Process: 549/2014-T

Date: February 4, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Process 549/2014-T addressed whether building land ('terrenos para construção') qualifies as 'real estate with residential purpose' subject to Stamp Tax under Item 28.1 of the General Stamp Tax Table (TGIS). The case involved urban building land in Lisbon valued at €1,298,180, with no existing construction, assessed Stamp Tax of €12,981.80 (1% rate) for 2013. The taxpayer argued that building land cannot be considered residential property under the Stamp Tax Code (CIS) and Item 28 of TGIS, contending the Tax Authority lacked legal basis to tax undeveloped land designated for construction. The Portuguese Tax Authority defended its assessment, arguing the legislator intentionally used the broader term 'residential purpose' rather than 'buildings intended for housing,' encompassing both built real estate and building land. The Authority relied on Article 45(2) of the Municipal Real Estate Tax Code (IMI Code), which applies general real estate assessment methodology to building land, including the allocation coefficient under Article 41. The Authority emphasized that the mere constitution of construction rights immediately increases property value, justifying the separation of land components per Article 45 of the IMI Code. The taxpayer also sought compensation for expenses related to guarantees provided in tax enforcement proceedings under Article 53 of the General Tax Law (LGT), arguing evident error by tax services. The arbitration court was constituted as a sole arbitrator tribunal on September 30, 2014, and dispensed with the hearing under Article 18 of RJAT. The case centered exclusively on legal interpretation rather than factual disputes, focusing on whether the statutory language 'real estate with residential purpose' extends to undeveloped building land with construction potential.

Full Decision

Arbitration Decision

Process No. 549/2014-T

I. Report

  1. A… – URBAN REAL ESTATE, S.A., with NIF …, with registered office at …, in Lisbon, came, pursuant to the provisions of Articles 2, no. 1, al. a), 3, 6, no. 1, and 10, no. 1, al. a), of Decree-Law no. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters – RJAT), to request the establishment of an Arbitration Court and to file a request for arbitration pronouncement.

  2. The Respondent is the Tax and Customs Authority.

  3. The Applicant seeks the annulment "of the acts of assessment of Stamp Duty [IS], relating to the first and second instalments of the year 2013 [documented by documents numbered 2014… and 2014…], with all legal consequences".

  4. The aforementioned instalments amount to the value of €8,654.54.

  5. The Applicant presents a cumulation of claims for the annulment of the aforementioned "acts of assessment".

  6. However, it happens that the instalments mentioned above, to which documents numbered 2014… and 2014… refer, result from a single act of assessment (no. …).

  7. The amount of Stamp Duty assessed, relating to the year 2013, was €12,981.80, payable in three instalments.

  8. The challenge concerns a single act – the act of assessment – and not the collection documents – therefore it is not possible to have a cumulation of claims in the present case.

  9. The Applicant thus seeks the annulment of the act of assessment of Stamp Duty numbered …, relating to the year 2013, in the amount of €12,981.80, which gave rise to collection documents numbered 2014… and 2014….

  10. The Applicant further seeks the condemnation of the Respondent to payment of compensation for provision of undue guarantee in tax enforcement proceedings, should its waiver not be accepted by the respective Tax Service.

  11. The Applicant bases its claim alleging, in summary, that the concept of land for construction, for tax purposes, cannot be considered "real estate with residential purpose", pursuant to Article 1, no. 1, of the Stamp Duty Tax Code (CIS) and Item 28 of the General Table of Stamp Duty Tax (TGIS), therefore, "since the taxation of 'land for construction' is not established in law, the Tax Authority cannot legitimately include them in the scope of the rule that provides for the taxation of real estate with residential purposes".

  12. The Applicant further contends that, by virtue of there being "evident error attributable to the services in the assessment of the tax that gave rise to the institution of tax enforcement proceedings", and on the basis of the provisions in nos. 1 and 3 of Article 53 of the General Tax Law (LGT), the Court should recognize its right to "compensation for the amount corresponding to the expenses incurred with the (eventual) guarantee to be provided, it being understood that such expenses may only be determined at the moment when the said alleged guarantee is released".

  13. The Applicant opted for no designation of arbitrator.

  14. Pursuant to the provisions in al. a) of no. 2 of Article 6 and al. b) of no. 1 of Article 11 of the RJAT, as amended by Article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council designated the arbitrator of the arbitration court, who communicated acceptance of the designation within the applicable period.

  15. The parties were notified of this designation, and did not express an intention to refuse the designation of the arbitrator, pursuant to the combined provisions of Article 11, no. 1, als. a) and b) of the RJAT and Articles 6 and 7 of the Deontological Code of CAAD.

  16. Thus, in accordance with the provision in al. c) of no. 1 of Article 11 of the RJAT, as amended by Article 228 of Law no. 66-B/2012, of 31 December, the sole arbitration court was constituted on 30/09/2014.

  17. The Tax and Customs Authority filed a reply, in which it defends the lack of merit of the request for arbitration pronouncement, and did not raise any exception.

  18. The Tax and Customs Authority sustains in its Reply that

"17.

As results from the expression 'value of authorized buildings', contained in Article 45, no. 2, of the IMI Code, the legislator opted to determine the application of the methodology for assessment of real estate in general to the assessment of land for construction, and consequently the allocation coefficient provided for in Article 41 of the IMI Code is applicable thereto.

[…]

Contrary to what the Applicant proposes, the TA understands that the concept of 'real estate with residential purpose', for purposes of Item 28 of the TGIS, comprises both built real estate and land for construction, at least given the literal element of the rule.

Note that the legislator does not refer to 'buildings intended for housing', having opted for the notion of 'residential purpose'. A different and broader expression whose meaning must be found in the need to integrate other realities beyond those identified in Article 6, no. 1, al. a), of the IMI Code.

Moreover, the mere constitution of a right of potential construction immediately increases the value of the property in question, hence the rule contained in Article 45 of the IMI Code which requires the separation of the two parts of the land."

  1. The Tax and Customs Authority sustains, in summary, that "the real estate in question has the legal nature of real estate with residential purpose, and therefore the act of assessment, object of this request for arbitration pronouncement, should be maintained, as it embodies a correct interpretation of Item 28 of the General Table, amended by Law 55-A/2012, of 29/12".

  2. By Order of 09/12/2014, the Court decided to dispense with the holding of the meeting provided for in Article 18 of the RJAT.

  3. The parties presented no submissions.

  4. The Arbitration Court was duly constituted.

  5. The parties have legal personality and capacity and are legitimately parties (Articles 4 and 10, no. 2, of the RJAT and Article 1 of Ordinance no. 112-A/2011, of 22 March).

  6. No nullity is apparent.

II. Matters of Fact

a. Proven Facts

  1. The following facts are considered proven:

25.1. The Applicant is the owner of the urban real estate located at Avenue …, parish of Avenues Novas, municipality of Lisbon, registered in the urban property register of the said parish, under article no. …;

25.2. The real estate identified above is described in the Urban Real Estate Booklet as "land for construction", and has a Tax Patrimonial Value (VPT) of €1,298,180.00;

25.3. There is no building or construction on the real estate described;

25.4. Based on the VPT indicated above, the Tax and Customs Authority proceeded to assess Stamp Duty of item 28.1 of the TGIS, relating to the year 2013, at the rate of 1%, in the total amount of €12,981.80.

b. Unproven Facts

  1. Of the facts of interest for deciding the case, those not contained in the factuality described above were not proven.

c. Justification for the Decision on Matters of Fact

  1. The facts were established as proven based on documentary evidence.

III. Matters of Law

  1. Having established the relevant factuality, it is found that the present proceedings concern exclusively matters of law.

  2. The central issue for the Court to decide is that which relates to whether land for construction is subject to Stamp Duty by application of the rule contained in Article 1, no. 1, of the Stamp Duty Tax Code (CIS) and Item 28.1 of the TGIS.

  3. It is consequently important for this purpose to know whether "land for construction" should be considered "real estate with residential purpose".

  4. Item 28 of the TGIS was amended by Law no. 55-A/2012, of 29 October, with the following text:

"28 – Ownership, usufruct or right of superficies of urban real estate whose tax patrimonial value contained in the register, in accordance with the Municipal Real Estate Tax Code (CIMI), is equal to or greater than €1,000,000.00 – on the tax patrimonial value for purposes of IMI:

28.1 – For real estate with residential purpose – 1%

28.2 – For real estate, when the taxpayers that are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, contained in a list approved by ordinance of the Minister of Finance – 7.5%."

  1. Law no. 83-C/2013, of 31 December, through Article 194, amended item 20.1 of the TGIS, which thereafter had the following text:

"28.1 - For residential real estate or for land for construction whose construction, authorized or planned, is for housing, in accordance with the provisions of the IMI Code – 1%"

  1. However, the act of assessment now under review relates to the year 2013, prior, therefore, to the amendment to the text of item 28.1 introduced by Law no. 83-C/2013, of 31 December, and therefore this new text should not be taken into account for deciding the present dispute.

  2. Now, the Stamp Duty Tax Code (CIS) and its General Table, as amended by Law no. 55-A/2012, of 29 October, do not clarify the meaning of the expression "real estate with residential purpose".

  3. Article 67, no. 2 of the CIS, amended by Law no. 55-A/2012, of 29 October, provides that "[t]o matters not regulated in this Code relating to item no. 28 of the General Table, the provisions of the CIMI shall apply, subsidiarily."

  4. The legislator, in no. 1 of Article 2 of the CIMI, adopts the following concept of real estate:

"For purposes of this Code, real estate is any portion of territory, including water, plantings, buildings and constructions of any nature incorporated or founded therein, with a character of permanence, provided that it forms part of the patrimony of a natural or legal person and, in normal circumstances, has economic value, as well as water, plantings, buildings or constructions, in the circumstances above, endowed with economic autonomy in relation to the land where they are located, although situated in a portion of territory that constitutes an integral part of a patrimony otherwise or does not have patrimonial nature."

  1. No. 1 of Article 6 of the CIMI sets out the various types of urban real estate, depending on their purpose: residential; commercial, industrial or for services; land for construction; others.

  2. It follows from the classification adopted by the legislator in Article 6 of the CIMI the distinction between (i) built real estate, which may be devoted to housing, commerce, industry or services, such purpose being determined in accordance with the respective licensing or, in the absence of a license, the normal destination of the property (Article 6, no. 2, of the CIMI) and (ii) land for construction, in accordance with the definition contained in no. 3 of Article 6 of the CIMI.

  3. Thus, this Court subscribes to the reasoning expressed by the Supreme Administrative Court (STA) in its Judgment of 23/04/2014, in proc. 0271/14, when it states that "[h]aving the legislator not defined the concept of '(urban) real estate with residential purpose', and resulting from Article 6 of the IMI Code – subsidiarily applicable to Stamp Duty provided in the new item no. 28 of the General Table – a clear distinction between 'urban residential real estate' and 'land for construction', the latter cannot be considered, for purposes of the incidence of Stamp Duty (Item 28.1 of the TGIS, as amended by Law no. 55-A/2012, of 29 October), as urban real estate with residential purpose".

  4. In the same sense, this Court accepts the understanding, expressed in the cited Judgment of the STA, according to which "[t]he fact that it may be considered that in determining the tax patrimonial value of urban real estate classified as land for construction account should be taken of the purpose which the building authorized or planned for it will have for determination of the respective value of the site area (see nos. 1 and 2 of Article 45 of the CIMI), does not determine that land for construction may be classified as 'real estate with residential purpose', because the residential purpose always appears in the IMI Code referred to 'buildings' or 'constructions', existing, authorized or planned, because only these can be inhabited, which does not occur in the case of land for construction, which do not, in themselves, have conditions for such, and are not capable of being used for housing except if and when the construction authorized and planned for them is built thereon (but in that case they would no longer be 'land for construction' but another type of urban real estate – 'residential', 'commercial, industrial or for services' or 'others' – Article 6 of the CIMI)".

  5. An interpretation such as that adopted by the Respondent, according to which land for construction is covered by the expression "real estate with residential purpose" has not the slightest correspondence in the letter of the law, leading to a legal solution that configures a true analogical application of the rule contained in Article 1, no. 1, of the Stamp Duty Tax Code (CIS) and Item 28.1 of the TGIS, in non-conformity with law (Article 11, no. 4, of the General Tax Law), with the principle of typicity of tax law, inherent in the principle of tax legality (Article 103, no. 2, and 165, no. 1, al. i), of the Constitution of the Portuguese Republic) and with the principle of legal certainty and protection of the confidence of citizens.

  6. Being possible to interpret item 28.1 of the TGIS in conformity with the Constitution, it is, however, to reject the judgment of unconstitutionality of the rule contained therein.

  7. In this case, an interpretation in conformity with the Constitution entails the non-subjection to Stamp Duty, by application of Item 28.1 of the TGIS, of land for construction, relating to the year 2013.

  8. The Applicant further formulates a claim for condemnation of the Respondent to payment of compensation for provision of undue guarantee in tax enforcement proceedings.

  9. However, the Applicant did not prove, in the course of the proceedings, that such guarantee was actually provided, and the Court cannot condemn the Respondent to payment of compensation based on a mere hypothesis of an guarantee being provided by the Applicant.

IV. Decision

For these reasons, and with the grounds set out, the Arbitration Court decides:

i) To judge as well-founded the claim for annulment, with all legal effects, of the act of assessment impugned;

ii) To judge as lacking in merit the claim for condemnation of the Respondent to payment of compensation for eventual provision of undue guarantee in tax enforcement proceedings.

V. Value of the Case

The value of the case is fixed at €12,981.80, in accordance with the provision in Article 97-A, no. 1, al. a), of the Code of Tax Procedure and Process and Article 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings.

VI. Costs

Pursuant to Article 22, no. 4, of the RJAT, the amount of costs is fixed at €918.00, in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Respondent.

Lisbon, 04 February 2015

The Arbitrator,

Paulo Nogueira da Costa

Frequently Asked Questions

Automatically Created

Are building land plots ('terrenos para construção') subject to Stamp Tax under Verba 28.1 of the TGIS in Portugal?
Yes, according to the Tax Authority's position in Process 549/2014-T, building land ('terrenos para construção') is subject to Stamp Tax under Item 28.1 of TGIS. The Authority argued that the concept of 'real estate with residential purpose' encompasses both built properties and building land, particularly when the Tax Patrimonial Value equals or exceeds €1,000,000. This interpretation relies on Article 45(2) of the IMI Code, which applies the same assessment methodology to building land as to general real estate, including the allocation coefficient from Article 41. The Tax Authority emphasized that the legislator used the broader term 'residential purpose' rather than 'buildings intended for housing' to integrate realities beyond those in Article 6(1)(a) of the IMI Code.
Can the Portuguese Tax Authority classify building land as residential property for Stamp Tax purposes?
Yes, the Portuguese Tax Authority can classify building land as residential property for Stamp Tax purposes under Item 28.1 of TGIS. In Process 549/2014-T, the Authority defended this classification by distinguishing between 'residential purpose' (the statutory language) and 'buildings intended for housing' (a narrower concept). The Authority argued that building land with construction potential immediately gains increased value upon constitution of construction rights, justifying its inclusion within 'real estate with residential purpose.' This interpretation is supported by Article 45 of the IMI Code, which requires separation of land components and applies assessment rules that incorporate allocation coefficients determining residential use. However, taxpayers have challenged this interpretation, arguing that undeveloped land without actual residential buildings should not qualify under the Stamp Tax provisions.
What is the legal basis for challenging Stamp Tax assessments on building land before CAAD arbitration?
The legal basis for challenging Stamp Tax assessments on building land before CAAD (Administrative Arbitration Centre) is established under Decree-Law 10/2011 of January 20 (RJAT - Legal Regime for Arbitration in Tax Matters). Specifically, Articles 2(1)(a), 3, 6(1), and 10(1)(a) of RJAT provide jurisdiction for arbitration courts to hear disputes regarding tax assessments. In Process 549/2014-T, the taxpayer challenged the assessment under Item 28.1 of TGIS, arguing that building land cannot legally be considered 'real estate with residential purpose' and therefore the Tax Authority lacked statutory authority to impose Stamp Tax. Taxpayers can request annulment of assessment acts when they believe the tax interpretation or application is unlawful, seeking declaration that the legal provisions do not extend to their specific circumstances.
How does CAAD Process 549/2014-T interpret the concept of 'housing allocation' for Stamp Tax on urban property?
CAAD Process 549/2014-T interprets 'housing allocation' broadly for Stamp Tax on urban property under Item 28 of TGIS. The central dispute was whether building land ('terrenos para construção') without any constructed buildings qualifies as 'real estate with residential purpose.' The Tax Authority advocated for an expansive interpretation, arguing the legislator deliberately chose 'residential purpose' over 'buildings intended for housing' to encompass properties with construction potential, not just completed residential structures. The Authority relied on IMI Code provisions (Articles 41 and 45) that apply allocation coefficients and assessment methodologies to building land, treating it similarly to built real estate. The Authority contended that constitution of construction rights immediately increases property value, supporting inclusion within the residential purpose category. This interpretation extends taxation beyond actual residential use to potential residential development.
Is a taxpayer entitled to compensation for undue guarantees provided in tax enforcement proceedings under Article 53 of the LGT?
Yes, under Article 53 of the General Tax Law (LGT), taxpayers are entitled to compensation for undue guarantees provided in tax enforcement proceedings when there is evident error attributable to tax services. In Process 549/2014-T, the taxpayer claimed compensation for expenses incurred providing guarantees in enforcement proceedings, arguing the Stamp Tax assessment resulted from evident administrative error. Article 53(1) and (3) of LGT establishes the right to compensation when tax authorities erroneously assess taxes leading to enforcement actions requiring guarantees. The compensation covers expenses directly related to the guarantee provision. However, the taxpayer acknowledged such expenses could only be determined when the guarantee is released. The court must recognize this right if it determines the tax assessment was unlawful and the error was attributable to tax services, not taxpayer conduct or ambiguous legal interpretation.