Process: 535/2014-T

Date: March 27, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitration case concerns whether Stamp Duty under Verba 28.1 of the General Schedule (TGIS) applies to construction land valued over €1,000,000. A real estate development company challenged assessments for 2012-2013 on construction land in Porto. The taxpayer argued that Verba 28.1 requires three cumulative elements: ownership/usufruct/superficies over urban properties, 'residential use,' and tax patrimonial value equal to or exceeding €1,000,000. The central issue is whether construction land qualifies as property with 'residential use.' The claimant contended that under the Municipal Property Tax Code (MPTC), construction land constitutes a distinct category from residential properties per Article 6. Construction land, defined in Article 6(3) MPTC as land with building licenses or declared as such in deeds, cannot have residential use by its very nature—if land is designated for construction, it is not being used for residential purposes. The company emphasized that arbitral tribunals and the Supreme Administrative Court consistently held this interpretation. Additionally, taxing construction land held as company inventory violates wealth taxation principles and contributory capacity under constitutional equality principles. The Tax Authority countered that the property possesses the legal nature of residential use property and that, absent specific definitions in Stamp Duty legislation, Article 67(2) of the Stamp Duty Code requires reference to MPTC definitions. The taxpayer also claimed compensatory interest on amounts paid if assessments were annulled. This case exemplifies the ongoing controversy regarding Stamp Duty's application to undeveloped construction land versus completed residential buildings.

Full Decision

ARBITRAL DECISION

Case No. 535/2014 – T

A – REPORT

  1. A… – REAL ESTATE DEVELOPMENTS, SA, legal person no. …, with registered office at Rua … Porto, applied for the constitution of an arbitral tribunal, pursuant to the provisions of articles 2, no. 1, a) and 10, nos. 1 and 2 of the Legal Framework of Tax Arbitration, provided for in Decree-Law 10/2011 of 20 January, hereinafter referred to as "LFTA" and of articles 1 and 2 of Ministerial Order No. 112-A/2011 of 22 March, with a view to the declaration of illegality of the Stamp Duty assessment acts relating to the years 2012 and 2013, and the recognition of the right to compensatory interest, with the Tax and Customs Authority being requested (hereinafter referred to as "TA").

  2. The application for the constitution of a single arbitral tribunal having been admitted, and as the claimant did not choose to designate an arbitrator, in accordance with the provisions of subsection a) of no. 2 of article 6 and subsection b) of no. 1 of article 11 of the LFTA, as amended by article 228 of Law No. 66-B/2012 of 31 December, the Deontological Council appointed the undersigned as arbitrator.

The parties were notified of such appointment and did not express their intention to reject the appointment of the arbitrator, in accordance with the combined provisions of article 11, no. 1, subsections a) and b) of the LFTA and articles 6 and 7 of the Code of Ethics, and in accordance with the provision in subsection c) of no. 1 of article 11 of the LFTA, as amended by article 228 of Law No. 66-B/2012 of 31 December, the arbitral tribunal was constituted on 02-10-2014.

  1. Upon notification, the TA submitted its response in which it raised no objection.

  2. It was dispensed with, with the consent of the parties, the holding of the meeting provided for in article 18 of the LFTA, as well as the submission of written submissions.

  3. The claimant seeks the declaration of illegality and consequent annulment of Stamp Duty assessments nos. 2014… and 2014… relating to the years 2012 and 2013 respectively, with the consequent refund of the tax paid, plus compensatory interest, alleging in summary:

a) It was notified of the above-identified assessments relating to the years 2012 and 2013, in accordance with item 28.1 of the General Schedule of Stamp Duty (GSSD), such assessments relating to a construction land.

b) It is the owner of construction land, located in the municipality of Porto, Union of the parishes of Aldoar, Foz do Douro and Nevogilde (there being an obvious error in the reference to "Leça da Palmeira").

c) To the aforementioned construction land a tax patrimonial value equal to or greater than €1,000,000.00 was assigned, in force in the year 2013.

d) It was on the basis of item 28.1 of the General Schedule of Stamp Duty (GSSD), as amended by Law No. 55-A/2012 of 29 October, that the TA issued the assessments in question.

e) It follows from item 28.1 of the GSSD that there are three elements that constitute the taxable event: ownership, usufruct or right of superficies over urban properties; that such urban properties have "residential use"; and that such properties have a tax patrimonial value equal to or greater than €1,000,000.00.

f) In the present case, the third requirement that constitutes the taxable event is not present: the property in question does not have residential use.

g) Neither the Stamp Duty Code nor the GSSD define what is meant by a property with residential use, wherefore by application of article 67, no. 2 of the Stamp Duty Code, recourse must be had to the Municipal Property Tax Code (MPTC) to find such definition.

h) Now, where urban properties are concerned, article 6, no. 1 of the MPTC divides them into residential, commercial, industrial or service properties, construction land and others.

i) That is to say, construction land is a class of urban properties distinct from residential properties; it being indisputable that construction land does not overlap with residential properties.

j) The expression "residential use" is found in article 41 of the MPTC where, regarding the determination of the tax patrimonial value of "urban properties for residential, commercial, industrial and service use", there is a use coefficient.

k) That is to say, construction land does not have a use, whether for residential, commercial or service purposes, firstly for a naturalistic reason: if they are construction land, a property is not put to residential use, nor to commercial use.

l) Urban properties with residential use are those which, in accordance with their construction process as referred to in articles 62 et seq. of the Legal Framework of Urbanization and Building, have been, as such, licensed or by virtue of their physical characteristics, had residential use as their normal purpose.

m) It follows from article 6, no. 3 of the MPTC that construction land is that "for which a license or authorization for licensing or construction has been granted and also those which have been declared as such in the acquisition deed".

n) Even accepting the thesis that the use coefficient referred to in article 45 of the MPTC is an element to be taken into account in the determination of the tax patrimonial value of construction land, the truth is that what is at issue is the determination of its value, in such determination the value of the land is influenced by the anticipation of buildings that may exist on it; but such circumstance does not transform construction land into a property with residential use.

o) The construction land on the ownership of which the Stamp Duty assessments fell does not fall within the scope of item 28.1 of the GSSD, in accordance with the understanding repeatedly affirmed by arbitral tribunals, as well as by the Supreme Administrative Court.

p) The Municipal Property Tax (IMI) is a tax on wealth held by taxpayers in their assets and not a tax on goods, which therefore does not apply in cases where properties are goods of companies.

q) The new taxation through stamp duty has the same purpose: to tax the wealth embodied in property ownership over real estate.

r) But where construction land is concerned, which form part of the claimant's assets as goods or as raw material, this constitutes a flagrant violation of the principle of taxation on wealth and, therefore, the violation of the principle of taxation according to contributory capacity, whereby we are faced with a violation of the constitutional principle of equality.

s) The claimant made payment of the amounts resulting from the assessments in question, wherefore it requests payment of compensatory interest.

  1. In turn, the respondent submitted in reply, in summary:

a) It is the TA's understanding that the property in question has the legal nature of a property with residential use, wherefore the assessment acts that are the subject of the present application for arbitration must be upheld as they embody a correct interpretation of Item 28 of the General Schedule, amended by Law 55-A/2012 of 29/10/2012.

b) Law No. 55-A/2012 of 29/10/2012 amended article 1 of the Stamp Duty Code and added item 28 to the GSSD; with this legislative amendment, Stamp Duty would also apply to ownership, usufruct or right of superficies of urban properties whose tax patrimonial value contained in the register, in accordance with the Municipal Property Tax Code (MPTC) is equal to or greater than €1,000,000.00.

c) Stamp Duty would thus apply to all acts, contracts, documents, titles, papers and other facts or legal situations provided for in the general schedule, including gratuitous transfers of property.

d) In the absence of any definition of the concepts of urban property, construction land and residential use in the context of Stamp Duty, recourse must be had to the MPTC to find a definition that permits ascertaining the possible subjection to Stamp Duty, in accordance with what is provided for in article 67, no. 2 of the Stamp Duty Code as amended by Law No. 55-A/2012 of 29/10.

e) Under the terms of the said legal provision, to matters not regulated in the Code, relating to item 28 of the GSSD, the provisions of the MPTC are subsidiarily applied.

f) Article 2, no. 1 of the MPTC provides that "property is any portion of territory, comprising waters, plantations, buildings and constructions of any nature incorporated or erected therein, with a permanent character, provided that it forms part of the assets of a natural or legal person and, in normal circumstances has economic value, as well as waters, plantations, buildings or constructions, in the circumstances referred to, endowed with economic autonomy in relation to the land where they are located, albeit situated in a portion of territory that constitutes an integral part of assets of a different entity or does not have a patrimonial nature".

g) For its part, article 6, no. 1 of the MPTC provides regarding the kinds of urban properties existing, integrating in this concept construction land, that is "land situated within or outside an urban agglomeration, for which a license or authorization for subdivision or construction operations has been granted, or prior communication admitted or favorable prior information issued, and also those so designated in the acquisition deed, excepting land where the competent entities prohibit any of those operations...".

h) The notion of use of urban property is grounded in the part relating to the assessment of properties, which is well understood since the assessment of the property (purpose) incorporates value to the property, constituting a determining factor of distinction (coefficient) for purposes of assessment.

i) As results from the expression "...value of authorized buildings", contained in article 45, no. 2 of the MPTC, the legislator chose to determine the application of the methodology of assessment of properties in general to the assessment of construction land, being therefore applicable thereto the use coefficient provided for in article 41 of the MPTC. In this sense see Decision No. 04950/11 of 14/02/2012 of the Administrative Court of the South: "The regime for assessment of the tax patrimonial value of construction land is enshrined in article 45 of the MPTC. The assessment model is the same as that for constructed buildings, although starting from the building to be constructed, taking as basis the respective project, the value of the construction land corresponds, fundamentally, to a legal expectation, embodied in a right to construct thereon a property with certain characteristics and with a certain value. It will be that expectation of production of wealth materialized in a property to be constructed that increases the value of the assets and the wealth of the owner of the construction land, as soon as the property in question comes to be considered as construction land. For that reason, the greater the value of the property to be constructed, the greater is the value of the construction land underlying it (see Art. 6, no. 3 of the MPTC)." In conclusion, in the assessment of construction land the legislator intended that the methodology of assessment of urban properties in general be applied, thus all coefficients, above identified, must be taken into consideration, in particular the use coefficient provided for in article 41 of the MPTC, this legal requirement further resulting from no. 2 of article 45 of the MPTC, in referring to the value of buildings authorized or foreseen on the same construction land".

j) Thus, for purposes of determination of the tax patrimonial value of construction land it is clear that the use coefficient applies in the context of assessment, wherefore its consideration for purposes of application of item 28 of the GSSD cannot be ignored, this order of considerations being valid in this regard:

a. In the application of law to concrete cases it is important to determine the exact sense and scope of the norm, so that the rule contained therein is revealed, an indispensable condition so that it can be applied, in accordance with article 9 of the Civil Code, by virtue of article 11 of the General Tax Law.

b. Article 67, no. 2 of the Stamp Duty Code mandates the subsidiary application of the provisions of the MPTC.

c. The use of the property (fitness or purpose) is a coefficient that contributes to the assessment of the property, in the determination of tax patrimonial value, applicable to construction land.

d. Item 28 of the GSSD itself refers to the expression "properties with residential use", appealing to a classification that overlays the kinds provided for in no. 1 of article 6 of the MPTC.

k) Contrary to what is advocated by the Claimant, the TA understands that the concept of "properties with residential use", for purposes of what is provided for in item 28 of the GSSD, comprises both constructed properties and construction land, first and foremost taking into account the literal element of the norm.

l) Note that the legislator does not refer to "properties intended for residential use", having chosen the notion "residential use". A different and broader expression whose sense must be found in the need to integrate other realities beyond those identified in article 6, no. 1, subsection a) of the MPTC.

m) In fact, the mere constitution of a right of potential construction increases immediately the value of the property in question, hence the rule contained in article 45 of the MPTC that mandates separation of the two parts of the land.

n) On one side, the part of the land where the building to be constructed will be located is considered, and on the other the area of free land. Once the amount of the first part is ascertained, the value determined is reduced to a percentage between 15% and 45% as provided for in no. 2 of the said norm, because the construction is not yet effectuated.

o) With regard to the legal framework of urbanization and building, it is to be noted that it has as its presupposition buildings already constructed.

p) It cannot be ignored that the license for the conduct of urbanization operations must contain, among other elements, the number of lots and the indication of the location area, purpose, implantation area, building area, number of stories and number of units of each of the lots, with specification of units intended for housing at controlled costs, when foreseen, under the terms of subsection a) of article 77 of the Legal Framework of Urbanization and Building.

q) And further that article 77 of the Legal Framework of Urbanization and Building contains mandatory specifications, first and foremost for licenses for subdivision operations or urbanization works, and for construction works.

r) Municipal Master Plans also establish the strategy for municipal development, the municipal policy for land management and urbanism and other urban policies. It integrates and articulates the guidance established by territorial management instruments of national and regional scope and establishes the model of spatial organization of municipal territory.

s) In these terms, much before the actual construction of the property, it is possible to ascertain and determine the use of the construction land.

t) As to the alleged unconstitutionality raised, the TA understands that the provision of item 28 of the GSSD does not constitute a violation of any constitutional command.

u) It applies to ownership, usufruct or right of superficies of urban properties with residential use, whose tax patrimonial value contained in the register, in accordance with the MPTC, is equal to or greater than €1,000,000.00, that is, it applies to the value of the property.

v) It is a general and abstract norm, applicable uniformly to all cases in which the factual and legal requirements are met.

w) It is further important to note that taxation in the context of Stamp Duty obeys the criterion of adequacy, applying uniformly to all holders of properties with residential use of value exceeding €1,000,000.00, applying to the wealth embodied and manifested in the value of properties.

x) For all the foregoing, the assessments in question embody a correct interpretation and application of law to facts, not suffering from any defect of violation of law, whether the Constitution or the Stamp Duty Code.

  1. The Arbitral Tribunal was duly constituted and is materially competent.

The parties have legal standing and capacity and are parties entitled to be heard (articles 4 and 10, no. 2 of the same statute and article 1 of Ministerial Order No. 112-A/2011 of 22 March).

The case is not subject to any nullities.

B. DECISION

  1. MATTER OF FACT

1.1. PROVEN FACTS

The following facts are considered proven:

a) The claimant is registered in the property register as owner of the urban property corresponding to construction land registered in the urban register of the Union of the parishes of Union of the parishes of Aldoar, Foz do Douro and Nevogilde, in the municipality of Porto, under article … (formerly … of the parish of Nevogilde).

b) Having been notified, regarding the identified property, of Stamp Duty assessments nos. 2014… and 2014… relating to the years 2012 and 2013 respectively.

c) Tax assessments effected on the basis of item 28.1 of the General Schedule of Stamp Duty (GSSD), as amended by Law No. 55-A/2012 of 29 October.

d) The assessments had as their presupposition the attribution to the construction land in question of residential use.

e) The period for voluntary payment of the first installment of the Stamp Duty, levied in both assessments, ended on 30-04-2014.

f) The claimant made payment of the first installment of the tax from each of the assessments.

g) On 28-07-2014 the claimant submitted the application for arbitration that gave rise to the present case.

1.2 The facts were considered proven based on the documents attached to the case.

1.3 UNPROVEN FACTS

There are no facts considered unproven with relevance to the assessment of the application.

1.4 THE LAW

The substantive issue to be assessed in the case has already been the subject of several arbitral decisions which have, we might say unanimously, had the same interpretive meaning.

What is at issue here is, in summary, to determine whether construction land can be considered as having residential use for purposes of application, in particular, of item 28.1 of the GSSD.

The claimant understands that it cannot, invoking in particular that the word "use", in this context of the use of a property, has the meaning of "the action of assigning something to a certain use", it not being possible to assign construction land to such use.

In turn, the respondent contends that the concept of "properties with residential use" comprises both constructed properties and construction land, first and foremost because much before the actual construction of the property, it is possible to ascertain and determine the use of the construction land.

Neither the Stamp Duty Code, nor Law 55-A/2012 of 29 October, define or establish clarifying criteria for the concept of property with residential use. This latter statute merely added a no. 2 to article 67 of the Stamp Duty Code, stipulating that "to matters not regulated in the present Code relating to item 28 of the General Schedule, the provisions of the MPTC are, subsidiarily, applied".

Now, while it is true that tax law, through the MPTC, provides us with an exact definition of what is meant by property (article 2), as well as its classification and division between rural and urban properties (articles 3 to 5), identifying, regarding the latter, the various kinds (article 6), it is also true that in those classifications the concept of "residential use" is not used.

In support of its thesis, the TA contends that "the notion of use of urban property is grounded in the part relating to the assessment of properties, which is well understood since the assessment of the property (purpose) incorporates value to the property, constituting a determining factor of distinction (coefficient) for purposes of assessment.

An understanding which we do not embrace. Indeed, the rules for determination of the tax patrimonial value of construction land, defined in article 45 of the MPTC, have no relation to the classification of properties, merely indicating the factors to be weighted in the assessment thereof.

From the circumstance that the legislator intended that in the assessment of construction land the methodology of assessment of urban properties in general be applied, considering in particular the coefficients provided for in the said article, it does not follow that thereto is or be assigned any specific use.

In fact, as there is no legal definition for the concept of residential use, we must ascertain the meaning of the term use, in the general linguistic framework. Which will have the meaning of assigning something to a certain use.

It thus seems, in a first approach, to result that property with residential use will be that which is effectively assigned to residential use.

Is it that construction land, having already a determined purpose – in particular residential – defined in its licensing, is to be considered as having that use or does this only result from the effective assignment of that purpose effectuated?

We incline towards the second hypothesis. We permit ourselves to transcribe, in this regard, an excerpt from the arbitral decision rendered in case no. 53/2013:

  • "…in sound hermeneutics, 'property with residential use', cannot be a property merely licensed for residential use or intended for that purpose (that is, it will not suffice that it be a 'residential property'), having to be a property that already has effective assignment to that purpose.

That this is the sense of the expression 'use', in the same context of classification of properties as done by the MPTC, is confirmed by article 3, in which, regarding rural properties, reference is made to those that are 'assigned to or, in the absence of concrete assignment, have as normal purpose an utilization generating agricultural income', which shows that assignment is concrete, effective. In truth, as is seen from the final part of this text, a property may have as its purpose a certain utilization and be or not be assigned to it, which shows that assignment, at the level of the connection of a property to a certain utilization, is something more intense than mere purpose and may or may not occur, downstream of this and not upstream".

In sum, to conclude that from a mere right of potential construction of construction land, starting only from the elements of the register and the circumstance that its assessment was effected with reference to the coefficients applicable to urban residential properties, results its necessary assignment to residential use, lacks legal support.

This is also the understanding endorsed by the Supreme Administrative Court, both in the decisions cited by the claimant, and in many other more recent ones, of which we highlight, as more current, the Decision of 14-01-2015, in Case 0541/14, where it concludes, in a definitive manner, that "having the legislator not defined the concept of (urban) properties with residential use and resulting from article 6 of the MPTC – subsidiarily applicable to Stamp Duty provided for in the new item 28 of the GS – a clear distinction between urban residential properties and construction land, the latter cannot be considered, for purposes of subjection to Stamp Duty (item 28.1 of the GSSD), in the wording of Law No. 55-A/2012 of 29 October), as urban properties with residential use".

Given this, as the property of which the claimant is owner does not have residential use, the assessment whose declaration of illegality is requested suffers from a defect embodied in error as to the legal requirements, which tains it with illegality.

COMPENSATORY INTEREST

In addition to the refund of the tax unlawfully paid, the claimant seeks that the right to payment of compensatory interest be declared.

Such right is enshrined in article 43 of the General Tax Law, which has as its presupposition that it be ascertained, in friendly protest or judicial challenge, that there was error attributable to the services that resulted in payment of the debt in an amount higher than the legally due.

The recognition of the right to compensatory interest in the arbitration process results from the provisions of article 24, no. 5 of the LFTA.

In the case in question, it is manifest that the illegality of the assessment act in question is attributable to error of the TA.

Wherefore the claimant has the right to the requested payment of compensatory interest.

  1. DECISION

Given the foregoing, it is decided:

a) to render judgment in favor of, on the ground of violation of law, the request for annulment of the tax act that is the subject of the arbitration application corresponding to the Stamp Duty assessments for the years 2012 and 2013, with nos. 2014… and 2014… respectively, as well as the request for payment of compensatory interest;

b) to order the Tax and Customs Authority to refund to the claimant the amount of tax paid, plus the respective compensatory interest;

c) to order the respondent to pay the costs of the case.

VALUE OF THE CASE: In accordance with the provisions of articles 306, no. 2 of the Code of Civil Procedure, 97-A, no. 1, a) of the Code of Tax Procedure and Process and article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the case is valued at €31,263.80 (thirty-one thousand two hundred sixty-three euros and eighty cents).

COSTS: In accordance with the provisions of article 22, no. 4 of the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at €1,836.00 (one thousand eight hundred thirty-six euros), in accordance with Schedule I attached to the Regulation of Costs in Tax Arbitration Proceedings.

Let notification be made.

Lisbon, 27-03-2015

The Arbitrator

António Alberto Franco

[1] Listed by way of example, Decisions of 29-10-2014, in Cases 505/14 and 0864/2014

Frequently Asked Questions

Automatically Created

Is stamp tax (Imposto do Selo) under Verba 28.1 of the TGIS applicable to construction land (terrenos para construção)?
Based on consistent arbitral and Supreme Administrative Court jurisprudence, Stamp Duty under Verba 28.1 TGIS does not apply to construction land (terrenos para construção). Verba 28.1 requires the property to have 'residential use' (uso habitacional). Under Article 6 of the Municipal Property Tax Code (MPTC), construction land is a separate and distinct category from residential properties. Construction land, by definition, is land intended for future building with appropriate licenses or declarations—it cannot simultaneously have residential use since it is not yet developed or occupied for residential purposes. The distinction is fundamental: residential properties are built and used for habitation, while construction land awaits development.
What are the requirements for stamp tax liability on properties valued over €1,000,000 under Verba 28.1 TGIS?
Verba 28.1 of the TGIS establishes three cumulative requirements for Stamp Duty liability: (1) ownership, usufruct, or right of superficies over urban properties; (2) the property must have 'residential use' (uso habitacional); and (3) a tax patrimonial value (valor patrimonial tributável) equal to or greater than €1,000,000 as recorded in the property registry under the Municipal Property Tax Code. All three elements must be present simultaneously. The tax patrimonial value is determined according to MPTC rules and must be officially registered. The critical interpretative issue has been the 'residential use' requirement, which courts and arbitral tribunals have generally interpreted to exclude undeveloped construction land, limiting Verba 28.1 to completed buildings actually used or capable of residential occupation.
How can taxpayers challenge stamp tax assessments on construction land through CAAD arbitration?
Taxpayers can challenge stamp tax assessments on construction land through the Centro de Arbitragem Administrativa (CAAD) by filing an application for arbitration under the Legal Framework of Tax Arbitration (LFTA - Decree-Law 10/2011). The process involves: (1) submitting an arbitration application within the statutory deadline identifying the contested assessments; (2) appointing or accepting appointment of an arbitrator; (3) presenting legal arguments demonstrating that construction land does not meet the 'residential use' requirement of Verba 28.1; (4) citing supporting jurisprudence from arbitral tribunals and the Supreme Administrative Court distinguishing construction land from residential properties under MPTC Article 6; (5) arguing constitutional violations if applicable (wealth taxation principles, contributory capacity); and (6) requesting annulment of assessments plus compensatory interest on amounts paid. The arbitration provides a faster, specialized alternative to judicial tax courts.
What is the legal distinction between construction land and finished buildings for purposes of Verba 28.1 of the Tabela Geral do Imposto do Selo?
The legal distinction between construction land and finished buildings under Verba 28.1 TGIS derives from the Municipal Property Tax Code (MPTC) classification system. Article 6(1) MPTC divides urban properties into distinct categories: residential properties, commercial properties, industrial or service properties, construction land (terrenos para construção), and others. Construction land, defined in Article 6(3) MPTC, comprises land for which construction licenses or authorizations have been granted or land declared as such in acquisition deeds—essentially undeveloped land awaiting building. In contrast, residential properties are completed buildings actually used or capable of residential occupation. The critical distinction for Verba 28.1 purposes is 'use' (uso): finished buildings possess residential, commercial, or industrial use based on their actual function, while construction land has no current use—only potential future use. This classification difference means construction land lacks the 'residential use' element required by Verba 28.1.
Are compensatory interest (juros indemnizatórios) available when stamp tax liquidations on construction land are annulled?
Yes, compensatory interest (juros indemnizatórios) are available when stamp tax liquidations on construction land are annulled. Under Portuguese tax law, when a taxpayer pays tax pursuant to an assessment that is subsequently declared illegal and annulled by arbitration or judicial decision, the taxpayer is entitled to reimbursement of the amounts paid plus compensatory interest. This principle compensates taxpayers for the financial loss caused by improper deprivation of funds from the date of payment until refund. In arbitration proceedings challenging Verba 28.1 assessments on construction land, claimants routinely request not only annulment of the illegal assessments and refund of taxes paid, but also payment of compensatory interest calculated from the payment date. The arbitral tribunal, upon finding the assessments illegal, will order the Tax Authority to refund the principal amount plus applicable compensatory interest at the legally prescribed rate.