and having regard to the provision of paragraph 3 of article 8 of the Civil Code (CC) (...).

  1. Thus, an unequivocally common point in all of these decisions, which we follow, is the understanding that land for construction, even if intended for residential construction, is not property with residential use. Consequently, we consider that the application of item No. 28.1 of the General Table of Stamp Tax, in the wording amended by Law No. 55-A/2012, requires, at least, the actuality of the allocation of the property for housing, being insufficient the mere potentiality of construction for residential purposes.

In fact, we understand that, regardless of the reasons that may have led Law No. 55-A/2012 to use the expression "property with residential use", instead of "residential property" contained in article 6, paragraph 1, letter a) of the CIMI, for the subsumption to item 28.1 of the Stamp Tax Code, one cannot but require, at least, the real and current potentiality (in relation to the taxable event) of the property in question being used for housing.

Land for construction cannot thus be considered property with "residential use", since it consists of a reality not apt for human habitation. To achieve such aptitude, there must be the occurrence of a reality that is external to it – the construction of a building apt for habitation – such that, with such an event, there ceases to exist a plot of land for construction and there comes to exist a new reality: the building. And it is this that can have residential use.

Thus, land for construction does not fall within the concept of "property with residential use", and item 28.1 of the General Table of Stamp Tax is not applicable thereto.

  1. Having regard to the foregoing, since item 28.1 of the Stamp Tax Code is inapplicable to the property of the Applicants, the annulment claim of these cannot but proceed, as the tax acts are tainted with the defect of violation of law due to error in the legal prerequisites.

COMPENSATION FOR UNDUE GUARANTEE

  1. The Applicants also came to petition for compensation for undue guarantee, pursuant to article 53 of the General Tax Law.

To that end the Applicants alleged that "they were cited for the tax execution proceedings No. ...2014... and No. ...2014..., intended for the coercive collection of the tax assessed in the tax acts in question" and that "Given that it is not their intention, in view of the manifest illegality of the tax assessment acts, to proceed with payment thereof, the Applicants requested the suspension of the tax executions and the setting of the value of the guarantee to be provided in accordance with article 169 of the CPPT, intending to constitute, for that purpose, a voluntary mortgage."

However, in the case at hand, the Applicants, despite having protested to attach the respective supporting document, did not do so, nor did they communicate to the Court having implemented the intention to constitute the guarantee, as manifested in the request for arbitral decision.

Thus, the prerequisites upon which the application of article 53, paragraph 1, of the General Tax Law depends are not present in the case at hand, whereby the petition for compensation formulated cannot but be dismissed.

IV – Decision

Thus, the Court decides:

a) To declare the non-applicability of item 28.1 of the General Table of Stamp Tax to the property in question, of which the Applicants are registered owners in the urban property matrix.

b) To declare the illegality and the consequent annulment of the tax acts sub judice.

c) To dismiss the claim for condemnation of the Tax and Customs Authority to pay compensation for provision of undue guarantee.

Value of the action: € 38,151.98 (thirty-eight thousand one hundred fifty-one euros and ninety-eight cents), in accordance with the provisions of article 315, paragraph 2, of the CPC and 97-A, paragraph 1, letter a), of the CPPT and 3, paragraph 2, of the Regulations on Costs in Arbitration Proceedings.

Costs borne by the Respondent, in the amount of € 1,836.00 (one thousand eight hundred thirty-six euros) in accordance with paragraph 4 of article 22 of the RJAT.

Lisbon, CAAD, 18 December 2014.

The Arbitrator

Marcolino Pisão Pedreiro

[1] This provision was amended upon the entry into force of the State Budget Law for 2014 – Law No. 83-C/2013, of 31 December, expressly expanding the tax base, so as to include land for construction.

[2] Which may be consulted on the website "https://caad.org.pt/tributario/decisoes/"

[3] Article 67, paragraph 2, of the Stamp Tax Code provides that "To matters not regulated in the present Code concerning item No. 28 of the General Table, the provisions of the CIMI shall apply on a subsidiary basis." In turn, the CIMI uses the concept of residential urban property, being considered as such the buildings constructions licensed for that purpose or those that have as their normal destination each of these purposes, in accordance with article 6, paragraph 1, letter a) and paragraph 2. This same article clearly differentiates the concept of land for construction, in its paragraph 1, letter c) and in paragraph 3.

[4] Available at http://www.dgsi.pt/.

[5] Also available at http://www.dgsi.pt/.

Frequently Asked Questions

Automatically Created

Does Verba 28.1 of the Tabela Geral do Imposto do Selo apply to land for construction (terrenos para construção)?
The central legal dispute in this case concerns whether Verba 28.1 of the Tabela Geral do Imposto do Selo applies to land for construction. The taxpayers argued that terrenos para construção constitute a distinct legal category from buildings with residential use and should not fall under Item 28.1's scope for 'property with residential use.' However, the Tax Authority contended that Item 28.1 does apply because the legislator established that the general assessment methodology for urban properties applies equally to land for construction. Specifically, the Authority invoked Article 41 of the IMI Code's allocation coefficient, arguing it provides a broader interpretation than Article 6(1)(a) of the IMI Code. This dispute reflects fundamental questions about whether undeveloped land designated for future construction should be taxed under the same regime as completed residential buildings when the tax patrimonial value exceeds €1,000,000.
Can land for construction be classified as a residential urban property for Stamp Tax purposes under Portuguese law?
Under Portuguese tax law, the classification of land for construction as residential urban property for Stamp Tax purposes depends on the interpretation of Item 28.1 of the General Stamp Tax Table and related IMI Code provisions. The Tax Authority's position is that land for construction can be classified as residential property based on the allocation coefficient methodology in Article 41 of the IMI Code, which applies the general property assessment framework to terrenos para construção. This interpretation treats the allocation coefficient as conferring a broader meaning to 'residential use' than the definition in Article 6(1)(a) of the IMI Code. Taxpayers challenge this interpretation, arguing that land for construction represents a fundamentally different reality from completed residential buildings and should not be subject to the residential property tax rate. The resolution of this classification issue has significant implications for Stamp Tax liability on high-value undeveloped land.
What constitutional principles apply to Stamp Tax on high-value properties in Portugal?
Several constitutional principles apply to Stamp Tax assessments on high-value properties in Portugal. The principle of equality under Article 13 of the Portuguese Constitution requires that taxpayers in similar situations be treated equally and that the tax burden be distributed fairly. The principle of taxpaying capacity, enshrined in Articles 103(1) and 104(3) of the Constitution, mandates that taxes be assessed according to taxpayers' economic ability to pay. The principle of progressivity, also found in Articles 103(1) and 104(3) CRP, requires that tax systems take into account taxpayers' needs and income, with heavier burdens on those with greater capacity. In challenging Stamp Tax assessments under Item 28.1, taxpayers may argue that applying the residential property rate to undeveloped land violates these constitutional principles by imposing disproportionate tax burdens without proper consideration of the property's actual use or the taxpayer's economic capacity. These constitutional safeguards serve as important limits on the State's taxing power.
How can taxpayers challenge Imposto do Selo assessments through CAAD tax arbitration?
Taxpayers can challenge Imposto do Selo assessments through CAAD (Centro de Arbitragem Administrativa) tax arbitration by following the procedural framework established in the RJAT (Regime Jurídico da Arbitragem em Matéria Tributária), Decree-Law 10/2011 of January 20. The process begins with filing a request to constitute an Arbitral Court under Article 10 of the RJAT, identifying the challenged tax assessment acts and legal grounds. The CAAD President reviews and accepts the request, then notifies the Tax and Customs Authority as respondent. An arbitrator is appointed by the President of the Deontological Council and communicated to both parties within legal deadlines. Once the arbitrator accepts the appointment, the Arbitral Court is formally constituted. The RJAT permits joinder of claims and parties when there is identity of tax type and factual/legal grounds (Article 3(1)). Parties may request to dispense with hearings under Article 18(1) if both sides agree the hearing is unnecessary. This arbitration mechanism provides an alternative dispute resolution avenue outside traditional administrative and judicial courts.
Is compensation for undue guarantee available when contesting Stamp Tax liquidations at CAAD?
Compensation for undue guarantee is available when contesting Stamp Tax liquidations at CAAD under Article 53 of the General Tax Law (Lei Geral Tributária). Taxpayers who provide guarantees to suspend tax collection proceedings while challenging assessments through arbitration may petition for compensation if the guarantee is later determined to have been unduly required. In Process 533/2014-T, the applicants specifically requested such compensation pursuant to Article 53, asserting their entitlement to reimbursement for costs associated with providing guarantees. However, the Court's factual findings indicated that it was not proven the applicants actually provided any guarantee to suspend the executive proceedings for coercive collection of the contested Stamp Tax assessments. This highlights that while the legal framework permits compensation claims for undue guarantees, taxpayers must present evidence that guarantees were actually furnished. The compensation mechanism recognizes that requiring guarantees imposes financial burdens on taxpayers who ultimately succeed in challenging erroneous tax assessments.