Process: 553/2014-T

Date: March 30, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Process 553/2014-T addresses whether Stamp Tax under item 28.1 of the General Stamp Tax Table (TGIS) applies to building land (terrenos para construção). The applicant challenged two Stamp Tax assessments totaling €27,173.23 on two plots of building land in Amadora with taxable values of €1,355,765.97 and €1,361,557.03. Item 28.1 of TGIS, introduced by Law 55-A/2012, imposes a 1% tax on ownership, usufruct, or right of superficies of urban real property with residential dedication and taxable patrimonial value equal to or greater than €1,000,000. The central legal issue is whether building land qualifies as property with 'residential dedication.' The applicant argued that building land constitutes a distinct category from residential property and lacks residential dedication, making it ineligible for taxation under item 28.1. The Tax Authority contended that building land should be equated with residential property for this purpose. The applicant further argued the assessment violated constitutional principles of taxation according to contributive capacity and equality. The tribunal noted that 'real property with residential dedication' is an innovative concept not found in other Portuguese tax legislation, including the Municipal Property Tax Code (CIMI), creating interpretive challenges regarding the scope of this Stamp Tax provision.

Full Decision

ARBITRAL DECISION

I. REPORT

A..., with registered office at Rua ..., n.º ..., ...-... Lisbon, holder of single registration and identification number for legal entity ..., hereinafter simply referred to as the Applicant, filed a request for establishment of an arbitration tribunal in tax matters and a request for an arbitral decision, pursuant to the provisions of articles 2º no. 1 a) and 10º no. 1 a), both of Decree-Law no. 10/2011, of 20 January (Legal Regime of Arbitration in Tax Matters, hereinafter abbreviated as RJAT), petitioning for the annulment of two tax acts for assessment of Stamp Tax (IS), relating to the year 2012, in the total amount of € 27,173.23, as well as the condemnation of the Tax Authority (AT) to acknowledge the Applicant's right to compensation for costs to be incurred with the provision of a guarantee.

To support its request, it alleges, in summary:

a) The Applicant was notified of the assessment notices regarding Stamp Tax, relating to the year 2012;

b) The assessments referred to in the previous paragraph concern land for construction owned by the Applicant, located in the Municipality of Amadora, Parish of ...;

c) Such assessments were carried out under item 28.1 of the General Table of Stamp Tax (TGIS);

d) In accordance with the terms and for the purposes of this item, there are three elements that constitute the taxable event: ownership, usufruct or right of superficies over urban real property; the residential dedication of such real property and its taxable patrimonial value equal to or greater than € 1,000,000.00;

e) The properties subject to assessment do not have residential dedication, thus one of the prerequisites inherent to the verified taxable event fails;

f) Land for construction constitutes a distinct species of real property from real properties classified as residential;

g) Land for construction, over which the assessments of Stamp Tax at issue were imposed, do not fall within the scope of item 28.1 of the TGIS;

h) The assessment in question is illegal, by violation of the provisions of that item, and unconstitutional, by violation of the principles of taxation according to contributive capacity and equality.

The Applicant attached three (3) documents and did not call any witnesses.

In the request for arbitral decision, the Applicant chose not to designate an arbitrator, thus, in accordance with the provisions of article 6º no. 1 of the RJAT, the undersigned was designated by the Ethics Council of the Centre for Administrative Arbitration, with the appointment accepted in accordance with legal requirements.

The arbitration tribunal was established on 2 October 2014.

Duly notified in accordance with the provisions of article 17º of the RJAT, the Respondent presented its answer, alleging in summary that, for purposes of the application of item 28.1 of the TGIS, land for construction is equivalent to properties with residential dedication.

It concludes by petitioning for the dismissal of the claim and, consequently, the maintenance of the assessment acts at issue.

The Respondent did not submit a copy of the administrative file and did not call any witnesses.

Given the position assumed by the parties and the absence of need for additional production of evidence, the hearing referred to in article 18º of the RJAT was dispensed with, as well as the submission of closing arguments.

II. QUESTIONS TO BE DECIDED:

In the present proceedings, the questions to be decided are:

a) To determine whether, for purposes of the application of item 28.1 of the TGIS annexed to the CIS, in the version given by Law no. 55-A/2012, of 29 October, land for construction is considered as real property with residential dedication;

b) To determine whether the legal requirements necessary to acknowledge the Applicant's right to be compensated for costs to be incurred with the provision of a guarantee with a view to the suspension of tax enforcement proceedings are met.

III. FACTUAL MATTERS:

a. Proven Facts:

With relevance for the decision to be rendered in the present proceedings, the following facts were established as proven:

  1. Registered in the property register in favor of the Applicant: i) the urban property located at ... and ..., Lot ..., ..., parish of ..., municipality of Amadora, registered in the urban property register under article ...; and ii) the urban property located at Station ... and ..., Lot ..., ..., parish of ..., municipality of Amadora, registered in the urban property register under article ...;

  2. The properties referred to in 1 are two pieces of land for construction, with taxable patrimonial value of, respectively, € 1,355,765.97 and € 1,361,557.03;

  3. On 18/01/2014, the Tax Authority assessed, under item 28.1 of the TGIS annexed to the CIS, stamp tax on the two properties referred to in 1, relating to the year 2012;

  4. The Applicant was notified of the single payments to be made, in the amount of, respectively, € 13,557.66 and € 13,615.57, of the IS assessed by the Tax Authority.

b. Unproven Facts:

With interest for the proceedings, there is no factual matter left unproven.

c. Substantiation of the Factual Matters:

The conviction regarding the facts established as proven was based on the documentary evidence submitted by the Applicant, indicated with respect to each point, whose authenticity and correspondence to reality was not questioned by the Respondent.

IV. PROCEDURAL VERIFICATION:

The Arbitration Tribunal is duly constituted and is materially competent.

The parties enjoy judicial personality and capacity, are legitimate and are duly represented.

The proceedings do not suffer from defects that affect their validity, there being no exceptions or preliminary issues that prevent consideration of the merits and that it is necessary to address ex officio.

V. ON THE LAW:

The factual matters being established, it is now necessary, by reference to those matters, to determine the applicable law.

The Applicant invokes that land for construction cannot be considered, for purposes of subjection to IS, as real property with residential dedication.

In its understanding, the provision of item 28.1 of the TGIS annexed to the CIS does not permit any extensive interpretation, such that land for construction could be equated with real property with residential dedication, and thus such item 28.1 is not applicable thereto.

To the contrary, the Respondent alleges that the properties on which the assessments at issue are imposed have the legal nature of real property with residential dedication, suffering from no illegality or unconstitutionality.

As to the objective scope of taxation, article 1º no. 1 of the CIS provides that stamp tax applies to all acts, contracts, documents, titles, papers and other facts or legal situations provided for in the General Table.

Article 4º of Law no. 55-A/2012, of 29 October added to the TGIS, annexed to the CIS, approved by Law no. 150/99, of 11 September, item no. 28, with the following wording:

"28 - Ownership, usufruct or right of superficies of urban real property whose taxable patrimonial value as recorded in the property register, in accordance with the Municipal Tax on Real Property Code (CIMI), is equal to or greater than € 1,000,000 - on the taxable patrimonial value used for IMI purposes:

28.1 - For real property with residential dedication - 1%;

28.2 - For real property, when the tax subjects that are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, as listed by order of the Minister of Finance - 7.5%."

That said,

In item 28.1 of the TGIS added by Law no. 55-A/2012, of 29 October, an innovative concept was used, which is not used by any other tax legislation: the concept of real property with residential dedication.

Not even in the CIMI, indicated by the aforementioned Law no. 55-A/2012 as a diploma of subsidiary application with respect to the tax introduced by the addition of item 28 to the TGIS, is any such concept defined.

Indeed, the CIMI defines the concept of real property, defines the various types of real properties and identifies the species of urban real properties.

Thus,

In accordance with article 2º of the CIMI, "real property is any fraction of territory, including waters, plantations, buildings and constructions of any nature incorporated or resting thereon, with a character of permanence, provided it forms part of the assets of a natural or legal person and, under normal circumstances, has economic value."

Real properties are divided into rustic (article 3º), urban (article 4º) or mixed (article 5º), with urban real properties subdivided into 4 species: residential, commercial, industrial or service; land for construction and others (article 6º).

No. 3 of article 6º of the CIMI clarifies that are considered land for construction "the land situated within or outside an urban settlement, for which a construction or subdivision license or authorization has been granted, prior notification admitted or favorable preliminary information issued for a subdivision or construction operation, and also those which have been declared as such in the acquisition title."

By combining the aforementioned provisions, it is verified that in none of the indicated rules is there any reference to real property with residential dedication.

Therefore, to determine what is real property with residential dedication must be done through an exercise of interpretation, resorting to the general rules of legal hermeneutics contained in article 9º of the Civil Code.

Thus, the interpretative activity must begin with analysis of the letter of the law, which constitutes the limit of interpretation, and no interpretation can be considered that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed.

Now, as results from the legal provisions already cited, the concept of real property with residential dedication is absolutely innovative in the CIS, not existing in any other tax law.

The nearest concept is that of "residential real property," defined in no. 2 of article 6º of the CIMI as the building or construction licensed for such purpose or, in the absence of a license, which has as its normal destination this purpose.

The truth, however, is that the legislator, in item 28.1 of the TGIS annexed to the CIS, did not use the expression "residential real property" but rather "real property with residential dedication."

Therefore, proceeding from the principle – which is taken as certain – that the legislator knew how to express itself in adequate terms, it cannot be argued that these distinct expressions have the same meaning. On the contrary, and through the application of the principles enshrined in nos. 2 and 3 of article 9º of the Civil Code, it must necessarily be maintained that, by using distinct expressions, the legislator intended to encompass different realities.

Let us attend, then, to the word "dedication," the noun of the verb "to dedicate."

This concept has been exhaustively analyzed by diverse and learned case law rendered by this arbitration center[1], such that we will refrain from dissecting this concept, accepting and maintaining that it consists in the action of destining something for a determined use.

Thus, real property with "residential dedication" will be that which is destined for habitation.

Indeed, the same conclusion is reached equally through a reconstruction of the legislative intent, taking into account the unity of the legal system, the circumstances in which the law was enacted and the specific conditions of the time in which it is applied, as imposed by the aforementioned article 9º of the Civil Code.

First and foremost, it is important to consider that the introduction of this item 28 in the TGIS occurred at a time when, given the absolute necessity to address the crisis that had arisen, it was imperative to raise as much revenue as possible, which it was intended to achieve, in particular, through the taxation of so-called "luxury" real properties.

It was intended, therefore, with the introduction of the taxation provided for in item 28 of the TGIS, to tax wealth, externalized in the ownership, usufruct or right of superficies of urban real properties "of luxury," with residential dedication.

That only real properties with residential dedication are included in this new taxation results clearly from the Statement of Reasons of Legislative Proposal no. 96/XII, in which it is stated that, in order to strengthen the "principle of social equity in austerity, ensuring an effective distribution of the sacrifices necessary to comply with the adjustment program," the legal diploma to be approved "broadens the taxation of capital and property income, equitably encompassing a broad set of sectors of Portuguese society."

Thus, it can still be read in the aforementioned Statement of Reasons that is "created a rate in Stamp Tax applying to urban real properties with residential dedication whose taxable patrimonial value is equal to or greater than one million euros" (emphasis ours).

Already in the context of the general discussion of the aforementioned legislative proposal, it can be read:

"First, the Government proposes the creation of a special rate to tax urban residential real properties of higher value. It is the first time in Portugal that a special taxation has been created on high-value properties intended for habitation. This rate will be 0.5% to 0.8%, in 2012, and 1% in 2013, and will apply to houses with value equal to or greater than 1 million euros" (emphasis ours).

There is no doubt, therefore, that the intention of the legislator was to tax houses, urban residential real properties, properties destined for habitation, that is, real properties that are already effectively destined for residential purposes.

Having established that the concept of "real property with residential dedication" is real property effectively destined for, dedicated to habitation, it is now important to analyze the effective scope of such concept. In other words, it is necessary to verify whether such residential dedication, for purposes of the application of the provisions of item 28.1 of the TGIS, must be present or may be future, that is, whether it will encompass only real properties that are already effectively dedicated to habitation or also real properties that, being land for construction, do not yet have any defined destination.

The distinction assumes special importance if we note that land for construction may be destined to construct, in the future, one or more dwellings, such that, if future dedications that may come to be given to the property are included in the concept of "residential dedication," it could, in this case, be argued that item 28.1 of the TGIS applies to land for construction.

This understanding, however, has no adherence whatsoever, in our view, to the letter and spirit of the law.

Indeed, analyzing the literal wording of item 28.1 of the TGIS it seems manifest that its application should be excluded from real properties whose destination is unknown, for these, manifestly and from any point of view, cannot be considered destined for residential purposes.

That is, not knowing the destination of the property in question, it could be destined for habitation, commerce, industry or services, and it is certain that item 28.1 will only be applicable to real properties with residential dedication and not to real properties with any other dedication, particularly economic.

In the case at hand, analyzing the proven facts, it is verified that the properties in question do not yet have any known destination, such that it is manifest that item 28.1 of the TGIS should not be applied.

But even if the properties in the present case already had a known destination, although not effective, and that destination were residential, they would not be encompassed by the application of item 28.1 of the TGIS.

This is because, from the combination of the rules contained in item 28.1 of the TGIS and no. 3 of article 6º of the CIMI, it results, without any margin for doubt, that the dedication must be effective and not merely future or probable.

In sum, land for construction whose destination is unknown, as is the case with the properties in the present proceedings, cannot be considered as real property with residential dedication for purposes of the application of item 28.1 of the TGIS annexed to the CIS.

Neither should it be said, as the Respondent does, that the legal identity, for purposes of the application of item 28.1 of the TGIS, between land for construction and real properties with residential dedication results clearly from the fact that the legislator determined the application to land for construction of the methodology of valuation of real properties in general.

It is true that article 45º of the CIMI determines the application to land for construction of the same valuation methods applicable to real properties in general.

However, it cannot fail to be noted that this identity is limited to the valuation methodology and not to its classification.

With respect to valuation, there is no doubt that the legislator requires the application of the same rules whether to land for construction or to residential real properties.

But as to the classification of the property, nothing in the law or in the general legislative intent permits us to conclude for the existence of such identity.

Indeed, as in our view is well stated in a judgment rendered by the Supreme Court of Justice, "it would be strange, moreover, that the determination of the scope of the rule of tax incidence of item no. 28 of the General Table of Stamp Tax were to be found, after all, in the rules determining the taxable patrimonial value of the Municipal Tax on Real Property Code, and that the terminological imprecision of the legislator in the wording of that rule were, after all, clarified and finally explained through an indirect and equivocal reference to the dedication coefficient established by the legislator with respect to built properties (article 41º of the Municipal Tax on Real Property Code)"[2].

For this reason, and following closely case law already established by this arbitration center[3], it must be concluded that "the interpretative elements available, including 'the circumstances in which the law was enacted and the specific conditions of the time in which it is applied,' point clearly in the direction that it was not intended to encompass within the scope of incidence of item 28.1 situations of properties that are not yet dedicated to habitation, in particular land for construction held by companies," as is the case in the present proceedings.

But not only has the case law of this arbitration tribunal pronounced itself in this sense. In judgments rendered very recently, the Supreme Administrative Court decided that "the legislator not having defined the concept of 'real properties (urban) with residential dedication,' and resulting from article 6º of the Municipal Tax on Real Property Code – subsidiarily applicable to the Stamp Tax provided for in the new item no. 28 of the General Table – a clear distinction between 'urban residential real properties' and 'land for construction,' these cannot be considered, for purposes of the incidence of Stamp Tax (Item 28.1 of the TGIS, in the version of Law no. 55-A/2012, of 29 October), as urban real properties with residential dedication"[4].

And that this is so results clearly from the fact that, in the last amendment made to item 28.1 of the TGIS annexed to the CIS, by Law no. 83-C/2013, of 31 December, which approved the State Budget for 2014, land for construction was here expressly included. Note, however, that even with this amendment, not all land for construction is subject to taxation by virtue of the application of item 28.1 of the TGIS annexed to the CIS, but only and solely land for construction whose construction, authorized or planned, is for habitation.

Not being the aforementioned State Budget Law 2014 any interpretive law, it seems evident that, if the legislator felt the need to include in this item 28.1 land for construction, it is because previously such land was not included therein.

Any other interpretation of item 28.1 of the TGIS annexed to the CIS, in the version given by Law no. 55-A/2012, of 29 October, has not the slightest legal support, and cannot be defended.

It is thus verified that the assessment in question in the present proceedings is clearly illegal, having no legal foundation or support.

Thus, as item 28.1 of the TGIS annexed to the CIS, in the version given by Law no. 55-A/2012, of 29 October, does not include land for construction, nor can these be classified, for this purpose, as real properties with residential dedication, it seems evident that these cannot be subject to taxation under this item.

Therefore, there being no legal foundation for the assessment acts carried out, their annulment tout court is imperative.

Having said this, it remains to address the question related to the condemnation of the Respondent to acknowledge the Applicant's right to be compensated for costs that it may incur with the provision of a bank guarantee with a view to the suspension of tax enforcement proceedings.

Now, as results from the provision of no. 1 of article 53º of the General Tax Law (LGT), "the debtor who, to suspend execution, offers a bank guarantee or equivalent shall be compensated in whole or in part for the damages resulting from its provision, if he has maintained it for a period exceeding three years in proportion to the term of administrative appeal, administrative challenge or opposition to execution that have as their subject the debt guaranteed."

From the foregoing it is clear that the right to such compensation for damages at the base not only involves the institution of a tax enforcement proceeding but also the inherent provision of a guarantee as a consequence of the institution of that same proceeding.

Analyzing the proven facts, it results, however, that the Applicant did not prove the institution of any enforcement proceeding as a result of the non-payment of the single stamp tax payments of which it was notified.

Indeed, neither the institution of such a proceeding nor the provision of a guarantee with a view to its suspension were even alleged by the Applicant, limiting itself in this respect to invoking that, in order to suspend the tax enforcement proceedings, it will provide a bank guarantee.

As the institution of any tax enforcement proceeding is not proven in the present proceedings, this tribunal cannot condemn the Tax Authority to acknowledge the Applicant's right to be compensated for costs that it may incur with the provision of any guarantee.

The institution of a tax enforcement proceeding against the Applicant, due to the non-payment of the tax payments here at issue, is, at this time, an uncertain fact, and the tribunal cannot decide based on a factual framework that on the present date does not exist and is not known whether it will exist or not, being, currently, nothing more than a mere hypothesis.

Moreover, even if any tax enforcement proceeding were to be instituted due to non-payment of the tax in question in the present proceedings, the verification of the prerequisites on which the law makes the Applicant's right to be compensated for costs that it may incur with the provision of any guarantee dependent will have to be analyzed at that time and not now.

In these terms, the tribunal cannot condemn the Respondent to acknowledge the right sought by the Applicant.

VI. OPERATIVE PART:

In light of the foregoing, it is decided:

a) to grant the petition for a declaration of illegality of the acts of assessment of Stamp Tax in the total amount of € 27,173.23, with the consequent annulment thereof and of the payment notices issued;

b) to dismiss the petition for the condemnation of the Respondent to acknowledge the Applicant's right to be compensated for costs to be incurred with the provision of a guarantee.

The value of the case is set at € 27,173.23, in accordance with paragraph a) of no. 1 of article 97º-A of the Code of Tax Procedure and Process, applicable by virtue of paragraphs a) and b) of no. 1 of article 29º of the RJAT and of no. 2 of article 3º of the Regulation of Costs in Tax Arbitration Proceedings.

The arbitration fee is set at € 1,530.00, in accordance with Table I of the Regulation of Costs of Tax Arbitration Proceedings, as well as the provisions of no. 2 of article 12º and of no. 4 of article 22º, both of the RJAT, and of no. 3 of article 4º of the aforementioned Regulation, to be paid by the Respondent as the unsuccessful party.

Register and notify.

Lisbon, 30 March 2015.

The Arbitrator,

Alberto Amorim Pereira

Text prepared by computer, in accordance with no. 5 of article 131º of the Code of Civil Procedure, applicable by reference of paragraph e) of no. 1 of article 29º of Decree-Law no. 10/2011, of 20/01, its wording governed by ancient orthography.

[1] See, inter alia, the decisions rendered in the course of proceedings 48/2013-T; 50/2013-T and 132/2013-T, all available at www.caad.org.pt.

[2] Judgment of 09/04/2014, proceeding no. 1870/13, available at www.dgsi.pt.

[3] Proceeding no. 53/2013-T, available at www.caad.org.pt.

[4] Judgments of 23/04/2014, proceeding no. 0272/14, and of 09/04/2014, proceedings nos. 1870/13, already cited, and 48/14, all at www.dgsi.pt.

Frequently Asked Questions

Automatically Created

Does Verba 28.1 of the Portuguese Stamp Tax Table apply to building land (terrenos para construção)?
The central issue in Process 553/2014-T is whether Verba 28.1 of the TGIS applies to building land (terrenos para construção). The applicant argued that building land does not constitute property with residential dedication and therefore falls outside the scope of item 28.1. Building land is a distinct category from completed residential properties. The Tax Authority argued that building land should be equated with residential property for Stamp Tax purposes under this provision. The tribunal had to interpret whether the statutory requirement of 'residential dedication' encompasses undeveloped land designated for future construction.
What are the three requirements for taxation under Verba 28.1 of the TGIS?
Three cumulative requirements must be met for taxation under Verba 28.1 of the TGIS: (1) ownership, usufruct, or right of superficies over urban real property; (2) the property must have residential dedication (afetação habitacional); and (3) the taxable patrimonial value recorded in the property register for Municipal Property Tax (IMI) purposes must equal or exceed €1,000,000. All three elements must be present for the 1% Stamp Tax to apply. In Process 553/2014-T, the dispute centered on the second requirement—whether building land possesses the requisite residential dedication.
Can building land be classified as having a housing purpose for Stamp Tax purposes?
The classification of building land as having housing purpose for Stamp Tax under Verba 28.1 was heavily contested in Process 553/2014-T. The applicant maintained that building land (terrenos para construção) cannot be considered as having residential dedication because it is unbuilt land awaiting development, constituting a legally distinct category from residential properties. The concept of 'real property with residential dedication' introduced by Law 55-A/2012 was unprecedented in Portuguese tax law and not defined in the Municipal Property Tax Code (CIMI) or other legislation. This ambiguity created interpretive difficulties regarding whether future intended use could satisfy the residential dedication requirement for undeveloped land.
How does CAAD Process 553/2014-T address the constitutionality of Stamp Tax on building land?
Process 553/2014-T raised constitutional challenges to the Stamp Tax assessment on building land under Verba 28.1 of the TGIS. The applicant alleged the assessment violated constitutional principles of taxation according to contributive capacity (capacidade contributiva) and equality. The argument suggested that taxing building land—which generates no income and may represent unrealized potential value—fails to respect the principle that taxation should correspond to actual economic capacity to pay. Additionally, treating building land identically to income-generating or utilized residential property potentially violates horizontal equity principles by imposing the same tax burden on fundamentally different property categories with different economic characteristics.
What is the minimum property tax value threshold for Stamp Tax under Verba 28.1 TGIS?
The minimum property tax value threshold for Stamp Tax under Verba 28.1 of the TGIS is €1,000,000 (one million euros). This threshold applies to the taxable patrimonial value (valor patrimonial tributável) as recorded in the property register in accordance with the Municipal Property Tax Code (CIMI). In Process 553/2014-T, both properties exceeded this threshold with values of €1,355,765.97 and €1,361,557.03, resulting in Stamp Tax assessments of €13,557.66 and €13,615.57 respectively, calculated at the 1% rate specified in item 28.1 for properties with alleged residential dedication.