Process: 552/2014-T

Date: September 28, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD tax arbitration case (Process 552/2014-T) involves a challenge to Stamp Tax (Imposto do Selo) assessments totaling €16,272.80 levied under item 28.1 of the General Table of Stamp Tax (TGIS) for 2013. The applicant company contested three assessment acts issued by the Tax and Customs Authority (AT) regarding urban property classified as land for construction in Matosinhos. The central legal question concerns whether item 28.1 TGIS, which taxes high-value residential properties, applies to undeveloped land designated for construction. The applicant argued that land for construction cannot have actual residential use since no building exists, only potential future use. They contended that the tax code definition under Article 6(3) of the Municipal Property Tax Code (CIMI) should control, and that residential use requires an actual constructed property capable of such occupation. The applicant further raised constitutional challenges, alleging double taxation (Stamp Tax plus IMI on the same property), violation of equality principles (only some taxpayers face this burden), and disproportionality contrary to Articles 13 and 104 of the Portuguese Constitution. Procedurally, the applicant also claimed the payment documents lacked proper assessment identification, constituting a formal defect under Article 99(c) of the Tax Procedure Code. Additionally, they argued that the 2014 State Budget amendment (Law 83-C/2013, Article 193) clarifying the application of item 28.1 TGIS should not apply retroactively to 2013 assessments since it was substantive rather than interpretative legislation. The arbitral tribunal was constituted on October 1, 2014, under Decree-Law 10/2011 establishing the Legal Regime for Tax Arbitration, with the parties waiving the oral hearing. The case exemplifies key issues in Portuguese property taxation: the interpretation of 'residential use' for undeveloped land, constitutional limits on taxation, and the scope of tax arbitration as an alternative dispute resolution mechanism for challenging administrative tax acts.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Case No. 552/2014-T

Arbitral Decision

I. Report

  1. A, Lda., a company with registered office at Rua …, Porto, with company registration number …, applied to the Centre for Administrative Arbitration (CAAD), on 29 July 2014, for the constitution of an arbitral tribunal in tax matters, in accordance with the provisions of Article 10, Nos. 1 and 2 of Decree-Law No. 10/2011 of 20 January (Legal Regime for Tax Arbitration "LRTA"), in which the Tax and Customs Authority (TA) is the Respondent, with a view to the declaration of illegality and consequent annulment of the assessment acts for Stamp Tax (ST) for the year 2013, relating to item 28.1 of the General Table of ST (GTST), in the total amount of €16,272.80 (sixteen thousand two hundred and seventy-two euros and eighty cents).

  2. The Applicant opted not to appoint an arbitrator.

  3. The request for constitution of an arbitral tribunal was accepted by the President of CAAD on 30 July 2014 and was automatically notified to the TA on the same date.

  4. The undersigned was appointed by the President of the Deontological Board of CAAD as arbitrator of a single arbitral tribunal, in accordance with the provisions of Article 6 of the LRTA.

  5. The undersigned communicated acceptance of the mandate to the President of the Deontological Board of CAAD within the legal time limit, in accordance with the provisions of Article 4 of the CAAD Deontological Code.

  6. The Parties were notified of the appointment of the undersigned on 16 September 2014, in accordance with Article 11, No. 1, paragraphs a) and b) of the LRTA, and did not object to it.

  7. The single arbitral tribunal was thus regularly constituted on 1 October 2014, in accordance with the provisions of paragraph c) of No. 1 of Article 11 of the LRTA.

  8. The TA was notified by arbitral order of 2 October 2014 to submit its reply within 30 days.

  9. The TA submitted its reply on 31 October 2014, and also requested a waiver of the meeting referred to in Article 18 of the LRTA.

  10. By arbitral order of 14 November 2014, the Applicant was ordered to pronounce itself on the waiver of such meeting, and the Applicant indicated it did not object to such waiver.

  11. On 17 November 2014, the Applicant submitted a subsequent application requesting the attachment of a new document, namely the third instalment of the assessed ST, as it had undertaken to attach in its initial petition.

  12. This application was attached to the proceedings and notified to the Respondent, which did not pronounce itself on it.

  13. The Arbitral Tribunal has material jurisdiction, in accordance with Article 2, No. 1, paragraph a) of the LRTA.

  14. The Parties have legal personality and capacity and are parties with standing (Articles 4 and 10, No. 2 of the LRTA and Article 1 of Ordinance No. 112-A/2011 of 22 March).

  15. The cumulation of claims is admissible, as the requirements established in Article 3, No. 1 of the LRTA are met.

  16. The proceedings are not affected by any defects that would render them invalid.

II. The Applicant's Claim

The Applicant presented a request for an arbitral pronouncement for the declaration of illegality and consequent annulment of the Stamp Tax assessment acts corresponding to documents No. 2014…, No. 2014… and No. 2014…, in the total amount of €16,272.80 (sixteen thousand two hundred and seventy-two euros and eighty cents).

To this end, and in summary, citing various doctrine and case law, the Applicant presents the following arguments:

  1. The Applicant was notified of several payment documents that lack the indication of the number of the underlying assessment, which constitutes a lack of legal basis, a defect that renders the act in question illegal, in accordance with the provisions of Article 99, paragraph c) of the Code of Tax Procedure and Process (CTPP);

  2. The assessment in question relates to land for construction of which the Applicant is the owner, and therefore is affected by an error regarding the legal requirements.

  3. The Applicant paid the first instalment of the assessed tax.

  4. The Applicant is the owner of the urban property described in the Property Registry Office of Matosinhos under number … and registered in the competent urban property register under article …, classified as land for construction, with no building or construction existing on it.

  5. Considering the taxable property value (TPV) and the use coefficient (residential) that were assigned to the land for construction, the TA understood that the objective requirements for the assessment of ST, item 28 of the GTST, were met.

  6. The identified assessments are illegal, insofar as item 28.1 of the GTST does not cover land for construction, as such land does not have residential use.

  7. As there is no express reference in the law to land for construction, the interpreter should confine itself to the definition in the Code of Municipal Property Tax (CMPT), contained in its Article 6, No. 3.

  8. The concept of land for construction reflects the potential destination for construction, and there does not exist on it, by its very nature, any property that could be used for residential, commercial, service, or other purposes, there being only a mere potential or merely virtual expectation of such being able to occur.

  9. The qualification of a property or its use depends on the normal use that can be given to it in light of its current and real characteristics, and in land for construction the normal use cannot be residential, since there is no constructed property capable of permitting such use.

  10. Nor can the use allocation of land for construction for actual residential purposes be extrapolated from the subdivision permit: the subdivision permit for the property in question indicates that the purpose of the lots is residential and commercial, and therefore it cannot be concluded that the land will have exclusively residential purposes.

  11. In view of the above, the TA cannot conclude that the Applicant's property is allocated to residential use since it is only intended for construction.

  12. The TA cannot subject to ST urban properties that constitute land for construction and to which residential use has been assigned in the context of their respective valuations.

  13. The Applicant further argues that the ST contained in item 28 of the GTST assumes a merely static dimension, founded only on the financial aspect of the revenue arising from it, which is not in line with the tax system provided for by the Portuguese Constitution (PC).

  14. It further alleges that the same reality is taxed twice: on the ownership of a property with an assigned TPV, two different taxes apply, ST and IMI, which puts in question the principles of justice and proportionality.

  15. Since only some of the resident taxpayers suffer this double taxation, contrary to the principle of equality contained in Articles 13 and 104 of the PC.

  16. The Applicant considers that there is a violation of the principle of interpretation in conformity with the PC, namely by breach of the principle of equality and legality.

  17. Finally, the legislative amendment made by Article 193 of Law No. 83-C/2013, which approved the State Budget for 2014 and which came into force on 1 January 2014, does not assume the nature of an interpretive rule and, as such, is not retroactive.

  18. In summary, it requests the annulment of the ST assessment act issued under item 28.1 of the GTST, dated 18.03.2014, and the reimbursement of the sum of €5,424.28 (five thousand four hundred and twenty-four euros and twenty-eight cents) relating to the 1st instalment paid, plus compensatory interest at the applicable legal rate.

III. The Respondent's Reply

  1. It is the TA's understanding that the property on which the assessments challenged fall has the legal nature of a property with residential use, and therefore the assessment act which is the subject of this request for arbitral pronouncement should be maintained, as it constitutes a correct interpretation of Item 28 of the GTST, amended by Law No. 55-A/2012 of 29 October.

  2. In the absence of any definition of the concepts of urban property, land for construction and residential use in the context of ST, recourse must be had to the CMPT to find a definition that allows determination of any liability to ST, in accordance with what is provided in Article 67, No. 2 of the Code of Stamp Duty (CSD) in the wording given by Law No. 55-A/2012 of 29 October.

  3. In accordance with that legal provision, to matters not regulated in the Code relating to item No. 28 of the GTST, the provisions of the CMPT apply subsidiarily.

  4. Article 2, No. 1 of the CMPT provides that "property is any portion of territory, including waters, plantations, buildings and constructions of any kind incorporated or seated in it, 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 waters, plantations, buildings or constructions, in the circumstances above, endowed with economic autonomy in relation to the land on which they are located, although situated in a portion of territory that forms an integral part of a diverse patrimony or does not have a patrimonial nature".

  5. In turn, Article 6, No. 1 of the CMPT provides for the types of existing urban properties, integrating into this concept land for construction, that is, "land situated within or outside an urban agglomeration for which a licence or authorization has been granted, prior notification admitted or favorable prior information issued for a subdivision or construction operation, and also those that have been so in the acquisition deed, except for land on which the competent entities prohibit any of such operations…"

  6. The notion of use of urban property is found in the part relating to the valuation of real estate, since the valuation of the property (purpose) incorporates value to the property, constituting a determining factor of distinction (coefficient) for valuation purposes.

  7. As results from the expression "…value of authorized buildings", contained in Article 45, No. 2 of the CMPT, the legislator chose to determine the application of the valuation methodology of properties in general to the valuation of land for construction, and therefore the use coefficient provided for in Article 41 of the CMPT is applicable to them.

  8. Thus, for the purposes of determining the taxable property value of land for construction, the application of the use coefficient in the valuation is clear, and therefore its consideration for the purposes of applying item 28 of the GTST cannot be ignored, because:

a. In the application of law to specific cases, it is important to determine the exact meaning and scope of the rule, so that the rule contained in it is revealed, a condition essential for it to be applied, in accordance with Article 9 of the Civil Code, ex vi Article 11 of the General Tax Law;

b. Article 67, No. 2 of the CSD mandates the subsidiary application of the provisions of the CMPT;

c. The use of the property (aptitude or purpose) is a coefficient that contributes to the valuation of the property in determining the taxable property value, applicable to land for construction;

d. Item 28 itself of the GTST refers to the expression "properties with residential use", calling for a classification that overlays the types provided for in No. 1 of Article 6 of the CMPT.

  1. The TA understands that the concept of "properties with residential use", for the purposes of what is provided in item 28 of the GTST, comprises both constructed properties and land for construction, first and foremost given the literal element of the rule.

  2. The legislator does not refer to "properties intended for residential use", having opted for the notion "residential use" - 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, paragraph a) of the CMPT.

  3. 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 CMPT which requires the separation of the two parts of the land.

  4. With regard to the legal regime for urbanization and building (LRUB), it should be noted that it has as its premise buildings already constructed.

  5. One cannot ignore that the building permit for the carrying out of urbanization operations must contain, among other elements, the number of plots and an indication of the area location, purpose, area of implantation, construction area, number of floors and number of units of each of the plots, with specification of units intended for housing at controlled costs, where applicable, in accordance with paragraph a) of Article 77 of the LRUB;

  6. And further that Article 77 of the LRUB contains mandatory specifications, first of all for permits for subdivision operations or urbanization works, and for construction works.

  7. Municipal Master Plans also establish the strategy for municipal development, municipal policy for territorial planning 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 for spatial organization of municipal territory.

  8. In these terms, long before the actual building of the property, it is possible to ascertain and determine the use of land for construction.

  9. The Respondent further advocates for the constitutionality of the rule in question, noting, among others, that it is a general and abstract rule, applicable uniformly to all cases in which the factual and legal requirements are met, and which seeks to obtain maximum effectiveness as to the objective to be achieved, with minimum harm to other interests considered relevant.

  10. As for the alleged defect of lack of legal basis for the assessment, the Respondent disagrees with the Applicant's understanding, because the jurisprudence of the Supreme Administrative Court has consistently understood that the legal basis for an act is a relative concept that varies according to the type of act and the circumstances of the specific case;

  11. The legal basis is sufficient when it allows a normal recipient to understand the cognitive and evaluative process followed by the author of the act, that is, when the recipient can know the reasons that led the author of the act to decide in that way and not another.

  12. The collection notice relating to the assessment in question contains the date of assessment, the identification of the property subject to taxation, the type of tax, the tax year, the enabling rule and the respective amounts and payment dates.

  13. And the legal basis was fully understood and referenced and contested by the Applicant in its request for arbitral pronouncement.

  14. Additionally, even if a situation of lack or insufficiency of legal basis were to occur, it would be incumbent upon the Applicant to request the issuance of the certificate provided for in Article 37 of the CTPP.

  15. Having the Applicant not used this faculty, it must be concluded that the act in question contained and contains all the elements necessary for its full understanding, the alleged defect being remedied.

  16. The act should be maintained, not suffering from any defect alleged by the Applicant.

IV. Questions to be Decided

Considering the facts and legal matters contained in the request for arbitral pronouncement submitted by the Applicant and the Respondent's reply, the questions to be decided by the Arbitral Tribunal are:

a. Whether land for construction should be considered, for the purposes of the incidence of ST, relating to item 28.1 of the GTST, as amended by Law No. 55-A/2012 of 29 October, as properties with residential use;

b. Whether the assessment in question is illegal for lack of legal basis.

V. Factual Matters

For the purposes of assessing the claim, the following are the facts that are taken as proven, based on documents attached to the proceedings, not contested by the Respondent:

a. The Applicant is the owner of the urban property registered in the competent urban property register under article …, classified as land for construction, with no building or construction existing on it.

b. The urban property in question is described in the register as land for construction.

c. The property has a taxable property value of €1,627,280.00 (one million, six hundred and twenty-seven thousand two hundred and eighty euros).

d. In the valuation data contained in the property register, the property has as "location coefficient type" residential.

e. There is no construction on the identified property.

f. The Applicant was notified of the collection documents No. 2014…, No. 2014… and No. 2014…, one for the amount of €5,424.28, another for €5,424.26 and another for €5,424.26, totalling €16,272.80 (sixteen thousand two hundred and seventy-two euros and eighty cents).

g. The Applicant proceeded to pay the first ST instalment indicated above.

There are no other facts, with relevance for the proceedings, that are not taken as proven.

The conviction regarding the facts taken as proven was based on the documentary evidence indicated, attached by the Applicant, whose authenticity and correspondence to reality were not questioned by the Respondent.

VI. Legal Matters

Given that the Applicant has imputed various defects to the tax act challenged, it is necessary to determine the order in which such defects should be examined, and the order contained in Article 124 of the CTPP should be observed, as applicable by virtue of Article 29, No. 1, paragraph a) of the LRTA.

The defect of violation of law invoked by the Applicant is the most relevant one, in that its possible validity would prevent renewal of the act. Accordingly, the Arbitral Tribunal will examine first the question indicated in IV. a. above.

The question at issue has been the subject of examination several times by the Supreme Administrative Court (SAC) (see, by way of example, the recent Decisions of 24/9 and 9/7 of 2014) and by arbitral case law (namely in proceedings 42/2013-T of 18/10/2013; 48/2013-T of 09/10/2013; 49/2013-T of 18/09/2013; 53/2013-T of 02/10/2013; 75/2013-T of 01/11/2013; 144/2013-T of 12/12/2013; 158/2013-T of 10/02/2014; 308/2013-T of 28/04/2014; 310/2013 of 22/04/2014 and 202/2014-T of 16/10/2014).

The cited jurisprudence decided in all cases against the Respondent's understanding, decisions which, it is indicated from now on, this Arbitral Tribunal follows, as will be detailed.

For the examination of the question at issue, it is important, first of all, to analyse Article 4 of Law No. 55-A/2012 of 29 October, which added to the GTST, annexed to the CSD, item No. 28, with the following wording:

"28 — Ownership, usufruct or surface right of urban properties whose taxable property value contained in the register, in accordance with the Code of Municipal Property Tax (CMPT), is equal to or greater than € 1,000,000 — on the taxable property value used for the purposes of IMI:

28.1 — For property with residential use — 1 %;

28.2 — For property, when taxpayers other than natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by order of the Minister of Finance — 7.5 %."

The legislative text in question introduced a concept not used in any other tax provision – that of property with residential use – nor did it define it. To understand its content, the concepts of property contained in the CMPT (Articles 2 to 6) should be examined – under the provisions of Article 67, No. 2 of the CSD, according to which, to matters not regulated in the CSD relating to item No. 28 of the GTST, the provisions of the CMPT apply subsidiarily.

And such interpretation should always be carried out in accordance with the provisions of Article 11 of the General Tax Law (GTL) and Article 9 of the Civil Code, to which it refers.

Article 11 of the GTL provides that:

  1. In determining the meaning of tax rules and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are observed.

  2. Whenever tax rules employ terms specific to other branches of law, they should be interpreted in the same sense as they have there, unless otherwise directly follows from law.

  3. Persisting doubt about the meaning of the rules of incidence to apply, account should be taken of the economic substance of the tax facts.

  4. Gaps resulting from tax rules covered by the legislative reserve of the Republic Assembly are not susceptible to analogical interpretation.

In turn, Article 9 of the Civil Code states that:

  1. Interpretation should not confine itself to the letter of the law, but should reconstruct from the texts the legislative intent, taking especially into account the unity of the legal system, the circumstances in which the law was drafted and the specific conditions of the time in which it is applied.

  2. The interpreter cannot, however, consider the legislative intent that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed.

  3. In fixing the meaning and scope of law, the interpreter shall presume that the legislator adopted the most correct solutions and knew how to express his intent in appropriate terms.

From the analysis of the concepts contained in the cited articles of the CMPT (2 to 6), it is verified that there is no correspondence to any of them with that established in item 28.1 of the GTST (property with residential use). In fact, the CMPT clearly differentiates residential properties from land for construction. The former are classified according to their respective municipal licence or, failing that, their normal use; the latter are defined according to their legal potentiality.

The licensing or normal use of a property whose purpose is residential naturally refer to constructed properties that meet the requirements necessary for such licensing or use.

Whereas land for construction – regardless of the potentiality for construction, or the moment in which that potentiality is determined, contrary to what the Respondent states – will not have any aptitude to be licensed for residential use, or for defining this purpose as its normal destination.

Now, if the tax rule in question does not define, in itself, the concept of residential use, it is not possible to extract, under the above-mentioned provisions, and without more, that within its scope there falls any potential future capacity of a building that may be constructed on land for construction – it covers only actual residential construction.

And contrary to what the Respondent alleges, the rule cannot be interpreted to mean that the legislator's choice with the expression "residential use" has been to superimpose the types contained in Article 6 of the CMPT. The rules under which the interpreter should proceed with the activity of interpreting legal rules, as detailed above, do not provide any legal support for such interpretation.

If such were the legislator's choice, it would certainly have expressly indicated it. Now, presuming that the legislator knew how to express his intent adequately, we find, by contrast, an express reference to the concepts contained in the CMPT (which the Respondent itself recognizes), and not to other realities not contained therein.

Additionally, this Arbitral Tribunal also does not agree with the Respondent's understanding, according to which the meaning of residential use should be extracted from the provisions of Article 45 of the CMPT. Article 45 of the CMPT concerns the rules applicable in determining the taxable property value of land for construction, establishing that this is the value resulting from the value of the building implantation area to be constructed plus the land adjacent to the implantation. In fixing the value of that area, a percentage is considered, varying between 15% and 45%, of the value of the authorized or planned buildings. The Respondent notes that in this fixing of value, the coefficients applicable in determining the taxable property value are used, namely the "residential" use coefficient, and that this should also be a determining element for the purposes of applying item 28.1 of the GTST in question.

To make this point entirely clear, reference is made to the decision of the SAC of 9 July 2014, with which we fully agree:

"The fact that it can be considered that in determining the taxable property value of urban properties classified as land for construction, account should be taken of the use that will be had by the building authorized or planned for it in order to determine the respective value of the implantation area (cfr. Nos. 1 and 2 of Article 45 of the CMPT) does not mean that land for construction can be classified as 'properties with residential use', since residential use always appears in the Code of IMI referred to 'buildings' or 'constructions', existing, authorized or planned, since only these can be inhabited, which is not the case with land for construction, which does not have, in itself, conditions for such, and is not susceptible to being used for residential purposes except if and when construction authorized and planned for it is built on them (but in that case they will no longer be 'land for construction' but another type of urban property – 'residential', 'commercial, industrial or for services' or 'other' – Article 6 of the CMPT).

It would indeed be strange if the determination of the scope of the tax incidence rule of item No. 28 of the General Table of Stamp Duty were to be found, after all, in the rules for determining the taxable property value of the Code of IMI, and if the terminological imprecision of the legislator in drafting that rule were ultimately to be elucidated and finally clarified by way of an indirect and ambiguous reference to the use coefficient established by the legislator in relation to constructed properties (Article 41 of the Code of IMI)."

It should further be noted that Law No. 83-C/2013 of 31 December amended the wording of the rule in question, and item 28.1 of the GTST now provides: "for residential property or for land for construction whose building, authorized or planned, is for residential purposes".

It is the understanding of this Arbitral Tribunal that the new rule applies only prospectively (from 1 January 2014), and that it could not – if that were the case – be inferred from it any interpretive character of the wording previously in force and now at issue. If there had been an intention to confer an interpretive nature on the rule, this would have been expressly indicated by the legislator.

Case law practice has been unanimous, consistent and settled as to the understanding to be given to the rule in question, and therefore in truth there was no rule that needed authentic interpretation. Thus, the legislator, with the amendment introduced in 2013, merely clearly included a new reality to be subject to item 28.1 of the GTST, beyond the manifestly residential properties (land for construction, not contained in the previous wording).

Finally, and in order to reinforce the understanding that has been outlined, there is a reconstruction of the legislative intent that presided over the approval of the wording of item 28.1 of the GTST in 2012. On the one hand, from the explanatory statement contained in Bill No. 96/XII – 2nd, of 21/09/2012 (which gave rise to the aforementioned Law No. 55-A/2012), no element emerges that allows clarification of the concept of property with residential use.

On the other hand, as contained in the Parliamentary Record, 1st Series, No. 9/XII, 2nd legislative session of 11 October 2012, the Secretary of State for Tax Affairs presented this legislative innovation in the following terms:

"This proposal has three essential pillars: the creation of special taxation on urban properties worth more than 1 million euros; the increase in taxation on capital income and capital gains on securities; and the strengthening of rules to combat tax fraud and evasion.

First, the Government proposes the creation of a special tax to tax residential urban properties of higher value. This is the first time that in Portugal a special taxation has been created on high-value properties intended for residential use. This tax will be 0.5% to 0.8% in 2012, and 1% in 2013, and will apply to houses worth € 1 million or more." (emphasis added).

From the foregoing it is not possible, by virtue of the legal provisions cited, to infer that land for construction can be subsumed under the expression "properties with residential use". On the contrary.

Concluding that land for construction is not subject to item 28.1 of the GTST, the assessments that are the subject hereof cannot be maintained.

In view of the above conclusion, the examination of the other questions raised by the Applicant is rendered moot.

VII. Compensatory Interest

Having verified the illegality of the assessments corresponding to documents No. 2014…, No. 2014… and No. 2014…, in the total amount of €16,272.80 (sixteen thousand two hundred and seventy-two euros and eighty cents), relating to the property classified as land for construction, and having the Applicant paid the tax relating to the first instalment, as attached to the proceedings, the Applicant has the right, in accordance with Articles 24, No. 1, paragraph b) of the LRTA and 100 of the GTL, to reimbursement of the tax unduly paid, in the amount of €5,424.28 (five thousand, four hundred and twenty-four euros and twenty-eight cents) (1st instalment).

As for compensatory interest, Article 43 of the GTL stipulates that "compensatory interest is due when it is determined, in gracious reclamation or judicial challenge, that there was error attributable to the services which results in payment of the tax debt in an amount greater than legally due". As for the existence, in this case, of error attributable to the services, this error is considered verified, insofar as the allegation of illegality of the assessment is upheld.

Accordingly, the Applicant has the right to compensatory interest, in accordance with Article 43, No. 1 of the GTL and Article 61, Nos. 2 and 5 of the CTPP, on the amounts paid, calculated from the date of the unduly paid tax until its full reimbursement.

VIII. Decision

In these terms, and on the basis of the grounds set forth, the Arbitral Tribunal decides:

A. To allow the request for arbitral pronouncement, with the consequent annulment of the Stamp Tax assessment acts corresponding to documents No. 2014…, No. 2014… and No. 2014…, in the total amount of €16,272.80 (sixteen thousand two hundred and seventy-two euros and eighty cents);

B. To order the Respondent, in accordance with paragraph b) of No. 1 of Article 24 of the LRTA, to restore the situation that would have existed if the annulled assessment acts had not been carried out, adopting the acts and operations necessary for this purpose, through the reimbursement of the amounts of tax unduly paid and the payment of the corresponding compensatory interest, calculated from the date of the unduly paid tax until its full reimbursement.

Value of the case: €16,272.80 (sixteen thousand two hundred and seventy-two euros and eighty cents)

Costs: Under the provisions of Article 22, No. 4 of the LRTA, and in accordance with Table I attached to the Costs Regulation in Tax Arbitration Proceedings, the amount of costs is fixed at €1,224.00 (one thousand two hundred and twenty-four euros), to be borne by the Respondent.

Lisbon, 28 January 2015

The Arbitrator

Ana Pedrosa Augusto

Frequently Asked Questions

Automatically Created

What is verba 28.1 of the Tabela Geral do Imposto do Selo (TGIS) and how does it apply to property stamp tax?
Item 28.1 of the General Table of Stamp Tax (Tabela Geral do Imposto do Selo) is a provision that subjects high-value residential properties to annual Stamp Tax. It applies to urban properties or fractions allocated to residential use with a taxable property value (valor patrimonial tributário) exceeding €1 million. The tax is calculated by applying progressive rates to the property's taxable value as determined for Municipal Property Tax (IMI) purposes. The key interpretative issue in this case concerns whether 'residential use' encompasses undeveloped land for construction (terreno para construção) that has been assigned a residential designation in property valuations, or whether it requires an actual constructed building capable of residential occupation. This distinction is critical because it determines the scope of properties subject to this annual wealth tax on real estate.
Can taxpayers challenge Imposto do Selo (Stamp Tax) assessments through CAAD tax arbitration?
Yes, taxpayers can challenge Stamp Tax (Imposto do Selo) assessments through the Centre for Administrative Arbitration (CAAD). Under Article 2(1)(a) of Decree-Law 10/2011 (Legal Regime for Tax Arbitration - RJAT), CAAD has jurisdiction over disputes relating to legality of tax acts, including Stamp Tax liquidation acts and decisions on administrative complaints. Tax arbitration provides an alternative to judicial courts for resolving tax disputes, offering a faster and more specialized forum. In this case, the applicant successfully invoked CAAD jurisdiction under Article 10(1) and (2) of the RJAT to challenge the legality of three Stamp Tax assessment acts totaling €16,272.80. The arbitral tribunal confirmed its material jurisdiction, legal standing of parties, and admissibility of the cumulative claims under Article 3(1) RJAT.
What is the procedure for requesting a CAAD arbitral tribunal under Decreto-Lei 10/2011 (RJAT)?
The procedure for requesting a CAAD arbitral tribunal under Decree-Law 10/2011 (RJAT) involves several steps: (1) The taxpayer files a request with CAAD seeking constitution of an arbitral tribunal, identifying the contested tax acts and legal grounds (Article 10); (2) The taxpayer may appoint an arbitrator or opt not to (as occurred here); (3) The CAAD President accepts the request and automatically notifies the Tax Authority; (4) If no arbitrator is appointed by the taxpayer, the President of the Deontological Board appoints a sole arbitrator (Article 6 RJAT); (5) The appointed arbitrator accepts the mandate within legal deadlines (Article 4 Deontological Code); (6) Parties are notified of the appointment and may object (Article 11(1)); (7) The tribunal is formally constituted after the objection period expires; (8) The Tax Authority is ordered to file a reply within 30 days; (9) An oral hearing may be held unless both parties waive it (Article 18 RJAT). In this case, the tribunal was constituted on October 1, 2014, following these procedural requirements.
How are Stamp Tax liquidation acts for high-value properties calculated under verba 28.1 TGIS?
Stamp Tax liquidation acts for high-value properties under item 28.1 TGIS are calculated based on the taxable property value (valor patrimonial tributário - VPT) assigned to the property for Municipal Property Tax (IMI) purposes. Item 28.1 establishes progressive rates applied to properties allocated to residential use: properties valued between €1 million and €2 million are taxed at rates ranging from 0.7% to 1%, while those exceeding €2 million face higher rates. The calculation considers both the VPT and the designated use coefficient (residential, commercial, services, etc.) as determined by the property valuation system. In this case, the Tax Authority assessed €16,272.80 in annual Stamp Tax for 2013 based on the VPT and residential use classification assigned to land for construction. The assessment was divided into installments, with the applicant having paid the first installment of €5,424.28 before challenging the remaining amounts. The controversy centers on whether undeveloped land should be subject to these rates when it lacks actual constructed improvements.
What are the grounds for annulment of Imposto do Selo assessments in Portuguese tax arbitration?
Grounds for annulment of Stamp Tax assessments in Portuguese tax arbitration include: (1) Formal defects - lack of legal basis, including failure to properly identify the underlying assessment act (Article 99(c) Tax Procedure Code); (2) Substantive illegality - error regarding legal requirements (erro sobre os pressupostos de direito), such as incorrect application of tax provisions to the factual situation; (3) Constitutional violations - breach of fundamental principles including equality (Articles 13, 104 Portuguese Constitution), proportionality, and prohibition of double taxation; (4) Incorrect legal interpretation - misapplication of statutory definitions and classifications; (5) Improper retroactive application of legislative amendments - applying non-interpretative provisions to prior tax years. In this case, the applicant invoked multiple grounds: formal defect (missing assessment number), substantive error (land for construction doesn't qualify as residential use under item 28.1 TGIS), constitutional violations (double taxation with IMI, inequality), and improper retroactivity of the 2014 State Budget amendment. The burden rests on the taxpayer to demonstrate the illegality warranting annulment and any applicable tax refund plus compensatory interest.