Process: 54/2015-T

Date: June 22, 2015

Tax Type: Valor do pedido:

Source: Original CAAD Decision

Summary

This landmark CAAD arbitration case (Process 54/2015-T) addresses whether construction land (terrenos para construção) falls within the scope of item 28.1 of the Portuguese General Stamp Duty Table (TGIS), which imposes a 1% annual Stamp Tax on properties with residential designation valued over €1 million. A real estate company challenged a €91,300 Stamp Tax assessment on construction land with a tax property value of €9,130,000. The petitioner argued that construction land cannot be classified as having 'residential designation' under item 28.1 TGIS, as this concept should only apply to properties with actual residential use or licensing, not merely construction viability. The company contended that the Tax Authority violated constitutional principles of legality by equating construction potential with residential designation. The Tax Authority defended its position by arguing that the allocation coefficient system under article 41 of the Municipal Property Tax Code (CIMI) applies to construction land valuation, making 'residential designation' a broader concept than 'residential use.' After the administrative complaint (reclamação graciosa) was rejected, the company successfully invoked CAAD arbitration under the Legal Regime for Tax Arbitration (RJAT). The core legal question centers on interpreting whether lands for construction, which receive allocation coefficients for future residential buildings under CIMI valuation rules, constitute 'properties with residential designation' subject to the controversial wealth tax introduced by Law 55-A/2012. This case has significant implications for real estate developers holding construction land portfolios, potentially affecting thousands of properties nationwide and establishing crucial precedent for distinguishing between actual property use versus potential future use in Stamp Tax applications.

Full Decision

ARBITRAL DECISION

I – REPORT

A. Procedural Course

  1. A…. – REAL ESTATE PROMOTION, S.A., a legal entity with tax identification number … and with registered office at … Street, no. …, …th floor, room 1, … – … … (hereinafter the Petitioner) filed on 3 February 2015 a petition for the establishment of an Arbitral Tribunal, in accordance with paragraphs 1 and 2 of article 10 of the Legal Regime for Tax Arbitration, provided for in Decree-Law no. 10/2011 of 20 January, and in articles 1 and 2 of Ordinance no. 112-A/2011 of 22 March, with a view to the annulment of the assessment of Stamp Duty relating to the year 2013 and embodied in the document of the Tax and Customs Authority (hereinafter ATA or Respondent) with no. 2014 …, affecting the land for construction corresponding to article … of the parish and municipality of …, in the amount of € 91,300.00, the payment of which was divided into installments.

  2. In the petition for arbitral decision the Petitioner chose not to appoint an arbitrator.

  3. Pursuant to subparagraph (a) of paragraph 2 of article 6 and subparagraph (b) of paragraph 1 of article 11 of the RJAT, the Deontological Council appointed the signatories as arbitrators, who accepted the position within the legally established period.

  4. The Arbitral Tribunal was constituted on 14 April 2015.

  5. The Respondent filed its reply on 20 May 2015.

  6. On the same date, the Respondent filed a motion requesting that the hearing referred to in article 18 of the RJAT be waived, on the ground that the Petitioner had not requested the production of evidence beyond that submitted initially and had not raised any objection capable of preventing the examination of the merits of the case immediately.

  7. Having been notified of the motion referred to in the preceding paragraph, the Petitioner stated in the proceedings that it "had no objection to the immediate examination of the petition".

  8. The Respondent's position was granted by the Tribunal by order of 27 May 2015.

B. Position of the Parties

  1. The Petitioner alleges, in summary, that:

9.1. It is the owner of the urban property located in the parish and municipality of … which is described under article … (hereinafter the Property);

9.2. The Property corresponds to land for construction, whose tax property value is € 9,130,000.00;

9.3. In March 2014 the Respondent informed it that it had assessed, on the Property, Stamp Duty relating to item 28.1 of the General Stamp Duty Table for the year 2013, at the rate of 1% on the tax property value (hereinafter TPV), resulting in a collection of € 91,300.00;

9.4. The Petitioner filed, in August 2014, an administrative complaint, based on the fact that the property is land for construction and not a property intended for housing, which excludes it from the provision contained in item 28.1 of the General Stamp Duty Table (hereinafter GSDT);

9.5. The administrative complaint was dismissed by the ATA, now Respondent, on the ground that the taxing rule in question is realized through the allocation coefficient reflected in article 41 of the Municipal Property Tax Code (hereinafter MPTC);

9.6. The Respondent illegally equated the construction viability conferred on the Property to residential designation, violating thereby the principle of legality established in article 266 of the Constitution of the Portuguese Republic and in article 8 of the General Tax Law (hereinafter GTL), which requires that the essential elements of taxes be defined by law;

9.7. The Petitioner further alleges that the assessment and collection of the tax are likewise subject to the principles of legality and tax typicity contained in the aforementioned article 8 of the GTL;

9.8. Paragraph 2 of article 67 of the Stamp Duty Code (hereinafter SDC) provides for the subsidiary application of the provisions of the MPTC to matters not regulated in the SDC relating to item 28 of the GSDT, and paragraph 1 of the same provision provides for the subsidiary application of the GTL, so that in the application and interpretation of item 28 of the GSDT, the concepts contained in the MPTC to which the SDC refers must be respected;

9.9. In the classification of properties contained in article 6 of the MPTC there is no "residential designation", so that, being this provided for in item 28.1 of the GSDT, it can only apply to urban properties that have actual use for residential purposes, either because they are licensed for that purpose, or because they have that normal intended use;

9.10. The Respondent's position constitutes an abuse of rights in the form of venire contra factum proprium, insofar as it compels taxpayers to resort to judicial or arbitral proceedings to obtain the annulment of a tax act that it knows to be illegal.

  1. The Respondent alleges, in summary, that:

10.1. Article 6, paragraph 1 of the MPTC includes among the categories of urban properties lands for construction;

10.2. The notion of designation of urban property is grounded in the section relating to the valuation of real property because it incorporates value to the property, constituting a determining distinguishing fact (coefficient) for evaluation purposes;

10.3. As follows from the expression "value of authorized buildings", contained in article 45, paragraph 2 of the MPTC, the legislator chose to apply the valuation methodology for properties in general to the valuation of lands for construction, making the allocation coefficient provided for in article 41 of the MPTC applicable to them;

10.4. The concept of "properties with residential designation" for the purposes of the provision of item 28 of the GSDT comprises both constructed properties and lands for construction, in view of the literal wording of the provision;

10.5. The legislator does not refer to "properties intended for housing", but rather chose the notion of "residential designation", a different and broader notion, whose meaning must be found in the need to integrate other realities beyond those identified in article 6, paragraph 1, subparagraph (a) of the MPTC;

10.6. The mere establishment of a right of potential construction immediately increases the value of the property in question, hence the rule contained in article 45 of the MPTC that requires the separation of the two parts of the land.

C. Proven Facts

  1. On the basis of the facts alleged by the parties and not contested, as well as on the documentation attached to the case file, the following relevant factual findings are established:

11.1. The Petitioner is the sole owner of the Property;

11.2. The Property corresponds to land for construction, whose TPV is € 9,130,000.00;

11.3. On the Property, the ATA assessed Stamp Duty relating to item 28.1 of the GSDT for the year 2013, at the rate of 1% on its respective TPV, resulting in a collection of € 91,300.00;

11.4. The Petitioner filed an administrative complaint of that assessment, which was dismissed by the Respondent.

II. PRELIMINARY RULING ON ADMISSIBILITY

  1. The Tribunal is materially competent and is regularly constituted, pursuant to articles 2, paragraph 1, subparagraph (a), 5, paragraph 2, and 6, paragraph 1, all of the RJAT.

The parties have legal personality and capacity, are legitimate and are legally represented, pursuant to articles 4 and 10, paragraph 2, of the RJAT and to article 1 of Ordinance no. 112-A/2011 of 22 March.

The proceedings are not affected by defects that would render them invalid, and there are no preliminary questions to be decided.

III. GROUNDS

The issue to be decided in the present proceedings is to determine the scope of application of item 28.1 of the General Stamp Duty Table, as revised by Law no. 55-A/2012 of 29 October, more specifically, whether lands for construction are included therein. In summary, the question posed is whether land for construction is a property with residential designation for the purposes of applying item 28.1 of the GSDT, added by article 4 of Law no. 55-A/2012 of 29 October.

The Tax Arbitral Tribunal is again called upon to pronounce on the question of whether lands for construction, with TPV equal to or exceeding € 1,000,000.00, can fall within the concept of (urban) properties "with residential designation", referred to in the already identified item 28.1 of the GSDT.

This question has already been considered in several cases, both within Tax Arbitration (see decisions issued in case numbers 42/2013-T, 48/2013-T, 49/2013-T, 51/2013-T, 144/2013-T, among others[1]), and by successive judgments issued by the Supreme Administrative Court, which have pronounced, repeatedly and uniformly, on the issue to be decided (see Judgment STA of 22/04/2015, issued in case 347/15, and all the case law cited therein, and Judgment STA of 29/04/2015, issued in case 21/15, among others[2]), with no arguments being identified, to date, that would allow breaking the unanimity that has been achieved by the decisions already issued, making it important to reiterate the established case law, which decided that "lands for construction" cannot be considered, for the purposes of the taxable event for Stamp Duty, provided for in item 28.1 of the GSDT, as revised by Law no. 55/2012 of 29 October, as (urban) properties with residential designation.

Item 28 of the GSDT attached to the SDC was added by article 4 of Law no. 55-A/2012 of 29 October, in force on the date of the assessment in the present proceedings, and had the following content:

"28 – Ownership, usufruct or right of surface of urban properties whose tax property value shown in the register, pursuant to the Municipal Property Tax Code, is equal to or exceeding € 1,000,000 – on the tax property value for purposes of IMI:

28.1 – For property with residential designation – 1%;

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

Item 28.1 was subsequently amended by Law no. 83-C/2013 of 31 December, which approved the State Budget for 2014, point 28.1 now using the concept of residential property and providing as follows: "28.1 For residential property or for land for construction whose building, authorized or foreseen, is for housing, in accordance with the provisions of the Municipal Property Tax Code – 1%". However, the legislative amendment made does not apply to the present proceedings which are based on the year 2013. Indeed, as already noted by the Judgment of the STA of 29/04/2015, this amendment does not apply to past situations (assessments of 2012 and 2013), as is the case in the present proceedings.

As already mentioned, the question posed in the present proceedings is to determine the scope of application of item no. 28.1 of the GSDT as revised by Law no. 55-A/2012 of 29 October, that is, to ascertain whether lands for construction can fall within the concept of (urban) properties with residential designation.

Let us see:

The concept of (urban) property with residential designation was not defined by the legislator. Neither in Law no. 55-A/2012, which introduced it, nor in the SDC or in the MPTC to which paragraph 2 of article 67 of the SDC refers subsidiarily, when matters not regulated concerning item 28.1 of the GSDT are at issue, was the concept of property with residential designation defined.

From a reading of the MPTC we find a distinction between urban and rural properties, with urban properties being defined as all those that should not be classified as rural – see article 4 of the MPTC. Paragraph 1 of article 6 of that code tells us that urban properties are divided into: residential [subparagraph (a)]; commercial, industrial or for services [subparagraph (b)]; lands for construction [subparagraph (c)] and others [subparagraph (d)].

The MPTC defines residential, commercial or industrial or for services properties as buildings or constructions licensed for such purposes or, in the absence of a license, that have as their normal intended use each of these purposes – see article 6, paragraph 2. Lands for construction are lands situated, within or outside an urban agglomeration, for which a license or authorization has been granted, prior notification admitted or favorable prior information issued for subdivision or construction operations, and also those that have thus been declared in the acquisition title, except for lands on which the competent entities prohibit any of those operations, namely, those located in green areas, protected areas or which, in accordance with municipal territorial planning plans, are assigned to spaces, infrastructure or public facilities – see article 6, paragraph 3.

It follows, therefore, that the MPTC does not provide a specific definition of what constitutes properties with residential designation, and the question of determining its scope of application was raised in the various disputes to which the wording of item 28.1, in its original version, gave rise.

As has been upheld in the various judgments and arbitral decisions to which we have already referred, the expression residential designation can have no other meaning than "use" for residential purposes, that is, urban properties with actual use for residential purposes, whether because they are licensed for that purpose or because they have that normal intended use.

Lands for construction, not being built, do not of themselves satisfy any condition to be considered as properties with residential designation, since they do not have a license of use for housing and, on the other hand, are not, by their very nature, habitable.

Indeed, the residential designation that the MPTC mentions always appears to refer to "buildings" or "constructions" existing, authorized or foreseen, because only these can be inhabited, which does not happen, naturally, with lands for construction. Or, to put it more succinctly, lands for construction are not capable of being used for housing.

The fact that in determining the TPV of urban properties classified as lands for construction account is taken of the intended use that will be authorized or foreseen for it for determining the respective value of the implantation area (see article 45, paragraphs 1 and 2 of the MPTC) does not transform lands for construction into properties with residential designation.

The expression urban property with residential designation that we find in item 28.1 of the GSDT, in comparison with the categories of properties we see in article 6, paragraph 1, excludes from the scope of application thereof urban properties that are not residential, as is the case with those with commercial, industrial destinations, those that are lands for construction and others, the categories of which can be read in subparagraphs (b) to (d) of paragraph 1 of article 4 of the MPTC.

On the other hand, as has already been noted in previous decisions on this matter, at the time of presentation and discussion in Parliament of the bill no. 96/XII (2nd), the Secretary of State for Tax Affairs explicitly stated[3]:

"The Government proposes the creation of a special tax on urban residential properties of higher value. This is the first time in Portugal that a special tax on high-value properties intended for housing is created. This rate will be 0.5% to 0.8% in 2012 and 1% in 2013, and will apply to houses valued at one million euros or more."

As highlighted in decision no. 144/2013-T of the CAAD, the Secretary of State for Tax Affairs presented this bill using the expressions "urban residential properties", which are those contained in subparagraph (a) of paragraph 1 of article 6 of the SDC and "houses", it being clear that, in one case and the other, lands for construction, which are referred to in subparagraph (c) of the cited provision, do not fall within these concepts[4].

Thus, lands for construction do not fall within the concept of property with residential designation, provided for in item 28.1 of the GSDT.

In light of the foregoing, it is reiterated, following the decisions already issued, that lands for construction are not covered by the concept of (urban) property with residential designation contained in item 28.1 of the GSDT, as revised by Law no. 55-A/2012 of 29 October, that is, as revised prior to the State Budget Law for 2014.

DECISION

For the reasons set forth, the arbitral tribunal decides:

(a) To uphold the petition for arbitral decision and, consequently, to declare unlawful the assessment of Stamp Duty, contained in the document with number 2014 …, dated 18/3/2014, in the amount of € 91,300.00 and, consequently, to annul that assessment, with all legal consequences;

(b) To condemn the Respondent to pay the costs of the present proceedings.

Value of the Case

Pursuant to paragraph 2 of article 315 of the Code of Civil Procedure [CPC], combined with subparagraph (a) of paragraph 1 of article 97-A of the Code of Tax Procedure [CPPT] and paragraph 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 91,300.00.

Costs

For the purposes of paragraph 2 of article 12 and paragraph 4 of article 22 of the RJAT and paragraph 4 of article 4 of the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at € 2,754.00, in accordance with Table I attached to the Regulation, to be borne entirely by the Respondent.

Lisbon, 22 June 2015

The Arbitrators

(Manuel Luís Macaísta Malheiros)

(Alexandra Gonçalves Marques)

(Nuno Pombo)

Document prepared by computer, in accordance with paragraph 5 of article 131 of the Code of Civil Procedure, applicable by reference of subparagraph (e) of paragraph 1 of article 29 of Decree-Law no. 10/2011 of 20 January and with spelling prior to the Orthographic Agreement of 1990.

[1] All available in the CAAD database.

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

[3] See DAR I Series no. 9/XII-2, of 11 October, page 32.

[4] See Arbitral Decision issued on 12 December 2013 in case 144/2013-T, available in the CAAD database, issued by Dr. Nuno Pombo, here arbitrator member, and also Judgment STA of 29/04/2015 and 23/04/2014, available at www.dgsi.pt.

Frequently Asked Questions

Automatically Created

Does Verba 28.1 of the Portuguese Stamp Tax Table (TGIS) apply to construction land (terrenos para construção)?
The application of item 28.1 of the General Stamp Duty Table (TGIS) to construction land is the central disputed issue in this case. The taxpayer argues that construction land (terrenos para construção) does not qualify as property with 'residential designation' because it lacks actual residential use or licensing. The Tax Authority contends that construction land can have residential designation based on the allocation coefficient applied under article 41 of the Municipal Property Tax Code (CIMI), which considers the type of authorized construction. The tribunal must determine whether 'residential designation' encompasses potential future use or requires actual current residential purpose. This interpretation is critical as it affects whether the 1% annual Stamp Tax rate applies to undeveloped construction land.
Can a real estate company challenge Stamp Tax (Imposto do Selo) assessments on high-value construction land through CAAD arbitration?
Yes, real estate companies can challenge Stamp Tax assessments on construction land through CAAD (Centro de Arbitragem Administrativa) arbitration. This case demonstrates the procedural path: after the Tax Authority assessed €91,300 in Stamp Tax on construction land valued at €9,130,000, the company first filed an administrative complaint (reclamação graciosa) in August 2014, which was rejected. Subsequently, in February 2015, the company filed a petition for arbitral tribunal under the Legal Regime for Tax Arbitration (RJAT - Decree-Law 10/2011). The CAAD arbitration system provides taxpayers with an alternative dispute resolution mechanism for tax matters, including challenges to Stamp Tax assessments under item 28.1 of the TGIS, without requiring prior court litigation.
How is the taxable base (valor patrimonial tributário) determined for construction land under Stamp Tax rules?
For construction land subject to Stamp Tax under item 28.1 of TGIS, the taxable base is the tax property value (valor patrimonial tributário - VPT). Article 67(2) of the Stamp Duty Code (CIS) provides for subsidiary application of Municipal Property Tax Code (CIMI) provisions regarding property valuation. Under article 45 of CIMI, construction land is valued considering the 'value of authorized buildings,' applying the general property valuation methodology including allocation coefficients from article 41 CIMI. These coefficients reflect the intended use of future construction (residential, commercial, industrial, etc.). In this case, the VPT of €9,130,000 was applied at the 1% rate, resulting in €91,300 tax. The dispute centers on whether the allocation coefficient indicating residential construction makes the land itself have 'residential designation' for Stamp Tax purposes.
What is the procedure after an administrative claim (reclamação graciosa) against Stamp Tax is rejected by the Portuguese Tax Authority?
After an administrative claim (reclamação graciosa) against Stamp Tax is rejected by the Portuguese Tax Authority, taxpayers have several options. The primary alternative demonstrated in this case is filing for tax arbitration at CAAD within the legal deadlines established by the Legal Regime for Tax Arbitration (RJAT). The taxpayer submits a petition for establishment of an arbitral tribunal under articles 10(1) and (2) of RJAT and Ordinance 112-A/2011. The CAAD arbitration process offers faster resolution than judicial courts, with the tribunal constituted within weeks and decisions typically rendered within 6 months. Alternatively, taxpayers can pursue judicial review through administrative courts, though this route typically involves longer timelines. The arbitration option has become increasingly popular for high-value tax disputes, particularly regarding the controversial Stamp Tax on high-value properties introduced in 2012.
Is construction land classified as residential property for purposes of the 1% Stamp Tax rate on properties valued over €1 million?
This is the core contested issue in the arbitration. The taxpayer's position is that construction land should NOT be classified as residential property for Stamp Tax purposes merely because it has authorization for future residential construction. The company argues that 'residential designation' under item 28.1 of TGIS requires actual residential use or licensing, not potential future use. Construction land, classified separately under article 6(1) of CIMI as 'terrenos para construção,' lacks the completed residential character necessary for the tax. Conversely, the Tax Authority argues that construction land CAN have residential designation when the allocation coefficient under article 41 CIMI reflects authorized residential buildings. The Authority interprets 'residential designation' as broader than 'residential use,' encompassing properties with residential construction potential. This distinction is crucial: if construction land qualifies, developers face significant annual tax liability on land inventory; if excluded, only completed residential properties above €1 million would be taxed.